Tenacity Investments Pty Ltd v Ku-ring-gai Council

Land and Environment Court (NSW)|2007-07-27|Before: Biscoe J, Mr P

CITATION : Tenacity Investments Pty Ltd v Ku-ring-gai Council [2007] NSWLEC 535

APPLICANT: Tenacity Investments Pty Ltd

FIRST RESPONDENT: Ku-ring-gai Council

THIRD RESPONDENTS: Vicki and Daniel Ming

FOURTH RESPONDENT: Peter Dobrijevic

FIFTH RESPONDENT: Yvonne Forsyth

PARTIES : SIXTH RESPONDENTS: Ivan and Janet Lum

SEVENTH RESPONDENTS: John and Virginia Hill

EIGHTH RESPONDENTS: Christopher and Aini Wong

NINTH RESPONDENTS: Patrick Lee and Liza Lam

TENTH RESPONDENT: Marina Brun-Smits

ELEVENTH RESPONDENTS: Gavin and Lynn Hucker

TWELFTH RESPONDENT: Steven and Gum You; Kwok and Sylvia Ng

KEY ISSUES: Costs :- security for costs - factors relevant to exercise of discretion to order security for costs - whether security for costs should be rewarded and if so in what amount - whether risk that applicant would not be able to pay costs if respondent obtains costs order

LEGISLATION CITED: Land and Environment Court Act 1979 s 40

Byrnes v John Fairfax Publications Pty Ltd [2006] NSWSC 251; CASES CITED: Owners Strata Plan 13635 v Ryan [2006] NSWSC 342; Pasade Holdings Pty Ltd v Sydney City Council (2003) 12 BPR 22,441, [2003] NSWSC 913; Property Partnerships Pacific Pty Ltd v The owners of Strata Plan 58482 [2006] NSWLEC 709;

APPLICANT: Mr T Sattler (solicitor) SOLICITORS: Sattler & Associates

FOURTH RESPONDENT: LEGAL REPRESENTATIVES: Mr P Dobrijevic (in person) SOLICITORS: N/A

TENTH RESPONDENT: Mr M R Petrucco (solicitor) SOLICITORS: The Argyle Partnership

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

EX TEMPORE JUDGMENT 1 HIS HONOUR: This is a notice of motion by the tenth respondent seeking orders that the applicant in the proceedings, Tenacity Investments Pty Limited (Tenacity), provide security for the costs of the tenth respondent in the sum of $50,000 by way of payment into Court or by bank guarantee, and that the proceedings be stayed until such security is given.

2 In the substantive proceedings Tenacity seeks orders pursuant to s 40 of the Land and Environment Court Act 1979, which would amend a public drainage easement over land at Pymble, which it seeks to develop with others, and to create a number of easements over properties belonging to the respondents. An applicant on an application under s 40 is prima facie liable to pay the costs of the proceedings subject to any order of the court to the contrary. Section 40(8) provides: The costs of the proceedings, in so far as they relate to an order sought or made under this section, are payable by the applicant for the order, subject to any order of the Court to the contrary. 3 The principles concerning the circumstances in which that prima facie entitlement to costs may change were considered by me in Property Partnerships Pacific Pty Ltd v The owners of Strata Plan 58482 [2006] NSWLEC 709 at [85] - [89].

4 The proceedings have reached the stage where, after a significant interlocutory contest relating to hydrology issues, a court appointed expert has been appointed to prepare a statement of evidence regarding valuation issues. The report of that expert has not yet been delivered. It has the potential to resolve the issue of compensation between the parties; although, as recently as last week, it was indicated by Tenacity's legal representative that, if Tenacity is dissatisfied with the expert's assessment, it may seek leave to call additional evidence.

5 On 25 June 2007 the tenth respondent's solicitors, The Argyle Partnership, wrote a letter to Tenacity's solicitor, Sattler & Associates, as follows: We have conducted a search of the Australian Securities and Investment Commission ( ASIC ) records in relation to your client Tenacity Investments Pty Limited ( Tenacity ). That search reveals that Tenacity has issued share capital of $200 at $1 per share. Furthermore, we note that the Investec Bank (Australia) Limited holds a registered fixed and floating charge over Tenacity. In addition searches of the records of the Land and Property Information department reveals that your client has an interest as tenant in common, in three properties, each of which are encumbered to Investec Bank (Australia) Limited.

Given the minimal issue share capital together with the encumbrances of a registered charge, and the mortgaged properties raises serious concerns as to your client's ability to meet any payment or order to pay costs should the Court find in favour of our client.

In order for our client to determine whether an application for Security for Costs is required, as a matter of urgency, would you please forward to us a copy of the financial statements requested below. Further, please confirm that your client can pay any costs orders and compensation to our client if an easement is granted to your client by the Court.

Accordingly, please forward to us, within 7 days, a copy of:

any Financial statements and supporting documents of Tenacity Investments Pty Limited, including but not limited to management accounts, balance sheets profit and loss statements, a copy of all bank account statements for the period 1 July 2006 to date; and
Any Financial statements of Tenacity Investments Pty Limited including but not limited to balance sheets Profit and Loss Statements and tax returns and assessments for the financial years ending 2005 and 2006.

Please note, in the event that we do not receive the above documents or a satisfactory response within 7 days from today, we hold instructions to make a Security for Costs application to the Land and Environment Court pursuant to Section 69(3) of the Land and Environment Court Act including costs.

6 The information sought in the letter was not forthcoming.

7 On 4 July 2007 the tenth respondent's solicitors wrote to Tenacity's solicitors, noting that they had not received a response to their letter of 25 June 2007, and stating that in the absence of Tenacity providing financial or accounting documentation establishing its solvency they were instructed to approach the Court to make a security for costs application and intended to do that on 10 July 2007.

8 On 10 July 2007 Tenacity's solicitors replied as follows: We refer to your letters dated 25 June 2007, 4 July 2007 and our conversation Friday 6 June 2007 at the Land & Environment Court, where you expressed that it would be preferable to resolve the issue of the solvency of our client and the possible liability regarding costs/compensation, between ourselves without the necessity of raising the question before the Court pursuant to a Notice of Motion.

In response to the above correspondences, we ask you to note the following:

The 4th respondent has previously undertaken unlawful actions attempting to disrupt my client's business dealings including but not limited to contacting the debt funding bank on the Pymble project and trying to get them to withdraw funding from the project. This attempt was of course unsuccessful.
The 4th respondent has raised the issue of security of costs, in front of a judge of the Court on two separate occasions through this process, in both instances his request has been unsuccessful. It is likely that any further attempts to bring this issue before the Court will be met with a defence that it is issue estopped.
The primary issue of share capital of the applicant does not with respect give rise to any essential need to question the issue of solvency, the company is a private company not a listed one and like 90% plus of private companies issued share capital shows nothing more than division of ownership. The guarantees and charges noted are normal practice for property development loans.
The breadth and depth of information requested in your letter of 25 July goes far beyond any possible purpose of discovering the applicants ability to pay any costs that may be awarded and/or compensation (if any is awarded), if anything the information requested raises immediate concerns as to what ulterior motive lies behind the request. We understand that to date you have made a number of ASIC and LPI searches in regard to Tenacity Investments and have discovered that not only does Tenacity have an ownership interest in the Pymble properties but also owns other development sites that are awaiting construction pursuant to Land & Environment Court development consents for mixed use retail/commercial and medium density development and other property. If there was any question as to Tenacity's solvency the banks would be calling in the respective loans immediately - despite attempts by the 4th respondent they are not doing this.

Further you do have the ability to obtain through ASIC, Tenacity's Directors Statements as to the solvency of the Company. Enquiries with credit ratings agencies will show that Tenacity has a clean credit record.

Given points 1 to 4 above, we are not prepared to provide the listed documents as set out in your letter as it may be possible and it certainly seems highly likely, that the information would be intended to be used to damage Tenacity and the progress of the development.

Tenacity, has substantial ownership interests in the respective development site and other development sites and property and has a clean credit record. We do not see any logic in providing security for costs and/or compensation. If cost and/or compensation are ultimately awarded to your client they would be paid when due and would not be allowed to become a stumbling block to the progress and completion of the development. Any costs and/or compensation would be a very minor issue in a commercial sense compared to the completion of the development as a whole.

We do not see that your client has any reason to question the applicant's solvency, if anything your investigations have uncovered more financial strength than you otherwise might have considered to be the case prior to your investigations.

We trust you will understand, given the history of the matter that Tenacity does not wish to provide further opportunities for respondents to interfere with its legitimate business undertakings which may result in Tenacity having to pursue new litigation on other matters. We remain most interested in meeting with your client or yourselves on his behalf on a confidential basis to try to negotiate a resolution to the matter of the drainage of the development site - Please phone Tony Sattler of this office on 9939 1852 if your wish to discuss the matter further.

9 On 24 July 2007 the tenth respondent served a notice to produce on Tenacity by its solicitor, which required production of: (a) Tenacity's financial statements, including but not limited to management accounts, balance sheets, profit and loss statements for the period 1 July 2006 to date; and (b) a copy of Tenacity's financial statements including but not limited to balance sheets, profit and loss statements and tax returns for the financial years ending 30 June 2005, 30 June 2006 and 30 June 2007.

10 The notice to produce was called upon before me this morning. No documents were produced. I was informed by Tenacity's solicitor, who appears for Tenacity today, that the notice to produce has been brought to the attention of Tenacity and that his instructions were that there had been a communication between Tenacity and its accountants in that regard. However, no further light was cast upon why those documents were not produced, except it was said that Tenacity had only had three days notice between service and today. Some concern was also expressed about the confidentiality of such documents and about a risk of their being used for an improper purpose. Such a risk, if it exists, is in my view irrelevant to the obligation to produce the documents to the Court. It may be relevant, if it has substance, to whether terms as to confidentiality should be imposed upon respondents who are granted leave to inspect documents. 11 The evidence establishes the following. Tenacity has an issued share capital of $200 at $1 per share. Tenacity has two shareholders, Mr Jonathon Poole and Ms Barbel Poole. Tenacity has a one-tenth interest in the development site at Pymble. The other nine-tenths interest is owned by Everton Street Developments Pty Limited, which is not a party to these proceedings. Tenacity also has approximately a one-tenth interest in property at Harbord, the remaining interest in which is shared between two other corporate entities. These properties are mortgaged to Investec Bank (Australia) Limited. There is a registered charge in evidence from Tenacity to Investec Bank (Australia) Limited dated 3 August 2006. The charge is over the whole of the undertaking property and assets of Tenacity, both present and future, and includes any part of such assets and any property held at any time by it as trustee of a trust. The priority amount under the charge is 50 million dollars. The documents should have been produced to the Court.

12 In this state of the evidence, including Tenacity's failure to produce documents, I infer that there is a risk that if the tenth respondent is successful in obtaining a costs order in its favour, Tenacity would not be able to pay those costs.

13 There was tendered by Tenacity an exchange of emails dated 7 March 2007 between Tenacity's solicitor and Mr Leo Smits, who I am informed is the husband of the tenth respondent. Tenacity's solicitor in this exchange attached a draft instrument under s 88B of the Conveyancing Act 1919 (NSW) that would provide the benefit of the proposed easement to relevant landowners and the local council. Mr Smits' response was that he had put it all in the hands of solicitors who would get in touch with Tenacity's solicitors. He also said that if the document provided by Tenacity's solicitors was okay "there will be three other things: compensation, costs and extinguishment of the old easements - all of which can be resolved by [Mr Jonathon Poole] putting his cheque book to good use". Tenacity submits that this evidences a lack of good faith on the part of the tenth respondent, which I should take into account on this application for security for costs. I am unable to read into Mr Smits' email a basis for concluding that there is a lack of good faith. 14 In Byrnes v John Fairfax Publications Pty Ltd [2006] NSWSC 251 at [24], Simpson J said: In Morris v Hanley [2000] NSWSC 957 Young J (as the Chief Judge then was) distilled the principles derived from the authorities as indicating the factors relevant to an application to exercise the inherent power to order security for costs as including the following: (a) whether the plaintiff's claim is bona fide and not a sham;

(b) whether the plaintiff has a reasonably good prospect of obtaining the orders he or she seeks;

(d) whether the plaintiff has a want of assets and how this was brought about;

(e) whether there is anyone standing behind the plaintiff who might benefit from the action but who is unwilling to contribute to the risk involved in the action; and

He expressly noted that this list is non-exhaustive, and that an additional question is whether the plaintiff's action is harassing and vexatious. (There is no suggestion in the present case that any of the plaintiff's defamation claims is harassing or vexatious; in relations to proceedings numbered 20465 and 20047, in the light of the jury verdicts, this could hardly be put.)

15 On the material before me, there is no basis for saying that an order for security would bring the proceedings to an end, nor was that suggested.

16 I have indicated that Tenacity's assets are encumbered and that there is a risk to the tenth respondent of not having its costs paid, if it were to obtain an order for costs. There are those standing behind or next to Tenacity who might benefit from the substantive proceedings, namely its co-owners in the proposed development and its shareholders, who have shown no apparent willingness to contribute to the risk of costs involved in the action. There has been some delay by the tenth respondent in bringing this notice of motion, but insufficient in my view for that to be a disqualifying consideration.

17 The proceedings were commenced in August of 2006. Therefore, it cannot be said that the application for security has been brought promptly. That is mitigated to an extent by the fact that there was a mediation in March 2007 which, however, was unsuccessful.

18 Tenacity submits that there should be taken into consideration that the issue of security for costs has been raised previously in the proceedings at an interlocutory mention before Jagot, J on 26 October 2006. I have been handed a copy of part of the transcript of the proceedings on that day, and my attention has been drawn to page 9. The transcript shows that another respondent, not the tenth respondent, informed her Honour of his proposal that Tenacity should put money into a firm of solicitors that he named, so that they could provide legal help to him in negotiating a settlement. Naturally, her Honour did nothing about that proposal which did not even constitute an application for security for costs. Such an application could, of course, only be made through the appropriate procedure of a notice of motion. Moreover, it was not something which fell from the tenth respondent. I do not regard it as bearing on the issues or my discretion on the current notice of motion.

19 Tenacity submits, correctly, that there are two main issues. First, should security for costs be ordered at all? Second, if so, in what amount? As to the first issue my attention was drawn to two cases: Owners Strata Plan 13635 v Ryan [2006] NSWSC 342 at [7], [14] and [33] and Pasade Holdings Pty Ltd v Sydney City Council (2003) 12 BPR 22,441, [2003] NSWSC 913, particularly at [12], [13] and [17]. Those cases were not concerned with applications for security for costs. They were concerned with grants of an easement under the provisions of the Conveyancing Act 1919. In particular they were concerned with the costs which should be ordered following trial and judgment in those proceedings. Tenacity submits that those cases bear a similarity with the present case and that the respondents may not obtain an order for costs or, if they do, that the amount of the costs may be quite modest. Indeed, Tenacity indicates that at the conclusion of these proceedings, it intends to ask for a costs order against the local council, which is the first respondent, and some of the other respondents including the tenth respondent, on the basis that they have contributed to unnecessary prolongation of the matter. I am unable to form an assessment at this interlocutory stage of whether there is any substance in these submissions.

20 In my opinion, this is an appropriate case to order security for costs, in all the circumstances to which I have referred.

21 As to quantum, the security sought relates only to future costs. The costs which the tenth respondent estimates for the future conduct of the matter total $58,400. Of those costs, a little over $20,000 are attributable to senior counsel. However, it was frankly acknowledged before me that senior counsel has not yet been briefed and that the briefing of senior counsel remains only a possibility. In those circumstances, I will not on this application, make any allowance for senior counsel's costs. Nor for solicitors' costs relating to briefing senior counsel.

22 Tenacity agrees that a one day hearing would be sufficient. The tenth respondent does not seek security for costs of the hearing going beyond one day.

23 Tenacity generally submits that the costs estimates put forward by the tenth respondent are far too high and that the case of Pasade, in particular, would suggest that some care should be exercised in not proceeding upon the assumption that the respondents, if they obtained an order for costs, would be entitled to an amount of costs which would be other than relatively modest and less than that which has been estimated by the tenth respondent.

24 In my view, apart from the matter of costs relating to senior counsel, the cost estimates seem reasonable. I propose to order security for costs in the sum of $30,000 on a rolling basis.

ORDERS 25 I make the following orders, which the parties to the motion have agreed are appropriate in light of my above reasons for judgment.

(1) The applicant, Tenacity Investments Pty Limited, is to provide security for the costs of the tenth respondent in the sum of $30,000 by bank guarantee or by payment into a bank account in the joint names of the solicitors for the applicant and the tenth respondent or in such other form as the applicant and the tenth respondent may agree in writing, in instalments as follows: (a) $10,000 on or before 10 August 2007 (b) $10,000 on or before 31 August 2007 (c) $10,000 three weeks before the date the matter is fixed for hearing. (2) If the applicant defaults in providing such security as aforesaid, these proceedings are stayed until further order. (3) Liberty to apply on three days notice. (4) The costs of the tenth respondent's notice of motion filed on 13 July 2007 are reserved. (5) The exhibits on the notice of motion may be returned.

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.

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