AHRKalimpa Pty Ltd v Schmidt (No 2)
[2018] VSC 68
•16 FEBRUARY 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMERCIAL COURT |
S ECI 2015 00459
| AHRKALIMPA PTY LTD (ACN 164 529 533) & ANOTHER | Plaintiffs |
| v | |
| ALAN HESSEL SCHMIDT & ANOTHER | Defendants |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 16 FEBRUARY 2018 |
DATE OF RULING: | 16 FEBRUARY 2018 |
CASE MAY BE CITED AS: | AHRKALIMPA PTY LTD v SCHMIDT (No 2) |
MEDIUM NEUTRAL CITATION: | [2018] VSC 68 |
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SECURITY FOR COSTS – Liability and quantum issues heard separately – Plaintiffs paid substantial security for costs – Plaintiffs successful in liability trial – Quantum issues not yet heard or determined – Plaintiffs seek release of security – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 62.05 – Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms K Brazenor | Holding Redlich |
| For the Defendants | Mr S Anderson QC and Mr C Northrop | Harwood Andrews Lawyers |
HIS HONOUR:
A. Introduction
This proceeding concerns a joint venture for the export of cattle to Israel by 3 individuals, Haim Bzezinski (“Bzezinski”), Danny Ruschin (“Ruschin”) (who were both associated with the plaintiffs) and Alan Schmidt (“Schmidt”), and their related entities. The plaintiffs, AHRKalimpa Pty Ltd (“AHRKalimpa”) and Kalimpa Pty Ltd (“Kalimpa”), allege that following the collapse of the joint venture relationship, the defendants, Schmidt and his company Otway Livestock Pty Ltd (“Otway Livestock”), appropriated the business of the joint venture to themselves.[1]
[1]The relevant facts and background are set out in AHRKalimpa Pty Ltd v Schmidt [2017] VSC 701 (“Liability Judgment”).
The trial was listed for hearing in early August 2017. Owing to a delay by the plaintiffs, expert evidence concerning quantum was not filed in time for trial. In order to the preserve the trial date, the court ordered that issues of liability be determined separately from issues of quantum in the proceeding.
All issues concerning liability were heard in the first half of August 2017 (“the Liability Trial”).[2] Judgment was delivered on 22 November 2017, substantially in favour of the plaintiffs. The plaintiffs have since reviewed the relevant business records and elected to seek equitable compensation, rather than an account of profits. The trial of the quantum issues is set down in April 2018 (“the Quantum Trial”).
[2]Some minor matters that also related to quantum were ultimately deferred.
Pursuant to orders made on 21 March 2016, 16 December 2016 and 7 July 2017, the plaintiffs provided security for the defendants’ costs totalling $405,000.
The plaintiffs now seek the release of their security, on the basis that they have been substantially successful in the Liability Trial and that the purpose of the security for costs “has now been exhausted”.
For the reasons set out below, the purpose of the security has not been exhausted. Accordingly, no orders as sought by the plaintiffs will be made at this point in time.
B. Background
B.1 Facts as determined
In brief, AHRKalimpa and Kalimpa were involved in a joint venture for the export of cattle, together with Schmidt and Otway Livestock. The joint venture was conducted through AHRKalimpa.
The joint venture completed 4 shipments of cattle to Israel (“Voyages 1 to 4”). Although the contracts for the shipments were not all executed by AHRKalimpa, it was common ground that Voyages 1 to 4 were conducted on its behalf. Despite protracted attempts, formal documentation for the joint venture was never completed, and the joint venture relationship broke down around November 2013.[3]
[3]Liability Judgment, [112]-[138].
Since then, Schmidt and Otway Livestock have completed further shipments of cattle to Israel. As at the time of the Liability Trial, a total of 17 voyages had been completed. It was common ground during the Liability Trial that, when viewed collectively, there has been a substantial profit made over the 17 voyages.
Without being exhaustive, the Liability Judgment found that:
(1) Schmidt unfairly took advantage of information which was confidential to the joint venture in order to continue to conduct the business of the joint venture through Otway Livestock.[4]
[4]Ibid, [219].
(2) Schmidt breached duties he owed as a director of AHRKalimpa, by:
(a) Planning to divert revenue, and ultimately profits, from AHRKalimpa to himself or his associated entities.[5]
[5]Ibid, [235].
(b) Putting in place steps by which he, through Otway Livestock, could take the business that was then being conducted by AHRKalimpa.[6]
[6]Ibid, [242].
(c) Using information which was confidential to the joint venture for these purposes.[7]
[7]Ibid, [242].
(3) By reason of Schmidt’s conduct, Otway Livestock breached fiduciary duties it owed to both Kalimpa and AHRKalimpa.[8]
[8]Ibid, [267].
(4) Otway Livestock is liable, as an accessory, for Schmidt’s breaches of his director’s duties.[9]
(5) Schmidt is liable, as an accessory, for Otway Livestock’s breaches of its fiduciary duties.[10]
[9]Ibid, [272].
[10]Ibid, [273]-[274].
Although substantially successful, AHRKalimpa and Kalimpa did not succeed on every issue. In particular, in closing submissions the plaintiffs, advisedly, decided not to pursue their contention that a binding joint venture agreement was concluded between the parties in or around June or July 2013.[11] Further, in the final result, several breaches of duty alleged against Schmidt could not be made out.[12]
[11]Ibid, [53].
[12]Ibid, [232], [233], [240], [246].
B.2 Issues remaining to be determined
There remain substantial issues to be determined in the Quantum Trial involving both the extent of the defendants’ liability and the actual amounts involved.
Although Schmidt or Otway Livestock has retained the proceeds of Voyages 3 and 4, the defendants contend that the plaintiffs are liable to account for significant losses made by the joint venture in respect of Voyages 1 and 2. Further, it is presently unclear whether the defendants are liable to account to the plaintiffs for all of the voyages conducted by them since the joint venture collapsed in November 2013, or only some of them.
Furthermore, as the joint venture agreement between the parties was never finalised, the amount of the plaintiffs’ entitlement to the proceeds of any of the voyages (including Voyages 1 to 4) remains unclear. In this context, although the draft joint venture documentation contemplated that Kalimpa would have a 66.6 percent share in the joint venture, it was also contemplated that Otway Livestock would perform management and export services for the joint venture pursuant to a “clearly defined contact” between AHRKalimpa and Otway Livestock.[13] The extent of any fees payable was never agreed.
[13]Ibid, [41], [255].
C. Legal principles
Rule 62.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) provides:
The Court may set aside or vary any order requiring a plaintiff to give security for costs.
It was common ground that this provides the court with an unfettered discretionary power to set aside an order requiring a plaintiff to give security for costs.[14]
[14]See, for example, GB Radio (Australia) Pty Ltd v Marchant (No 3) [2005] VSC 222, [21] (Hargrave J).
The plaintiffs contended that the relevant consideration is whether the purpose of the security for costs has been exhausted.[15] This is consistent with the relevant passage of Dal Pont’s Law of Costs, which provides: [16]
Case authority dictates that where a plaintiff pays money into court as security for the defendant’s costs of the action, and is successful in the action, assuming no order requiring a successful plaintiff to meet the defendant’s costs, the plaintiff is entitled to have that money paid out of court as soon as judgment is entered …
(Emphasis added.)
[15]Cf Texxcon Pty Ltd v Austexx Corporation Pty Ltd (No 2) (2013) 276 FLR 401, 409-410 [26]-[28] (Davies J); Ambridge Investments Pty Ltd (in liq)v Baker (No 2) [2010] VSC 234, [22], [28] (Vickery J); Lym International Pty Ltd v Chen [2009] NSWSC 167, [18] (Hamilton J).
[16]G E Dal Pont, Law of Costs (Lexis Nexis Butterworths, 3rd ed, 2013) 968 [28.65] (footnotes omitted).
Where a plaintiff is entirely successful in its case, ordinarily the discretion would be expected to be exercised in its favour.[17] In such circumstances, the purpose of the order has been exhausted. The defendant no longer requires the court’s protection to ensure it can recover costs awarded to it at the conclusion of the proceeding.
[17]Cf Huon Shipping and Logging Co Ltd v The South British Insurance Co Ltd [1923] VLR 216, 217.6 (Irving CJ).
The plaintiffs also relied on Ambridge Investments Pty Ltd (in liq) v Baker (No 2)[18] as an example of the relevant principle being applied in the context of a proceeding split as to liability and quantum, where the plaintiff succeeds on issues of liability.
[18][2010] VSC 234.
D. Ruling
There is 1 key consideration distinguishing the present case from that considered by Vickery J in Ambridge Investments Pty Ltd (in liq) v Baker (No 2).[19] His Honour noted in that case that the plaintiff in the initial trial was “wholly successful”,[20] and was “not likely to be exposed to an order for costs of that trial, if the usual rule that costs follow the event is to be applied”.[21] Indeed, his Honour noted no submission had been made to the effect the plaintiff might bear the costs of the initial trial.[22]
[19]Ibid.
[20]At [5], [17].
[21]At [28].
[22]Ibid.
The same cannot be said of the plaintiffs in this proceeding. The irrefutable facts presently before the court confirm that significant losses were incurred with respect to Voyages 1 and 2. It is very much a live issue between the parties how many voyages are to be taken into account in assessing the plaintiffs’ entitlement to equitable compensation.
In the circumstances, while I express no view as to whether it is likely, and put it no higher than a real possibility, it may be that the significant losses suffered with respect to Voyages 1 and 2 outweigh any entitlement of the plaintiffs to compensation with respect to the applicable subsequent voyages.
As such, it is not yet apparent whether or not the plaintiffs will ultimately receive substantive or nominal damages. Further, the Liability Judgment does not foreshadow what order the court might ultimately make with respect to costs. In these circumstances, there is still a real question as to what the appropriate costs order will be.
It follows that the purpose of the security for costs, being to protect the defendants in the event the court ultimately makes a costs order in their favour, remains.
E. Conclusion
For these reasons, I will not make the orders sought by the plaintiffs.
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