Billiva Pty Ltd v Eastbrook Estate Pty Ltd, Eastbrook Pastoral Pty Ltd and Monezt Developments Pty Ltd - [2009] NSWSC 209

No judgment structure available for this case.

CITATION: BILLIVA PTY LTD v EASTBROOK ESTATE PTY LTD, EASTBROOK PASTORAL PTY LTD and MONEZT DEVELOPMENTS PTY LTD [2009] NSWSC 209

HEARING DATE(S): 17 March 2009

JUDGMENT DATE :
27 March 2009

JUDGMENT OF: Smart AJ

DECISION: See para [46]

CATCHWORDS: Security for costs - undertakings offered by principal person behind company to be responsible for defendants' costs but no evidence of his financial position - combination of undertakings offered and ordering of security.

CASES CITED: Brundza v Robic & Co (No. 2) (1952) 88 CLR 171
Epping Plaza Fresh Food and Vegetables Pty Ltd v Bevendale Pty Ltd [1998] VSCA 43

FILE NUMBER(S): SC 4682/2008

COUNSEL: R Kaye SC (Applicant - D)
AR Parsons (Respondent - P)

SOLICITORS: Lazurus Tomko (Applicant - D)
R C Byrnes (Respondent - P)

- 16 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

SMART AJ

27 March 2009

4682/2008 BILLIVA PTY LTD v EASTBROOK ESTATE PTY LTD, EASTBROOK PASTORAL PTY LTD and MONEZT DEVELOPMENTS PTY LTD

JUDGMENT

1 By their Notice of Motion of 16 December 2008 the defendants sought that the plaintiff provide security for the costs of the defendant in the sum of $50,000. In the written reply of Senior Counsel it was submitted that the costs assessed by Mr Phillips, an experienced cost consultant, of $75,797 was not only appropriate but conservative.

2 The plaintiff has a paid up capital of $2.00 (or possibly $3.00) and it was not suggested that it had substantial assets. In answer to a Notice to Produce to Court issued on 12 February 2009 requiring the plaintiff to produce Tax Returns and Profit and Loss Statements for the financial years ended 30 June 2007 and 30 June 2008 the solicitor for the plaintiff advised that the tax returns sought have not been prepared and therefore there is nothing that can be produced pursuant to the Notice. The letter does not specifically mention Profit and Loss Statements. In view of the Statement that there is nothing that can be produced pursuant to the Notice I have proceeded on the basis that there are no Profit and Loss Statements. None were produced nor were any other informative accounts of the plaintiff. By letter of 31 October 2008 the plaintiff’s solicitor advised that the Director of the plaintiff, Gary Williams is agreeable to provide a personal guarantee of the plaintiff’s liability for costs. There was no evidence as to the financial position of Mr G Williams. I declined to admit a copy of a Group Certificate. It was unverified and unexplained.

Background

3 Mr Williams and Billiva found 160 hectares of land at Muswellbrook and introduced the land to Monezt and DTC. DTC and Monezt were entities or associated with entities which undertook the business of acquisition and development of land for residential sale and investment in land. Of the 160 hectares part was said to be land immediately available for residential subdivision and the remainder was said to be rural land to be held as a long term investment. The residential land was to be and was acquired by a unit trust known as the Eastbrook Residential Property Trust. Its trustee was Eastbrook Estate Pty Ltd. The rural land was to be and was acquired by a unit trust known as the Eastbrook Pastoral Property Trust. Its trustee was Eastbrook Pastoral Pty Ltd. The purchase price of the residential land was $4.3 million and that of the rural land was $6.7 million.

4 A series of documents were entered into by various entities over the years:

(a) Heads of Agreement of 31 October 2003 between Monezt and DTC;

(b) Unit Trust Deeds of about 31 October 2003 signed by the initial unit holder and the Trustee;

(c) Eastbrook Estate – Unitholders Agreement of 9 July 2004 - the parties were DTC No 1 Pty Ltd, Monezt Developments Pty Ltd, Billiva Pty Ltd and G A Williams;
(d) Eastbrook Estate – Variation dated 3 October 2006 to Unitholders Agreement – the parties were DTC No 1 Pty Ltd, Monezt Developments Pty Ltd, Billiva Pty Ltd and G A Williams;

5 The plaintiff’s claim is relatively straightforward. It founds upon cl. 8 (c ) and (d) of the Agreement of 27 April 2007 and their alleged breach. These sub-clauses provide:

(c ) In accordance with clause 7.8 of the Unitholders Agreement, Trustee 1 [Eastbrook Estate Pty Ltd] shall provide transfers to Billiva at no cost six residential lots in the Development together with the certificates of title and any required discharge of mortgage and/or withdrawal of caveat so that Billiva receives title to the six lots free of any encumbrance. Billiva shall be entitled to receive title to the six lots upon the sale of 200 lots in the Development has occurred. These lots are to be at the selection of Billiva.

6 Clause 7.8 of the Unitholders Agreement provides:

“The Venturers [defined in cl. 1.1 to mean the principal unitholders DTC and Monezt] shall procure that Trustee 1 [Eastbrook Estate Pty Ltd] as proprietor of the residential land, shall transfer without payment to Billiva six lots which shall be selected by Billiva after consultation with the Management Committee [defined in cl. 1.1]. Billiva shall not be entitled to require transfer of these lots until completion of the development and sale of 200 lots has occurred.”

7 There was a contest whether the sale of 200 lots had occurred. As foreshadowed, the debate centred upon whether a sale occurred on exchange of binding contracts of sale or on completion of the sale. That appears to be arguable. The defendants denied any obligation to transfer had crystallised.

8 There was a further answer to the whole of the Statement of Claim, the defendants saying that:

(a) it was a pre-condition to any obligation for the transfer of any lots to the plaintiff that the plaintiff would comply with its obligations for the financing of the Development as defined in the Agreement entitled “ Eastbrook Estate – Muswellbrook Unitholders Agreement ” dated 9 July 2004. (“The Unitholders Agreement”)

(i) professional costs associated with the acquisition of the Land (as defined),

(ii) stamp duty and GST on the purchase contracts,

(iii) other expenses incurred prior to the obtaining of Senior Finance,

(iv) the acquisition of the Residential Land and execution of Works to the extent that these costs are not met by the Senior Finance, subject to pre-conditions approved by the Management Committee; and

(v) such other costs and expenses as are approved by the Management Committee.

(c) in breach of its express obligations, the plaintiff has failed to contribute its share of these costs and has failed to satisfy the pre-condition for transfer of lots.

9 The defendants foreshadowed that they wished to plead that the plaintiff was estopped from asserting that upon the correct construction of the Supplemental Agreement of 27 April 2007 the defendants or any of them were obliged to transfer lots in the Muswellbrook development prior to the payment by the plaintiff to the defendants of the costs and expenses referred to in para 6(b) of the Defence. The defendants by way of Particulars relied upon the discussions referred to in para [20] of the affidavit of Alfred Attard sworn 11 March 2009. The affidavit appears to have been sworn on 10 March 2009. It was filed in Court on 12 March 2009. There was no opportunity to reply to it even if that was appropriate or necessary. I stated that I would not allow the estoppel defence to be raised until the material facts were pleaded in the Amended Defence. If they were sufficiently pleaded I indicated that my provisional view was that the amendment should be allowed despite the delay in raising it.

10 In para [20] of his affidavit Mr Attard deposed to a meeting between 11-13 April 2007 attended by Messrs. McMillan and Werry [retiring Directors nominated by DTC of Trustees 1 and 2 with Mr McMillan being one of the secretaries of Trustees 1 and 2 and also a shareholder) and Mr Williams. Mr Attard stated he said words to the following effect:

“I said ‘Billiva owes the JV an amount of $1,576,000.00 in respect of capital contributions of $500,000.00, existing loans of $152,000.00 interest of $700,000 from last October and further interest of $224,000.00’.

I said ‘OK, on that basis we will agree to this deal to progress the development and introduce another joint venture party. We will agree to Billiva being given an additional lot in addition to the original 6 lots. However, we will not transfer these lots to Billiva until it has paid its contribution to the JV’.”

11 Mr Attard said that at no stage did Mr Williams or any other person disagree with his statement. I gathered that Mr Attard’s statement was in issue. Because of the late service of Mr Attard’s affidavit there was no sufficient opportunity to reply to it. Little if any weight should be attached to the defendants’ submission that it was noteworthy that Mr Attard’s evidence at paras [19]-[20] of his affidavit was neither challenged nor denied.

12 In para [7] of their defence the defendants pleaded that the plaintiff was not ready, willing and able to perform the Agreement (as pleaded by the plaintiff) when construed in conjunction with the Unitholders Agreement (and other related documentation). In para [8] of their Defence the defendants pleaded that the plaintiff was not entitled to specific performance by reason of unclean hands. No particulars of this Defence were given.

13 In their written submissions in reply the defendants stated that they propose to plead by way of defence and cross claim at least some or all of the following:

(i) the pre-condition to transfer (already pleaded at para 6 of the Defence as filed;

(ii) a defence in equity based upon unreadiness etc to perform the Agreement (already pleaded at para 7 of the Defence);

(iii) unclean hands (already pleaded at para 8 of the Defence);

(iv) an estoppel by representation;

(v) rectification of the Supplemental Agreement to Unitholders Agreement dated 27 April 2007, and in particular, clause 8 thereof;

(vi) an equitable assignment by DTC No. 1 Pty Ltd of its rights against the Plaintiff;

(vii) misrepresentation and/or misleading conduct on the part of the Plaintiff, Mr Williams and representatives of DTC as a consequence of which the Supplemental Agreement is liable to be set aside or varied.

14 The Statement of Claim was filed on 12 September 2008 and the Defence was filed on 16 October 2008. By letter of 13 October 2008 the solicitors for the defendants requested the plaintiff to furnish security for costs in the sum of $50,000 to cover preparation costs. The letter canvassed, briefly, the merits of the plaintiff’s claims and foreshadowed a cross claim against Mr Williams. By letter of 28 October 2008 the plaintiff’s solicitor canvassed the merits, sought some particulars and as to security for costs advised that Mr G Williams was agreeable to provide a personal guarantee of the plaintiff’s liability for costs. By letter of 30 October 2008 the defendants’ solicitors sought financial evidence of Mr William’s ability to meet any adverse costs order made against the plaintiff. That was not forthcoming.

15 On 21 November 2008 the Court ordered that the defendants provide a response to the request for particulars in the plaintiff’s solicitor’s letter dated 28 October 2008 by 28 November 2008. It was further ordered that the plaintiff file and serve any Reply to the defendant’s Defence and the defendants file and serve any cross claim by 5 December 2008. The defendants were to serve their affidavit evidence by 12 December 2008.

16 On 16 December 2008 the defendants filed their Notice of Motion for security for costs supported by the affidavit of the defendants’ solicitor of that date. That Motion was returnable on 11 February 2009 and heard on 17 March 2009.

17 The defendants were late in serving their affidavit evidence and they have yet to finalise their defences and decide whether to file a cross claim. The defendants queried whether the plaintiff’s evidence is complete, pointing out that no evidence had been filed by Mr Williams, the plaintiff’s principal.

18 The plaintiff has filed affidavits on the substantive issues. See for example the affidavit of P J McMillan of 9 February 2009 and those of R C Byrnes of 12 September 2008 and 9 February 2009. Both of Mr Byrnes’ affidavits were read on the application for security for costs. Mr McMillan’s affidavit was not read on the application.

19 What has appeared is that the plaintiff’s case will probably conclude fairly quickly and there was no dispute that the plaintiffs had a substantial arguable case. The defendants’ case is likely to be involved and raise a number of issues and most of the time at the hearing will be taken up with the defendants’ case. The plaintiff did not accept that the defendants had a reasonably arguable case.

20 Clause 2.3 of the 9 July 2004 Agreement sets out the objects of the venture. Clause 2.6 confirmed that Billiva was not a Venturer. In cl. 7.1 the Venturers acknowledged that they were introduced to the land by GW. By cl. 7.3 the parties agreed that Billiva was granted its B class units in the Eastbrook Residential Property Trust in order to be entitled to a distribution of 16% of the proceeds of the Development as provided for in cl. 20.1. I have earlier set out cl. 7.8.

21 By cl. 4.1 of the 9 July 2004 Agreement (the Unitholders Agreement) DTC was to arrange for financing of the Development. By cl. 4.1(b) Mezzanine Finance was to be provided by the Unitholders to cover the costs earlier specified.

22 Clause 4.2 provided that the Management Committee shall determine from time to time the amount of Mezzanine Finance required as contribution towards the Development and the acquisition of the Rural Land. “Development” means the development of the Residential Land by way of a residential subdivision to create approximately 500 lots and the sale of those lots to the public. Clause 4.2 continues:

“The Mezzanine Finance shall be advanced by the Unitholders by the date nominated … in the proportion of the Funding Obligation. Each Unitholder shall contribute their amount of that Mezzanine Finance by way of either

(a) equity contributions to the Venture, or
(b) loan funds to the Venture

23 In cl. 1.1 “Funding Obligation” is defined to mean the obligation of each Unitholder to fund a proportion of any amount required to be funded by the Unitholders under this Agreement, the proportions being:

24 Clause 4.4 provides:

“If any Unitholder notifies the Finance Manager that its preference is not to contribute to the Mezzanine Finance the other Unitholders may agree to make that contribution instead on a pro rata basis.

25 Recital G of the 3 October 2006 Agreement (1st Variation to Unitholders Agreement) states that the Venturers have provided mezzanine finance.

26 In Recital G of the 3 Oct 06 Agreement it is stated that in addition to the Senior Finance the Venturers have provided mezzanine finance in accordance with cl. 4 of the Unitholders Agreement and that the following amounts have been lent to Trustee 1 for Eastbrook Residential Property Trust:

· By DTC - $1,815,300

· By Monezt - $1,1315,000

27 The amount of $1,815,300 includes the $5,300,000 to be contributed by Billiva.

28 The Recital continues that DTC has at the request of GW and Billiva provided additional mezzanine finance to make up the proportion which would otherwise have been payable by Billiva as a 16% Unitholder and that Billiva had not provided any mezzanine finance.

29 Recital H states that $2,500,000 is owing by Trustee 1 to DTC.

30 Recitals I and J of 3 Oct 06 Agreement provide:

J. As further consideration for Monezt advancing moneys to Trustee 1 to enable repayment of the DTC Debt, the Venturers agree that DTC will surrender in favour of Monezt its entitlement to receive distributions from ERPT to EPPT such that in the future distributions from ERPT will be paid by EPPT as follows:

· Monezt – 84%

· Billiva – 16%.”

31 By cl. 5.2 of the 3 Oct 06 Agreement with effect from the date upon which Trustee 1 repays the DTC debt in full, distributions of income or capital received by the Pastoral Trust from the Residential Trust shall be effected by the Pastoral Trust without regard to the continuing ownership by DTC of units in the Pastoral Trust such that distributions received by the Pastoral Trust from the Residential Trust shall be applied by the Pastoral Trust:

32 By cl. 7.2 of the 3 Oct 06 Agreement the parties agreed to use their best endeavours to procure a sale of the Rural Land as a single parcel and to distribute the net proceeds of sale thus:

33 In Recitals G and H of 27 Apr 07 Agreement (2nd Variation to Unitholders Agreement) it is stated:

“G. DTC, Monezt, Billiva and GW entered into a deed of variation to the Unitholders Agreement in October 2006 to give effect to the release by DTC of its interest in ERPT in consideration of Monezt assuming full liability for all existing mezzanine finance and Senior Finance, including repayment of mezzanine finance advanced by DTC. Completion of the release occurred on 1 November 2006. Following upon completion DTC had no further interest in ERPT and Trustee 1. …

H. Monezt has resolved that it wishes to proceed with the development of the Rural Land. DTC and Billiva do not wish to be involved in that development.”

34 Under cl. 3 of 27 Apr 07 Agreement Billiva granted to Monezt an option to purchase the Billiva units (16 B class units held by Billiva in the Pastoral Trust) for $16 – and Billiva had a put option to require Monezt to purchase the Billiva units for $16 if Monezt did not exercise the Call Option.

35 Under cl. 6(a) of 27 Apr 07 Agreement the parties agreed that upon Completion the Unitholders Agreement was varied to the extent necessary to give full force and effect to the 27 Apr 07 Agreement. “Completion” meant the completion of the payments to DTC pursuant to cl. 7(b) and Billiva pursuant to cl. 8(a), that is $330,000 including GST for Billiva disclaiming any entitlement to receive any distribution of income to which it may be entitled pursuant to cl. 20.1 of the Unitholders Agreement.

36 The defendants contend that the Unitholders Agreement of 9 July 2004, the 1st Variation Agreement of 3 October 2006 and the 2nd Variation Agreement (called the Supplemental Agreement) of 27 April 2007 have to be read together and that the substantive obligations imposed upon Billiva under cl 4.2 of the 9 Jul 04 Agreement subsist and are not extinguished or released by the later agreements and are pre-conditions to the obligations imposed under cl. 8(c) and (d) of the 27 Apr 07 Agreement. The resolution of these contentions will require examination of the various agreements in the absence of an express provision dealing with the situation. The contentions of the defendants are reasonably arguable. It is not appropriate at this stage for me to express any view whether the defendants’ contentions are correct. It was apparent from the defendants’ submissions in Court that in any event the defendants were going to place considerable reliance upon their estoppel by representation defence. The evidence upon that issue remains to be fully deployed. It has taken nearly five months for that issue to emerge despite the correspondence between the solicitors arguing the merits of their respective cases. Whether the correspondence had any value besides increasing costs is doubtful.

37 The defendants having established that the plaintiff has a paid up capital of $2 (or possibly $3), no financial accounts having been produced by the plaintiff and there being no evidence of its assets and financial health there is reason to believe that the plaintiff would not be able to meet the defendants’ costs if the latter are successful.

38 The plaintiff relied heavily on the offer by Mr Williams to be responsible for the plaintiff’s costs. As I understood the position he is prepared to give an undertaking to the Court and a contractual undertaking or guarantee to the defendants so that they can enforce it. That is a significant matter to be taken into account in the exercise of the Court’s discretion. See Epping Plaza Fresh Food and Vegetables Pty Ltd v Bevendale Pty Ltd [1998] VSCA 43 at [17].

39 No evidence was given by Mr Williams or by anyone on his behalf and no documentary evidence was produced as to the financial position of Mr Williams. Nor was there any evidence of what financial resources may be available to him. He appears to be the sole director and shareholder although an ASIC search suggests that Karen Gai Williams may also hold one fully paid $1 share. Where personal undertakings are offered by the person or persons standing behind the company, some such evidence is often led to show that the undertakings are valuable but there is no obligation to do so. Notwithstanding this lack of evidence, the personal undertaking of Mr Williams will still be taken into account.

40 The plaintiff also relied on the obligation of Trustee 2 to procure and Trustee 1 to transfer to the plaintiff at no cost one residential lot as selected by Monezt within 14 months of 27 April 2007: cl. 8(d) of the Agreement of that date. While that obligation is not affected by the meaning of “sale” in cl. 8(c) the defendants contend that no such obligation arises until the plaintiff meets its contributions under the Unitholders Agreement of 9 July 2004. The plaintiff pointed to a residential lot being worth about $149,000. The essence of the plaintiff’s submission was that it must succeed in the suit on its claim based upon cl. 8(d) of the 27 April 2007 Agreement or, at the least, that was a strong probability. Clause 8 is dealing with fees payable and benefits conferred on Billiva for various services provided by Billiva and GW to the Development (the Eastbrook Links Estate development of the Land as provided for in the Unitholders Agreement. “Land” included both the residential land and the rural land). I do not propose to pre-judge the defence. The plaintiff queried whether in view of the call and put options for a consideration of $16 in cl. 3 of the 27 April 2007 Agreement the obligations under cl. 4.2 of the Unitholders Agreement of 9 July 2004 still subsisted.

41 The defendants pressed for an order that the plaintiff provide security of $75,797 in accordance with the assessment of Mr Phillips. That was said to be conservative. The assessment was based on an assumption of a two day hearing which, it was submitted, was highly conservative. Mr Byrnes, the solicitor for the plaintiff, estimated the likely costs of the defendants as less than $30,000.

42 It was pointed out by Fullagar J in Brundza v Robic & Co (No. 2) (1952) 88 CLR 171 at 175 the Court does not set out to provide a complete indemnity to the defendants in respect of their costs.

43 While the defendants foreshadowed various defences they may raise and that a cross claim may be instituted their position should have been clarified by this stage as their initial defence was filed on 16 October 2008. Having regard to this and the costs security for costs applications entail I would wish to discourage a further application for security for costs.

44 If the matter is handled both competently and expeditiously the hearing should conclude in 2 days. The hearing will not conclude in 1 day. While the matter has some complexities it is not unduly complex.

45 Mr Williams’ undertakings are, as mentioned, factors to be considered but they are not a sufficient substitute for it appearing that the plaintiff, who bears the primary obligation, will be unable to meet the costs of the defendants if ordered to do so.

46 In the whole of the circumstances I order:

1. Upon Mr G Williams undertaking to the Court and giving an enforceable undertaking to the defendants that he will assume liability for the costs of the defendants for which the plaintiff is liable in respect of these proceedings on a party and party basis, the plaintiff provide security for the costs of the defendants in the sum of $48,000 as follows:

(b) As to a further $24,000 within 21 days of this action being fixed for trial by the Court.

2. In the event of Mr G Williams not giving the undertakings in a form acceptable to the Registrar within 28 days or such further time as the Registrar allows, the amount for which security is to be given by the plaintiff for the costs of the defendants be increased to $70,000 with security for $35,000 to be given within 60 days of today and further security of $35,000 within 21 days of this action being fixed for trial by the Court.

3. Such security for costs is to be in a form approved by the Registrar.

4. In the event of security not being given as ordered stay the further hearing of the action until further order.

5. Costs for this application to be the defendants’ costs in the cause. (This is provisional only and I am prepared to hear further argument as to costs if either party so notifies my Associate and the other party in writing within 7 days. Such notice may be given by facsimile transmission.

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Citations

Billiva Pty Ltd v Eastbrook Estate Pty Ltd, Eastbrook Pastoral Pty Ltd and Monezt Developments Pty Ltd [2009] NSWSC 209

Cases Citing This Decision

0

Cases Cited

2

Statutory Material Cited

0

Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1998] VSCA 43

Ansilda & Hartford [2009] FamCAFC 128

CITATION:	BILLIVA PTY LTD v EASTBROOK ESTATE PTY LTD, EASTBROOK PASTORAL PTY LTD and MONEZT DEVELOPMENTS PTY LTD [2009] NSWSC 209
HEARING DATE(S):	17 March 2009
JUDGMENT DATE :	27 March 2009
JUDGMENT OF:	Smart AJ
DECISION:	See para [46]
CATCHWORDS:	Security for costs - undertakings offered by principal person behind company to be responsible for defendants' costs but no evidence of his financial position - combination of undertakings offered and ordering of security.
CASES CITED:	Brundza v Robic & Co (No. 2) (1952) 88 CLR 171 Epping Plaza Fresh Food and Vegetables Pty Ltd v Bevendale Pty Ltd [1998] VSCA 43
FILE NUMBER(S):	SC 4682/2008
COUNSEL:	R Kaye SC (Applicant - D) AR Parsons (Respondent - P)
SOLICITORS:	Lazurus Tomko (Applicant - D) R C Byrnes (Respondent - P)