Bullhead Pty Ltd v Brickmakers Place Pty Ltd
[2018] VSCA 50
•5 March 2018
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0096
| BULLHEAD PTY LTD | Applicant |
| V | |
| BRICKMAKERS PLACE PTY LTD & ORS | Respondents |
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| JUDGES: | KYROU and NIALL JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 5 March 2018 |
| DATE OF JUDGMENT: | 5 March 2018 |
| MEDIUM NEUTRAL CITATION: | [2018] VSCA 50 |
| JUDGMENT APPEALED FROM: | Bullhead Pty Ltd v Brickmakers Place Pty Ltd [2017] VSC 206 (Sifris J) Bullhead Pty Ltd v Brickmakers Place Pty Ltd [No 2] [2017] VSC 323 (Sifris J) |
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PRACTICE AND PROCEDURE – Application by respondents for security for costs of appeal – Where applicant impecunious – Where persons benefiting from applicant’s success on appeal not liable for costs – Inappropriate to determine whether applicant’s impecuniosity related to conduct of respondents – Order for security would not stultify appeal – Security granted in form of personal undertaking secured by charge over real property – Security granted for past and future costs – Rule 64.38 Supreme Court (General Civil Procedure) Rules 2015.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr W T Houghton QC with Mr D K R Kinsey | DLA Piper |
| For the Second to Twelfth Respondents | Mr M Wise SC | K & L Gates |
KYROU JA
NIALL JA:
On 22 December 2017, the second to twelfth respondents (‘respondents’) applied to this Court for an order for security for costs in respect of the applicant’s application for leave to appeal from two decisions of a judge of the Trial Division.
The respondents have sought orders that the applicant give security in the sum of $150,468.18, failing which the application for leave to appeal (and, if leave is granted, the appeal) be dismissed or, alternatively, stayed until the security is given.
Overview of the proceeding at first instance
The proceeding before the primary judge concerned the development of residential property in Essendon by the Brickmakers Place Unit Trust (‘the Unit Trust’). The land and proposed development were the only assets of the Unit Trust.
The trustee of the Unit Trust was the first respondent, Brickmakers Place Pty Ltd.[1] The applicant (plaintiff below) was a unitholder in the Unit Trust. The second to sixth respondents were unitholders in the Unit Trust. The seventh to twelfth respondents were directors of one of the second to sixth respondents.
[1]The trustee was placed into administration on 15 January 2015.
The applicant was not a unitholder at the time of the establishment of the Unit Trust. By deed executed on or about 14 March 2008, the applicant acquired 600,000 units in the Unit Trust at a cost of $600,000. On the same day, the trustee of the Unit Trust resolved to issue to each of the initial unitholders 600,000 units on payment of $65,000 each. The initial unitholders were therefore effectively issued with units priced at around $0.11, representing a discount to the price paid by the applicant.
The applicant alleged that the issue of the discounted units to the initial unitholders was in breach of the terms of the Unit Trust Deed and an associated Unitholders Agreement, and in breach of fiduciary duty. The applicant sought equitable compensation or damages.
The respondents (defendants below) denied the allegations and raised a number of defences. The respondents said that the claims were statute barred and in any event failed because of the substantive delay on the part of the applicant in commencing the proceeding, the applicant having full knowledge of the relevant facts. They denied that the relevant units were issued at a discount and contended that they were issued in consideration for the revised or true value of the property acquired by the trustee and which was to be developed. The respondents also contended that the entire dispute between the parties was resolved pursuant to what they called a ‘Finalisation Agreement’.
The primary judge’s findings
The primary judge identified two critical issues in the case:
(a) did the trustee issue discounted units to some unitholders in breach of trust or in breach of fiduciary duty; and
(b) was the dispute between the parties resolved by the Finalisation Agreement in a way that constituted an accord and satisfaction?
On the first critical issue, the primary judge held that units had been issued to some unitholders at a discount, and in breach of trust and in breach of fiduciary duty.[2] His Honour said:
as there was no basis for the issue of the Discounted Units they were improperly issued, and the Trustee is in breach of trust. Further, the Trustee is, in the circumstances referred to, in breach of its duty of honesty and impartiality. Finally, having considered all of the relevant conduct relating to the Discounted Units and suggested Expected Profit I consider such conduct to be so unconscientious that it should not be allowed to stand.[3]
[2]Bullhead Pty Ltd v Brickmakers Place Pty Ltd [2017] VSC 206 [83]–[84] (‘Reasons’).
[3]Reasons [83].
His Honour described the decision of the trustee to issue the discounted units as ‘an artificial, unnecessary, opportunistic and misconceived decision’.[4] His Honour also found that the initial unitholders were knowingly concerned with the breach of trust.[5]
[4]Reasons [84].
[5]Reasons [95]–[101].
On the second critical issue, the primary judge held that the applicant had resolved any claim in respect of the breach of trust by entering into a binding and enforceable agreement, namely the Finalisation Agreement, and that this constituted an accord and satisfaction.[6] Alternatively, his Honour held that the applicant was estopped from resiling from the terms of the Finalisation Agreement.[7]
[6]Reasons [145]–[174], [197]–[202]; Bullhead Pty Ltd v Brickmakers Place Pty Ltd [No 2] [2017] VSC 323 [13] (‘Second Reasons’).
[7]Reasons [175]–[196].
His Honour went on to find that the Finalisation Agreement had been breached because the trustee had failed to pay the applicant the sum of $212,138 due to it under that agreement. This sum had been paid into the trust account of the solicitors for the trustee and respondents, who gave an undertaking on behalf of the trustee not to deplete the account. The primary judge found that money was dispersed from that account in breach the undertaking.[8] In the result, only $36,036.43 remained in the trust account.[9]
[8]Reasons [203]–[215];
[9]Reasons [213]; Second Reasons [14].
It follows that the applicant had success on its breach of trust claim, but the primary judge held that this claim had been fully compromised by the Finalisation Agreement. The primary judge held that the applicant was entitled to a payment under the Finalisation Agreement.
On costs, the primary judge ordered that the respondents should have their costs in respect of that part of the proceeding that related to the Finalisation Agreement, but otherwise there should be no order as to costs. The costs order in favour of the respondents was set off against the amount of $212,138, being the amount that should have been, but was not, paid to the applicant under the Finalisation Agreement.[10]
[10]Second Reasons [23]–[25].
Before us, it was contended by the respondents that the costs order in their favour would exceed the sum of $212,138 and require a net payment to be made to them in satisfaction of the costs ordered at first instance.
Application for leave to appeal
On 29 August 2017, the applicant applied for leave to appeal the decisions of the primary judge. That application is advanced on four grounds:
(c) the primary judge erred in finding that there was a binding Finalisation Agreement or that it bound all the parties to the litigation;
(d) the primary judge erred in finding that the applicant is estopped from resiling from the Finalisation Agreement because (i) the evidence does not support the findings of detrimental reliance and (ii) the respondents should not be entitled to rely on an equitable estoppel as they lack ‘clean hands’;
(e) the primary judge should have, but did not, make findings of liability against the fifth, ninth and tenth respondents; and
(f) the primary judge failed to give adequate reasons in respect of certain findings, namely findings of non-liability against the seventh to eleventh respondents (the directors of the initial unitholders) and findings in relation to the Finalisation Agreement.
Security for costs at first instance
The respondents made a number of applications for security for costs at first instance. Pursuant to various orders made by the Court, the applicant provided a total of $342,508.66 in security for costs. This security was given in various forms, including by way of cash security and by way of two personal undertakings given by a director of the applicant, Brett Buckland, and his wife, Carmela Buckland. The orders in respect of the two personal undertakings were made during the trial. The making of those orders was not opposed, although the amount to be ordered as security was disputed and determined by the primary judge.
It is not necessary to rehearse the terms of the undertakings. It is sufficient to note that on or about 15 September 2016, Mr and Mrs Buckland gave a personal undertaking to the Court and to the second to twelfth respondents that in the event a costs order was made against the applicant in favour of those respondents, they would personally pay such costs up to $70,000. A further undertaking in similar terms was given on or about 5 December 2016, by which Mr and Mrs Buckland undertook to personally pay costs up to $145,000 (inclusive of the earlier undertaking for $70,000).
To further secure these undertakings, Mr and Mrs Buckland granted a charge in favour of the second to twelfth respondents over their family home and undertook not to further encumber that property. Although the family home is subject to a mortgage, the Bucklands’ equity in the property exceeded the security of $145,000 given by way of the undertakings.
After the determination of the proceeding at first instance, the primary judge ordered that the security be released to the applicant. The order made by the primary judge did not discharge the security of $70,000 given on 15 September 2016. The applicant claims that this sum should have been released together with the other security, but was omitted from the order by oversight. That security remains in place in respect of the costs of the trial that might be payable to the respondents.
In his affidavit of 22 December 2017, the respondents’ solicitor, Anthony Watson of K & L Gates, deposed to the fact that the security of $70,000 which had been put in place pursuant to the order of the primary judge on 15 September 2016 had not been discharged. In response, the applicant’s solicitor, David Leggatt of DLA Piper, deposed that this had occurred through inadvertence arising in the context of a cyber attack that had made access to the electronic files kept by the applicant’s solicitor difficult. When the applicant had submitted a draft final order to the primary judge it only included three out of the four orders for security.[11]
[11]The draft order sought release of the orders for security made on 24 July 2015, 14 December 2015 and 5 December 2016. There was no mention of the order of 15 September 2016.
In submissions before us, the respondents did not accept that the failure to release the $70,000 security was inadvertent.
The evidence does not allow us to conclude whether the failure to exclude the order of $70,000 was deliberate. We accept that the reason the applicant did not include the $70,000 in its draft order was caused by a mistake and that it intended to seek release of all of the security it had provided for the proceedings at first instance. The submissions advanced by the applicant before the primary judge on the form of orders to be made after the publication of the Second Reasons, including the order seeking release of security, did not give any indication that the failure to include the order of 15 September 2016 was deliberate. We note that in an email to the parties from the Associate to the primary judge, the parties were advised that ‘[h]is Honour has accepted the plaintiff’s submission in relation to the release of the security provided for the defendants’ costs of the proceeding pursuant to the various orders.’
In those circumstances, we are satisfied that there is a very real prospect that the extant security provided by the Bucklands, who are not parties to the proceeding, may remain in place through inadvertence on the part of the primary judge. We note that the decision to remove security occurred in a context where in effect the respondents had security in the sum of $212,138 which it owed the applicant under the Finalisation Agreement and the respondents had only a partial order for costs in their favour.
Applicable principles
Pursuant to r 64.38(2)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’), a party may apply to the Court of Appeal for an order for security for costs of an application or appeal. Rule 64.38(4) provides that the Court may make an order that security be given on such terms as the Court thinks fits.
Rule 64.38(4) confers on the Court a broad discretion to order security, which is to be exercised in light of the facts and circumstances of the particular case.[12] The factors relevant to the exercise of the Court’s discretion have been discussed in a number of cases.[13] They include (among others) the prospects of success of the appeal; the degree of risk that a costs order would not be satisfied; whether the making of an order would be oppressive by stifling a reasonably arguable claim; whether any impecuniosity of the appellant (or applicant) arises out of the conduct complained of; whether there are any aspects of public interest militating against the making of such an order; and whether there are any particular discretionary matters relevant to the application.
[12]See Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd [2017] VSCA 213 [21].
[13]See, eg, Maher v Commonwealth Bank of Australia [2008] VSCA 122 [80] (Dodds-Streeton JA); Ribbera v Eagle Fuels Pty Ltd [2014] VSCA 173 [30] (Garde AJA); Trkulja v Dobrijevic [2015] VSCA 281 [43]; Giza v Waybecca Pty Ltd [2016] VSCA 184 [13]; Bodycorp Repairers Pty Ltd v Maisano [2017] VSCA 39 [23].
It may be doubted that the matters in r 62.02 which condition the making of an order for security at first instance apply to an application for security in the Court of Appeal under r 64.38(2).[14] On that view, and contrary to the parties’ submissions, the alleged impecuniosity of an applicant does not ‘enliven’ this Court’s discretion to order security. It is merely one factor to be taken into account alongside the other factors relevant to the exercise of the Court’s discretion. However, our decision does not turn on that distinction.
[14]See Rules r 62.02(1)(b). Where an application for security for costs is made at first instance, the Court may make an order that security be given where (among other circumstances) the plaintiff is a corporation and there is reason to believe that it has insufficient assets in Victoria to pay the costs of the defendant.
Respondents’ submissions and evidence
In support of the application for security for costs, the respondents rely on two affidavits sworn by Mr Watson on 22 December 2017 and 21 February 2018.
The respondents submit that the applicant is impecunious and without assets in the jurisdiction, and that security should be ordered in the exercise of the Court’s discretion because:
(g) security was sought at an early stage, with a demand for security being made to the applicant’s solicitor on 22 September 2017;
(h) there would be no prejudice to the applicant if security were ordered;
(i) no security has been offered by persons standing behind the applicant;
(j) the application is not oppressive, and will not stultify the proceeding. In this regard, it is noted that security was provided at first instance without bringing the proceedings to an end;
(k) the applicant’s impecuniosity was not caused by the respondents; and
(l) there are no public interest considerations militating against the ordering of security.
The respondents further submit that any order for security should extend to past costs incurred by them in relation to the appeal.
The affidavit of Mr Watson sworn 22 December 2017 addresses the basis on which the respondents have quantified their costs of the appeal. That affidavit exhibits a report from a costs lawyer, Jennifer Young, in which Ms Young estimates the respondents’ total past and future costs of the appeal at $150,468.15 (comprising $10,568.95 in past costs and $139,899.20 in future costs).
Applicant’s submissions and evidence
The applicant relies on an affidavit of Mr Leggatt sworn on 20 February 2018.
The applicant accepts the respondents’ contention that it is impecunious and has negligible assets, but says that the Court should not order security because:
(m) the appeal has real prospects of success;
(n) the respondents’ risk in relation to their costs is mitigated by Mr Buckland’s personal assets and his previous compliance with orders for security;
(o) an order for security would be oppressive because it would stifle the applicant’s reasonably arguable claim;
(p) the applicant’s impecuniosity arises from the wrongdoing of the respondents, which it alleged and proved at trial (but for which it was unable to recover by reason of the primary judge’s finding in relation to the Finalisation Agreement); and
(q) the conduct of the respondents in placing the first respondent into administration and breaching an undertaking demonstrates a willingness to conduct their defence to the claim improperly.
The applicant disputes the respondents’ claim that security was sought at an early stage. The applicant says that the respondents delayed filing their application for security for costs until 22 December 2017, more than one month after the applicant indicated that it would not voluntarily provide security and after substantial costs had been expended in preparation for the appeal.
The applicant also submits that the respondents’ quantification of their costs is ‘excessive’. The applicant relies on the report of a costs lawyer, Paul Linsdell, which is exhibited to the affidavit of Mr Leggatt. Mr Linsdell says in his report that security should be given for no more than $57,532.26 (or $64,447.98 if pasts costs are to be allowed).
Analysis
The applicant accepts that it is impecunious with negligible assets. In the absence of security, the fact that the applicant is impecunious means that the respondents have little or no prospect of recovering any costs in the event they are successful in resisting the appeal.
The applicant submits that the respondents’ risk in relation to costs is mitigated by Mr Buckland’s personal assets and his previous compliance with orders for security. Given that Mr Buckland would not be personally liable to meet any costs order made against the applicant, in the absence of an enforceable undertaking, we would attach little weight to a promise that he would meet a costs order made in favour of the respondents.
In our view, the applicant’s impecuniosity, and the consequential risk that the respondents will be unable to recover their costs, is a very significant factor in favour of ordering security. Further, it appears that the persons who would stand to benefit, either directly or indirectly, from the applicant’s success in the appeal (namely Mr and Mrs Buckland) would not have any exposure to the risk of costs unless security is given. That too is a powerful factor in favour of the application.
However, as noted above, there are a number of other factors that are also relevant to the Court’s exercise of its discretion.
First, the applicant submits that its impecunious state is a result of the wrongdoing that it alleged and proved at trial, but for which it was unable to recover by reason of the primary judge’s findings in relation to the Finalisation Agreement.
It is not possible on this application to come to any conclusion on whether the cause of the applicant’s current financial position rests with the respondents or in its own camp. The applicant is a single purpose vehicle whose only asset was its interest in the Unit Trust which undertook the development.
Although the primary judge found that there had been a breach of trust, his Honour also found that all of the applicant’s claims had been compromised. On the findings of the primary judge, the applicant resolved the dispute on terms that it presumably regarded as being in its own interest. In those circumstances, we are unable to conclude that the respondents are responsible for the financial position of the applicant or that its present predicament is due to the breach of trust identified by the primary judge. Determining the cause of the applicant’s current financial state would require a determination of the issues in the appeal which is not appropriate on the present application.
Second, it is customary on an application such as the present to take into account the applicant’s prospects of success on its application for leave to appeal. However, that assessment is necessarily highly provisional and without the benefit of full argument from either party. In its submissions on this aspect, the applicant refers to its written case in support of the appeal. For the purposes of this application, we are prepared to accept that the applicant’s grounds of appeal are arguable.
Third, and importantly, we do not accept that an order for security would stultify the appeal. The applicant’s submission to the contrary is, in our view, not borne out by the evidence, nor the experience at trial.
In his affidavit, Mr Leggatt does not say that an order for security would mean that the appeal would be brought to an end. Mr Leggatt says that Mr Buckland, who it appears would provide the funds for any security, does not have access to any cash to provide security. He says that Mr Buckland only has access to the cash required to fund the appeal, in respect of which he has incurred fees of $54,571.06 to date and will likely require a further $25,000 to prosecute to completion.
It is reasonable to infer from Mr Leggatt’s affidavit that an order for cash security would present a significant obstacle to the applicant continuing with its appeal. However, a security by way of undertaking supported by a charge over the Bucklands’ property would not bring the appeal to an end.
Having regard to the above, we consider that there should be an order for security in the form of a personal undertaking given by Mr and Mrs Buckland and secured by a charge in favour of the respondents over the property at 1028 Mt Alexander Road, Essendon. Mr Buckland and his wife should also undertake not to further encumber the property. The application for leave to appeal should be stayed pending the proffering of the written undertaking.
We turn now to consider the quantum of security. In a number of first instance decisions, the Court has accepted that its jurisdiction to order security can extend to costs already incurred.[15] Having regard to the wide discretion conferred by r 64.38(4), we consider that the Court of Appeal is similarly entitled to order security in respect of past costs on an application for security of costs of an appeal. In our view, it is reasonable for the security ordered here to take into account past costs in the Court of Appeal. However, we would regard the assessment given by the respondent to be too high.
[15]See, eg, Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97; Manderson M & F Consulting v Incitec Pivot Limited [2012] VSC 618; DIF III Global Co-Investment Fund LP v BBLP LLC [2015] VSC 484 (an appeal from this decision was allowed on the issue of the form of the security: DIF III Global Co-Investment Fund LP v BBLP LLC [2016] VSC 401); Oswal v Australia and New Zealand Banking Group Ltd [2016] VSC 52; Oswal v Australia and New Zealand Banking Group Ltd [2016] VSC 119.
In our view, the security should be in the amount of $70,000.
As there is a very real prospect that the primary judge may not have discharged the security of $70,000 given on 15 September 2016 through inadvertence, our order for security for costs will be conditional on the discharge of that prior security. Although it is regrettable that the issue of the extant undertaking had not been resolved before the present application came on for hearing before us, we are satisfied that there is a real risk that the existing security is in place because of a mistake.
In our view, it would not be an appropriate exercise of our discretion to order security which will be provided by a third party in circumstances where that third party is subject to an undertaking that remains in place through oversight.
We will hear counsel on the form of order and as to the costs of the application.
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