Environment Protection Authority Victoria v 82 M Pty Ltd (No 2)
[2021] VSC 374
•18 June 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 03840
BETWEEN:
| ENVIRONMENT PROTECTION AUTHORITY VICTORIA | Plaintiff |
| - and - | |
| 82 M PTY LTD (ACN 130 867 300) | First Defendant |
| GLASS RECOVERY SERVICES PTY LTD (ACN 130 869 920) (Receiver and Manager Appointed) (In Liquidation) | Second Defendant |
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JUDGE: | LYONS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 April 2021, 18 June 2021 |
DATE OF RULING: | 18 June 2021 |
CASE MAY BE CITED AS: | Environment Protection Authority Victoria v 82 M Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2021] VSC 374 |
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PRACTICE AND PROCEDURE – Civil Procedure Act 2010 (Vic) s 65C - Whether power of court to order plaintiff to fund defendant’s cost of proceeding where injunction over defendant’s assets – Application to vary injunction not pursued – Power under s 65C relates to costs entitlements of the parties to a proceeding, not to secure funding of those costs – Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Miller | Harrick Lawyers |
| For the First Defendant | Mr J Twigg QC with Mr R Harris | Harris Carlson Lawyers |
| For the Second Defendant | No appearance |
HIS HONOUR:
INTRODUCTION AND SUMMARY
In this proceeding, the plaintiff (the ‘Authority’) seeks to recover the clean-up costs of approximately $30 million incurred in remediating the land at 82 to 88 Maffra Street, Coolaroo, Victoria (the ’land’). The claim is brought against the first defendant (‘82 M’), which is the owner of the land, and against the second defendant (‘GRS’), which operated a glass processing facility on the land. Both 82 M and GRS are part of the Italiano group of companies. GRS is now in liquidation and, in fact, had receivers and managers appointed to it by 82 M.
The Authority claims an entitlement to a statutory charge over the land pursuant to s 62(3) of the Environment Protection Act 1970 (Vic) (the ‘Act’) and/or a lien in respect of the clean-up costs.
On 13 October 2020, I gave leave to the Authority to commence and prosecute this claim against GRS, which is in liquidation. At that time 82 M was offering the land for sale. As a result, on application of the Authority, I ordered that 82 M be restrained until further order from transferring, selling, encumbering, disposing of or otherwise dealing with the land pending the hearing and determination of this proceeding.
82 M has no assets other than the land and a secured debt owed to it by GRS and appears to have no income. As a result, in April 2021, 82 M sought orders to vary the injunction to allow it to borrow funds against the land for:
(1) the costs of insurance, security, rates, taxes and other expenses in respect of the land in the sum of approximately $636,000; and
(2) legal costs of 82 M and GRS of this proceeding in the sum of approximately $317,000.
Further, given the statutory charge and lien claimed by the Authority, 82 M sought that any lender obtain priority over any statutory charge or lien. I will refer to these orders collectively as 'the variation orders'.
On the eve of the adjourned hearing of this application, on an invitation by the Court to identify its proposed orders, 82 M abandoned the variation orders and sought instead orders that:
(1)the Authority provide security for 82 M’s costs in the sum of $300,000, by paying that sum into Court (the ‘fund’);
(2)82 M be given the right to draw on that security to pay its reasonable costs and expenses of defending this proceeding and of pursuing any counterclaim or third-party claim, with those costs to be subject to agreement between the parties or an order of the Court; and
(3)subject to the order of the Court, the Authority is to be reimbursed the fund from the proceeds of sale of the land.
I will refer to these orders collectively as 'the alternative orders'. 82 M submitted that s 65C of the Civil Procedure Act2010 (Vic) (the ‘CPA’) empowered the court to make these novel alternative orders.
The Authority opposed the variation sought for three principal reasons. First, the orders made in October 2020 are in the nature of an injunction, not a freezing order. In those circumstances and where the plaintiff claims a proprietary interest in an asset restrained, such as a trust or a charge, the courts are reluctant to make orders which would reduce the net value of the asset available to the plaintiff. Second, the Authority submitted that the Court has no power to grant priority over the statutory charge under s 62 of the Act and/or the lien claimed by the Authority. Third, the Authority submitted that the Court should not, in the exercise of its discretion, make the orders sought.
The Authority also opposed the alternative orders. This was because the effect of the alternative orders would be that Authority is compelled to fund the costs of 82 M's defence of this proceeding and of any counterclaim and third-party claim. The Authority submitted that, while the power under s 65C of the CPA was broad, it was not broad enough to make the alternative orders or, alternatively, those orders should not be made in the exercise of the Court's discretion.
For the reasons that that follow, I have concluded that the Court does not have power to make the alternative orders under s 65C of the CPA. In summary, this is because on its proper construction s 65C concerns orders relating to the cost entitlements of the parties to a proceeding, not orders for the plaintiff to fund the defendant’s legal costs.
BACKGROUND
I set out the factual background of this proceeding in my reasons for judgment delivered on 13 October 2020. Paragraphs 12 to 29 of those reasons are as follows:
12.As to the evidence, the Authority relied upon the affidavit of Marc Fisken, affirmed 2 October 2020, and Caroline Skeoch, sworn 12 October 2020. During the hearing, it also sought the leave of the court to rely upon the affidavit of Ms Taylah Hiroa-Maiava, affirmed 13 October 2020, which set out the property of 82 M. As counsel for 82 M did not oppose leave being granted, I grant leave to file and rely upon that affidavit. The first defendant relied upon the affidavit of Robin Settle, sworn 12 October 2020.
13.Not all the facts relating to this application were agreed. Indeed, 82 M submitted that one of the reasons why interlocutory relief should be refused was because the Authority had failed to disclose all material facts; however, the following facts from the affidavits appear not in dispute.
14.82 M is the registered proprietor of the land. Since March 2020, its sole director is Robert Italiano. Prior to that time its sole director was Anthony Italiano. Robert and Anthony are brothers. They are sons of Giuseppe Italiano and, I understand, Domenica Italiano.
15.The shareholder of 82 M is Italiano Appointor Pty Ltd, which holds 100 shares. The sole director of Italiano Appointor Pty Ltd is Giuseppe Italiano.
16.GRS operated a glass processing business on the land or part thereof from late 2018 or early 2019. Prior to being placed in liquidation the sole director of GRS was Giuseppe Italiano.
17GRS operated as a glass processing business pursuant to a licence dated 17 May 2018 issued by the Authority under s 20 of the Act. That section provides, relevantly, that an occupier of a scheduled premises must not relevantly undertake reprocessing or storage of waste unless licensed to do so under the Act.
18.While GRS was operating its glass processing business on the land, on 21 August 2019, the Authority served GRS with a clean-up notice pursuant to s 62A of the Act in relation to high temperatures within a significant quantity of combustible recyclable glass and waste material stockpiled on the land. The clean-up noticed required GRS to reduce the risk of subsurface fire associated with the identified stock prior to 6 September 2019.
19.On 6 September 2019, the Authority determined that the requirements of the clean-up notice had not been complied with. As a result, on that day, the Authority served GRS with a show cause notice stating, among other things, that the Authority was considering exercising its clean-up powers under s 62 of the Act and provided an opportunity for GRS to respond or show cause as to why the Authority should not exercise its powers. It requested a response by 4pm on 20 September 2019. No response was received.
20.Further on 21 and 22 October 2019, the Authority further determined that a discharge of leachate into a neighbouring creak was occurring from the land. By letter dated 25 October 2019, the Authority advised GRS that it would exercise its powers under s 62 of the Act to enter into the land and conduct a clean-up in respect of both the discharge of leachate and the management of the glass stockpile hotspots identified in August 2019.
21.Between approximately 25 October 2019 and 7 July 2020, the Authority caused a clean-up on the land consisting of approximately $28.8M. A summary of the clean-up costs was produced into evidence.
22.On 4 August 2020, the solicitors for the Authority sent a letter of demand to GRS demanding that it pay the clean-up costs. The Authority demanded payment under s 62(2) of the Act on the basis that GRS was the person who caused the action to be taken or was the occupier of the premises upon which the action was taken.
23On 14 August 2020, Harris Carlson on behalf of the receivers and managers of GRS responded seeking all reports and invoices and other documents to support the clean-up costs. That letter noted that the receivers and managers had issued proceedings against GRS's insurers seeking an indemnity among other things, in respect of some or all of the clean-up costs.
24.Mr Fisken also deposed that on 29 September 2020, 82 M listed the land for sale on the website of real estate agents known as Commercial Real Estate Australia (‘CBRE’). It is in this context that the Authority has approached the court for an interlocutory injunction or a freezing order over the land.
25.Mr Settle, the solicitor of 82 M, has deposed to a number of matters which suggest that the Authority for some time has sought to claim an interest in the land without a proper basis and has delayed in bringing this proceeding and these applications
26.First, on 11 December 2019, the Authority lodged a caveat on the title to the land claiming to have an ‘interest as chargee’. After a notice was served pursuant to s 89A of the Transfer of Land Act1958 (Vic) (the ‘Transfer of Land Act’) the Authority allowed the caveat to lapse.
27.Second, on 12 August 2020, the Authority registered a priority notice on the title to the land. It purported to relate to a ‘statutory charge’ under s 201SQ(4) of the Planning and Environment Act1987 (Vic), which relates to growth area infrastructure contributions. However once objection was received from 82 M, this priority notice was immediately withdrawn. The reasons why the caveat and the priority notice were lodged and withdrawn are not explained on the affidavit material from the Authority.
28.As noted above, one of the key issues relevant to this application is whether 82 M was an occupier of the land for the purposes of s 62(2) of the Act. This is also addressed in Mr Settle's affidavit on the basis of what he has been told by the sole director of 82 M, Robert Italiano:
(1)by a lease dated about 14 November 2008, 82 M leased GRS the land for a rent of $360,000 per annum. The term of the lease was for 10 years, expiring on about 6 November 2018;
(2)as set out above, GRS was licensed under s 20 of the Act by the Authority to operate a glass reprocessing plant;
(3)since the expiry of the lease on or about 7 November 2018, GRS ‘has remained the sole occupier of the land pursuant to a month to month tenancy with 82 M'; and
(4)82 M has not, since August 2019, re-entered the land, controlled or occupied the land or operated the glass reprocessing facility on the land.
29Further, Mr Settle deposed that contrary to the affidavit material by the Authority, 82 M listed the land for sale with CBRE in July 2019 and a sale board was placed on the land from September 2019 until 12 August 2020 during the period when the clean-up works were undertaken. I note that the sale authority is produced. It is signed by Giuseppe Italiano, the sole director of GRS. This confirms the interrelated nature of 82 M, the land owner, and GRS.
In those reasons I concluded there was a prima facie case that:
(1)GRS was the person who caused the stockpile which was the subject of the clean-up notice, and was an occupier of the land for the purpose of the s 62 of the Act;
(2)82 M was the owner of the premises both at the time of the clean-up when GRS was on a monthly tenancy of the land and at that time of the injunction application given that it had the power to sell the property;
(3) given that GRS was in liquidation, the land is likely to become subject to a statutory charge for the clean-up costs, which arises pursuant to s 62(3) of the Act on the basis that the Authority was unlikely recover those clean-up costs from GRS as the occupier.
Further, I concluded that there was a prima facie case that a lien over the land for the repayment of the clean-up costs had arisen in favour of the Authority.
I was also satisfied that, where the land was the only asset of 82 M and where 82 M was threatening to sell the land, the balance of convenience favoured restraint of the sale pending the hearing and determination of the proceeding. While I determined to impose an injunction, I was also of the view that I would have made a freezing order in the circumstances of that case.
This application was originally listed before me on 30 April 2021. At that time 82 M relied upon the affidavits of:
(1) Robert Italiano, the sole director of 82 M, sworn on 22 April 2021;
(2) Michael Franks, the manager of 82 M, sworn on 22 April 2021; and
(3) Robin Settle, the solicitor for 82 M, sworn on 22 April 2021 and 29 April 2021.
The Authority relied upon the affidavit of Caroline Skeoch, the solicitor for the Authority, sworn on 26 April 2021.
At the hearing on 30 April 2021, I raised with counsel for 82 M whether the Court had the power to make orders which gave any lender priority over a statutory charge which might arise under s 62(3) of the Act and/or the lien claimed by the Authority. I also raised the fact that there was little evidence that there was a lender who was prepared to advance funds to 82 M to defend the proceeding.
As a result, 82 M sought an adjournment to consider its position further and to file additional material. It has now done so. After the first hearing, 82 M filed the affidavit of Meghan Sullivan, another solicitor for 82 M, sworn on 21 May 2021, and further affidavits of Mr Franks sworn on 21 May 2021 and 25 May 2021.
As to the relevant facts, in summary, Mr Italiano deposed as to the financial circumstances of 82 M. He deposed that, as at 22 April 2021:
(1) the only assets of 82 M were the land, which is subject to a statutory charge for unpaid land tax in the order of $40,000, and a secured debt owed to it by GRS in the sum of $555,877;
(2) 82 M had approximately $7,800 cash at the bank;
(3) between June 2020 and April 2021 82 M's cash had been used to fund the costs and expenses of maintaining the land;
(4) there was an unsecured loan payable by 82 M to Mr Italiano’s mother, Domenica Italiano, in the sum of approximately $5.6 million which was lent in 2006 to purchase the land;
(5)there was an unsecured loan payable by 82 M to Geelap Pty Ltd (‘Geelap’), another company related to 82 M, in the sum of approximately $636,000 in respect of monies advanced for operating expenses.
(6) Geelap had limited resources to fund 82 M's costs of the proceeding and, without security over the property, it was not willing to advance funds to 82 M to expend in defending the claim that is brought in this proceeding.
As to the loan owed to GRS, Mr Italiano deposed that on 10 March 2020 82 M appointed receivers and managers over GRS to realise the assets of GRS with a view of satisfying the debt owed to 82 M.
In support of the variation orders, Mr Italiano also deposed to the costs of maintaining the land of approximately $635,000. I will not set them out now given they are no longer pursued. However, it is significant that 82 M has not explained who is now funding these ongoing costs
Mr Italiano deposed that 82 M disputes the Authority’s actions which have led to this proceeding (including taking possession of the land), and that 82 M wished to pursue a counterclaim for lost rent and outgoings in excess of $1.5 million.
Further, Mr Italiano deposed that GRS maintained that it has a cause of action and wished to pursue a counterclaim. In addition, Mr Italiano deposed that each of 82 M and GRS wished to pursue a third-party claim on the basis that leachate which caused the problem on the land emanated from adjoining properties.
As to legal costs, Mr Italiano deposed to them in a general way, noting that:
(1) 82 M’s billed legal costs at the time of his affidavit were $79,904.45;
(2) 82 M’s unbilled legal costs were approximately $60,000; and
(3) 82 M’s estimated costs of the proceeding to mediation were in the order of $180,000 to $220,000.
Mr Settle deposed that 82 M intended to borrow from a commercial lending market, but it would take up to 60 days to put a loan in place. He also deposed to the attitude of the receivers and managers of GRS, noting that there were no assets and the receivers were pursuing claims against the insurers.
As to costs, Mr Settle deposed to his invoices to date and to his unbilled work.. He also deposed that, in his opinion, further work in the order of $182,000 was required to mediation, including the preparation and service of a counterclaim, a third party notice and expert reports.
In her affidavit, Ms Sullivan addressed a number of matters. As to legal costs, she exhibited a letter from Victorian Legal Costs Assessors as to 82 M's future costs of the proceeding. That cost assessor assessed the costs far in excess of those estimated by Mr Settle to mediation in the order of $230,000.
As to the financing, Ms Sullivan produced correspondence between the solicitors for 82 M and a firm called Hilco Global APAC (‘Hilco’). The solicitors for 82 M requested that Hilco outline the likely terms of any loan. Hilco responded, advising that if any lending opportunity was to be progressed for 82 M, it would need to complete a formal credit assessment. However, it noted that:
(1) the sum advanced would not exceed 50% of an updated valuation of the land;
(2) the term of any loan would be for 6-12 months;
(3) interest in the rate of 10-18% would be capitalised;
(4) the valuation and documentation fees would need to be paid up front by the borrower; and
(5) security would be required by way of: (a) a first registered mortgage over the land; (b) a general security agreement over the borrowing entity; and (c) directors’ guarantees of the borrowing entity, and perhaps guarantees from other entities within the borrowing group.
SUBMISSIONS
In summary, in its revised submissions of 11 June 2021, 82 M submitted that the Court should make the variation orders to allow 82 M to borrow against the land, and for the borrower to be given priority over any charge of the Authority, both for the costs of the legal proceedings and the costs of running expenses relating to the land.
82 M’s submissions proceeded on the basis that the order made on 13 October 2020 was, in effect, a freezing order. It submitted that it was common for courts to make such variations to provide for the payment of legal costs from freezing orders. It also submitted that the effect of the variation orders was to prevent and overcome the oppressive effect of the order in its current terms.
It said that, unless the variation orders were made, 82 M would be deprived of defending the proceeding and of proceeding with its counterclaim against the Authority. Significantly, counsel for 82 M did not put forward any authority for the proposition that the Court could give any such lender priority over the rights of Authority. Rather, counsel relied upon the Court's wide powers to fashion orders to accord justice between the parties. It noted that, on the evidence of Hilco, varying the injunction without priority to a lender was 'forlorn'.
82 M submitted that, as the Authority is a statutory authority, the interests of justice require that the exercise of the Authority’s statutory powers be closely monitored. It submitted that, in the absence of legal costs to defend the proceeding, the exercise of the Authority’s powers in respect of the clean-up costs would not be adequately tested to enable this Court to determine the lawfulness of the Authority’s actions or the recoverability of the clean-up costs.
It submitted that, in these circumstances, the lesser injustice required the variation orders to be made to allow the payment of 82 M’s costs of defending the proceeding.
Further, in its written submissions, 82 M suggested that the Court:
might achieve the result that the plaintiff provide security for costs in an unusual form … the security for costs be provided by the plaintiff by ‘in the first instance’ funding 82M’s running of the case, with the ultimate liability for those costs to be determined by the Court at the end of the proceeding.
It submitted that such an order could be achieved under s 65C of the CPA, or in the Court's inherent jurisdiction, or by requiring an undertaking in that form as a condition of maintaining the Authority’s injunction.
As noted above, last evening in response to a request by the Court for the form of orders sought by 82 M, 82 M did not seek the variation orders but only sought the alternative orders and only based on s 65C of the CPA.
The Authority opposed the variation orders and the alternative orders. As to the variation orders, first, the Authority contended that in this case the Court had made an injunction order, not a freezing order. It noted that there was a different juridical basis for a freezing order. It submitted that it was not unusual for the Court to refuse an order for the payment of legal costs where the plaintiff claims a proprietary interest in the assets from which such costs might be paid. It relied upon cases where the plaintiff claimed a proprietary interest in the asset which was the subject of the injunction, such as where the assets were held in trust or where the plaintiff claimed beneficial ownership in the asset.[1]
[1]Distinctive FX Pty Ltd v Van Der Slot [2015] VSCA 328, [49]-[50]; His Eminence Metropolitan Petar v Macedonian Orthodox Community Church St Petka Incorporated [2006] NSWCA 277, [12], [59]-[60].
The Authority accepted that the Court has a discretion to vary a freezing order or to allow payment of reasonable costs where the affected person has no other means to do so.[2] It noted that the relevant factors to the exercise of the Court’s discretion to vary a freezing order included:
(1) whether the defendant has access to other sources of funds, with the evidential burden being on the defendant; and
(2)that it may be appropriate in the interests of justice to refuse a variation where, if granted, it would give rise to a substantial risk that any judgment obtained by the plaintiff would be rendered nugatory due to the limited remaining assets held by the defendants, so that the effect of the variation would be likely to frustrate the plaintiffs in their attempt to seek a remedy at law.
[2]Relying upon Vasilaras & Co Pty Ltd v Laprese (2019) 58 VR 155, [73].
In any event, the Authority submitted that, in the exercise of discretion, the Court should not make an order of the kind sought in circumstances where:
(1)82 M is a prima facie debtor of the Authority under s 62 of the Act in an amount that exceeds the value of the property;
(2)the Authority claims a proprietary interest in the land on the basis of an equitable lien, or is likely to be able to lodge a statutory charge under s 62(3);
(3)the Court has found that the Authority has a prima facie claim for a lien and/or a statutory charge over the land;
(4)on its own case, 82 M has no means to pay the prima facie debt for the clean-up costs or to repay any amount it obtains using the land as security if the Authority’s case is made out;
(5)any loan would have the effect of diminishing the Authority’s equity and interest in the land, subject to any priority dispute;
(6) any prospective lender should not be put in a position where its interests may compete with the Authority’s lien or any statutory charge if it is established. This is in circumstances where the statutory charge would have super-priority under s 62(12) of the Act; and
(7) this was particularly so where there was no evidence that the proposed lender had been put on notice of the risk of the Authority obtaining a lien or a statutory charge.
As to the proposed finance, the Authority submitted there was no evidence of the amount or the terms of the proposed loan. It submitted that the email from Hilco was simply a preliminary proposal. That email from Hilco, as noted above, advised that any proposal would be for a short-term loan of between 6- 12 months, at an interest rate of between 10-18%. As also noted above the Authority submitted that, on the evidence available to the Court, 82 M does not have the capacity to repay the loan or the interest on the loan. In that event, on non-payment, Hilco would be likely to seek to enforce its security interest prior to judgment in this proceeding. That would bring to the fore any priority dispute.
In all these circumstances, the Authority submitted that the balance of convenience and the interests of justice did not require a variation to the orders. Further, the Authority contended that many of the costs sought to be paid did not relate to the land. In particular, it submitted that the costs for insurance and security for the most part related to the protection of assets on the land, like plant and machinery, rather than the land itself.
As to legal costs, it submitted that the evidence did not establish a proper basis for the amount claimed. It submitted that those costs did not just include the costs of the defending the proceeding by 82 M, but also the costs of GRS, and the costs of counterclaims and third-party claims by 82 M and GRS.
As to the alternative orders, the Authority submitted that the effect of the alternative orders was that the Authority was compelled to fund the costs of 82 M’s defence of this proceeding and of its counterclaims and third-party claims.
The Authority submitted that, while the power under s 65C was broad, it was not broad enough to make alternative orders, or alternatively, such orders should not be made in the exercise of the Court's discretion in this case. First, the Authority submitted that given the alternative orders were, in effect, an application for security for costs, the principles that the Court should apply by analogy should be those for a security for costs application, namely whether there is a reason to believe that the Authority had insufficient assets in Victoria to pay the costs of 82 M in this proceeding if the Authority was unsuccessful. It is submitted that could never be established in this case given that the Authority is a statutory authority.
Second, the Authority submitted that the alternative orders did not further the overarching purpose, namely, to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. It submitted it is not just to require one party to fund another party's case simply because that other party is unable or unwilling to raise the funds to do so.
Further, it submitted that the appropriate course was to use all avenues available to 82 M to obtain funding, including by maintaining its application to vary the injunction. It submitted that it was not the responsibility of the Authority or the Court to remedy 82 M’s inability to obtain finance.
ANALYSIS: VARIATION ORDERS APPLICATION
As to the variation orders, given that 82 M has elected not to pursue the variation orders, it is unnecessary for me to determine this application. However, I wish to note, given this issue was alive until yesterday, that I would not have allowed that application. This is for two reasons.
The first reason is that I remain of the view that the Court does not have the power to grant any lender priority over any interest of the Authority claimed in the land, either under a lien or under a statutory charge that might arise under s 62(3) of the Act.
The second reason is that, whether the application was to vary an injunction or a freezing order, the question is what the interests of justice require. I would not have exercised my discretion to make the variation orders on the evidence before me. In my view, such an order is not in the interests of justice and the balance of convenience does not favour such an order. In summary, this is for four reasons.
First, it is very relevant to the exercise of my discretion that the Authority is claiming a proprietary interest in the land, either by way of lien or statutory charge.
Second and related to the first point, the effect of such an order would be to allow 82 M to use the land in which the Authority claims a proprietary interest in order to fund its legal costs. This is in circumstances where, on the evidence before me, the amount of the clean-up costs of approximately $30 million far exceed the value of the land. The financial statements annexed to the affidavit of Mr Italiano record that the value of the land as at FY 2020 was in the order of $5,899,000. Thus, the effect of the variation orders would be likely to further diminish the Authority’s prospects of recovering the clean-up costs.
Third, the evidence of available finance before me is very limited. In any event, given the terms of the proposed finance that might be available, a loan would only be for 6- 12 months with interest of 10-18%. As noted above, 82 M has no ability on the material before me to repay the loan or the interest. Thus, it would appear that when the loan becomes payable, interest and other associated default costs would become recoverable against the land. Subject to a priority dispute, that would be likely to further diminish the asset pool available to the Authority.
Fourth, I am not satisfied on the evidence before me that there is no available source of funds from related companies in the Italiano group or those who stand behind them and who might benefit from the defence of this proceeding. I will deal with this further below.
ANALYSIS: ALTERNATIVE ORDERS APPLICATION
As to the alternative orders, s 65C(1) of the CPA provides:
In addition to any other power a court may have in relation to costs, a court may make any order as to costs it considers appropriate to further the overarching purpose.
The overarching purpose is defined in s 7(1) of the CPA to mean 'to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute'.
Section 65C(2) of the CPA provides that, without limiting subsection (1), a court may:
(1)make different awards of costs in relation to different parts of a proceeding or up to or from a specified stage of the proceeding;
(2) order that the parties bear costs in specific proportions, or award a party costs in a specified sum or amount, or fix or cap recoverable costs in advance.
Further, s 9 of the CPA provides that, in making any order or in giving any direction in a civil proceeding, a court shall further the overarching purpose by having regard to the objects set out in s 9(1). For this purpose, the court may have regard to the matters set out in s 9(2). Relevantly, this includes any prejudice that may be suffered by a party as a consequence of the order proposed to be made by the court.
I acknowledge that the powers under s 65C of the CPA are broad. The Court must not be reluctant to exercise those powers in appropriate and novel circumstances. Indeed, the Court of Appeal noted in Yara Australia Pty Ltd v Oswal that the CPA 'creates obligations which extend beyond those in the Rules and confers upon the courts a panoply of powers not found in the Rules’.[3]
[3](2013) 41 VR 302, 311 [25].
However, there are three points I wish to make. First, I must have regard to the language of s 65C to determine the power in fact provided under that section. Relevantly, it only applies to ‘orders as to costs’. Second, the power only arises if the Court considers that the order as to costs is ‘appropriate to further the overarching purpose’. Third, in that event, the Court has a discretion to make such an order.
As to the nature of the power granted by s 65C, it is first necessary to understand the nature of the alternative orders application. 82 M submitted that, in substance, its application was an order as to security for costs albeit in an unusual form. I consider that is an inaccurate categorisation. In truth, it is an application for the Authority, which is a plaintiff, to fund the defendants’ costs of their defence of this proceeding and, indeed, of the defendants’ counterclaims and third-party claims. In my view, that is not an order as to costs.
In my view, s 65C of the CPA confers a power on the Court to make orders as to the entitlement of the parties to the costs of a proceeding including the apportionment of those costs. It is not a provision which authorises the Court to make orders requiring a party to fund the costs of another party’s defence to a proceeding. In my view, this is clear from the words of s 65C itself (i.e. a court may make an order ‘as to costs’) and also in the context of s 65C as a whole and pt 4.5 of the CPA.
All the provisions of pt 4.5 of the CPA relate to entitlement to costs. None of them relate to a court ordering that a plaintiff fund a defendant's costs of defending its own claim.
In this regard, and by an analogy, I refer to the decision of the Court of Appeal in Khalid v Secretary, Department of Transport, Planning and Local Infrastructure.[4] In that case the Court of Appeal was dealing with an argument that a protective costs order should be made to limit the costs that a party might be entitled to spend in order that there might be ‘equality of arms’ between the parties necessary to achieve the just resolution of the real issues in dispute.
[4][2014] VSCA 115.
The Court of Appeal concluded that the term 'equality of arms' does not appear in the CPA or in the Supreme Court (General Civil Procedure) Rules 2005 (Vic).[5] While those rules have been superseded by the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the ‘2015 Rules’), that term also does not appear in the 2015 Rules. The Court continued:[6]
These costs allocation rules have been the subject of considerable analysis, review and well developed jurisprudence. The reports that led to civil procedure reform both there and in the UK, including those that led to the introduction of the CPA do not identify a principle of equality of arms as informing the CPA’s purpose, or as being necessary to the just determination of a dispute more broadly. Given the long history of these rules, we do not accept, in the absence of clear words to the contrary, that s7 of the CPA incorporates such a principle.
[5]Ibid [30].
[6]Ibid (citations omitted).
By analogy, having regard to the provisions of the CPA as a whole, I cannot see on its proper construction that pt 4.5 and, in particular s 65C, provides a means by which the defendants are to be funded their costs of the proceeding by the plaintiff.
As a result, I do not consider s 65C applies to this application.
If I am wrong and s 65C provides the Court with a power to make an order of the type sought, it is necessary to consider whether such an order is appropriate to further the overarching purpose to facilitate the just, timely, efficient and cost-effective resolution of the real issues in dispute.
In my view, that has not been established here. First, facilitation of the just resolution of the real issues in dispute will not be achieved by the alternative orders. This is because it is not just to require the Authority to fund another party's case, even where there is an injunction in place, simply because the other party is unable to raise funds to do so or because those behind that party are unwilling to do so.
This is in circumstances where, as set out at [50] above, there is a real risk that, subject to any priority dispute, the effect of the order would likely diminish the Authority’s prospects of recovering the clean-up costs in circumstances where it claims a proprietary interest in the land.
Further, as noted above, s 9(2)(f) of the CPA provides that for the purposes of furthering the overarching purpose, the court may have regard to any prejudice that may be suffered by any party. In my view, the effect of the orders sought by 82 M would result in an injustice to the Authority. It is important to note that any inability on the part of 82 M to obtain finance because of the Authority’s claim for a lien or charge is not the result of the conduct of the Authority, but the operation of the law and, in particular, s 62(3) of the Act.
Second, I do not consider that the alternative orders are appropriate to further the other aspects of the overarching purpose, namely the efficient, timely and cost-effective resolution of the real issues in dispute. 82 M does not only seek the costs of defending the proceeding, it seeks the costs of funding a counterclaim and claims against third-parties which have yet to be issued. That goes far beyond the real issues now in dispute. In addition, I agree with the submissions of the Authority that 82 M can apply to defend the proceedings without representation.
Finally, even if I am wrong and the alternative orders are appropriate for furthering the overarching purpose, in the exercise of my discretion I would decline to make the alternative orders. This is because I do not consider they are necessary in the interests of justice.
First, this is because of the effect of the orders on the Authority’s ability to recover the clean-up costs from the land if it is successful in the proceeding. I refer to my comments at [50] above.
Second, and related to the first point, I am not satisfied that those who stand behind 82 M and the Italiano group of companies who might benefit from the defence of this proceeding are not in a position to fund the defence of this proceeding. As noted above, 82 M is part of the Italiano group of companies. There is a clear inter-relationship between 82 M and the other companies in the group and, in particular, GRS.
This is evident from my earlier reasons. It is also evident from the affidavit of Mr Italiano, which I referred to above. I refer to Mr Italiano’s evidence at [17] above, in particular, as to the assets of 82 M and the unsecured loans to Mr Italiano’s mother and Geelap.
As noted above, 82 M has taken steps to appoint a receiver and manager to GRS. Further, the basis of the assertion in Mr Italiano's affidavit that Geelap has limited resources is not made clear on the evidence. However, it appears that the directors of Geelap have made a choice not to advance funds to its related company, 82 M, to fund its defence of this proceeding.
In the case of an inter-related family controlled group of companies like this, I consider it is relevant to the exercise of my discretion whether the persons behind 82 M and its related companies (in particular, its directors and shareholders) have the ability and are willing to fund 82 M’s legal costs of this proceeding. In my view, in an application such as this, the Court is entitled to have regard to the absence of such evidence. This is particularly so given those individuals who stand behind the corporate defendant may benefit from the orders in fact sought. In this regard, I note again that the other costs of maintaining the land which were sought in the variation orders are no longer pursued and there is no evidence as to how these costs are being met.
Third, in the exercise of my discretion, it is significant that the alternative orders go far beyond the costs of defending the Authority’s claim. They also include the costs of funding a counterclaim and third-party claims.
In all these circumstances, I decline the relief in this application.
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