Craigcare Group Pty Ltd v Superkite Pty Ltd
[2014] NSWSC 326
•26 March 2014
Supreme Court
New South Wales
Medium Neutral Citation: Craigcare Group Pty Ltd v Superkite Pty Ltd [2014] NSWSC 326 Hearing dates: 24, 25, 27 February 2014 Decision date: 26 March 2014 Jurisdiction: Equity Division Before: Hallen J Decision: Direct the parties to provide, within 14 days, short minutes of order that reflect the conclusions reached as to the amount to be paid to the Plaintiff by the first Defendant, including interest, and costs. If agreement is reached on the form of orders, the orders will be made and entered in Chambers. Otherwise, the matter will be listed for further argument on a date to be agreed.
Catchwords: CONTRACT - whether contract between Plaintiff and first Defendant - Contract established between Plaintiff and first Defendant as to money paid and the terms upon which it was paid to trust account
EQUITY - TRUSTS - whether money paid into firm of solicitors' trust account was held on trust for Plaintiff as it was only to be used for prescribed purposes - whether trust was breached by payment out for purposes other than prescribed purposes - whether Plaintiff entitled to equitable compensation - whether second Defendant liable as an accessory to breach of express trust or breach of Quistclose trust under the second limb of Barnes v Addy - consideration of Quistclose trust - Express trust in favour of Plaintiff - breach of trust established - Whether Plaintiff entitled to "equitable damages" - Second Defendant is not liable for knowing assistance in breach of trust
COSTS - Whether to cap costs in view of amount of the claim - Plaintiff to recover 65% of its costs, such costs to be calculated on the ordinary basis - Second Defendant to pay his own costs of proceedingsLegislation Cited: Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Evidence Act 1995 (NSW)Cases Cited: Amaltal Corporation Ltd v Maruha Corporation [2007] NZSC 40; [2007] 3 NZLR 192
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (in liq) [1978] HCA 45; (1978) 141 CLR 335
Australian Elizabethan Theatre Trust, Re; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491
Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
Baffico v YMCA of Great Lakes Inc [2014] NSWCA 61
Barclays Bank Ltd v Quistclose Investments Ltd [1968] UKHL 4; [1970] AC 567
Barnes v Addy (1874) 9 Ch App 244
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
Baychek v Baychek [2010] NSWSC 987
Bibby Financial Services Australia Pty Ltd v Sharma [2014] NSWCA 37
BigTinCan Pty Ltd v Ramsay [2013] NSWSC 1248
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410
Caroona Coal Action Group Inc v Coal Mines Australia Pty Limited and Minister for Mineral Resources [2009] NSWLEC 165
Chandler v Water Corporation [2001] WASC 166
Chapman v Taylor [2005] NSWCA 95
Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337
Compass Resources Ltd v Sherman [2010] WASC 41; (2010) 42 WAR 1
Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
George v Webb [2011] NSWSC 1608
Hendriks v McGeoch [2008] NSWCA 53
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5; (2010) 182 FCR 84
Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86
Kelly v Mina [2014] NSWCA 9
Kinsela v Caldwell [1975] HCA 10; (1975) 132 CLR 458
Laidlaw v Hillier Hewitt Elsley Pty Ltd [2009] NSWCA 44
Legal Services Board v Gillespie-Jones [2012] VSCA 68
Mamo v Surace [2014] NSWCA 58
Manly Council v Byrne [2004] NSWCA 123
McManus RE Pty Ltd v Ward [2009] NSWSC 440; (2009) 74 NSWLR 662
Mario Salvo v New Tel Ltd [2005] NSWCA 281
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449
OneSteel Manufacturing Pty Ltd v United KG Pty Ltd [2006] SASC 119; (2006) 94 SASR 376
Pilmer v The Duke Group Ltd (In Liq) [2001] HCA 31; (2001) 207 CLR 165
Raulfs v Fishy Bite Pty Ltd; Fishy Bite Pty Ltd v Raulfs [2012] NSWCA 135
Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517
State Bank of NSW v Brown [2001] NSWCA 223; (2001) 38 ACSR 715
Walker v Corboy (1990) 19 NSWLR 382
Ying v Song [2010] NSWSC 1500
Zhong v Wang [2006] NZCA 242; (2006) 5 NZ ConvC 194,308Texts Cited: P W Young, C Croft and M Smith, On Equity (2009, Thomson Reuters)
W Swaddling (ed), The Quistclose Trust: Critical Essays (2004, Hart Publishing)Category: Principal judgment Parties: Craigcare Group Pty Ltd (Plaintiff)
Superkite Pty Ltd (first Defendant)
Alfred John Stammers (second Defendant)Representation: Counsel:
Mr G A Sirtes SC; Mr D W Robertson (Plaintiff)
Ms T R Gordon (Defendants)
Solicitors:
Curwoods Lawyers (Plaintiff)
Colin Biggers & Paisley (Defendants)
File Number(s): 2012/376897
Judgment
Introduction
HIS HONOUR: These proceedings, initially involved a claim by the Plaintiff, Craigcare Group Pty Ltd ("Craigcare") for $100,000 ("the Money"), which it paid to a firm of solicitors acting for the first Defendant, Superkite Pty Ltd ("Superkite") in early August 2011, for certain purposes (which are the subject of dispute). The second Defendant, Alfred John Stammers ("Mr Stammers"), is recorded as being the sole director of Superkite. He is also a solicitor at the firm of solicitors, Holman Webb, which is said to have disbursed the Money out of its trust account otherwise than for the purposes asserted by Craigcare.
The dispute between the parties relates, principally, to the terms of the agreement reached about the Money; whether a trust was constituted; and, if so, whether it was breached by Superkite. Whether the second Defendant aided and abetted what is said to have been a breach of trust is also an issue. (Although there was also an allegation about a fiduciary duty owed by the Defendants and a breach by each, little time was spent on this issue. I shall, however, refer to it, briefly, later in these reasons.)
At the commencement of the hearing, senior Counsel informed the Court that Craigcare's claim was reduced to $69,024.50, plus interest and costs, it being accepted that the amount of $30,975.50 was paid out of the Money on behalf of Superkite for the purposes asserted by Craigcare, and that it was necessary to amend the Statement of Claim to claim the lesser amount. (The matter was identified in Craigcare's written Submissions, which were served shortly prior to the hearing.)
During the course of the hearing, the Defendants sought leave to amend the amended Defence to raise an allegation that amounts in other invoices, not specifically identified in the amended Defence, but which had been adverted to in the evidence, were paid by Superkite, out of other funds, and were reimbursed out of the Money. Coincidentally, the two invoices referred to, were for a total amount of $60,000.
Despite the amount claimed by Craigcare, the matter was listed for hearing for two days. The Plaintiff retained senior and junior counsel (Mr G A Sirtes SC and Mr D W Robertson) to appear at the hearing, whilst junior counsel (Ms T R Gordon) appeared for the Defendants. The matter was not concluded within that time for reasons to which I shall come. However, it finished on the third day.
It struck me, during the course of the hearing, that the sum of money involved was symbolic, since there is little doubt that the costs of the proceedings, on each side, would far exceed the amount claimed. It was equally clear that the sum involved was minute compared with what was suggested to be the financial position of each of Craigcare and Superkite and when one considered the amounts involved in the proposed transaction that had prompted the payment of the Money.
At the completion of the submissions, I indicated that I proposed to cap the recoverable costs of each party of the proceedings and that written submissions should be filed and served on the issue of costs, bearing in mind the amount claimed, within 7 days. (No submissions were received within the prescribed time from the Defendant. They were, however, received a few days later.) I shall refer to the submissions on costs at the completion of these reasons.
A Brief Background
The following facts, for the most part, are uncontroversial. I have taken them from what are, essentially, agreed facts, or from evidence about which I am satisfied.
Craigcare and Superkite is each a corporation incorporated under the Corporations Act2001 (Cth).
Craigcare was registered as a corporation, in Western Australia, in April 2002, where it continues to have its registered office. Its business is that of "a retirement community and aged care facility provider, principally in Victoria and Western Australia". Mr John Gillett is the sole shareholder and director of Craigcare.
As at July 2011, Craigcare owned, and operated, six nursing homes and two retirement villages in addition to managing two other retirement villages. Craigcare's assets were valued, then, at approximately $50 million.
At about that time, Craigcare was seeking to raise up to $500 million by debt and equity financing, so as to increase places to 6,500 in its aged care facilities.
Superkite was incorporated in New South Wales in March 2011. Its registered office is, and was then, care of Holman Webb, Lawyers, in Sydney. The "Profile" of Superkite, which document forms part of the evidence, identifies Superkite as "a 'cashbox' vehicle for intended investments in Australia, USA, UK and UAE".
The current Company Extract from the ASIC database shows that its sole director, at all relevant times, was Mr Stammers. It had 1,000,000 issued fully paid shares, the owner of which, legally and beneficially, was shown to be Kirep Pty Ltd, which is described as Mr Stammers' "family trust company".
Mr Stammers says, and I accept, that Kirep Pty Ltd is not, in fact, the beneficial owner of the shares, but that it holds the shares on trust for a third party, Mr Roland Bleyer (also known as "Roland Husner"). In a document to which I shall later refer, Mr Bleyer confirms that the shares are held upon trust for him.
Mr Bleyer describes himself as "the Chairman of the Finance Committee of Superkite". His role is said to include "giving instructions to [Mr] Stammers", whom he describes as "the nominee director of Superkite". He states that Mr Stammers "is required to act in accordance with the written instructions of the Finance Committee for Superkite in performing his role as nominee director". However, the only person identified on the Company Extract, to which I have referred, as a director, is Mr Stammers.
Mr Stammers also says that neither he, nor Kirep Pty Ltd, receives "any financial advantage in return for, or as a result of, holding those shares". He does, however, receive director's fees, from Superkite, for acting as its director.
Bella Finance is a business owned by Superkite. Although it does not play any role in the proceedings, emails were sent to an email address with its name included, which Mr Stammers understood was one of the email addresses of Mr Bleyer.
At all relevant times, the firm of solicitors acting for Superkite, in the transaction to which I shall refer in more detail, was Holman Webb. Mr Stammers was, and is, an employed solicitor at that firm and was the solicitor within the firm responsible for the conduct of matters for Superkite.
Mr Rick Mitry, of Mitry Lawyers, was the solicitor acting for Craigcare in the transaction. He has not played any role in the proceedings, although he had some involvement in the transaction that gives rise to it.
In July 2011, Mr Mitry made contact with Mr Bleyer (whom he had known previously) and a meeting was arranged, in Sydney, to be held with Mr Gillett. At the meeting, there was a general discussion about funding that Superkite could provide to Craigcare. Mr Bleyer represented that Superkite could arrange funding of up to $500 million, for a joint venture vehicle, subject to Craigcare providing guarantees in respect of the borrowed funds. His suggested method of financing was to form a joint venture vehicle between Craigcare and Superkite.
At the meeting, Mr Bleyer also mentioned the need for Craigcare to pay the Money into the trust account of Superkite's solicitors to meet the expected legal and due diligence costs incurred by Superkite in arranging the funding. (It is not suggested that what was said at this meeting constituted an agreement between the parties.)
On 21 July 2011, Mr Mitry sent Mr Bleyer some information concerning the Craigcare business.
On 4 August 2011, Craigcare paid the Money into the trust account of Holman Webb. The terms and conditions on which Craigcare did so, and whether the amount, or any part of the amount, would be reimbursed to it, were the subjects of the dispute between the parties.
In or about December 2011, prior to the existence of any "counter-signed definitive agreements" (the reference to which I shall return later in these reasons), the negotiations in relation to the proposed joint venture, ended without any concluded agreement about funding having been reached.
Following the termination of the negotiations, Craigcare requested the return of the Money. Superkite refused to repay it, or any part of it.
The Pleadings
Craigcare filed a Statement of Claim on 4 December 2012. It sought a declaration that:
(a) the Money was held by Superkite upon trust for it;
(b) Superkite "owed [Craigcare] a fiduciary obligation in relation to the Money" that had been paid to Holman Webb;
(c) Superkite engaged in a breach of trust and a breach of its fiduciary duty; and
(d) Mr Stammers "knowingly assisted and procured" the breach of trust, and aided and abetted the breach of fiduciary duty, by Superkite.
Craigcare sought orders that:
(a) there be an account taken in relation to the Money;
(b) Superkite and Mr Stammers repay the Money to Craigcare;
(c) Superkite and Mr Stammers pay "equitable damages"; and
(d) Superkite and Mr Stammers pay costs.
Craigcare pleaded that "in consideration of [Craigcare] providing $100,000 of funds to ... Holman Webb, [Superkite] would facilitate the documentation and formalisation of the joint venture project".
Craigcare then alleged that:
"6. The said agreement contained the following terms:
(i) the $100,000 sum would be held in trust by Holman Webb;
(ii) the funds were paid to Holman Webb for a specific purpose in that they could only be used to pay the reasonable legal costs incurred by Holman Webb and other reasonable expenses incurred by [Superkite] in relation to the proposed joint venture project;
(iii) the balance of any funds not expended were to be repaid to the Plaintiff;
(iv) that if the First Defendant did not or could not perform as per the conditions of 'counter-signed definitive agreements', the money would be refunded to the Plaintiff."
(I should mention that, on the afternoon of the first day of the hearing, senior Counsel indicated that Craigcare did not seek to rely upon sub-paragraph 6(iv) of the Statement of Claim. However, as the term "counter-signed definitive agreements" is otherwise referred to, I have included the sub-paragraph as part of the pleading.)
Craigcare asserted that the agreement was "in facilitation of a prospective joint venture agreement" and that it would provide Superkite with the Money, "as part of its contribution to the future project, such money only to be expended by [Superkite] on reasonable legal and other expenses in relation to the establishment of the joint venture project".
Craigcare also alleged an implied term of the agreement "that [Superkite] would, within a reasonable time after a request, advise the Plaintiff of any reasonable legal, or other, expenses... incurred in relation to the proposed joint venture". It also alleged that the Money would not become part of the assets, and would not be at the free disposal, of Superkite or Mr Stammers, but would be used exclusively for the purposes identified, and that the Money, or such part of it not properly expended, would be repaid to Craigcare.
Craigcare relied upon a trust being established "pursuant to the principles set forth in Barclays Bank Ltd v Quistclose Investments Ltd [1968] UKHL 4".
Craigcare then alleged the termination of the joint venture negotiations and its request for repayment of the Money. It also alleged that Superkite "failed to disclose any expenses incurred by it in relation to the failed joint venture project".
Craigcare alleged a breach of trust in Superkite failing to account to it for the use of the Money and by instructing Holman Webb to pay the money out of its trust account for other purposes.
Craigcare also alleged a breach of fiduciary duty in that Superkite favoured its own interests and obtained a profit by "arrogating to itself the Money or such part of it that had not been expended on expenses or reasonably incurred expenses".
As against Mr Stammers, Craigcare asserted that he had knowledge of the existence of the trust and/or the purposes for which the Money was to be used, and of Superkite's fiduciary duty, and that he aided and abetted the use of the Money for purposes other than those for which the Money had been paid.
The Defendants filed an Amended Defence on 22 May 2013, in which it, and he, admitted an agreement between Craigcare and Superkite, but said that its terms were:
"(a) [Craigcare] was to pay the amount of $100,000 into a [sic] account held by Holman Webb (the Money);
(b) the purpose of the payment of the Money was to pay [Superkite's] legal and other costs of facilitating the documentation and formalisation of the joint venture project; and
(c) [Superkite] would only return the Money to [Craigcare] if [Superkite] did not or could not perform the terms and conditions of the signed agreement entered into by [Craigcare] and [Superkite] to give effect to the joint venture project."
The Defendants also asserted "after much work had been done by both Defendants, the costs of which far exceeded the said sum of $100,000, [Craigcare] without any good or sufficient reason, and indeed without any explanation or notice whatsoever, unilaterally withdrew from the joint venture project leaving [Superkite] incurring considerable financial loss". (It is not suggested that Craigcare was in breach in doing so, and no Cross-Claim was filed by Superkite.)
In the amended Defence that was filed in May 2013, in answer to the allegation of a breach of trust by Superkite, for the first time, the Defendants identified (in Paragraph 10C) by date, number and amount, a number of different Tax Invoices, which had been rendered by Holman Webb that had been paid out of the Money. The total of the amounts claimed in these Tax Invoices was $98,181.04. Nothing was specifically written in the amended Defence about the use of the balance of the Money ($1,818.96).
Later in the amended Defence (in Paragraph 13), it was said:
"In answer to the whole of the Statement of Claim, further and in the alternative to the matters pleaded above, the First Defendant says that the whole of the Money was used to pay the First Defendant's legal and administrative costs with respect to the preparation of the joint venture agreement, the loan agreement, due diligence and incidental costs associated with the initial facilitation of the joint venture project".
Four Tax Invoices, the total value of which was $29,573.50, and "[a]dministrative costs" (the amount of which was not particularised), were identified.
As well, in the amended Defence (in Paragraph 14), Superkite alleged that Craigcare had represented that the Money could be used to meet its legal fees and other costs associated with the joint venture project; that it had relied upon that representation; that it did use the Money for the requisite purpose and that Craigcare was estopped from requiring Superkite to repay the Money and precluded from seeking the relief claimed. No particulars of Superkite's "legal fees and other costs associated with the joint venture project" were identified in this Paragraph.
Needless to say, in the Amended Defence, Mr Stammers denied any conduct that would make him liable to Craigcare. He admitted he "had knowledge of the Money", which from his other evidence to which I shall later refer, meant that he knew that it had been paid into the Holman Webb trust account and also the purposes for which it was to be used.
The Hearing
As I have previously written, at the commencement of the hearing, senior Counsel sought to amend the Statement of Claim to seek the amount of $69,024.50 (plus interest and costs). This amount was calculated by deducting, from the Money, the amount of $30,975.50, being the total of the amounts stated in the four Tax Invoices specifically identified in Paragraph 13 of the amended Defence referred to above (Tax Invoice No 181465 ($8,673.50), Tax Invoice No 184109 ($16,615.50), Tax Invoice No 184717 ($2,821.50), Tax Invoice No 188179 ($1,463)), together with an amount of $1,402, being a disbursement, which Craigcare accepted was to be paid out of the Money.
The Defendants did not oppose the amendment to claim the lesser amount.
During the course of the hearing, particularly following some objections to evidence, it seemed to me (although there was some debate about it) that the Defendants did not seek to establish that all of the amounts stated in the Tax Invoices referred to in Paragraph 10C of the amended Defence as having been paid out of the Money, were properly payable out of the Money.
When I sought clarification (on the second day of the hearing) of the substance of the Defendants' defence on this issue, Ms Gordon said:
"... it is not the defendant's position that any of that money was paid out inappropriately or in breach of its obligations. If I could elaborate, the position is this: that money was used to pay unrelated legal fees owed by Superkite to Holman Webb in circumstances where Superkite had used its own funds to pay invoices relating to the transaction. It then asked Holman Webb to reimburse it for those amounts by directing it to pay these unrelated invoices."
There was no dispute that "the unrelated legal fees", other than one for $12,114.63, were those identified in the Tax Invoices referred to in Paragraph 10C of the amended Defence which had been disputed by Craigcare. (Ultimately, of the remaining Tax Invoices identified in that Paragraph of the amended Defence as having been so paid, only the Tax Invoice for $12,114.63 (apart from those invoices the Plaintiff admitted) was the subject of dispute, Craigcare submitting that it was not used for any of the purposes agreed upon for which the Money was to be used.)
Having come to this point, and after a debate about whether leave to amend was required, counsel for the Defendants sought leave to amend the amended Defence by alleging that two other invoices (one from Masud & Company for $50,000 and the other from Mr Andrew Bacik, for $10,000) not identified in the pleadings, for work said to be done on behalf of Superkite, were amounts paid by Superkite, which amounts were notionally reimbursed from the balance of the Money by Holman Webb by paying other Tax Invoices that Superkite was required to pay. (Whilst a copy of the Invoice for $50,000 was in evidence, a copy of the other Invoice was not.)
In relation to whether there was need for leave to amend, Counsel for Superkite relied upon Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658, in which the Court wrote, at 664:
"Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it ...; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial...; and they give a defendant an understanding of the plaintiff's claim in aid of the defendant's right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings... But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence. Particulars may be amended after the verdict in a trial has closed ... though a failure to amend particulars to accord precisely with the facts which have emerged in the course of evidence does not necessarily preclude a plaintiff from seeking a verdict on the cause of action alleged in reliance upon facts actually established by the evidence...".
Senior Counsel for Craigcare opposed the amendment upon the basis that it raised a new case, not otherwise pleaded; that the amended case proposed involved more than "just particulars"; and that to allow the amendment may result in an application for an adjournment by Craigcare, to enable its solicitors to investigate the work said to have been done, identified in the two invoices, perhaps, to file a Reply, and also to obtain other documents going to the actual work said to have been done referred to in each of those invoices.
In reply to Craigcare's submissions, counsel for Superkite submitted that it was not a new case being alleged and that Craigcare was well aware of the invoices (a copy of one of which had been included, without objection, in the documentary evidence). Ms Gordon did not dispute, however, that it might be necessary for Craigcare's solicitors to carry out further investigations, file a Reply, or obtain documents going to the actual work said to have been done referred to in each of those invoices.
During argument about the amendment, I indicated that I felt reluctant to accept Superkite's submission that leave was not required as all that was being referred to were additional particulars. I expressed this view, tentatively, because it appeared that Superkite was seeking to rely upon two different invoices, alleged to have been issued by, or on behalf of, persons, or entities, who, or in respect of which, were not witnesses in the proceedings, and in respect of which nothing had been written in the amended Defence (although reference had been made to each of the invoices in an affidavit sworn by Mr Bleyer and served in October 2013).
Furthermore, it seemed that what had been asserted by the Defendants in the amended Defence, until the issue was raised, was that certain identified Tax invoices, which were related to the joint venture project, had been paid out of the Money, whilst what was being asserted, if the amendment were to be permitted, was, in effect, that several of those Tax invoices were unrelated to the joint venture project, but had been paid because the two other invoices sought to be relied upon, were paid by Superkite, out of its own funds, and that Superkite had authorised Holman Webb to reimburse it, out of the balance of the Money, by paying those unrelated Tax Invoices.
I had in mind when referring to my tentative view, what had been written by Hasluck J in Chandler v Water Corporation [2001] WASC 166, at [41]:
"A party to civil litigation is entitled to a statement of the opponent's case in sufficiently clear terms to allow the opposing party the fair opportunity to meet the case being advanced. An action may not be pleaded in general terms and must be pleaded with particularity: Bruce v Odhams Press Ltd [1936] 1 KB 697 at 705. The purpose of pleadings and particulars is to concentrate the issues of fact and to prevent surprise and consequent delay: Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 221."
However, at the conclusion of the submissions, I indicated that I might be prepared to grant leave to amend, and to allow Craigcare an adjournment to properly prepare its case based upon the amendment, upon the basis that the amount that had been paid out of the Money for unrelated legal fees, and/or not otherwise admitted by Craigcare as having been properly paid, should be paid into Court by Superkite pending the conclusion of the proceedings.
I adjourned the matter, briefly, to allow the parties to consider what was required to be done if the amendment were allowed to be made and to obtain instructions otherwise. I was informed, subsequently, that Superkite was not prepared to pay any amount into Court if that were a term of the amendment being granted.
In the circumstances, I indicated that I was not prepared to grant the amendment and that I would provide detailed reasons as part of the reasons for judgment. I do so now.
The principles in regard to permitting amendments are well known and do not require detailed repetition. They have been stated, recently, by Barrett JA in Kelly v Mina [2014] NSWCA 9, at [47] and [48], which passages I respectfully, and gratefully, adopt:
"Particularly in light of the opening words of s 64(2), it is not controversial that the provisions in Part 6 Division 1 of the Civil Procedure Act were binding on the primary judge and that, in accordance with s 58, his Honour was bound to seek to act in accordance with the dictates of justice and, in so doing, to have regard to s 56 concerning the 'overriding purpose' of the Act and rules of court in their application to civil proceedings; also that, in addressing the amendment application in the particular statutory context, his Honour was required to take into account a combination of factors identified by the High Court in Aon Risk Services Pty Ltd v Australian National University [2009] HCA 27: (2009) 239 CLR 175 and usefully summarised by Vickery J in Namberry Craft Pty Ltd v Watson [2011] VSC 136 (at [38]) as follows:
'(a) Whether there will be substantial delay caused by the amendment;
(b) The extent of wasted costs that will be incurred;
(c) Whether there is an irreparable element of unfair prejudice caused by the amendment, arising, for example, by inconvenience and stress caused to individuals or inordinate pressures placed upon corporations, which cannot be adequately compensated for, whatever costs may be awarded;
(d) Concerns of case management arising from the stage in the proceeding when the amendment is sought, including the fact that the time of the court is a publicly funded resource, and whether the grant of the amendment will result in inefficiencies arising from the vacation or adjournment of trials;
(e) Whether the grant of the amendment will lessen public confidence in the judicial system; and
(f) Whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought.'
As this Court has emphasised more than once, Part 6 Division 1 of the Civil Procedure Act made substantive and important changes to the law so that considerations of promptness and efficiency in the conduct of civil litigation are afforded a new and special importance which may sometimes provoke a sense of injustice in a party who has failed to proceed with despatch: see, for example, Dennis v Australian Broadcasting Corporation [2008] NSWCA 37; Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 at [160]-[161]; Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230; Halpin v Lumley General Insurance Ltd [2009] NSWCA 372; Bi v Mourad [2010] NSWCA 17; Richards v Cornford (No 3) [2010] NSWCA 134."
Of course, in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175, Gummow, Hayne, Crennan, Kiefel and Bell JJ, had observed, at 217:
"A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate."
These principles have again been referred to, by Bergin CJ in Eq (with whom Ward JA and Tobias AJA agreed), in Baffico v YMCA of Great Lakes Inc [2014] NSWCA 61, at [24] - [25]:
"As this Court has said previously the days of trial by ambush are gone. The 'cards on the table' approach in litigation is not only to ensure that the real issues in dispute are litigated but it is also to assist in the just, quick and cheap disposal of the proceedings: Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116; Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80. Those epithets are of course to be understood in the context of the particular case. It is imperative that the pursuit of timeliness and cost control in the case management process does not compromise what is at the core of the judicial system - the delivery of outcomes that are just.
Particulars control the generality of the pleadings. Their function is to make the opposing party "fully aware of the precise nature of the allegations made" against it: Philliponi v Leithead (1959) 76 WN (NSW) 150, 152; Pilato v Metropolitan Water Sewerage and Drainage Board (1959) 76 WN (NSW) 364. As modern case management has developed, timeframes within which particulars are to be delivered have been imposed under rules of court, practice notes and the general exercise of discretion by judges and registrars with managerial responsibility."
I have earlier referred to the amount claimed in these proceedings and the way the Defendants had framed their amended Defence. I have also referred to the submission, made on behalf of Craigcare, regarding what steps it might be required to take if an amendment were permitted. Those steps, if taken, would have resulted in the matter having to be adjourned, part heard, until later in the year. Significant costs would be wasted because the matter could not have proceeded on the second day of the hearing, no doubt at some cost to each party. Additional court time, perhaps, another two days, would then be required. On the adjourned hearing, it may have been necessary for Mr Gillett to be available, once again. (He had given his address as one in Western Australia.) Finally, I refer to the position of the Defendants that they were not prepared to pay the disputed amount into Court pending the determination of the proceedings.
I considered, in accordance with the "dictates of justice", having regard to s 56 of the Civil Procedure Act 2005 (NSW) concerning the "overriding purpose" of the Act and the rules of court in their application to civil proceedings, and taking into account the matters referred to above, that the amendment should not be permitted.
Regrettably, that was not the end of the matter. During the Defendants' submissions, the issue of the two Invoices that had been referred to arose again. Ms Gordon referred to the following evidence by affidavit, given by Mr Bleyer, that had not been the subject of any objection by Craigcare:
"37. On or about 22 September 2011, Superkite paid Mr Bacik $10,000 for fees incurred for reviewing the Craigcare File and preparing the draft LOI. A copy of the money transfer from Superkite to Mr Bacik is exhibited at page 155. I cannot locate a copy of the invoice pursuant to which the money transfer was made.
38. On or about 22 November 2011, Superkite received an invoice from Masud & Company for legal fees incurred advising in relation to the proposed joint venture between Superkite and Craigcare. A copy of the invoice from Masud & Company is exhibited at page 156 and a copy of the money transfer is exhibited at page 157. By providing a copy of this invoice I do not waive privilege in respect of the advice obtained or documents produced in respect of it.
39. On or around 23 December 2011, I provided instructions to Mr Stammers of Holman Webb to use the money deposited by Craigcare into the Holman Webb trust account to pay the legal fees incurred by Holman Webb in respect of the proposed joint venture with Craigcare and to apply the remaining money to other unrelated legal fees owed by Superkite to Holman Webb. I did so in an email. I have not exhibited the email to this affidavit because it contains instructions that are privileged."
Mr Sirtes SC then objected to the Defendants' reliance upon this evidence. He stated that he had not thought it necessary to object to these paragraphs in the light of the application to amend having been refused, as he believed that the evidence was not relevant to the proceedings and that the Court would simply ignore it as being irrelevant.
Ms Gordon stated that, for her part, she believed she was entitled to rely upon the evidence because it had not been objected to and because in her written submissions, she had stated:
"35. Even if Craigcare's construction of the Agreement is accepted, the evidence clearly establishes that there has been no breach. Superkite used the JV Monies to pay the reasonable costs of facilitating the proposed joint venture, as follows:
a. payment of invoices issued by Holman Webb for negotiating and drafting of the joint venture agreements in the amount of $34,893.50;
b. payment of an invoice issued by Andrew Bacik for advising on and drafting the draft LOI in the amount of $10,000; and
c. payment of an invoice issued by Masud & Company for advising on and drafting the joint venture agreements in the amount of $50,000.
36. The balance of the JV Monies, in the amount of $5,106.50, was retained by Superkite to cover its internal administrative expenses associated with negotiating the proposed joint venture. The evidence demonstrates that the time spent by Superkite attempting to negotiate the joint venture was not insignificant, such that the retention of this amount was not unreasonable.
37. The JV Monies were not directly used to pay the Bacik and Masud invoices. Rather, Superkite paid those invoices out of separately held funds and later instructed Holman Webb to use the JV Monies to pay other, unrelated, accounts. This was not a breach of the Agreement, which did not require Superkite to pay its expenses out of the funds deposited in the Holman Webb trust account.
38. If the Court finds otherwise, Craigcare has suffered no loss or damage from said breach, as the indirect approach that Superkite took to the payment of the Bacik and Masud invoices had no practical effect on Craigcare."
Ms Gordon submitted that she was entitled to rely upon the evidence of Mr Bleyer on the issue of damages, if any, even if Superkite was not allowed to rely upon that evidence in relation to the amendment that had been refused. In this way, even if Mr Bleyer's evidence had been objected to, it would not have been rejected because of its relevance, or potential relevance, to that issue. (This submission was not made at the time of the application for leave to amend.)
Mr Sirtes SC then made an application to re-open Craigcare's case to enable him to object to those paragraphs of Mr Bleyer's affidavit. He indicated that, if the Court did not grant leave to re-open, or if it granted leave and did not reject the evidence, he would wish to cross-examine Mr Bleyer, which cross-examination would take no more than one hour.
Ms Gordon did not cavil with the proposition that Mr Bleyer, in the circumstances, should be made available for cross-examination on this issue. Each party agreed that no other additional evidence would be given, if this course were adopted, although Ms Gordon left open the prospect of making a further application to amend the amended Defence.
In the circumstances, I formed the view that there had been, or appeared to be, a miscommunication or misunderstanding between, or error by, one or both of the legal representatives, and perhaps, by the Court (since the relevance of the evidence to the damages issue was not raised in the application to amend and the written submissions, identifying the point, had not been referred to during the course of argument), and that, in all the circumstances, despite a short adjournment being required to permit cross-examination, I should proceed in that way.
Accordingly, the matter was adjourned, part heard, to enable the cross-examination to take place. The matter recommenced two days later for one half day.
On 27 February 2014, Craigcare sought leave to file a Reply which was in the following terms:
"1. It was an implied term of the agreement between [Craigcare] and [Superkite] that the Money would be used only to pay the reasonable legal costs and other expenses reasonably incurred by Superkite in relation to the proposed joint venture project.
2. [Craigcare] denies that Mr Andrew Bacik and Mr Robert Masud provided any services or work in relation to the proposed joint venture project.
3. In the alternative, if Mr Andrew Bacik and Mr Robert Masud did provide any services or work in relation to the proposed joint venture project, the amounts charged for their work and/or services was not reasonable."
Counsel for the Defendants opposed leave being granted upon the basis that there had previously been no suggestion of the requirement for "reasonableness" and that there had not previously been a denial that Mr Bacik and/or Mr Masud had provided any services or work in relation to the joint venture project.
Various parts of the Statement of Claim were then identified to counsel, following which Ms Gordon withdrew the part of the submission that related to no reference having been made to "reasonableness". (As the two Invoices had not been referred to in the Defence, or in the amended Defence, it was hardly surprising that the denial had not previously been made.)
Bearing in mind that filing the Reply and the cross-examination of Mr Bleyer had been two of the matters raised in opposition to the amendment of the amended Defence, and following the grant of leave to Craigcare to file the Reply, the Defendants again sought to amend the amended Defence to raise the two invoices referred to in the Reply. There was, then, no opposition by Craigcare, and I granted leave to the Defendants to amend Paragraph 13 of the amended Defence by adding the following particulars:
"(vi) Holman Webb invoice 186872 $3,895
(vii) payment to Bacik $10,000
(viii) payment to Musad & Co $50,000, and,
(ix) payment company planners $1,402."
In this way, it seemed to me that, finally, the real issues in dispute were identified.
It then became necessary to deal with certain objections made to the affidavit of Mr Bleyer. This resulted in some of his previously rejected evidence being admitted, and the tender of an exhibit to his affidavit of 14 February 2014 (Ex. RB2).
Subsequently, Mr Sirtes SC cross-examined Mr Bleyer.
The Documentary and other Evidence
Next I shall review the communications between the parties at about the time the Money was deposited into Holman Webb's trust account and what followed. I shall also refer to the oral evidence of the witnesses.
I should say that I formed the view that each of Mr Gillett and Mr Stammers was endeavouring to tell the truth and, in my view, nothing turns on the credit of either witness.
I was less confident about the evidence of Mr Bleyer, not because I considered that he was being untruthful, but because it seemed that aspects of this matter were not of the same priority to him in light of there being many more financially significant transactions with which Superkite, and he, were involved. I shall return to some of his oral evidence later in these reasons to demonstrate why I formed this view.
On 28 July 2011, Mr Bleyer sent a "DRAFT LOI" (Letter of Intent) to Mr Gillett, with a copy to Mr Stammers and to Mr Mitry. (Mr Stammers did not have anything to do with the preparation of the Letter of Intent.) The email stated:
"Please find attached a DRAFT LOI for review by you on behalf of Craigcare and its professional advisors. Thereafter please feel free to place any questions or comments in writing.
A conference call inclusive of the head of administration based in the USA, plus Rick Mitry and the Writer, plus any others on the Craigcare side can also take place to clarify any part. Once all is agreed, legal binding arrangements can be prepared for countersigning.
After the existence of countersigned agreement(s) between the parties, banks can be approached in Australia to allow for bank to bank procedures to be undertaken and funding to occur."
Attached to the email was a document, which appeared to be a letter addressed to Mr Gillett, with the word "DRAFT" emblazoned on the front page in large font. It appears to be a pro forma letter, with some details of the proposed joint venture between Craigcare and Superkite included, but in which there were blank spaces and omissions in the information to be completed. It is a reasonably lengthy document.
The draft Letter of Intent began with the following passage:
"This letter of intent ('LOI') summarizes the terms upon which Superkite Pty Limited ('Superkite') intends to proceed towards closing a business transaction with Craigcare Group Pty Ltd ('Craigcare')...
The Parties intend to capitalize a jointly owned and controlled company with approximately $400-500 million to fund the expansion of the currently existing portfolio to 3500 to 4000 beds over the next 12 months followed by continued growth over the following four to five years of approximately 400 to 500 beds per annum and become one of the largest private operators in Australia (the 'Project')..."
Mr Gillett gave evidence that the draft Letter of Intent "gave a broad picture of what we were going to do. There was no commitment to it but an outline, broadly speaking, of what the parties wanted to do but more in particular the purpose of the $100,000 deposit because at the time that is what was crucial."
What follows in the draft Letter of Intent are separately numbered clauses. Clause 15 of the Draft LOI, entitled "Binding Nature of Letter", stated that it was intended that clauses 1 to 6 were "not intended to create or constitute any legally binding obligation between the Parties", but that clauses 7 to 12 "shall constitute the legally binding and enforceable agreement of the Parties".
Clause 2 was entitled "Transaction Documents" and states:
"The Transaction will be set forth in definitive agreements to be prepared, negotiated and executed by the Parties, including but not limited to a Joint Venture Agreement or any such similar document as may be required and such other documents mutually determined to be necessary by the Parties to carry out the intent of this LOI (collectively, the 'Definitive Agreements'). The Definitive Agreements are subject to approval by each Party's Board of Directors or Managers."
Clause 9 provided:
"Within one (1) banking day of the receipt of an email from Superkite's nominated bank substantially in the form attached hereto and marked Exhibit 2, Craigcare's attorney, or other mutually agreeable escrow agent, will release $100,000 from its escrow and distribute the funds to the below account of Holman Webb, Lawyers to cover Superkite's legal and administrative costs with respect to the preparation of the Joint Venture Agreement and the loan agreement, due diligence and incidental costs associated with the initial processing of the Transaction. Said fees are to be paid by wire transfer into the below trust account:
... [bank account details left blank]
Superkite agrees that in the event that Superkite does not or cannot perform as per the terms and conditions of the counter signed Definitive Agreements, the $100,000 to cover legal and other costs will be refunded."
(It will be necessary to return to the draft Letter of Intent later in these reasons, because it is the document alleged to have been prepared by Mr Bacik, for which he is said to have charged $10,000 that was paid by Superkite.)
Mr Gillett, in cross-examination, accepted that he had read the draft Letter of Intent more than once and had discussed it with his legal adviser. He understood, and had proceeded upon the basis, that the Money was to be paid "to cover Superkite's legal and administrative costs with respect to the preparation of the Joint Venture Agreement" and the "loan agreement", "due diligence" and "incidental costs" of the Transaction.
The following passage in cross-examination supports this conclusion:
"HIS HONOUR: I think you and Ms Gordon are at cross purposes. Ms Gordon's question to you is not relating to the funds being withdrawn from that account which you seem to be focusing on. The question that is being asked of you is, what was the purpose for which the funds were paid into the account, so could you focus on that question.
MS GORDON
Q. When you paid the $100,000 into Holcombe [sic] Webb's trust account you knew that it would be used to cover Superkite's legal and administration costs with respect to the preparation of the joint-venture agreement, didn't you?
A. Yes.
Q. You also knew that it would be used in the preparation of any loan agreement, isn't that right?
A. The costs associated with the transaction, yes.
Q. In preparation of the loan agreement, isn't that right?
A. For this transaction.
Q. You also knew that it would be used for Superkite's due diligence costs, didn't you?
A. For this transaction.
Q. Is that a yes?
A. Yes.
Q. And you also knew that it would be used to pay Superkite's incidental costs of this transaction, isn't that right?
A. Yes.
Q. And you say that you relied on it being used for that purpose, don't you, or for those purposes?
A. Yes."
Mr Gillett, however, did dispute the circumstances in which the Money was to be disbursed by Holman Webb and stated that the costs referred to were required to be "reasonable". The following passage appears in the cross-examination:
"Q. You would have to agree that there is no reference in paragraph 9 to those costs having to be reasonable, wouldn't you?
A. There was in my email.
Q. We will come to your email but would you agree that in paragraph 9 there is no reference to costs having to be reasonable, isn't that right?
A. There is no reference to reasonable in that paragraph.
Q. There is no reference in that paragraph to those costs being subject to Craigcare's approval, is there?
A. Correct."
Mr Bleyer was not asked any questions about this topic in cross-examination. He had, however, referred, in his first affidavit, to the Money being paid into Holman Webb's trust account "to meet the legal fees and other costs of Superkite associated with the joint venture negotiations".
On 1 August 2011, further discussions between Mr Bleyer, Mr Mitry and Mr Stammers took place.
On 2 August 2011, Mr Gillett sent an email to Mr Mitry, which email was forwarded to Mr Bleyer on 3 August 2011. In that email, Mr Gillett commented on the proposed terms set out in the draft Letter of Intent and stated that, subject to the resolution of certain matters relating to the terms of the joint venture and the consideration of, and receiving advice upon, certain documents, Craigcare was prepared to proceed with the joint venture negotiations with Superkite.
Neither party signed the draft Letter of Intent. Similarly, no notice in the form of Exhibit 2 (referred to in Clause 9), or any document similar to Exhibit 2, was ever sent to Craigcare or its lawyers from any bank nominated by Superkite. As well, there never came into existence any "counter-signed Definitive Agreements".
An email sent on 3 August 2011, from Mr Bleyer to Mr Mitry, with a copy, relevantly, to Mr Gillett and to Mr Stammers, provided:
"The Writer is pleased to note that John Gillett has reviewed the DRAFT LOI again and to answer his questions we attach a list of requirements to allow for a proper and complete file to be given to CBA for their review and action. ...
We look forward to receiving a reply and action from John Gillett on behalf of Craigcare to allow us the opportunity of completing the legal formalities and present a complete file to CBA in Sydney at the earliest opportunity.
Please also find attached the bank co-ordinates for the Trust Account details for Holman Webb Lawyers, Attention A John Stammers for Craigcare to transfer the $100,000 to cover legal and other costs to allow us to proceed for agreement and the companies to be formed such as the SPV JV entity and move towards the banking part promptly.
Please also find attached an overview for Superkite P/L and a CV for A John Stammers."
Attached to the email was a page setting out the details for Holman Webb Lawyers' trust account, as well as a 2-page curriculum vitae for Mr Stammers.
An email dated 4 August 2011, sent at 6:58 p.m., from Mr Gillett to Mr Stammers headed "Re: Craigcare/Superkite - Advance payment of DD Fees" states:
"Your client Superkite Pty Ltd and Craigcare Group Pty Ltd have entered into preliminary discussions regarding a potential Joint Venture and we understand that you will be acting for Superkite. In order to facilitate the preparation of the formal Joint Venture documentation Craigcare has been asked to remit to your trust account and [sic] amount of $100,000 for costs to be incurred in the preparation of that documentation.
Please find attached a transaction receipt for that transfer. Would you also please ensure the funds are not released from your trust account without my express consent and approval."
(Mr Stammers accepted that "DD" in the email referred to "due diligence".)
In response, Mr Stammers wrote an email dated 4 August 2011, sent at 7:24 p.m., stating:
"Thank you. We need to agree on the procedure for the release of funds as the matter proceeds."
An email dated 5 August 2011, sent at 11:56 a.m., from Mr Bleyer to Mr Stammers, with a copy being sent to Mr Mitry and to Mr Gillett, relevantly stated:
"The $100,000 funds received is to cover legal fees and other costs for Superkite Pty Limited for this joint venture via a new and separate SPV-JV company to be formed.
I will send the file over to Robert in Boston who has done these types of agreements before to prepare the agreement(s) for your review for Superkite and also for review by Rick Mitry at Mitry Lawyers for Craigcare to evaluate, if fine tuning is required before counter signing, this can be done.
Robert will send you an invoice from his law firm for his firms [sic] account after completion and delivery of the said agreements.
In the meantime the funds are to remain in your law firms [sic] trust account and only to be utilised to conver [sic] legal fees and other costs for this SPV-JV matter as approved in writing by the Writer."
(The "Robert" is said to be a reference to Mr Robert Masud and his firm is Masud & Company. It is an Invoice, for $50,000, purportedly sent by his firm, which was the subject of part of the amendment already dealt with.)
In response, Mr Stammers sent an email, at 3:04 p.m., dated 5 August 2011, to Mr Gillett and Mr Mitry, relevantly stating:
"Money has been received! I suggest that I bill you as time has been spent and you approve any transfer from our trust account."
Mr Stammers, subsequently, sent an email, at 5:02 p.m., to Mr Gillett, with a copy to Mr Mitry, relevantly stating:
"Apparently there is an heads of agreement that governs the payment of funds. I think that Rick should instruct me as to the disposition of funds as he is your lawyer..."
Mr Stammers gave evidence, which I accept, that he did not believe he had read the email from Mr Bleyer sent earlier in the day. He stated that had he done so, his statement in the email sent by him at 5:02 p.m. would not have been written in the terms that it was.
Mr Gillett responded, by email stating:
"Sounds fine to me."
Mr Gillett accepted that Mr Bleyer thought that only he could provide the instructions for the payment out of the Money and had instructed his solicitors accordingly. He accepted also that he did not dispute what Mr Bleyer had stated in his email.
There is no evidence of further discussions about the Money until about 21 September 2011.
An email sent on 21 September 2011, from Mr Bleyer to Mr Stammers, with a copy sent to Mr Mitry and to Mr Gillett, stated:
"To fully clarify in writing please note the following:
Please prepare the agreement as per the LOI plus the change to profits to be shared 50/50 as per separate email sent to you earlier today in response to the email received from John Gillett recently.
Also to make perfectly clear for the record John Gillett had no right nor does he have any right at this material time to instruct you or your firm in regard to the $100,000 paid into your firm's trust account. The said $100,000 was to cover the legal fees and costs of Superkite Pty Limited in the preparation of the legal binding agreement and cover costs between Ghazel Pty Limited, which in turn is 100% owned by Superkite Pty Limited, with Superkite Pty Limited is to be the funds provided as per the terms and conditions precedent in the proposed agreement.
The $100,000 paid to Superkite P/L is refundable only if Ghazel Pty Limited together with Superkite Pty Limited cannot or does not comply as per the counter signed agreement otherwise the $100,000 is not refundable. John Gillett and his company have their own legal and professional advisors.
You and Holman Webb only act for Superkite Pty Limited in this matter and not for John Gillett nor [sic] his company.
The LOI was clear in the above said, John Gillett and his company has selected Rick Mitry and Mitry Lawyers to act for him and his company and all and any communication in regard to this matter should only be to the Writer and copying Rick Mitry at Mitry Lawyers together with a courtesy copy to John Gillett and his company as per his recent emails."
An email sent on 22 September 2011, from Mr Gillett to Mr Bleyer, with a copy sent to Mr Mitry and Mr Stammers, stated:
"Further to our discussions yesterday, we agree there is no conflict and or confusion as to the use of the $100,000 held in the Holman Webb trust account for this transaction. These funds are to be used to meet the legal fees and other costs of Superkite associated with this transaction.
Will you kindly instruct Holman Webb to forward the draft Joint Venture agreements to our solicitors (Mitry Lawyers) as a matter of urgency. As you aware we had originally intended that this documentation be finalized by Friday 23rd September, 2011 to enable us to proceed with negotiations to purchase a number of assets."
The negotiations between the parties as to the terms of the joint venture agreement, continued thereafter.
On 21 December 2011, Mr Mitry sent an email to Mr Stammers, stating:
"We are advised by our client that it will not at this stage be proceeding with the transaction that had been under consideration with your client. Accordingly, he requires immediate repayment of the Money paid into your trust account."
On 22 December, Mr Stammers sent an email to Mr Gillett and Mr Bleyer (copied to Mr Mitry):
"Mr Mitry has indicated that Craigcare wishes to withdraw from this transaction and has requested the return of the monies paid to our trust account in relation to this matter.
I refer to the email below which makes it clear that the funds are to be used to cover the legal fees and other costs of Superkite. I will give a reconciliation of these times and a trust account statement shortly."
On 22 December 2011, Mr Mitry sent another email to Mr Stammers in the following terms:
"My client is aware of the email copied by you and is prepared to pay your reasonable costs as agreed or assessed."
Mr Stammers responded by email dated 22 December 2011, in the following terms:
"I will be writing to you in more detail shortly but the monies were to be used to cover all of Superkite's costs and expenses not just this Firm's legal fees."
Mr Mitry responded a short time later, by email, in the following terms:
"My client is aware that Superkite's reasonable costs and expenses are to be paid, however, he has instructed me that no money is to be released without his specific authority after he has considered the costs and expenses submitted through you."
On 23 December, 2011, Mr John Van de Poll, a partner in Holman Webb wrote a document addressed to "Roland Husner":
"I refer to a recent email from Craigcare's solicitors indicating that Craigcare is withdrawing from the transaction. I have sent you details of all accounts that I have rendered in relation to this transaction and which have been deducted from the $100,000 held in trust. The resulting balance of the $100,000 held in our trust account is $69,024.50. ..."
Attached to the email was a draft letter that Mr Van de Poll suggested should be sent to Craigcare. A copy of the draft letter was not in evidence and no version of it was ever sent to Craigcare. However, the following passage appears in the cross-examination of Mr Stammers:
"Q. What the letter was seeking was instructions to put on notice Craigcare and its solicitors of the intention to transfer the funds to Superkite, correct, the balance of the funds?
A. Correct.
Q. You will see in the final paragraph it says 'As we have other accounts owing by Superkite we propose to apply the balance held in the trust account in relation to the Craigcare matter in payment of those other accounts on 29 December 2011'. Now just pausing there, where it refers to 'other accounts owing by Superkite', these were other accounts concerning a range of different matters not the proposed joint venture with Craigcare, correct?
A. Correct.
Q. What you were basically saying to Mr Husner - what was basically being said to Mr Husner was that 'we propose to alert Craigcare solicitors and Craigcare to the fact that we intend on paying out the balance of the money to the trust account and we propose to do so on 29 December 2011'?
A. Correct.
Q. Is that your understanding?
A. Correct.
Q. And the fact was, was it not, that that $69,000 was notionally paid to Superkite but the money was then used to pay all of Superkite's - or some of Superkite's indebtedness to your firm in relation to other matters?
A. Correct. Superkite didn't operate a cheque account and I believe that was the main motive behind the direction to pay.
Q. You understood, did you not, that at this stage, 23 December 2011, that the money, the hundred thousand dollars in terms of its use, was not to be used for other matters, for other work that had been done unrelated to the proposed joint venture with Craigcare, correct?
A. Correct.
Q. You understood that what was being proposed to actually do with the $69,000 was contrary to the purpose for which those funds had been paid to your firm, correct?
A. Not correct.
Q. Why is what I have said not correct?
A. The writer of this letter asked for confirmation that more than the balance in trust had been expended by Superkite under that paragraph 9 of the draft LOI and certain advice, I believe, was given to Superkite which I suspect is privileged as to Superkite's entitlement to those moneys.
Q. I want to be clear with you about this, in the last paragraph what is suggested is that the $69,024.50 is going to be used by Holman Webb to pay other accounts of Holman Webb for matters that had nothing to do with the proposed joint venture with Craigcare which I understand is a proposition you have already accepted, is that correct?
A. Correct.
Q. The second thing I want to raise with you is this, you understood that the purpose for that $100,000 was as reflected in the penultimate paragraph, correct?
A. Correct.
Q. The purpose in the penultimate paragraph was different to the purpose in the final paragraph, correct?
A. It is unrelated, yes."
Mr Bleyer responded to the email sent by Mr Van de Poll in an email sent on 23 December 2011 to Mr Stammers. I shall refer to his response later in these reasons.
After 23 December 2011, neither Craigcare nor Mr Mitry received any further communications from Holman Webb (until the Defence, which did not specifically identify how the Money had been expended). Craigcare was never provided with a trust account statement from Holman Webb. Mr Stammers gave evidence that Mr Bleyer specifically instructed him not to provide a copy of the Invoices to Craigcare. His evidence was that "We were instructed to make no contact to [sic] either [Craigcare or Mr Mitry]".
An issue relates to whether any of the Money would be refundable if it was not used for the purposes identified in the draft Letter of Intent and otherwise. In this regard, I am satisfied that, in early August 2011, there was no specific discussion between the parties about this topic.
On this topic, counsel for Superkite referred only to two documents, the first being the draft Letter of Intent, Paragraph 9 (the last paragraph). However, she accepted that nowhere in the document, was there anything written about what was to happen in the event that less than $100,000 was incurred for the stated purposes, or whether any surplus would, or would not, be refundable to Craigcare.
The second document referred to was the email dated 21 September 2011, from Mr Bleyer to which reference was made. However, that post-dated the discussions held in early August 2011.
Mr Gillett gave the following oral evidence on this topic:
"Q. Paragraph 9 also says that Superkite will refund the $100,000 if it does not or cannot perform as per the terms of the counter signed agreements, doesn't it?
A. That is correct.
Q. Definitive agreement is defined in paragraph 2 of the letter of intent, isn't it?
A. Yes.
Q. And there is no reference in paragraph 9 or elsewhere in this document to the funds being refunded to Craigcare in any other circumstances, is there?
A. No.
Q. And you knew that when you paid the $100,000, didn't you?
A. I again reiterate my understanding was that point 9 identified the uses which the funds could be put to and my understanding that the funds could only be expended on matters that were reasonable and that I had to consent to it as well.
...
Q. You would agree, wouldn't you, that there is no reference in paragraph 9 to the hundred thousand dollars being refunded to Craigcare in any circumstances other than Superkite not being able to or not performing as per the terms and conditions of the countersigned definitive agreement?
A. That is correct.
Q. And you knew that there was no such reference in the letter of intent when you paid the hundred thousand dollars, isn't that right?
A. In the letter of intent, that is correct.
Q. When you paid the hundred thousand dollars was it at that point that you decided you needed to clarify who would have are control over the hundred thousand dollars?
A. I can't recall when I decided who - at which point, but what I can tell you is on my recollection that the email that I sent across to Mr Bleyer - sorry to Mr Stammers indicated that the funds were to be released with my authority.
Q. You didn't feel the need to negotiate that with Mr Bleyer, did you?
A. It was non negotiable as far as I was concerned. It was my hundred thousand dollars that was being held in trust, in the solicitor's trust account.
Q. That was your opinion, wasn't it?
A. That was the facts.
Q. You didn't discuss that with Mr Bleyer, did you?
A. I didn't need to. They were the facts.
...
Q. On 21 September 2011 Mr Bleyer had said to you that 'The hundred thousand dollars is refundable only if Gzell [sic] together with Superkite cannot or does not apply as per the countersigned agreement, otherwise the hundred thousand dollars is non refundable', isn't that right?
A. That is what he said, but I strongly disagreed with it.
Q. You didn't assert that in your conversation on 21 September?
A. I did assert that in my conversation.
Q. Did you not assert --
A. And I didn't put it in my email.
Q. Mr Gillett, you did not disagree that the hundred thousand dollars was not refundable in your conversation on the 21st?
A. I strongly disagreed in my discussion on the 21st and I said 'I will be seeking legal advice'.
Q. Where have you used the word 'refundable' in that conversation, Mr Gillett?
A. I have said, last paragraph, me, 'I will seek Rick Mitry's advice on his return from overseas as to how I could best protect my interests in respect of the money. In the interim I will forward you an email indicating there is no confusion over the use of the funds'.
Q. There is nothing in that conversation that refers to whether or not the money was refundable, is there?
A. Correct.
Q. And there was nothing in your email on the following day about whether that money was refundable, was there?
A. Correct.
Q. And that is because you knew the hundred thousand dollars was non refundable?
A. Incorrect. The hundred thousand dollars was in the solicitor's trust account and was to stay in the solicitor's trust account until I approved any expenditure.
Q. Is it the case that you didn't say anything to Mr Bleyer about your hundred thousand dollars being non refundable because you did not want your disagreement on this issue to interfere with the joint venture negotiations?
A. No.
Q. You were happy for Mr Bleyer to believe that you agreed with him, weren't you?
A. No, I disagreed with him strongly.
Q. You never expressed that disagreement in relation to the refundable nature of the hundred thousand dollars, did you?
A. There was no discussion about the refundability of it. We were talking about the expenditure of it. There were no discussion - in that discussion there was nothing discussion --
Q. Mr Gillett--
HIS HONOUR: Just a moment. Let him finish his answer.
WITNESS: There was no discussion in relation to the refundability if in fact the transaction had finished or concluded.
GORDON
Q. Mr Bleyer raised that issue in his email on the 21st, didn't he?
A. Mr Bleyer raised the issue as to who had the authority to approve the expenditure from the fund.
Q. He also raised the issue as to whether or not the hundred thousand dollars was refundable, didn't he?
A. He did.
Q. And you did not in writing disagree with that?
A. Not in writing. I strongly disagreed with his assertion during the discussion.
Q. It is your evidence, isn't it, that the hundred thousand dollars was never intended to be a gift to Superkite?
A. Absolutely."
Mr Stammers gave the following oral evidence:
"Q. ... Was there anything in the emails in early August that you were involved in that concerned the $100,000 paid into Holman Webb's trust account that imposed a condition concerning the refundability of the money?
A. I am not aware, no.
Q. The fact is that there was no emails in early August or indeed at any time up until 21 September 2011 that raised the issue of the refundability or non refundability of the hundred thousand dollars, is there?
A. Emails between --
Q. Emails involving yourself - there was no reference until this email from Mr Bleyer which raised any issue about the refundability of the money?
A. Emails from me to anyone?
Q. Emails involving you, ie, cc'd to you, from you or to you?
A. Can't find any, no."
I agree with Craigcare's submission that neither Mr Gillett nor Mr Bleyer did anything that evinced an intention to vary the terms of the earlier agreement between the parties. The last Paragraph of Paragraph 9 to which reference was made, related to the event that "Superkite does not or cannot perform as per the terms and conditions of the counter signed Definitive Agreements", in which circumstance "the Money to cover legal and other costs will be refunded". That Paragraph does not relate to other circumstances in which the Money not used for those purposes would be refunded.
Tax Invoices of Holman Webb
The first Tax Invoice, from Holman Webb, addressed to Superkite, headed "Craig Care", is dated 29 August 2011, being "Our fee for Services (as per attached Schedule) for $7,885 plus GST ($788.50) making a total claim of $8,673.50". The attached Schedule to the Tax Invoice refers to various attendances for work, including "incorporate new companies and review LOI", "research bonds and approve LOI", "incorporate companies and amend LOI", "reviewing JV agreement", and "dealing with C's lawyer".
The second Tax Invoice, from Holman Webb, addressed to Superkite, headed "Craig Care", is dated 7 October 2011, being "Our fee for Services (as per attached Schedule) for $15,105 plus GST ($1,510.50) making a total claim of $16,615.50". The attached Schedule to the Tax Invoice refers to various attendances for work, including "prepare Terms Sheet", "profiles and info. to Barclays", "advice [on] structure of JV", "prepare JV agreement and advice", "amend JV agreement", "prepare project funding agt" and "prepare loan agreement".
The third Tax Invoice, from Holman Webb, addressed to Superkite, headed "Craig Care", is dated 25 October 2011, being "Our fee for Services (as per attached Schedule) for $2,565 plus GST ($256.50) making a total claim of $2,821.50". The attached Schedule to the Tax Invoice refers to various attendances for work, including "prepare facility agreement" and "advice on tructure [sic]".
The fourth Tax Invoice, from Holman Webb, addressed to Superkite, headed "Craig Care", is dated 21 December 2011, being "Our fee for Services (as per attached Schedule) for $1,330 plus GST ($133) making a total claim of $1,463". The attached Schedule to the Tax Invoice refers to various attendances for work, including "reading new draft documents" and "advice".
The first Tax Invoice, from Holman Webb, addressed to Superkite, headed "AUSTRALIAN INVESTMENTS", is dated 27 July 2011, being "Our fee for Services" for $5,062.50 plus GST ($506.25) making a total claim of $5,568.75. There is no attached Schedule to the Tax Invoice.
The second Tax Invoice, from Holman Webb, addressed to Superkite, headed "AUSTRALIAN INVESTMENTS", is dated 29 September 2011, being "Our fee for Services" for $16,957.50 plus GST ($1,695.75) and disbursements plus GST ($104.61) making a total claim of $18,757.86. There is no attached Schedule to the Tax Invoice.
The third Tax Invoice, from Holman Webb, addressed to Superkite, headed "AUSTRALIAN INVESTMENTS", is dated 29 November 2011, being "Our fee for Services (as per attached Schedule)" for $10,687.50 plus GST ($1,068.75) making a total claim of $12,114.63. The attached Schedule to the Tax Invoice refers to various attendances for work, some of which do not appear to relate specifically to the joint venture.
The fourth Tax Invoice, from Holman Webb, addressed to Superkite, headed "AUSTRALIAN INVESTMENTS", is dated 21 December 2011, being "Our fee for Services" for $3,095 plus GST ($309.50) and disbursements, plus GST, ($50.15) making a total claim of $3,454.65. There is no attached Schedule to the Tax Invoice.
The fifth Tax Invoice, from Holman Webb, addressed to Superkite, headed "AUSTRALIAN INVESTMENTS", is dated 30 January 2012, being "Our fee for Services for $2,565 plus GST ($256.50) making a total claim of $2,821.50. There is no attached Schedule to the Tax Invoice.
The first Tax Invoice, from Holman Webb, addressed to Superkite, headed "Raine Square Perth WA", is dated 29 August 2011, being "Our fee for Services" for $7,790 plus GST ($779) making a total claim of $8,569. There is no attached Schedule to the Tax Invoice.
The second Tax Invoice, from Holman Webb, addressed to Superkite, headed "Raine Square Perth WA", is dated 29 September 2011, being "Our fee for Services" for $1,235 plus GST ($123.50) making a total claim of $1,358.50. There is no attached Schedule to the Tax Invoice.
There is a Tax Invoice, from Holman Webb, addressed to Superkite, headed "MTNS/BONDS", dated 21 December 2011, being "Our fee for Services" for $1,900 plus GST ($190) making a total claim of $2,090. There is no attached Schedule to the Tax Invoice.
The Other two Invoices
Masud & Company sent a "Pro-Forma Invoice" dated 2 November 2011 to Mr Stammers for "Craigcare/Supercare [sic] JV Fees and Costs" in the amount of US$50,000. The work done identified was:
"COMMUNICATIONS WITH CLIENT; REVIEW RELEVANT DOCUMENTS; RESEARCH AND REVIEW ISSUES; COMMUNICATIONS WITH CLIENT; REVIEW RELEVANT DOCUMENTS; RESEARCH AND REVIEW ISSUES; ANALYZE AUSTRALIAN LAW RE JOINT VENTURES, HOSPITALS, FINANCINGS, COLLATERAL, GUARANTEES; PREPARE PRELIMINARY DRAFT JV AGREEMENT; REVIEW IMPACT ON LEGAL ISSUES AND CURRENT STATUS OF THE LAW AND EDIT SAME; ATTEND TO COMMUNICATIONS TO/FROM CLIENT; REVISE RE MODIFICATIONS OF JV FACTS, RESPONSIBILITIES AND SCHEDULING IN LIGHT OF NEW FACTS AND DOCUMENTS; ANALYZE CASE LAW RE SUBSTITUTION OF COLLATERAL, AMENDMENT OF GUARANTEES, BREACH OF GUARANTEE AGREEMENTS; REVISE AND EDIT JV AGREEMENT; COMMUNICATIONS TO/FROM CLIENT."
I have earlier noted that a copy of the Invoice from Mr Bacik is not in evidence.
Documents Prepared and Work Said to have been done
There is no dispute that Holman Webb prepared a Project Facility Agreement and a Shareholders' Agreement. A copy of each of those documents forms part of the evidence.
In relation to nearly all of the work Mr Stammers referred to in the relevant Tax Invoices (apart from $3,895), Craigcare has admitted Superkite's entitlement. It is, therefore, unnecessary to say anything more about those Tax Invoices.
In relation to Tax Invoice 186872, Mr Stammers gave evidence that part of that invoice related to the Craigcare matter. He identified individual narrations on the Invoice that related to legal costs. The total of the charge for that work was $3,895. (It appears to be acknowledged in Craigcare's further submissions, taking into account the criticisms that "a maximum amount of $2,707.50 excluding GST that was time spent by Mr Stammers on the Craigcare-Superkite joint venture and is recorded in invoice no. 186872. Including GST, this amount is $2,978.25".)
Although there was some criticism made of Mr Stammers' evidence in this regard, there is no reason to disbelieve his evidence on this topic. He admitted that he had no independent recollection and that he had used the Tax Invoice and timesheet. In my view, he had no reason to overestimate the amount of time spent. I am, therefore, prepared to accept that this amount should be added to the total amount of $30,975.50 that Craigcare accepted as payable out of the Money. (Leaving aside the two Invoices (with a total value of $60,000) that remain in dispute, the amount of $5,129.50 may be refundable to Craigcare in any event.)
Mr Bleyer gave evidence that, on or about 5 August 2011, he instructed Robert Masud, of Masud & Co, of Boston "to advise on the joint venture agreements between Craigcare and Superkite, the international and Australian taxation implications of the JV and the financing arrangements".
There is vague evidence that the representatives of Craigcare may have been aware that Mr Bleyer intended to do so. The intention is disclosed in an email dated 5 August 2011, a copy of which was, apparently, sent to Mr Mitry. (I have said "may have been aware", because Mr Masud is simply referred to as "Robert in Boston". He is not otherwise identified in the email correspondence passing between the parties.)
In relation to the "Joint Venture Agreement", it appears that Mr Masud may have been instructed to prepare such a document. Correspondence from him, dated 7 September 2011, to Superkite, reveals, firstly, that there were "some issues with it as it has been created from the ground-up", but that "we know what you need, have been busy at work on it, and will deliver it [to] you by the end of the week".
Subsequently, on 19 September 2011, Mr Masud appears to have advised Superkite that the Joint Venture Agreement "has been in the hands of international tax counsel for over 10 days now".
On 27 September 2011, Mr Stammers sent to Mr Mitry, a copy of a draft Shareholders Joint Venture Agreement, which was said to be "very much a work in progress as there are a number of matters which require discussion with your client". It is clear that the document was not a copy of the Joint Venture Agreement to which Mr Masud referred. It was a document that Mr Stammers had caused to be prepared.
There are no documents evidencing any of the work said to have been done by Masud & Company. In particular, the draft Joint Venture Agreement referred to as having been in the hands of international tax lawyers was not produced.
Determination
In the present case, the parties do not dispute that there was an agreement reached between them on or about 4 August 2011, in relation to the payment by Craigcare, and the use by Superkite, of the Money. Considering the evidence overall, it would be impossible to assert otherwise. Then, it becomes necessary, because there is no executed written document, for the Court to determine the terms of that agreement.
Although the terms as to the use of the Money seemed, at least initially, to be the main focus of debate, I am satisfied, having read the evidence referred to above and heard the oral evidence of Mr Gillett and of Mr Stammers, that each party understood, and intended, that the Money was to be paid by Craigcare, to the account of Holman Webb, "to cover Superkite's legal and administrative costs with respect to the preparation of the Joint Venture Agreement and the loan agreement, due diligence and incidental costs associated with the initial processing of the Transaction".
The use of the Money may have been described differently in one, or other, of the emails, but the descriptions in those emails should be regarded as no more than a shorthand method of expressing the uses set out above.
By way of example, in the email of 3 August 2011, from Mr Bleyer to Mr Mitry, there is a reference to a transfer of the Money "to cover legal and other costs to allow us to proceed for agreements and the companies to be formed such as the SPV JV entity". In an email of 4 August 2011, Mr Gillett refers to the Money "for costs to be incurred in the preparation of that documentation". Mr Bleyer, in the email of 5 August 2011, addressed to Mr Stammers, with a copy to Mr Mitry, refers to "funds received ... to cover legal fees and other costs for Superkite for this joint venture".
This conclusion gains additional support when one notes that the last Paragraph of Clause 9 of the draft Letter of Intent after identifying the Money used the abbreviated phrase "to cover legal and other costs". This is not inconsistent with the statement that "in consideration of [Craigcare] providing $100,000 of funds to ... Holman Webb, [Superkite] would facilitate the documentation and formalisation of the joint venture project". This, in my view, looking at the whole of the evidence meant no more than the Money was to be used for those purposes. As Ms Gordon accepted, "The whole point of the 'purposes' was to identify what the Money could be used for": T102.03 - 102.16. (When asked to identify whether there were any documents that identified other purposes for which the Money could be used, Ms Gordon was unable to do so: T105.01 - 105.05.)
I am also satisfied that Mr Gillett's and Mr Stammers' evidence, on this topic, supports what is set out above. It is unnecessary to repeat all of their evidence, which, when read with the documents, lead me to reject Superkite's submission that what was written "was descriptive and not binding".
Craigcare's claims are not made on the basis of any solicitor/client relationship. Clearly Holman Webb did not act for it, but rather, acted for Superkite. The obligations pleaded by Craigcare that are said to exist arise from the circumstances in which the Money was paid to Holman's Webb trust account.
In relation to the Money, the next question that arises is, if it was not used, or fully used, for the purposes, whether the parties agreed, expressly, or by implication, that the balance would be refunded to Craigcare?
I do not consider that the last paragraph of Clause 9 of the draft Letter of Intent, even if regarded as being binding on the parties (which it was not), is helpful. That sub-paragraph was intended to apply to something entirely different, namely the refund of all of the Money in the event that Superkite "does not or cannot perform as per the terms and conditions of the counter signed Definitive Agreements".
In my view, the purposes for which the Money was to be used answers this question. If the Money was not used for those purposes, there was no basis for Superkite to retain the Money. There is no evidence that, at the time of the discussions, either party expected that the Money would become part of the assets of Superkite, or that either intended it to fall within the general fund of Superkite's assets so as to be at its free disposal. As stated, it was not intended by either party that the Money was gifted to Superkite by Craigcare.
It was clear that Holman Webb was not to part with the Money except for the stated purposes. The Money was paid on terms that required its retention for the limited purposes that both parties had identified. If not so used, it was an identifiable fund capable of being recovered by Craigcare. That is the only way one can reasonably construe the agreement between Craigcare and Superkite.
A flaw in the Defendants' submission on this topic is demonstrated simply by asking whether the parties could reasonably have intended, had no legal and administrative costs with respect to the preparation of the Joint Venture Agreement and the loan agreement, due diligence and incidental costs associated with the initial processing of the Transaction, been incurred, would Superkite have been entitled to retain all of the Money? A negative answer to that question is the only one available when one considers all of the evidence. (This is also consistent with the acceptance by counsel for the Defendants that the Money was not intended to be a gift from Craigcare to Superkite.)
I reject the submission that the use of the words "to cover" were descriptive only and that they were not intended to be binding.
Then, it was for Superkite to establish that the Money was used for the purposes for which it was paid by Craigcare. That involves more than simply asserting that Superkite engaged solicitors to draft joint venture, and loan, documentation, that it obtained tax advice including on the international tax implications of the joint venture, that it undertook due diligence on the transaction and that it negotiated with banks in order to enter into agreements with those entities in relation to the raising of the funds required.
It also involves more than a non-witness saying in correspondence that things are being done. Evidence must be led to show that those things were done. In relation to the work done by Holman Webb, there are the Tax Invoices, the evidence of Mr Stammers of the work in the Tax Invoices having been done, as well as the production of the documents that were prepared by him.
As was put by counsel for Craigcare:
"What we received was, on the one part, a very considerable degree of information from Mr Stammers as to what he did and what Holman Webb did for what we say is the $30,000 odd that was expended, and we received nothing more than a single page for a considerably greater sum of money in circumstances where Mr Musad appears to be doing exactly the same work by and large that Mr Stammers was doing, and one has to question in circumstances where it was obviously apparent to the defendants in these proceedings that they needed to set forth what it was that had happened with the money, that your Honour receives not one single word of evidence apart from an invoice and, indeed, the biggest question about that invoice is whether that invoice is even legitimate."
It is unnecessary for me to make any finding of dishonesty in Superkite's reliance upon the Masud & Company pro forma Invoice. I am simply not satisfied, on the balance of probabilities, that the work referred to in that Invoice was done. In this regard, the onus to establish that the work was done, and that it fell within the purposes referred to, is upon the Defendants. They have not discharged the onus in this regard. The documents produced are of limited value in this regard.
The claimed cost of the draft Letter of Intent is a little more difficult, since that document is in evidence that suggests some work was done. Yet, as stated, there is no invoice for the work done, and nothing, otherwise, to establish, objectively, that the payment of $10,000 was for the preparation of the draft Letter of Intent. In this regard, similarly, the other document relied upon is of limited value.
Mr Bleyer, on behalf of Superkite, could have obtained the evidence from Mr Bacik. Alternatively, a copy of any such invoice from Mr Bacik, one might think, could have been obtained, or if it was not, then any reasons for not having it available could have been provided. The only evidence is from Mr Bleyer about the cost of the preparation of the draft Letter of Intent.
Again, I am not satisfied, on the balance of probabilities, that the amount of $10,000 was for work done by Mr Bacik. The Defendants have not discharged the onus in this regard either.
(Where a Jones v Dunkel inference is available the Court may either infer that that evidence would not have assisted a party who failed to call the witness and/or draw with greater confidence any inference unfavourable to the party who failed to call the witness as long as that inference is available to be drawn on the evidence which has been admitted: State Bank of NSW v Brown [2001] NSWCA 223; (2001) 38 ACSR 715 (at [17] - [18]) per Spigelman CJ; see also Manly Council v Byrne [2004] NSWCA 123 (at [50] - [55]) per Campbell JA (Beazley JA and Pearlman AJA agreeing); Mamo v Surace [2014] NSWCA 58 (at [65], per McColl JA (Ward JA and Tobias AJA agreeing)).
I then turn to the question of how the Money was to be disbursed. Again, the evidence is reasonably clear. The parties did not expressly agree in early August 2011, how the Money was to be disbursed. They decided that they would discuss that aspect later, but it would appear that they never did.
However, the impression one gets from the evidence of events prior to 21 September 2011 is that Mr Gillett accepted that it was for Holman Webb to disburse the Money, but that Craigcare would need to be informed that Money was to be disbursed for the identified purposes. Provided the Money was being disbursed for one, or more, of those purposes, Craigcare would not have been able to prevent Holman Webb disbursing the Money.
Importantly, the email of 5 August 2011 from Mr Bleyer did not suggest anything to the contrary. That email stated that the Money was to be utilised to cover legal fees and other costs for this SPV-JV matter "as approved in writing by the Writer". The approval appears to relate to the utilisation for the purposes identified and the quantum of the legal fees and other costs. It does not appear to respond to obtaining the approval of Craigcare to disburse the quantum of legal fees and other costs that had been approved.
In this case, it was not suggested that Superkite did not have a duty to apply the Money for the stated purposes. As between Craigcare (the payer of the money) and Superkite (into the trust account of its solicitors the money was paid), it would seem that the relevant intention as evidenced above, as to the basis of the payment and the purposes for which it was to be used, of which Mr Stammers was informed, was a trust or equitable obligation annexed to the Money not used for those purposes.
I reject the submission that the agreement required only that the Money be paid into the trust account of Holman Webb and that it was not for Craigcare to be informed how it was to be disbursed. It was for Superkite to demonstrate that if it were disbursed, in whole or in part, it was disbursed for one, or more, of the purposes for which Craigcare had paid the Money. In the events that happened, it was accepted that a part of the Money was paid for "unrelated legal fees".
I am satisfied that Craigcare has established that the Money was imbued with a trust. The clear intention of Craigcare, as the payer, was that the Money, once paid, was to be held in Holman Webb's trust account and used for the particular purposes identified. Craigcare had an interest of its own, separate and distinct from any interest of Superkite, in seeing that the Money was applied for the purposes agreed upon. Superkite and Mr Stammers was each under a positive obligation to apply the Money for those purposes.
Additionally, payment into the trust account of Holman Webb, maintained by solicitors who are bound by the rules and regulations imposed by the Law Society in relation to the control of such accounts including the separation of such funds) confirms an intention that the Money was be dealt with as trust money.
Furthermore, in my view, keeping the Money identifiable and separate was to ensure that it was used for the stated purposes and also to ensure its return if the transaction did not go ahead or if all of the Money had not been used for such purposes.
These matters are important so far as Mr Stammers is concerned. He acknowledged that the payment of funds by Craigcare into Holman Webb's trust account meant that it was to be held subject to the stated purposes. There was no suggestion, in the emails from Holman Webb that followed 21 December 2011, that Mr Stammers believed something else.
Even accepting Superkite's submissions as to authority to pay out of the trust account at the direction of Mr Bleyer, that does not mean that he, and Mr Stammers, had an unfettered discretion. This is clear because of the purposes for which the Money had been paid. Any direction given by Mr Bleyer to Mr Stammers for the disbursement of the Money, otherwise than for the relevant transaction, would not satisfy the purposes for which the Moneys had been paid into Holman Webb's trust account. Mr Stammers would have known this.
Properly understood, the claim of Superkite is that the Money, if not used for the stated purposes, or at all, would simply pass to it. There is simply no evidence to satisfy me that the parties' intention was for that to occur. I am far from satisfied that the agreement was one pursuant to which Superkite was at liberty to treat the Money as if it were its own.
I tested the proposition by asking counsel for the Defendants what would have occurred if either party had decided that it did not wish to proceed the day after the Money had been paid, and in circumstances where no legal and administrative costs with respect to the preparation of the Joint Venture Agreement and the loan agreement, due diligence and incidental costs associated with the initial processing of the Transaction, had been incurred. I do not accept her submission that, even then, Superkite would have been able to retain the Money. In my view, the correct answer is that it would not have been open to Superkite to refuse, then, to return the Money to Craigcare.
Even if Mr Bleyer was authorised to direct Holman Webb as to the disbursement of the Money and had it been paid out on his direction for legal and administrative costs with respect to the preparation of the Joint Venture Agreement and the loan agreement, due diligence and incidental costs associated with the initial processing of the Transaction, then it might well be that the Defendants would have a basis for asserting that there had been no breach of trust.
However, it is accepted that the balance of the Money, were disbursed for unrelated transactions involving Superkite. In the circumstances, as to the part of the Money paid out for those unrelated legal fees, there was a breach of Trust. (It is unnecessary to deal further with the reimbursement argument in light of the conclusions stated above.)
In relation to the accessorial liability of Mr Stammers, it is clear from all of the evidence that he not only knew of the express purpose for which the Money was to be held by Holman Webb, but was instrumental in putting the arrangements in place for the payment of the Money by Craigcare.
The more difficult question is whether Mr Stammers is liable as an accessory, in that he knowingly assisted in its wrongful expropriation. In this regard, I note that he was not a partner of Holman Webb and there is no evidence that he was able to direct, or for that matter, prevent, the appropriation of the Money from its trust account. Clearly, he does not appear not to have prevented those who were, and who authorised the distribution of the Money for unrelated purposes, to not do so in light of what he knew.
Despite these matters, I am not satisfied, on the balance of probabilities, that Mr Stammers is liable because it has not been established that he had the requisite knowledge of a dishonest and fraudulent design on the part of Superkite. His evidence appears to be that he did not appreciate that the appropriation of part of the Money for unrelated legal fees, in circumstances where he was informed that Superkite was being "reimbursed" for other legal and associated costs related to the joint venture project, was wrong. Furthermore, there is no evidence that satisfies me that he authorised any transfer of the Money out of Holman Webb's trust account. It is not sufficient that he had knowledge of circumstances that would put an honest and reasonable person on inquiry. It is necessary for Craigcare to establish, at least, that he had knowledge of circumstances indicating the facts (that is, the existence of a dishonest and fraudulent design) to an honest and reasonable person (see Farah Constructions Pty Ltd v Say-Dee Pty Ltd at [176] - [178]). I cannot be satisfied that his conduct was "morally reprehensible".
Furthermore, whilst I have not forgotten that Mr Stammers was the sole director of Superkite, and that he was paid director's fees for acting in that capacity, I am satisfied that he was not the directing mind and will of Superkite at the relevant time the balance of the Money was paid out of Holman Webb's trust account. It is clear that the instructions came from Mr Bleyer.
It follows that I am not satisfied that the accessorial liability of Mr Stammers has been established or that he is rendered liable jointly and severally, with Superkite, to pay Craigcare for the loss suffered.
Accordingly, the Plaintiff's claim against Mr Stammers should be dismissed. (I shall deal with his costs later in these reasons.)
Craigcare's claim for equitable compensation to restore to it the balance of the Money paid out contrary to the terms of the trust and interest on that balance is sought. There is no reason why Craigcare should not receive the amount that I have found was not used for the purposes agreed upon, namely, $65,129.50 (calculated by deducting $34,870.50 from $100,000), together with interest calculated from, say, one month after 21 December 2011. In my view, an appropriate time, for the commencement of the calculation of interest would be 21 January 2012.
I am also prepared to make an order that the exhibits are to be dealt with in accordance with the UCPR.
Submissions on Costs
As previously mentioned, I required the parties, in this case, to file and serve written submissions on the issue of costs.
In respect of costs, counsel for Craigcare submitted that the Court should "order that costs follow the event".
It was submitted that, notwithstanding the value of the amount claimed in the proceedings, an order capping costs would be inappropriate. Counsel for Craigcare maintained that "Craigcare did its level best to avoid the step of commencing proceedings" and, in particular, referred to the offer made, in December 2011, by Mr Mitry, "to pay the reasonable costs that had been incurred by Superkite as agreed between the parties or assessed". However, it was submitted that the conduct of the Defendants "forced the commencement of [the] proceedings".
It was submitted that, in the circumstances, an order capping costs "would reward the Defendants for their conduct in:
(a) misappropriating a not inconsiderable sum of money;
(b) stonewalling Craigcare, for some time, by not disclosing what happened to the funds; and
(c) prolonging the hearing by raising every conceivable argument, including that the money had not been paid by Craigcare for a specific purpose irrespective of the fact that ... [s]uch a submission was never open on the evidence ...".
By contrast, the Defendants submitted that "[i]t is appropriate for the Court to make an order capping the costs recoverable by the Plaintiff". Significantly, counsel for the Defendants submitted that the manner in which Craigcare had conducted the proceedings, including "brief[ing] two barristers, including Senior Counsel, in a claim valued at $69,025, an amount that is less than the jurisdictional limit of the Local Court of New South Wales", raised significant questions as to whether Craigcare had "complied with its obligations pursuant to s 56 of the Civil Procedure Act 2005, including ensuring that costs were proportionate to the value of the claim."
In the alternative to an order capping costs, the Defendants cited Chapman v Taylor [2005] NSWCA 95 as authority for the proposition that "orders that the successful party's costs be assessed on the basis of the briefing of one Counsel at fees appropriate to Junior Counsel" might be appropriate in these proceedings.
Of course, details of any "without prejudice" negotiations have not been disclosed. However, what is more significant, is that neither party submitted that costs may be affected, depending upon the result, on an offer of compromise, or Calderbank offer, having been made.
It follows that the UCPR and any efforts of the legal advisers have not dissuaded these parties from following a course leading to expending what is likely to be a disproportionate amount on costs over what must be regarded, in the circumstances of this case, as a relatively small amount of money.
In relation to costs, I consider what Ball J wrote in Baychek v Baychek [2010] NSWSC 987, at [8] - [17] as summarising the relevant principles that apply:
"The relevant principles
The question of costs in this case raises two broad issues. The first is the scope of the power and discretion of the court in relation to the question of costs. The second is how that power and that discretion should be exercised in this case.
The general principle in relation to costs is set out in s 98(1) of the Civil Procedure Act 2005 (CPA). That subsection provides:
"(1) Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court, and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis."
Subsection 98(4) provides:
"In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to:
(a) costs up to, or from, a specified stage of the proceedings; or
(b) a specified proportion of the assessed costs; or
(c) a specified gross sum instead of assessed costs; or
(d) such proportion of the assessed costs does not exceed a specified amount."
It is clear that subs (4) does not limit the scope of subs (1). Subsection (4) gives particular examples of orders the court may make. It does not purport to circumscribe the general power contained in subs (1).
Normally, s 98(4)(c) of the CPA is treated as a provision for the benefit of the costs applicant. It permits a costs applicant to make an application for a gross sum costs order rather than being put to the expense and trouble of an assessment. Courts have made it clear that, when used in that way, the court is not required to proceed as if it were dealing with an assessment. It is entitled to take a broad brush approach provided that that approach is logical, fair and reasonable: Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119 at 123; Hadid v Lenfest Communications Inc [2000] FCA 628 at [27]. Implicit in this principle is that the gross sum bear a reasonable relationship to the actual costs of the party making the application, and to the costs that that party might reasonably be expected to recover on assessment. That means, among other things, that there must be a reasonable evidentiary basis for the order the court makes. That evidentiary basis is normally provided by the costs applicant in the form of an affidavit setting out the actual costs incurred and how they were calculated. Often, the evidence also includes evidence of the amount that is likely to be recovered on assessment.
In Sherborne Estate (No 2): Vanvalen v Neaves [2005] NSWSC 1003; (2005) 65 NSWLR 268, Palmer J expressed the view that s 98(4)(c) of the CPA also gave the court power to fix a gross sum in respect of costs on the application of the costs respondent. However, his Honour said (at [42]):
"It is conceivable that the Court could exercise the power under s 98(4)(c) on the application of an unsuccessful party in making a final costs order so as to cap a successful party's costs where the Court considers that the successful party's costs are grossly excessive. ... But such a capping order would be very rare: the Court's decision would have to be an informed one, that is, founded on a consideration of the costs actually incurred, the circumstances at the time at which the were incurred, whether they were reasonable in those circumstances, and what would have been a reasonable amount to have incurred."
His Honour concluded (at [44]) that the power given by s 98(4)(c) should only be exercised in exceptional cases where the court is satisfied that an application can be dealt with more quickly, cheaply and justly than an assessment under the Legal Profession Act 2004. Applying that principle, his Honour was not prepared to make an order under s 98(4)(c) in the case before him because the applicant for the order (that is, the costs respondent) did not place before his Honour sufficient evidence to enable the court to make a logical, fair and reasonable estimate of what would be an appropriate gross sum to incorporate in a costs order. I will return to this issue below.
Reference should also be made to s 60 of the CPA. That section provides:
"In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject matter in dispute."
Although this section is not itself concerned with the award of costs, it states an important principle which is relevant to the exercise of the court's discretion in relation to costs.
UCPR r 42.1 provides:
"Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs."
Although the application of the rule is expressed to be subject to a condition (that is, that the court make an order as to costs), the rule is regarded as embodying the principle that costs normally follow the event. Exceptions, of course, exist. A number of examples are listed in Ritchie's Uniform Civil Procedure NSW at [42.1.20] - such as where a party's success is attributable only to matters raised in a late amendment, or where a successful party recovers merely nominal damages, or where a successful party has been guilty of some form of misconduct. However, these examples, as the authors of the service acknowledge, are only examples. There is a wide range of circumstances in which it may be appropriate not to make an order for costs in favour of a successful party.
UCPR r 42.4 provides:
"(1) The court may by order, of its own motion or on the application of a party, specify the maximum costs that may be recovered by one party from another.
(2) A maximum amount specified in an order under subrule (1) may not include an amount that a party is ordered to pay because the party:
(a) has failed to comply with an order or with any of these rules, or
(b) has sought leave to amend its pleadings or particulars, or
(c) has sought an extension of time for complying with an order or with any of these rules, or
(d) has otherwise caused another party to incur costs that were not necessary for the just, quick and cheap:
(i) progress of the proceedings to trial or hearing, or
(ii) trial or hearing of the proceedings.
(3) An order under subrule (1) may include such directions as the court considers necessary to effect the just, quick and cheap:
(a) progress of the proceedings to trial or hearing, or
(b) trial or hearing of the proceedings.
(4) If, in the court's opinion, there are special reasons, and it is in the interests of justice to do so, the court may vary the specification of maximum recoverable costs ordered under subrule (1)."
In Sherborne Estate (No 2) [2005] NSWSC 1003; (2005) 65 NSWLR 268 at [24], Palmer J concluded that r 42.4(1) only permitted an order to be made in advance of a hearing. It did not permit an order capping costs at the end of the hearing. In reaching that conclusion, his Honour pointed out that subrules (2)-(4) only make sense in the latter context. However, the Court of Appeal in Nudd v Mannix [2009] NSWCA 327 held that the court did have power to make an order capping costs at the end of the hearing. Handley AJA (with whom McColl and McFarlane JJA agreed) said that that power was expressly conferred by UCPR r 42.4(1).
There is much to be said for the views expressed by Palmer J. However, it does not follow from his Honour's reasoning that UCPR r 42.4 sets out the only circumstances in which the court may cap costs. In my opinion, that rule does not expressly or impliedly operate as a limitation on CPA s 96. Rather, it sets out one set of circumstances in which that power to cap costs may be exercised, and places some limits on that power. The likelihood is that the drafters of the rule thought it was appropriate to do so to make it clear that an order capping costs could be made in advance, and not simply at the end, of the hearing, but that limits should be placed on a power to cap costs in those circumstances. It seems clear that the Court of Appeal was not referred to the decision in Sherborne Estate (No 2) and the reasoning of Palmer J in relation to UCPR r 42.4. Handley JA may well have expressed himself differently had it been. The fact remains, however, that Nudd v Mannix is authority for the proposition that the court does have power to cap costs at the end of the hearing. Whether or not that power should properly be regarded as conferred by UCPR r 42.4 is not important. In my opinion, it is clearly conferred by CPA s 96; and UCPR r 42.4 at least confers a qualified power to cap costs prior to the final hearing."
As stated, the court may make a costs order either of its own motion, or on the application of a party. In each case, the court will judicially exercise a discretion based upon a proper factual foundation. The discretion will also be exercised judicially, that is to say not arbitrarily, capriciously or so as to frustrate the legislative intent.
In Howards Storage World Pty Ltd v Haviv Holdings Pty Ltd [2010] FCAFC 5; (2010) 182 FCR 84, Gray J observed (at [17]) that:
"The overriding principle that costs are in the discretion of the Court can also be expressed in terms of the negative proposition that no rule or principle should be applied mechanically in the determination of the question where costs should lie in any particular case. Attention must always be paid to the particular circumstances of the individual case. The aim is to do substantial justice in relation to costs, based on the outcomes of the various issues in the proceeding, as between the entities that are parties to that proceeding."
As has also been pointed out in Commissioner of Taxation v Moodie [2014] NSWCA 59, per McColl JA, at [62]:
"The concept of fairness takes into account the contextual circumstances of the litigation and the conduct of the parties, including their responsibility in incurring the costs: Commonwealth of Australia v Gretton [2008] NSWCA 117 (at [85]) per Beazley JA, (at [121]) per Hodgson JA (Mason P agreeing with both); Kazar (Liquidator) v Kargarian; Re Frontier Architects Pty Ltd (in liq) [2011] FCAFC 136; (2011) 197 FCR 113 (at [9]) per Greenwood and Rares JJ; see also Peters v Peters (1907) 7 SR (NSW) 398 (at 399) per Street J."
The ability of the court to limit the amount of recoverable costs of its own motion reveals that the purpose of such a costs order is not merely restricted to protecting a party from the consequences of an adverse costs order. The purpose also extends to the court implementing the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in the proceedings, acting in accordance with the dictates of justice and ensuring that the cost to the parties is proportionate to the importance and complexity of the subject matter in dispute: Caroona Coal Action Group Inc v Coal Mines Australia Pty Limited and Minister for Mineral Resources [2009] NSWLEC 165, at [10].
In this case, I also considered making a costs order which would have resulted in the successful party (Craigcare) recovering from Superkite, costs up to the maximum amount, identifying that amount by way of a lump sum order.
Ultimately, having considered the submissions, I have decided not to impose a costs capping order or to make a lump sum order. However, I do not propose to allow Craigcare to recover all of its costs. This is not a case where the subject matter of the dispute was important (from a public perspective), particularly complex, or where a large amount was in issue. (In stating that the amount was not large, I appreciate that $65,000 would be a significant sum for most people. But when one considers Craigcare and Superkite, and the transaction that gave rise to the proceedings, it is miniscule. Each party, apparently, also has access to significant financial resources to fund litigation and they chose to do so.) In addition, for the most part, the matter has been decided upon the facts that really should not have been substantially in dispute.
I have not omitted from my considerations that each of Craigcare and Superkite has an undoubted sense of grievance in relation to the events that occurred.
I do not accept the submission of Craigcare that a special costs order limiting what it might recover from Superkite would amount to an unjust order. Craigcare brought the proceedings claiming the Money. It was only in its written submissions, and then at the commencement of the hearing, that it sought to reduce the amount of its claim to about 70 per cent of the Money. Whilst it is true that before the proceedings were commenced, an offer had been made to pay the reasonable costs of Superkite, it was not until the submissions were served, and then at the commencement of the hearing that the court was informed that an allowance of about $30,000 was accepted as reasonable costs.
Even then, Craigcare has not succeeded in recovering all of the balance. It has been successful in recovering about 65 per cent of the Money.
Proportionality of costs to the value of the result is central to the just and efficient conduct of civil proceedings: Caroona Coal Action Group Inc v Coal Mines Australia Pty Limited and Minister for Mineral Resources, at [30]. In my view, the Defendants should be ordered to pay 65 per cent of Craigcare's costs, calculated on the ordinary basis.
In coming to this conclusion, I have taken into account the submissions regarding assessment upon the basis of briefing of one Counsel at fees appropriate to Junior Counsel. However, I do not think that I should limit the assessment of costs by imposing that further limitation.
In relation to the costs of Mr Stammers, I considered making an order for costs in his favour, but there is no evidence that he incurred any additional costs. There was one firm of solicitors and one counsel acting for both Defendants. He was an important witness in the case and the sole director of Superkite.
I have also considered his knowledge and his inaction in preventing a part of the Money to be used in the way that it was. Even though he is, and was, not a partner of Holman Webb, the payment of costs to the firm for work done on account of Superkite would have been beneficial. (He was the solicitor who did Superkite's work and it was in respect of that work that the unrelated outstanding costs were paid.)
In all the circumstances, and as a matter of discretion, I do not propose to make any order as to the costs of the second Defendant.
I direct the parties to provide to me, within 14 days, orders that reflect the conclusions I have reached as to the amount to be paid, the calculation of interest and the costs. If agreement is reached, I shall make the agreed orders in Chambers. Other wise the matter will be listed for further argument on a date agreed upon at the time of delivering these reasons for judgment.
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Decision last updated: 26 March 2014
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