Felsink Pty Ltd v City of Maribyrnong
[2007] VSC 49
•5 March 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 8873 of 2003
| FELSINK PTY LTD | Plaintiff |
| v | |
| CITY OF MARIBYRNONG & ANOR | Defendant |
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JUDGE: | SMITH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22-23 February 2007 | |
DATE OF JUDGMENT: | 5 March 2007 | |
CASE MAY BE CITED AS: | Felsink P/L v City of Maribyrnong & Anor | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 49 | |
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Practice and Procedure – security for costs – discounting factors.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M A Robins | Goldhirsh & Shnider |
| For the First Defendant | Mr W Martin Q C and Mr J Atkins | Best Hooper |
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HIS HONOUR:
On 16 October 2006 Master Efthim ordered that :
1. The plaintiff, Felsink Pty Ltd, provide further security to the satisfaction of the Prothonotary for the costs of the first defendant, City of Maribyrnong, in the sum of $16,000 to be paid within 30 days;
2. The plaintiff pay 50% of the first defendant's costs of the application.
The order identified that the security related to the preparation for the trial and the cost of senior counsel for the first two days of the hearing.
By notice of appeal dated 20 October 2006, the first defendant has appealed against the orders and seeks orders that
1. The appeal be allowed.
2. The order to be varied by:-
(a)deleting from paragraph 1, the expression "$16,000" and substituting therefore the expression "$150,000"; and
(b)deleting “50%” from the costs order.
3. The plaintiff pay the first defendant's costs of the appeal.
The main proceeding is an action commenced by the plaintiff in 2003. The plaintiff’s first claim concerns an allegation that, pursuant to an agreement made on 26 November 1993 under s.173 of the Planning and Environment Act 1987, the parties undertook various obligations relating to the development of the Pioneer Hotel site and the construction of a multi-purpose public facility on nearby Crown land. The agreement included an obligation on the part of the plaintiff to transfer to the first defendant land marked "A" on an annexed plan. The plaintiff alleges that by a mistake the transfer to give effect to that aspect of the agreement included the balance of the land – identified as land “B”. The first defendant concedes the mistake in its defence but raises a number of matters including the allegation that it is entitled, under the terms of clause 18 of the agreement, because of breaches of the agreement by the plaintiff, to a transfer from the plaintiff of land “B”. The plaintiff joins issue as to those allegations.
The plaintiff also alleges that the first defendant repudiated the agreement by refusing to permit the plaintiff to construct the multi purpose public facility subject of the agreement and failing, neglecting or refusing to let land to the defendant for that purpose. It alleges that the repudiation had been accepted and resulted in loss and damage. Further and in the alternative, it is alleged that it was a term of the agreement that the first defendant was obliged to act reasonably in exercising the discretion whether to permit the proposed use, that the first defendant did not exercise the discretion, or, exercised it unreasonably and not in good faith and as a result the plaintiff suffered loss and damage. Further and in the alternative, the statement of claim alleges that the agreements was entered into on certain assumptions which had failed and that the agreement was frustrated.
By leave given 4 April 2006, the plaintiff has also brought a number of claims based on the provisions of the Trade Practices Act 1974 (Commonwealth) and the Fair Trading Act 1999 (Vic) concerning alleged false representations made about a multi purpose facility being capable of being constructed on land adjacent to the Pioneer Hotel site, that such land was Crown land and there was no impediment to such construction.
The plaintiff seeks a variety orders including orders to enable it to recover land "B", damages, compensation for breach of trust, interest and costs.
The first defendant admits the agreement and admits the mistake. It also admits that the first defendant contributed to the mistake by agreeing to the registration of the transfer in the form that contained the mistake. In discussions before me, counsel for the first defendant confirmed that it would not be disputing the entitlement of the plaintiff to a transfer or correction of the Register in respect of the mistake. It alleges in its defence, however, that under the terms of the agreements and in light of the events that happened, it became entitled, in any event, to a transfer of land "B" on 27 November 2003. It generally joins issue in various ways with the other allegations and raises Limitation of Actions Act 1958 defences and like defences under the Trade Practices Act 1974 and the Fair Trading Act 1999.
The plaintiff has not filed a reply because of the security for costs application but I proceed on the basis that it joins issue with the points raised.
On the pleadings and the affidavit material before me, I find myself, like the Master, unable to form a view as to the prospects of success of the plaintiff on its claims that are in issue. As to the claims pleaded, other than the claim relating to the recovery of land "B", I proceed on the basis that the plaintiff would have brought them, even if there was no dispute about its entitlement to land "B." It is interesting to speculate on what the position may have been if the City of Maribyrnong were to have agreed to rectification of the transfer on register, but it cannot be demonstrated that it would have been the plaintiff in those circumstances.
The plaintiff cannot, on the evidence before me, dispute that it is impecunious. It has not attempted to do so by evidence and there is evidence before me that the first defendant identified, by index search at the Titles Office, one piece of land with a rating value of $350,000 as owned by the plaintiff. Over that land, however, there is a mortgage as part of a cross-collateralisation of debts owed to Westpac totalling $950,000. The plaintiff has not adduced evidence of any other assets. In addition, it has already been ordered to provide security for costs on two occasions. The first occasion was 11 June 2004 in the sum of $25,000. The second order was made by consent in April 2005 for the sum of $9,500. The plaintiff has provided the security ordered - a total of $34,500. I note that the fact of impecuniosity does not create a situation where there should be any predisposition to ordering security for costs. But it is the circumstance in which the discretion can be invoked by a defendant[1] and the impecuniosity remains a factor to be considered in the exercise of my discretion.
[1]Ariss v Express Interiors Pty Ltd (In Liquidation) [1996] 2 VR 507, 512-514.
The first defendant argues that the question of what would be adequate security for costs must be revisited because since the last order that was made, the plaintiff has significantly complicated the proceedings by raising a variety of claims based on the Trade Practices Act 1974 and the Fair Trading Act 1999. Both parties are agreed that this will add to the length of the anticipated two day trial by between three to five days. In essence, the first defendant argues that under three orders made, the first defendant has at present only $50,000.00 security. It argues that since the expansion of the plaintiff’s case in 2006, the only amount ordered by way of security has been $16,000 - pursuant to the order from which this appeal is brought. Counsel argued that the real likelihood is that, at the end of the action, the first defendant will have incurred costs in excess of $200,000 for which it is protected only to the extent of $50,000. This is simply inadequate. Counsel put that this increase in the litigation is entirely due to the plaintiff and the defendant has been ready for trial since April on the original proceedings.
Relying upon the affidavits sworn by Mr Robinson, the solicitor for the first defendant’s counsel has submitted that the total figure for costs already incurred and to be incurred is $185,000 on a solicitor client basis. Counsel submitted that the costs incurred up to 15 August 2006 based on that evidence were of the order of $95,000. The balance of $90,000 comprised:
· an amount of $20,000-$30,000 for preparing the case for trial between 31 August 2006 and the first day of trial;
· an extra $12,000 for the first two days of the trial because of the engagement of senior counsel;
· costs from the third day until completion of approximately $10,000 per day. The daily fee for senior counsel would appear to be $6,000.
Counsel for the first defendant conceded that a discount of 60% to 70% of the above figures was required to make allowance for contingencies including the likely reduction any Taxing Master might make to arrive at a party party figure resulting in figures ranging between $111,000 to $129,500. Counsel argued that from that figure should be taken the amount of $34,500 resulting in a range of $76,000 to $95,000. Counsel submitted that orders should be made either that the balance be paid immediately or in stages -- e.g., the costs for the trial to be paid 30 days prior to the trial.
Counsel for the plaintiff submitted that the claim should be dismissed because what the first defendant was seeking to do was to stultify the action of the plaintiff. Counsel also submitted that the first defendant' s conduct constituted oppression.
Counsel was critical of the fact that the first defendant was a local government instrumentality with knowledge that the land had been transferred to it by mistake but yet sought to resist the claim to recover it on the grounds that it was entitled to it for other reasons. It is seeking to defend the acquisition of land by it by mistake. Further, it is seeking costs for the whole trial. Counsel submitted[2] that it is normal practice now to order security up to and including the first day of the trial and no more. This approach reduces the impact of any order and factors in the possibility of settlement after the first day. If the trial proceeds, orders for security can be extended where appropriate day by day. Counsel also drew attention to the fact that, on 2 June 2006, prior to making the application the subject of this appeal, the first defendant initially sought $50,000 on the basis that it would provide security for the whole trial but now seeks $150,000 for that purpose and for costs already incurred. The plaintiff also argues that the amount sought is exaggerated. It refers to the first affidavit in support of the application dated 31 August 2006 sworn by Mr Robinson in which he stated that much of the work that needed to be done as a result of the new allegations had been completed prior to 31 August 2006. If that be so, it was put on behalf of the plaintiff that it is most unlikely that the first defendant's further costs to prepare for trial will be between $20,000 and $30,000 as now deposed to by Mr Robinson. Counsel submitted that the unreasonableness of the claim pointed to the first defendant attempting to stultify or stifle the claim. Council also submitted that this analysis was supported by the fact that there was an absence of any reasoned analysis supporting the first defendant's case that it had incurred costs of $95,000 and it had failed to provide any information other than "opaque" bills sent to its solicitors.
[2]Drumdurno Pty Ltd v Braham (1982) 42 ALR 563; Farmitalia Carlo erba SrL v Delta West Pty Ltd (1994) 28 IPR 336 and Ariss above.
In my view, there are strong indications that the present application is in fact an attempt to stultify the action rather than a genuine application for security for costs. In addition to the matters raised by Counsel for the plaintiff, reference should be made to the fact that no explanation has been offered as to why the first defendant has changed its mind to seek $150,000 instead of $50,000. It is in fact seeking to revisit all past costs. It purports to address that by deducting from the total of $185,000, which it alleges to be the total of the costs incurred and to be incurred to date, the security provided rather than the costs incurred in respect of which security was provided. This inflates the figure. In addition, such matters cast doubt on the figures now advanced. To the above may be added the fact that, in this application, the first defendant sought special leave to rely upon the affidavit sworn by an expert cost consultant supporting a claim for security for costs in relation to past and future costs of approximately $240,000. In the written submissions filed for the first defendant for the security for costs appeal, that figure provided the basis of its argument on the issue of the quantum of security costs to be ordered. Special leave was refused on the basis primarily that the first defendant was attempting to re-argue its case on new material, the very issue which the special leave requirement is in place to address. It is also relevant that while purporting to seek $150,000, the first defendant concedes without argument that a discount for party party costs has to be made and it significantly reduces the claim for security.
The fact remains, however, that the plaintiff's amendments made last year to its statement of claim have, as both sides agree, increased the likely length of the trial from two days to approximately seven. They will also add to the preparation work required for the trial. In those circumstances it is plainly legitimate for the first defendant to seek additional security. In such circumstances it is not unusual for the party seeking security to try to use its application for tactical purposes. The fact that it appears to have done so should not prevent it having its application considered on its merits. Its conduct, however, warrants, a cautious approach to figures advanced on its behalf.
The plaintiff has also submitted that the defendants’ actions caused its present straightened financial circumstances. It relies on the plaintiff's solicitor’s affidavit. It in turn is based upon information from a Mr John Osborne, a director of the plaintiff, who refers to the fact that prior to the events described in the statement of claim, the plaintiff owned the Pioneer Hotel, the land transferred by mistake, and that if the first defendant had honoured the agreement, the plaintiff would have been able to install a tenant to occupy the facility as developed for an initial annual rental of $240, 000, the plaintiff having in fact located a proposed tenant. In addition, it is stated that the plaintiff had incurred many $100,000’s in development costs in performing the agreement.
In my view, there is insufficient evidence upon which to form a view as to the validity of the argument. The plaintiff bearing the onus on this issue, it therefore fails on it. I turn to the other argument advanced by the plaintiff to defeat the claim.
Counsel for the plaintiff submitted that no further security should be ordered because of gross and unexplained delay on the part of the first defendant which should bar any further provision of security for costs [3]. It also argued, alternatively, that the delay be taken into account in determining whether any further amount should be required by way of security from the plaintiff. I will return to that alternative aspect below.
[3]Smith v Burton [1975] VR 776, 777–779.
As to the delay by the first defendant, the relevant period commences on 4 April 2006, when the plaintiff received leave to deliver the further amended statement of claim which included the new issues. The first defendant's defence to that amended statement of claim was delivered on 23 August 2006. It delivered its affidavit in support of a third application for $150,000 security for costs on 31 August 2006. On the following day, 1 September 2006, the summons the subject of this appeal was issued. The plaintiff points to this delay of some five months. It also relies upon the evidence that, on 2 June 2006, during that period of delay, the solicitors for the first defendant wrote to the plaintiff's solicitors requesting that the plaintiff provide a further sum of $50,000 by way of security for costs. This was supported at the time on the basis that the first defendant had recently engaged senior counsel who would appear at the trial and stating that the amount sought of $50,000 had been calculated at $10,000 per day for an additional five days of hearing time - the hearing time having been increased because of the new issues raised in the amended statement of claim. The letter recorded that the plaintiff's counsel had conceded that the estimate of the trial should now be seven days rather than two days. The letter warned that if the plaintiff did not agree to provide $50,000 by way of security for costs by 4 p.m. on Tuesday 13 June 2006, the first defendant would issue a summons returnable before the Supreme Court to seek the appropriate orders. On the evidence, nothing was heard by the plaintiff from the first defendant after it failed to respond by 13 June 2006 and the first it knew that the first defendant was seriously seeking a further order was when it a received the summons of 1 September 2006.
The plaintiff relies upon Southern Cross Exploration N. L. v Fire and All Risks Insurance Co Ltd[4] to argue that it is inappropriate in ordering security for costs to make any provision in respect of costs already incurred. It argues that it would be unjust to make an order of security for costs in respect of costs incurred during the period in which the first defendant delayed in bringing a further application.
[4](1985] 1 NSWLR 114, 125.
The plaintiff is critical of the fact that the first defendant's delay in seeking security for costs while it did work associated with the case, including preparation in relation to the new allegations, denied the plaintiff the opportunity to consider its situation. While by the June letter it was told by the first defendant that it was seeking a further $50,000, the first defendant did not act upon its threat to issue proceedings. When, some two months later it did, the amount sought had trebled. In the meantime the plaintiff had continued to incur legal costs. Counsel submitted that the first defendant should have sought security either shortly after receiving the amended statement of claim, on the day the letter of 2 June 2006 or, alternatively, on the foreshadowed date of 13 June 2006. No explanation has been offered as to why nothing was done. Counsel submitted that it was directly within the Southern Cross case - you do not give security for costs already incurred particularly where there is no satisfactory explanation. Counsel submitted that the first defendant's conduct conveyed the impression that relief was not going to be sought, alternatively, that only $50,000 would be pursued.
Counsel for the first defendant acknowledged that delay is a relevant consideration but argued that it will rarely disqualify the applicant from obtaining security for costs. Referring to Southern Cross Exploration N. L. v Fire All Risks Insurance Co Ltd and Smail v Burton[5]. Counsel submitted that they should be distinguished from the present case. Counsel argued that the delay in each case was much longer. In the Southern Cross case the application was first made in the course of the trial and in the Smail case, it was made just before an appeal. Counsel submitted that the underlying principle addressing the issue of delay is that it is unfair to a party who has prepared a case to be faced by an application for security for costs. Counsel submitted that there is no evidence that the plaintiff in this case suffered any such prejudice because it thought that security would not be sought. Counsel accepted, however, that in most cases where delay has been taken into account, it cannot be demonstrated that the plaintiff placed any actual reliance on the failure to seek security for costs and rather the issue was that because the defendant had not applied promptly, the plaintiff suffers prejudice because it is denied the opportunity to reconsider its position prior to incurring further costs itself. Counsel also submitted that in present case there did not appear to have been any substantial activity other than amendment of pleadings and some minor matters between the previous order and the application before the Master the subject of this appeal.
[5]See above.
In my view, there was a delay by the first defendant for which it was responsible and the delay and what occurred during it was prejudicial to the plaintiff because it incurred further costs while it was left with the impression by the first defendant’s conduct that the first defendant was not pressing a claim for security for costs. It should not prevent the first defendant from seeking security for costs in respect of costs to be incurred after the date. That appears to be the normal practice in any event and sufficiently addresses any prejudice that the delay may have caused to the plaintiff.
I turn, therefore, to the substantive question of whether and to what extent further provision should be made for security for costs in this matter.
Counsel for the first defendant submitted that it was in an essentially defensive position because of the large number of other claims made by the plaintiff other than the claim in relation to the transfer. I proceed on the basis that that is the correct analysis. Nonetheless, from a practical point of view, it is in a claimant’s position in seeking to justify its retention of land "B" which it obtained as a result of a mistake on the basis that it is entitled to retain it because, under the agreement, the plaintiff would be obliged to transfer that land to it. It seems to me that it should be regarded as the claimant in respect of that matter. Thus, it is not in a solely defensive position. But, in respect of the many other allegations raised, it is the plaintiff that is the claimant.
I note that much of the amount claimed is based on the circumstance that senior Counsel has been retained by the first defendant. On present evidence, the plaintiff will be represented by junior Counsel. It was not put that the Taxing Master would disallow two counsel in this case. Accordingly, I propose to proceed on the basis that a party party taxation of the first defendant's costs would include the fees for both Counsel.
The plaintiff argues that the sum claimed should be heavily discounted. It relies upon the above matters and the non-exhaustive list of factors identified by Heerey, J. in Farmitalia Carlo Erba v Delta West.[6]
1. the chance of the case collapsing without coming to trial;
2. the apparent prospects of success;
3. that the order for security should not be the means of effectively denying the applicant the right to pursue the claim;
4. the lack of information put before the court to enable it to estimate the likely figure of costs;
5. the extent to which some of the costs of the first defendant will relate to a case that is not essentially defensive;
6. the likelihood that the estimate of costs will be reduced by the taxing officer.
[6](1994) 28 I PR 336.
Counsel for the plaintiff argues that in relation to the fifth point, the first defendant will bear the legal onus on the transfer issue and it acknowledges that it is seeking to take the benefit of an admitted mistake. Counsel submitted that this is also relevant to the second point, as is the proposition that the question of a local government authority receiving land by mistake is a matter of public interest[7]
[7]Drumdurno Pty Ltd v Braham (1982) 563.
Counsel also submitted that the taxing officer is likely to take additional amounts from the party party figures and repeated that there is no reason to depart from the usual practice of awarding security only to the commencement of the trial (e.g. Drumdurno).
The plaintiff advanced three alternative positions.
1. It's first position is that security should be confined to the costs of senior counsel for the first two days of the trial and discounted in accordance with the first defendant's concession previously made for the consent order of 11 June 2004 - 50%. The first defendant would have leave to renew its application to the trial judge after the first day of trial. The calculation involved is $12,000x 50% = $6,000;
2. the second alternative position combines the first alternative together with Mr Robinson's estimate of the further pre-trial preparation required of $20,000 discounted by the above figure of 50% with ,again, the defendant having leave to renew its application to the trial judge after the first day of trial - a total of $10,000, making the total awarded - $16,000;
3. The third alternative combines the second alternative together with Mr Robinson's estimate of $50,000 for the costs of the third through to the seventh day of the trial and discounted in the same way by 50% giving a total of $41,000 and the first defendant not to bring any further security for costs applications. A variation to this alternative involves taking the lower of the two trial duration estimates, five days, resulting in an additional $30,000 to be discounted by 50%.
I consider that the first defendant is entitled to have security for costs in respect of costs incurred in preparation for trial and for the first two days of the trial. It is appropriate to limit any security to the first two days of the trial because it places an unfair burden on the plaintiff to be required to provide security for costs which may never be incurred. Further, the issue can be revisited if the trial is continuing at the end of the second day and appropriate orders made if necessary. I also consider that it is appropriate to accept the evidence of the solicitor for the first defendant, Mr Robinson, that in his experience, his clients’ party party costs are usually found to be approximately 70% of costs he charges his clients. Accordingly, taking as a starting point the estimates he has made his affidavit of $ 20,000 to $30,000 costs in preparation for trial and an additional $12,000 for senior counsel for the first two days of the trial, it would be appropriate to discount those figures by 30%. But there are in my mind further discounting factors to consider. They comprise:
·the likelihood that the taxing master will further discount the party party figures;
·the lack of detailed supporting material against which the claim of $20,000 - $30,000 costs in preparation may be judged;
·the fact that the first defendant is not in a purely defensive position but is in substance making a claim itself;
·the chance that the case may well collapse prior to trial or on the first day of the trial.
There are various ways in which these matters can be addressed. The lack of detail as to the pre-trial preparation is, I suggest, best addressed by adopting the lower of the two figures proffered on behalf of the first defendant. As to the balance of the
discounting issues, it would also be just in my view to discount the amount by a further 30%.
Thus, I have come to the same conclusion as the Master. The plaintiff should be required to provide further security for costs up to and including the second day of any trial in the sum of $16,000. Accordingly, the appeal should be dismissed.
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