Brocklands Pty Ltd v Tasmanian Networks Pty Ltd (No 2)
[2019] TASSC 37
•30 August 2019
[2019] TASSC 37
COURT: SUPREME COURT OF TASMANIA
CITATION: Brocklands Pty Ltd v Tasmanian Networks Pty Ltd (No 2) [2019] TASSC 37
PARTIES: BROCKLANDS PTY LTD
v
TASMANIAN NETWORKS PTY LTD
FILE NO: FCA 1869/2019
DELIVERED ON: 30 August 2019
DELIVERED AT: Hobart
HEARING DATE: 15 August 2019
JUDGMENT OF: Blow CJ
CATCHWORDS:
Practice and Procedure – Security for costs – Factors relevant to exercise of discretion – Other particular cases and matters – Appeal by unsuccessful plaintiff – Appeal that could succeed – Uncertainty as to appellant's impecuniosity – Respondent capable of absorbing costs if necessary – Security not ordered.
Corporations Act 2001 (Cth), s 1335(1).
Beach Petroleum NL v Johnson (1992) 7 ACSR 203; Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180; Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344, 65 ACSR 383, referred to.
Aust Dig Practice and Procedure [1762]
REPRESENTATION:
Counsel:
Appellant: K E Read SC
Respondent/Applicant: B R McTaggart SC, K Sluiter
Solicitors:
Appellant: Phillips Taglieri
Respondent/Applicant: H W L Ebsworth Lawyers
Judgment Number: [2019] TASSC 37
Number of paragraphs: 38
Serial No 37/2019
File No FCA 1869/2019
BROCKLANDS PTY LTD v TASMANIAN NETWORKS PTY LTD (NO 2)
REASONS FOR JUDGMENT BLOW CJ
30 August 2019
1 This is an application for security for costs in respect of a Full Court appeal. The respondent is seeking an order that the appellant provide security in the sum of $250,000.
2 The Court has the power to make orders as to security for costs by virtue of its inherent jurisdiction, pursuant to r 671 of the Supreme Court Rules 2000, and pursuant to s 1335(1) of the Corporations Act 2001 (Cth). That subsection provides as follows:
"(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 the security is given."
3 For the purposes of that subsection, an appellant constitutes a plaintiff and the respondent to an appeal constitutes a defendant: Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344, 65 ACSR 383 at [20].
4 The respondent's principal contentions in relation to this application are as follows:
• • That its costs of the appeal are likely to be between $198,000 and $258,000 if the appeal proceeds to hearing.
• • That there is reason to believe that the appellant will not be able to pay those costs if the appeal fails.
• • That the appeal has little chance of success.
5 The appellant's principal contentions are as follows:
• • That, if the appeal were to fail, the respondent's costs, on a party and party basis, would not exceed $80,000 inclusive of disbursements and GST.
• • That the respondent, which bears the onus of proof, has not established that there is reason to believe that the appellant would be unable to pay such costs as it would be ordered to pay if the appeal failed.
• • That the appeal has good prospects of success.
• • That the respondent is a major corporation, and that that is a factor that should weigh against the respondent in any exercise of the Court's discretion.
6 The appellant does not contend that the respondent's conduct was the cause of any impecuniosity on its part, nor that an order for costs would stifle the proceedings, nor that there has been any significant delay on the part of the respondent in making this application.
7 The appellant conducts a nursery business at Winkleigh in the north of Tasmania. On 10 December 2010, there was an interruption to the electricity supply at its nursery. At that time Aurora Energy Pty Ltd was responsible for providing electricity to the property. The relevant liabilities of that company were transferred to the respondent in 2014 pursuant to s 19 of the Electricity Reform Act 2012. In 2015 the appellant brought an action for damages against the respondent, contending that it had suffered harm as a result of the interruption to the electricity supply; and breaches of duty on the part of Aurora and/or its predecessor, the Hydro-Electric Commission; and that the respondent was liable to it in damages in respect of those breaches of duty. It claimed more than $2.5 million. The action was tried by Geason J over 14 days in the autumn and winter of 2018. The action failed. His Honour gave judgment for the respondent: Brocklands Pty Ltd v Tasmanian Networks Pty Ltd [2019] TASSC 26.
8 The principal findings made by his Honour were as follows:
• • At [60], that the appellant's claim was not a claim for pure economic loss.
• • At [77], that a common law claim for damages for negligence had not been pleaded by the appellant.
• • At [101], that none of various breaches of statutory duty pleaded by the appellant conferred any private right of action.
• • Alternatively, at [105], that the appellant's claims for breach of statutory duty were defeated by s 40 of the Civil Liability Act 2002.
• • At [156]-[262], that the appellant had failed to establish causation – that is, that it had failed to establish that the damage suffered by the appellant was caused in any of the ways alleged by it.
The costs of the appeal
9 The length of the hearing of the appeal and its complexity will depend on what course the Full Court takes in relation to the assessment of damages. The learned trial judge received evidence and submissions in relation to damages, but did not assess damages. Unless the Full Court orders or directs otherwise, it will have the task of assessing damages if the appellant is successful as to liability, and the parties will have to make submissions as to the quantum of damages when the grounds of appeal, which all relate to liability, are argued. If the appeal proceeds in that way, it will be lengthy, complex and expensive. The respondent's estimate of the likely costs of the appeal is based on it proceeding in that way.
10 There are strong reasons for the Full Court not to proceed in that way. If the appellant were to succeed as to liability, the Full Court could remit the assessment of damages to the trial judge or to another single judge pursuant to s 47(1) of the Supreme Court Civil Procedure Act 1932. The trial judge has the advantage of having been present when the evidence relating to the quantum of damages was presented. If the appeal were to proceed before the Full Court as to both liability and quantum, and the grounds relating to liability were to fail, the costs of the work done in relation to the assessment of damages would be wasted. The assessment of damages by three judges rather than one might be considered not to be an appropriate use of judicial resources. If either party were aggrieved by an assessment of damages by the Full Court, the assessment could only be challenged on appeal in the High Court, and only if special leave were granted, whereas an assessment by a single judge could be challenged on appeal as of right in the Full Court, in the ordinary way.
11 It is true that this litigation might well be brought to finality sooner if the Full Court were to undertake the task of assessing damages, if that were necessary. However, because of the factors weighing in favour of the Full Court determining only the grounds relating to liability, I think it is likely to take that course.
12 Ordinarily in appeal proceedings, the unsuccessful party will be ordered to pay the successful party's costs on a party and party basis. The appellant has estimated the respondent's costs of the appeal on a party and party basis, but the respondent has not. The respondent's estimate of costs ($198,000 to $258,000) appears to represent an estimate of its costs on an indemnity basis. In my view that estimate is a reasonable one for its costs on an indemnity basis if all issues relating to the quantum of damages are argued before the Full Court. However the appellant's estimate of no more than $80,000 appears to me to be a reasonable estimate of party and party costs if the issues relating to quantum are not argued at the same time as the grounds of appeal relating to liability. I accept that the respondent is likely to be represented by the same counsel who represented it at the trial, and that the submissions to be made to the Full Court will cover much of the same ground as was covered at the trial.
13 Counsel for the respondent did not suggest that the Full Court might be likely to award costs on an indemnity basis rather than a party and party basis. There is an unresolved dispute as to whether the appellant ought to be ordered to pay the respondent's costs of the action on an indemnity basis as from 21 September 2017. However an appeal is a separate proceeding from an action. When an unsuccessful party has been ordered to pay costs at first instance on an indemnity basis or a solicitor and client basis, and is unsuccessful on appeal, there can be good reasons for that party to be ordered to pay the costs of the appeal on a party and party basis: Marlow v Walsh (No 2) [2009] TASSC 40 at [13]-[20].
14 Having regard to the likelihood that the Full Court will not hear argument as to the assessment of damages, and the unlikelihood of the Full Court making an indemnity costs order, I think that this application should be considered on the basis that the appellant, if unsuccessful, will have to pay the respondent about $80,000 by way of party and party costs.
The impecuniosity issue
15 The evidence as to the appellant's capacity to pay is contained in the affidavits of two witnesses, namely the respondent's solicitor, Ms Darcey, and one of the directors of the appellant company, Ms Brock. Neither was cross-examined. Their evidence is unchallenged but incomplete.
16 The appellant is a "two dollar company". That is to say, it has a total issued share capital of $2. The shares are held by the company's two directors, Karen Brock and her husband Timothy Phillips.
17 The evidence as to the appellant's assets is as follows:
• • It owns real estate at Winkleigh which it acquired in 2002. That property was valued for rating purposes as at 31 December 2012 in the sum of $380,000, of which the land value was $230,000. In an affidavit, Ms Brock estimated the value of the property to be over $1 million, but counsel for the respondent objected to that evidence on the basis that she was not an expert, and I received that evidence provisionally. The title to the property is affected by a caveat lodged by a forestry company to protect a profit à prendre relating to the taking of timber.
• • The company owns a quantity of plant and equipment that is unencumbered. Ms Brock estimated the value of that plant and equipment to be over $600,000, but her evidence was objected to on the basis that she is not an expert, and I received that evidence provisionally.
• • The company owns a New Holland tractor which is the subject of a liability of $36,302. Ms Brock estimated its value to be $80,000. That evidence was not objected to.
• • The company owns a truck, which is the subject of a liability of $19,405. Ms Brock estimated its value to be $70,000. That evidence was not objected to.
18 The evidence established that the appellant has the following liabilities:
• • The debt in respect of the tractor, amounting to $36,302.
• • The debt in respect of the truck, amounting to $19,405.
• • Debts owing to its bank, totalling $406,140. That amount comprises a mortgage debt of $355,140, an overdraft debt of $49,000, and a credit card debt of $2,000.
• • It has a contingent liability for the respondent's costs of the action. The learned trial judge has not yet heard argument as to costs. Subject to the outcome of the appeal, there is no reason to think that the appellant will not be ordered to pay the costs of the action. The respondent has applied for costs on a party and party basis for the period up to 21 September 2017, and on an indemnity basis thereafter. That was the date of a letter that it relies on as a Calderbank offer: Calderbank v Calderbank [1976] Fam 93. The respondent's present solicitors commenced to act for it on 5 September 2017. Their costs and disbursements in relation to the action amounted to over $600,000. Other solicitors acted in the action for some two years before the present solicitors were instructed, but I have no evidence as to the amount of their costs. The appellant will not have to make any payment in respect of the respondent's costs until the costs application has been determined, and the costs taxed or agreed. The time for payment is likely to be months away. It is by no means certain that that stage will be reached before the appeal is determined.
19 According to Ms Brock's affidavit, the turnover of the appellant in the last five financial years has been as follows:
2015 $309,572
2016 $276,238
2017 $436,874
2018 $580,572
2019 $741,618
20 An unaudited profit and loss statement for the appellant for the last financial year shows a net profit of $202,224 after interest but before depreciation and tax. The expenditure on legal fees in that financial year is shown as only $18,181.
21 The material before me does not include a balance sheet for the appellant company, nor does it include profit and loss statements for years prior to 2018/19. I have no evidence as to the financial resources of the company's directors. I have no evidence as to what arrangements, if any, were made by it for the payment of its costs of the action, including the 14-day trial. It seems obvious that those costs would have greatly exceeded the figure of $18,181 shown in the 2019 profit and loss statement. There is no evidence as to what amount, if any, is owing by the appellant to its solicitors.
22 The 2019 profit and loss statement contains four entries as to interest, as follows:
"Interest Expense $17,211.68
Interest Asset Purchase $2,883.00
Interest – Other $24,363.28
Interest – Bank $24,878.90".
23 The figure of $2,883 most likely relates to the tractor and/or the truck. I have no evidence to explain the figures of $17,211.68 and $24,363.28. It seems likely that, apart from its debts to its bank, the company owes hundreds of thousands of dollars to one or more other creditors. One likely possibility is that it has been paying interest on loans from its directors and/or related entities.
24 There is other evidence as to credit enquiries relating to the appellant, Ms Brock's directorship of a company limited by guarantee, and registrations relating to the appellant on ASIC's Personal Property Security Register, but none of that evidence adds significantly to the information about the company's capacity to pay.
25 In Beach Petroleum NL v Johnson (1992) 7 ACSR 203, von Doussa J explained the operation of s 1335 of the Corporations Act as follows, at 205:
"In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs along with all the circumstances, actual and possible, about its financial position, would be taken into account in the exercise of the discretion, and in framing the orders of the court if the decision is to order security."
26 On the evidence before me, I think there is a real chance that the appellant will be compelled to pay hundreds of thousands of dollars in respect of the costs of the proceedings at first instance and, if the appeal fails, be unable to fully satisfy an order for the costs of the appeal. Without full information as to the appellant's liabilities and the financial resources of its directors, that remains a real possibility. However there are a number of factors that tend to suggest that it is not a strong possibility. On the figures provided, its business has been going from strength to strength, despite the setback in December 2010 which led to its claim for over $2.5 million, and despite it having incurred the costs of bringing an action that included a 14-day trial.
The merits of the appeal
27 The appellant's principal contentions in the appeal are to the following effect:
• • That, contrary to the conclusion of the learned trial judge, a common law claim for damages for negligence was properly pleaded in the amended statement of claim. (Ground 1.)
• • That at trial, in evaluating the appellant's case, which was based on circumstantial evidence, his Honour erred by considering parts of the evidence in isolation from one another, rather than making an assessment of the combined strength of all the pieces of circumstantial evidence. (Ground 2.)
• • That the circumstantial evidence, properly assessed, compels a conclusion that the respondent is liable to it for damages for negligence. (Grounds 3-16.)
28 The appellant is not challenging the rejection of its claim for damages for breach of statutory duty.
29 Having studied the amended statement of claim and the reasons for judgment, I believe that grounds 1 and 2 could well succeed. If they do, the Full Court will need to make detailed findings of fact as to the allegations of negligence, and the issues related to causation.
30 The electricity for the appellant's nursery is generated in Trevallyn. High voltage electricity (22,000 volts) travels about 14 kilometres along high voltage lines until it reaches a pole on the appellant's property. The pole has a transformer on it. Low voltage electricity (230 to 240 volts) then travels from the pole to the nursery. The appellant is the only recipient of electricity from that pole.
31 On the night of 10 December 2010, a branch from a tree fell across a high voltage power line several kilometres away from the nursery. As a result, a circuit breaker called a recloser, located at Glengarry, cut off the power and then switched it back on again very quickly. It did that four times and then locked out. The appellant's case at trial was that the operation of the recloser caused a power surge; that that resulted in high voltage electricity entering the low voltage system on the appellant's property; that that happened because fittings on the pole at the nursery were not configured correctly; and that the high voltage electricity caused damage to a "program logic controller" inside the appellant's potting machine. Its claim for over $2.5 million in damages was based on the damage said to have been caused to the potting machine in that way, and alleged consequential losses.
32 The respondent contended that it did not owe the appellant a common law duty of care. The learned trial judge did not address that issue because he concluded that no claim in negligence had been pleaded. The respondent further contended that it had not breached the asserted duty of care in any way, and that the evidence fell short of proving that the appellant's damage had been caused by the wrongful configuration of any of the hardware on the pole.
33 The material before me includes the parties' submissions at trial but not the transcript and the exhibits. On the basis of the material before me, I consider that the appeal could well succeed, with the result that the appellant would recover damages, which would probably be assessed by a single judge. However I am not in a position to express a view as to whether the appeal is more likely to succeed or to fail.
Exercise of the discretion to order security
34 Because there is some chance that the appellant might not be able to pay the costs of the appeal if the appeal fails, I have a discretion to order security pursuant to s 1335 of the Corporations Act. I also have an unfettered discretion to order security either in the exercise of the Court's inherent jurisdiction or pursuant to r 671 of the Supreme Court Rules.
35 The fact that the respondent succeeded at first instance is a factor that weighs in favour of ordering security because the judgment is presumed to be correct until displaced: Cowell v Taylor (1885) 31 Ch D 34 at 38.
36 The opinion evidence of Ms Brock as to the values of the real estate and the plant and equipment is inadmissible because she does not have specialised knowledge as to the values of real estate and chattels that is based on training, study or experience: Evidence Act 2001, ss 76, 79. I must therefore ignore her evidence as to the values of those assets, but that will make no difference to the outcome of this application because the evidence as to the financial position of the appellant company is incomplete. For the reasons stated above, I consider that there is not a strong chance that it will be unable to satisfy an order for the costs of the appeal.
37 The defendant is a major corporation, responsible for the electricity distribution network within Tasmania. It is a corporation that was established pursuant to the Electricity Companies Act 1997. Under s 9(2) of that Act, the shares issued to the members of the company are held in trust for the Crown. The ability of the respondent to absorb the costs of the appeal, if it is unable to recover them from the appellant, is a relevant consideration: Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 per King CJ, with whom Bollen and Prior JJ agreed, at 186; Pioneer Park Pty Ltd v Australia and New Zealand Banking Group Ltd (above), per Basten JA, with whom McColl JA agreed, at [56]. Party and party costs in the vicinity of $80,000 should not be difficult for the respondent to absorb if that becomes necessary.
38 This case concerns a claim for over $2.5 million. The appeal may well succeed. Each of the parties has spent hundreds of thousands of dollars on the proceedings at first instance, which included a 14-day trial. The party and party costs that the appellant is likely to be ordered to pay if the appeal fails, are likely to be somewhere in the vicinity of $80,000. In context, that is small beer. I am not persuaded that it is in the interests of justice to order security. For these reasons, I have decided to dismiss the application.
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