Faars Pty Ltd v Wellington Capital Limited
[2009] VSC 255
•24 June 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 4384 of 2009
| FAARS PTY LTD (ACN 076 050 676) | Plaintiff |
| v | |
| WELLINGTON CAPITAL LIMITED AND ORS (according to the attached schedule) (ACN 114 248 458) | Defendants |
---
JUDGE: | WILLIAMS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 June 2009 | |
DATE OF JUDGMENT: | 24 June 2009 | |
CASE MAY BE CITED AS: | Faars Pty Ltd & Anor v Wellington Capital Limited and Anor | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 255 | |
---
COSTS – Security for costs – Sale of property by mortgagee defendant – Alleged sale at undervalue by mortgagee - Impecunious corporate plaintiff mortgagor - Additional individual plaintiff guarantor – Alleged misleading and deceptive conduct – Claim for setting aside of guarantee - Some overlap in claims – Little evidence of capacity of individual plaintiff to meet order for costs – Security for costs ordered.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M Strang | Bolden Lawyers |
| For the Defendants | Mr R Moore | HWL Ebsworth Lawyers |
HER HONOUR:
This is an appeal from an Associate Justice’s order on 28 May 2009 that the first plaintiff (Faars) pay the sum of $25,000 security for the costs of the first defendant (“Wellington”) and the second defendant (“Perpetual”) within 45 days and that the proceeding be stayed until payment.
The appeal is by way of a hearing de novo under r 77.06(7) of the Supreme Court (General Civil Procedure) Rules 2005 (“the Rules”).
Background
Faars commenced the proceeding against Wellington and Perpetual by a generally endorsed writ filed on 23 January 2009. At that stage, Faars sought to restrain the defendants from proceeding with a sale of its property at 69‑79 Buckley Street, Seddon (“the property”) as mortgagees. The mortgage secured Faars’ obligations under a loan agreement made between it and Perpetual and dated 15 January 2007 (“the loan agreement”). Wellington is a merchant bank and the responsible entity of a fund of which Perpetual is the trustee. Wellington agreed under the loan agreement to lend Faars $8.92m through Perpetual. The defendants allege that the loan was repayable under the loan agreement on 19 February 2009, that Faars then owed Perpetual $10,216,162 and that interest is accruing against Faars.
Faars alleged that the defendants had contracted to sell the property to the then third defendant, Mission Australia Housing (Victoria) Pty Ltd (“MA”), for a price of $8.5m which was less than the market value of the property and that they had failed to advertise or market it properly. Faars claimed to have a purchaser willing to pay more.
On 10 February 2009, Faars unsuccessfully applied to the Court for an injunction to stop the sale. Pagone J concluded that the claim appeared to be compensable by a monetary award and that on the balance of convenience the application should be refused.
On 28 May 2008, the date of the security for costs order, Mr Kourosh Jafari was also added as a plaintiff by the Associate Justice. Leave was granted for the filing of an amended writ and statement of claim which included Mr Jafari’s claim for orders setting aside the guarantee he had given to Perpetual on 15 February 2007 in relation to Faars’ indebtedness under the loan agreement.
Under the amended statement of claim, Mr Jafari claims that the guarantee ought to be set aside under s 87(2) of the Trade Practices Act 1974 (Cth). He alleges that Wellington and/or Perpetual engaged in misleading and deceptive conduct contravening s 52 of the Trade Practices Act by failing to advance the balance of monies under the loan agreement, in breach of alleged representations that they would do so and, in effect, that there were funds to advance. It is alleged that both Faars and Mr Jafari relied upon the representations, by respectively entering the loan agreement and executing the guarantee. Mr Jafari also claims to be entitled to have the guarantee set aside at common law or in equity because Perpetual has acted to Faars’ prejudice in relation to the sale transaction.
It is common ground that Faars is the trustee of Jafari Family Trust. It is a $1 company and has no assets apart from its interest in the property and it is not suggested that it will be able to meet an order for costs made against it. Mr Jafari is Faars’ sole director, secretary and shareholder. There is no evidence as to his financial circumstances or his capacity to meet the costs of the litigation.
The Court may order security against a corporation under r 62.02(1)(b) of the Rules. Faars argues that its claim is bona fide and has good prospects of success and that the application for security will frustrate it.
I proceed on the basis that the plaintiffs’ claim is bona fide. I am not however satisfied that it can be clearly demonstrated that there is a high probability of either its success or its failure.
Counsel for Faars relies upon the affidavit material generally in relation to the strength of its claim. In particular, he refers to emails between Wellington and MA and Mr Jafari which, he claims, suggest that the sale was, in effect, rushed, at an undervalue and improper.
Counsel for the defendants, on the other hand, relies on material including a report supplied by the independent property consultant, 333 Capital, to Perpetual which, he argues, indicates that 333 Capital recommended the approach to the marketing campaign which it adopted. He argues that Perpetual acted properly at all times and that the sale prices proposed by prospective buyers when making expressions of interest establish that the ultimate sale price was not indicative of the disposition being at an undervalue.
In the circumstances, I do not agree with the Faars’ assessment of the strength of its case, although it is difficult for the Court to assess the strength of a claim at this early stage on the basis of affidavit material. Equally, I do not consider it doomed to failure.
Counsel for Faars argues that security should not be ordered because its financial position was brought about by Perpetual’s breaches of the loan agreement which deprived it of the funds necessary to prosecute its claim. The claim would be stultified as a result ofany order. The plaintiffs bear the onus of proving the factual substratum of this assertion.[1]
[1]Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744 at [66] per Einstein J.
As I have noted, Faars’ co-plaintiff, Mr Jafari, who stands behind the corporation and would benefit from the success of the claim has given no details of his own financial situation or as to his ability to access funds to carry on the litigation. The materials do suggest that Mr Jafari is concerned about what he has described[2] as his “financial and moral obligations” to other creditors which he hoped to meet from the balance of the proceeds of sale of the property. This might indicate that he does not have access to funds to meet their claims. It is, however, not a statement on oath and Mr Jafari’s reference to those creditors may be susceptible to a number of interpretations in the circumstances of the negotiations between the parties. The evidence does not satisfy me that the litigation of Faars’ claims would be stultified if security were to be ordered.
[2]In an email of 12 December 2007 to MA.
The overlap between the plaintiffs’ respective claims is also a relevant factor. The situation is similar to that considered by Ormiston J in Interwest Limited v Tricontinental Corporation Ltd and Anor[3] to which the Court has been referred. There, too, there was an absence of material as to the individual plaintiffs’ capacity to meet any order for costs and material, suggesting the likelihood that they might not be able to do so. In that context, Ormiston J took account of the overlap between the plaintiffs’ respective claims. His Honour concluded that the presence of the individual plaintiffs’ claims and their relative significance diminished the defendants’ claims for security but did not extinguish them, even though he was not persuaded that there was not a substantial overlap between them.[4]
[3](1991) 5 ACSR 621.
[4](1991) 5 ACSR 621 at 625.
As to the overlap in this case, I am not persuaded by the plaintiffs’ argument that it is to the extent of 75%. Faars claims damages for alleged breaches of s 52 of the Trade Practices Act 1974 (Cth) which might also ground, in part, Mr Jafari’s claimed entitlement to orders setting aside the guarantee. Even so, it would be necessary for each plaintiff to prove reliance upon any representation. It is difficult, at this early stage, to assess the extent of the overlap. In my view, however, the defendants do run the risk of being unable to recover costs from Faars if they succeed in defending part of its claim and yet are unsuccessful against Mr Jafari.
Counsel for Faars also argues that security should not be ordered because its case is essentially a defensive one. I do not agree. Whilst Faars’ claim might be regarded as a defensive response to the defendants’ demands under the loan agreement (as in Interwest), its claims go further in seeking to set aside the notice of default under the loan agreement and in seeking damages in relation to the sale of the property.
Counsel further argues that the litigation involves a matter of public interest relating to the obligations of mortgagees and that Faars should not be stopped from agitating those issues by an order for security.
The defendants face an impecunious corporate plaintiff and an individual plaintiff whose means have not been disclosed, I am not satisfied that the claim is essentially defensive and the plaintiffs’ claims are co-extensive to the degree that the order should not be made. Nor am I persuaded that there is a matter of public interest involved in the litigation which should militate against a grant of the relief sought. In all the circumstances, an order for security for costs should be made.
As to the amount of the security, counsel for the defendants points to evidence from his instructing solicitor estimating the costs at slightly more than $41,000 up to and including mediation. Whilst counsel for Faars concedes that the amount of $25,000 ordered by the Associate Justice was otherwise reasonable, he argues that the substantial overlap warrants the reduction of that amount by between 50 and 75%. Apart from referring to the Associate Justice’s view that no account should be taken of an estimate relating to counsel’s work in relation to the affidavit of documents and his Honour’s noting that some informal discovery had taken place, counsel for the plaintiffs makes no specific attack on the estimates.
Taking into account what I have been told about the informal discovery which has already occurred, the overlap between the plaintiffs’ claims and the other factors to which counsel referred, I am satisfied that the amount of $25,000 ordered by the Associate Justice is the appropriate order for security for costs, notwithstanding that his Honour may or may not have adverted to the overlap between the plaintiffs’ claims by his order of the same date.
I also propose to order that the proceeding be stayed unless the payment is made within the time to be allowed for the provision of security. No submissions have addressed the length of that period.
I will hear the parties as to the form of orders.
---
2
0