Regional Architects Pty Ltd v Coffs Harbour City Council

Evidence

1. In the hearing of the Notice of Motion, the Council relied upon the affidavit of Ms Jane Elizabeth Hewitt sworn 27 August 2021. Ms Hewitt annexed to her affidavit searches of Regional Architects, such searches demonstrating that Regional Architects have no real estate assets. Further, her affidavit appended an affidavit sworn by the director of Regional Architects, Mr Stevens sworn 12 February 2021 wherein he deposed at [6] and [7]: 6. I have three businesses that I derived income from: Regional Architects Pty Ltd; Red Factory Australia Pty Ltd (Red Factory); Regional Ethical Development - Community Pty Ltd (RED C). 7. All three businesses have been severely impacted by the COVID 19 Pandemic, particularly the June quarter lockdown period. We are currently attempting to trade our way out of these difficulties.
2. Ms Hewitt's affidavit further annexed the affidavit of the previous legal advisor to Regional Architects, Ms Nikki Stuart Gibson sworn 11 February 2021 wherein she deposed that: 7. Mr Stevens was unable to raise sufficient funds to place in trust for me to instruct Counsel to act in this Notice of Motion on his behalf. … 9. In order to clear the path for Mr Stevens to seek an alternative financial arrangement directly with Counsel, I withdrew as solicitor on record with the consent of Mr Stevens.
3. Ms Hewitt also deposes that in her expectation, informed by her many years as a solicitor practising in the jurisdiction, that the hearing of the substantive appeal in these proceedings will require the Council to incur costs in the order of $240,300.10. Correspondence was also tendered indicating requests for Mr Stevens, as director of Regional Architects, to provide evidence of the company's capacity to pay such a sum in the event that costs were ordered against it in the appeal. The evidence discloses that no reply to such requests was forthcoming.
4. At an earlier mention of the current appeal it was indicated to the Court that the "true" applicant in the matter was the landowner being a company known as Regional Ethical Development Coffs Coast Pty Ltd (Coffs Coast). The evidence adduced at the hearing indicates that the real estate of Coffs Coast is subject to an all properties charge. The value of the land the subject of the development application owned by Coffs Coast was not provided, nor was the quantum of any mortgage or charge. Therefore, the equity in the property is unknown.
5. Regional Architects adduced no evidence at the hearing of the Notice of Motion.

Legislative provisions

1. The Council seeks an order for security for costs pursuant to the provisions of s 1335(1) of the Corporations Act which provides: Costs (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until security is given.
2. Both parties agreed that the Council bore the onus of establishing by credible testimony that there was reason to believe the corporation would be unable to pay the costs of the Council and if so satisfied thereafter, the Court retained a discretion as to whether to make the order even if the evidence established an inability to pay.

Council's submissions

1. The Council relied upon the statement of relevant principles governing the order of security for costs under the Corporations Act as set out in Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd [2021] NSWCA 90 at [9] (Valmont) where McCallum JA found: As to the principles to be applied, Giorgio Armani relied on the decision in Treloar v McMillan [2016] NSWCA 302 at [9]-[15] (Beazley ACJ). Her Honour's judgment in that case provides a helpful and comprehensive summary of the relevant principles which, rather than attempting to paraphrase, I will set out in full: "An order for security for costs may be made against a corporation that is, relevantly, an appellant, if it appears by credible testimony that there is a reason to believe that the corporation will be unable to pay the costs of the respondent if the respondent is successful in opposing the appeal. The Court may require sufficient security to be given for those costs and stay all proceedings until security is given: the Corporations Act, s 1335(1); Pioneer Park Pty Ltd v Australia and New Zealand Banking Group [2007] NSWCA 344 at [20]. The principles governing the making of an order for security for costs under s 1335(1) are well established. Unlike the position where an application for security is made under UCPR, r 51.50, it is not necessary, under s 1335 that an applicant for security for costs demonstrate special circumstances for the making of an order: Pioneer Park at [22]. The test to be applied in determining whether an applicant has satisfied the jurisdictional requirements of s 1335 has been described as "undemanding": HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87 at [17]. In Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93, Maxwell P and Buchanan JA stated, at [15], that the phrase "reason to believe" in s 1335 "is the touchstone of jurisdiction. It requires a rational basis for the belief - and no more". See also HP Mercantile v Dierickx at [6]-[10]; Wollongong City Council v Legal Business Centre Pty Limited [2012] NSWCA 245 at [29]-[30]; Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 at [16]. In Livingspring v Kliger Partners their Honours further observed, at [15], that the section required the making of a risk assessment as to whether the corporation would be unable to pay, and that: "The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs." Relevantly, for the purposes of this case, their Honours stated, at [16], that the assessment that must be made under s 1335 is "a low threshold", reflecting the policy of the section, which is to protect a party against the risk of a corporation's impecuniosity. Maxwell P and Buchanan J stated, at [17], that the foremost consideration in determining whether to exercise the discretion conferred by s 1335 was whether "an order for security would work an injustice". Specific factors that have been identified in the authorities as relevant to the exercise of the discretion conferred by s 1335 include whether the applicant's conduct was the cause of the company's impecuniosity; and whether an order for security for costs would stifle the proceedings: KP Cable Investments Pty Ltd v Meltglow [1995] FCA 76; (1995) 56 FCR 189 at 196-197; Pioneer Park at [48]-[51]. The onus in proving that a party will be unable to pay costs ordered against it remains at all times on the party making the application: see Livingspring v Kliger Partners at [20]; HP Mercantile Pty Ltd v Dierickx at [11]. However, as discussed in Wollongong City Council v Legal Business Centre at [30], if a corporation who seeks to resist an order for security for costs, in circumstances where the applicant for security has established that there is reason to believe that the corporation will be unable to pay the costs of litigation if successful, contends that an order should not be made, for example, because it would stifle the litigation, there may be an evidentiary burden on the corporation to demonstrate that this is the case."
2. Having regard to the principles identified, the Council submitted that Regional Architects has no known assets of any substance. Regional Architects, the Applicant, is the company to which attention is to be paid. The searches of real estate ownership indicate no known assets and the statements of the director and the instructing solicitor indicate a lack of liquid assets. In addition, Regional Architects currently has a liability for the Council's costs pursuant to the Costs Judgment, which costs are not insubstantial.

Regional Architects' submissions

1. Regional Architects submitted that the evidence adduced by the Council in these proceedings provided an undetailed assessment of the financial position. There is no evidence as to the ownership of any assets other than real estate or income. The ownership of other assets is undisclosed.

Findings on credible evidence that Regional Architects will be unable to pay costs

1. I am satisfied that credible testimony has been provided that indicates that there is reason to believe that Regional Architects will be unable to pay the costs of the Council if it is successful in obtaining a costs order in these proceedings. As these proceedings are civil proceedings, the standard of proof required to achieve the satisfaction required by s 1335 of the Corporations Act is, in my view, to be upon the balance of probabilities. In this case, all public records available have been examined and such records indicate a lack of holding of real estate assets and that the company's value by way of shareholding is $10. Further, the current indebtedness of Regional Architects to the Council in a sum in the order of $180,606.20 (or such lesser amount determined on assessment) together with the previous evidence of the company's director that the company is presently not generating any significant income, satisfies me on the balance of probabilities that there is reason to believe that it will be unable to pay any future costs order.
2. I take into account the criticism by Regional Architects that the identification of other assets of a non-real estate or non-income-based variety has not been provided. However, I do not consider that this operates to sufficiently offset or diminish the available finding outlined above, such that I would not be satisfied that there is, on credible testimony, a reason to believe that Regional Architects would not be able to pay the costs of the Respondent in these proceedings if required to do so.

Council's submissions

1. The Council acknowledged that the current proceedings, being in Class 1 of the Court's jurisdiction were subject to the provisions of the Land and Environment Court Rules 2007 (NSW), r 3.7(2) which provides: The Court is not to make an order for the payment of costs unless the Court considers that the making of an order as to the whole or any part of the costs is fair and reasonable in the circumstances.
2. As such, in the exercise of the discretion required to be exercised in this Notice of Motion, the Court would need to be satisfied that there were circumstances that relate to these proceedings that would indicate that it would be fair and reasonable in the circumstances for the Court to make an order for costs. In that regard the Council submitted that the same deficiencies that led to the discontinuance of the first appeal were still present in the second appeal. The Council noted that Pain J in the Costs Judgment observed at [111]: The Applicant discontinued the appeal on 21 February 2020 because according to its counsel it did not consider it could undertake the necessary assessment of the proposed development within the timeframe of the hearing given the late information obtained about the extent of EEC.
3. Pain J further identified at [116]: The Council has established that the Applicant acted unreasonably in failing to provide adequate information in relation to the DA as referred to in r 3.7(3)(b) and in the conduct the proceedings as identified in r 3.7(r)(d).
4. And at [118]: The Council also relies on r 3.7(3)(f), that a party continues a claim where it did not have reasonable prospects of success. The Council referred to its offer to discontinue on the basis each party pays its own costs on 2 August 2019 yet the Applicant pressed on but ultimately discontinued the proceedings. There is merit in this submission given the history of the proceedings.
5. In this case, the Council contends that the Applicant in this appeal has provided no additional information relating to the matters identified by Pain J. Therefore, to enable an assessment of the extent of the endangered ecological community (EEC) the relevant consideration relating to EEC, being a necessary precondition to the exercise of any discretion to grant a development consent to the application is unlikely to be satisfied. Therefore, it is likely that, absent the material which was identified as being necessary in the first appeal, the second appeal will be unable to be approved. As a consequence, it is likely that it would be found to be fair and reasonable in the circumstances of the case that an order be made that Regional Architects pay the Council's costs of the second appeal.

Regional Architects' submissions

1. Regional Architects submitted that the decision in Valmont is to be distinguished as it related to an appeal from a decision made in substantive proceedings. In this case, there has been no decision in the substantive proceedings.
2. In the exercise of the discretion it is important that the no costs jurisdiction as provided for in r 3.7(2) is recognised. The Court could not be satisfied that it would be likely to be fair and reasonable in circumstances where a costs order is made in any event.
3. No inference should be drawn from the earlier discontinuance of the proceedings adverse to Regional Architects. The Costs Judgment related to the way the proceedings were conducted and the delay in providing documents rather than anything inherently deficient in the application.
4. To the extent that there is criticism that some of the reports that were tendered in the earlier proceedings have not formed part of the appeal in these proceedings, that situation will be remedied.
5. An important consideration in the exercise of discretion is that the making of an order for security for costs, and particularly in the quantum sought by the Council would stifle the litigation. As indicated in Valmont it is inappropriate to order security for costs where litigation will be stifled.

Findings on the exercise of discretion

1. I accept the Council's submissions that it is apparent from the Costs Judgment that the first appeal was discontinued to enable studies to be undertaken. Such studies have not been provided in this appeal. I also accept the evidence of Ms Hewitt, and accept the submissions of the Council, that the application which forms the current Class 1 appeal (in which this Notice of Motion is brought) suffers the same deficiency in respect to the reports identified by Pain J, particularly in so far as they relate to the EEC. As I am required to make a determination as to whether to exercise the discretion conferred by s 1335 of the Corporations Act at the time of the determination of the Notice of Motion, the suggestion by Regional Architects that it will cure the defect in the future is not compelling to offset this discretionary consideration. The Applicant in the Class 1 proceedings has filed an application which, on its own assessment, is inadequate.
2. Future conduct in relation to applications to amend and the like at this point in time are purely speculative. No evidence has been adduced that would permit a finding that the defects identified by Pain J and accepted by Regional Architects' counsel at the costs hearing had been rectified or would be forthcoming.
3. Accordingly, for those reasons, I am satisfied that there is a real likelihood that if the appeal went to hearing on the material currently filed there is a strong argument that it would be fair and reasonable in the circumstances that costs be awarded notwithstanding the operation of r 3.7(2) of the Land and Environment Court Rules 2007 (NSW).
4. It is generally recognised that the no costs rule in class 1 proceedings recognises the nature of such proceedings where the desirability that appeal should not be discouraged by the risk of a costs order. I do not consider, in the circumstances of this case, that such matters weigh in the context of the present appeal. In this regard I consider it particularly important to observe that the Applicant, Regional Architects, is not the owner of the land. It has no interest (apart from professional fees) in the outcome of the appeal. A development consent runs with the land and not for the benefit of the person who is the applicant for development consent. Accordingly, the company that has been nominated as the Applicant, Regional Architects, does not warrant the benefit of the underlying public benefit of the operation of r 3.7(2) in the same way as it would operate in the exercise of my discretion if it was the beneficiary of any future development consent.
5. With respect to the submission that the proceedings would be thwarted in the event the order was made, no evidence was adduced by the Respondent to make good that submission. As was observed in Valmont at [9] the evidentiary burden of establishing that it would stifle the litigation is to be borne by Regional Architects. I do not accept that a finding that Regional Architects will be unable to pay the costs of the Respondent in the event a costs order is made in these proceedings is necessarily evidence that the litigation will be thwarted. Absent any evidence I am unable to be satisfied that the litigation will be thwarted.
6. Accordingly, in the exercise of the discretion conferred by s 1335 of the Corporations Act, I consider it appropriate to make an order for the security of the Council's potential future costs.

Quantum of security

1. Ms Hewitt has outlined in her affidavit the manner in which she has assessed the potential costs to be incurred in connection with the running of the appeal. I accept that evidence. No submission was made by the Applicant that the quantum calculated by Ms Hewitt would be inappropriate if I were to determine that an order for security for costs should be made. Accordingly, the quantum of such security will be determined in accordance with that evidence.

Conclusion and orders

1. For the foregoing reasons, I find on credible testimony that there is reason to believe that Regional Architects will be unable to pay the costs of the Council if the appeal is dismissed and a costs order made against it. I am satisfied on the evidence adduced in this matter and having regard to the submissions made by both parties that it is appropriate to exercise my discretion to require the payment of security in the sum of $240,000.
2. The Court orders that 1. Pursuant to s 1335(1) of the Corporations Act 2001 (Cth), the Applicant is to provide security for costs in the sum of $240,000 within 21 days of this order. Such sums are to be paid into Court, or by way of provision of an irrevocable bank guarantee issued by an Australian bank and realisable on an order of the Court; 2. In the event of non-compliance with order (1) above, the proceedings are stayed until further order of the Court; 3. The Applicant is to pay the Respondent's costs of this Notice of Motion; and 4. The exhibits are returned. Parties are to collect the exhibits from my Associate within 7 days.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 September 2021