Grandine Developments v Le Soleil 2002 Energy System Devices Pty Ltd
[2004] VSC 420
•26 October 2004
| Do Not Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 8386 of 2002
| GRANDINE DEVELOPMENTS PTY LTD | Plaintiff/Respondent |
| V | |
| LE SOLEIL 2002 ENERGY SYSTEM DEVICES PTY LTD & ANOR | Defendant/Appellant |
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JUDGE: | TEAGUE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 September 2004 | |
DATE OF JUDGMENT: | 26 October 2004 | |
CASE MAY BE CITED AS: | Grandine Developments v Le Soleil 2002 Energy System Devices Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 420 | |
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Practice and Procedure - Appeal from Master – Application fro security for costs – Exercise of discretion – Order made for security to be provided in the sum of $10,000
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff/Respondent | Mr S. Chizik | R B Legal Pty Ltd |
| For the Defendant/Appellant | Mr G. Moore | Davies Moloney |
HIS HONOUR:
This is an appeal from a decision of Master Kings. On 14 September 2004, she dismissed an application made by the defendants for security for costs to be provided by the plaintiff. The application was made in one of two proceedings which relate to much the same disputed events arising from a building development. The proceeding in which the appeal is brought is No. 8386 of 2002. The other proceeding is No. 8887 of 2003. I shall refer to them as proceeding 8386 and proceeding 8887. The building development was as to townhouses on a site at 41 Locksley Drive, Ivanhoe (“the Ivanhoe site”).
The dispute is mainly between companies, but effectively it is between two men, one an owner, and the other a builder, who control the companies. The two men are respectively Moshe Arad and Walter Grandine. I will refer to them after this as Grandine and Arad. Arad controls two companies. One, Derett Pty Ltd (“Derett”), is the plaintiff in proceeding 8887. The other, Le Soleil Energy System Devices Pty Ltd, (“Le Soleil”), had its name changed from the Original Cone Factory Pty Ltd. Grandine controlled Grandine Developments Pty Ltd (“Grandine Developments”) until an administrator was appointed on 24 June 2004. Grandine Developments is the defendant in proceeding 8887 and the plaintiff in proceeding 8386. In proceeding 8386, Le Soleil is the first defendant and Arad is the second.
Grandine and Arad met in 1994. Over the next seven or so years, each helped the other in a variety of ways, until the two had a falling out in 2002 over the Ivanhoe site. Indeed, it seems that Grandine helped Arad get Australian citizenship. In 1997, Arad arranged for Grandine to renovate Arad’s home. Later, an Arad company engaged the Grandine company to build factories on land in Williams Road, Dandenong. In November 2000, Grandine and Arad discussed purchasing the Ivanhoe site and building a number of units on it. In February 2001, preliminary steps were taken to effect a purchase of the site in the name of Arad. On 9 April 2001, a joint venture agreement between Le Soleil and Grandine Developments was entered into. Under the joint venture agreement, drawn up by lawyers for Arad, there are provisions as to the obligations of the parties that I find troublingly vague. It was provided that the capital for the project would be provided partly by Arad and partly by Grandine Developments. Arad was to provide the site. The site was treated as being valued at $647,500. Grandine Developments was to provide funding in an amount not to exceed $1,483,323.00. Le Soleil was to enter into a mortgage as to the site so as to make funds available to the builder for funding the construction of five townhouses. In August 2001, building work on the property began.
Two aspects of the lead-up to the April 2001 agreement warrant noting. One concerns Grandine’s financial situation. That includes the man and the company. The other concerns Grandine’s understanding of how Arad was proposing to apply the moneys to be borrowed. Grandine had a chequered history in the building industry. Arad knew at least the basics of those problems if not the details. Arad knew Grandine Developments had little scope to gain access to funds itself to pay for the costs of the building works. It seems that Grandine trusted Arad to provide the funds as required. It seems that Grandine made a significant assumption, without apparently checking with Arad to confirm the position, as to the availability of funds to meet the building costs. He assumed that all of the funds that Arad was to obtain from mortgaging the site were to be made available to meet the costs of the building works. He had in mind that Arad was meeting from his own resources the purchase price for the site. That was not what Arad had in mind.
It was in June 2001, that the settlement of the purchase of the site was effected. At that time, Arad arranged to borrow from an independent financier funds to be applied to meet the building costs or some of them. Arad also borrowed from Derett. Derett lodged a mortgage over the site. If all the cards had been laid on the table as between Arad and Grandine, it would, or at least should, have been apparent that, once Arad borrowed against the site to meet part of the purchase price, there were likely to be problems in adequate funds being available to meet building costs. There is a further complication going to the application of funds to meet costs, a process that Grandine left to Arad to organise. The assessment was made by Arad that there was incompetence on the part of Grandine that led to excessive demands being made on Arad by Grandine for funds.
Building work continued between August 2001 and August 2002. With the passage of time, Arad encountered problems obtaining funds from the independent financier. It was the perception of Arad that the works were over budget. It was the perception of Grandine that payments for materials and to contractors were inadequate and were being made irregularly by Arad, who controlled the access to the loan moneys. In August 2002, Arad opted not to pay over further moneys. Building works stopped. In September 2002, Grandine indicated to Arad that he wanted to go to arbitration. On 10 September 2002, Grandine Developments lodged a caveat against the site.
On 2 December 2002, the writ in proceeding 8386 was issued. Little of note took place for nearly twelve months. On 19 November 2003, an application was made in proceeding 8887 for an order for the removal of the caveat lodged by Grandine Developments. On 2 December 2003, an order was made by Warren CJ. The order recites a series of undertakings given by counsel for Derett. The orders include one as to the delivery of an executed withdrawal of the Grandine Developments caveat. The undertakings and the other orders are linked to the further development of the site and to the further conduct of proceeding 8386 and proceeding 8887. After 2 December 2003, further steps were taken in each of the two proceedings. They culminated in orders being made by Master Kings on 25 May 2004, that both proceedings be listed for hearing on 15 February 2005.
On 24 June 2004, Samuel Richwol was appointed administrator of Grandine Developments. On 14 July 2004, Mr Richwol submitted a report under the Corporations Act. Included in that report were opinions noted by Mr Richwol to the effect that Grandine attributed the demise of the company in part to the dispute over the Ivanhoe site, and that some creditors alleged that Grandine lacked competence. On 2 August 2004, the summons was issued on behalf of Le Soleil in proceeding 8386 seeking an order for security for costs. In an affidavit sworn on 27 August 2004, Arad noted that the building works on the units were then almost complete, despite the lack of action for over 12 months. He claimed as to Grandine Developments that it had spent almost the full amount of allocated money but had not completed the development beyond lockup. He also stated that Grandine Developments had never had assets, and that the appointment of an administrator proved how insolvent the company was.
On 14 September 2004, Master Kings handed down reasons extending into 10 pages for her decision not to make an order for security for costs. In those reasons, she set out a summary of submissions made on both sides. Substantially the same submissions were made to me, and elaborated on, partly orally and partly in writing, due to the exigencies of the Practice Court, by Mr Moore on behalf of Le Soleil and by Mr Chizik on behalf of Grandine Developments. There was no issue that Grandine Developments was insolvent. It was clear that the issue of whether or not to grant security involved the exercise of a discretion. The applicable legal principles as to the exercise of that discretion are set out in cases to which I was referred, and which I considered but need not quote from: M A Productions Pty Ltd V Austarama Pty Ltd and another (1982) 1 ACLC 404, Fenn Management Pty Ltd V Secura Nominees Pty Ltd (1987) 5 ACLC 465, Bryan E Fencott and Associates Pty Ltd V Eretta Pty Ltd and others (1987) 16 FDR 497, and Interwest Ltd (Receivers and Mangers Appointed) & others v Tricontinental Corporation Ltd and Another (1991) 9 ACLC 1218.
In exercising this discretion I must consider such matters as the merits of the case of the plaintiff, whether the application would unfairly frustrate a right to litigate, whether the want of assets has resulted from action by the defendant, whether the defendant has unreasonably delayed in making the application, and whether the action is effectively defensive rather than offensive. The summary of headings is more readily understood by reference to the cases noted.
I was disposed to treat as neutral the position as to whether the proceeding was to be characterised as defensive. In that regard, I weighed up, without being satisfied either way, the arguments based on the provision in the joint venture agreement as to not lodging a caveat, and on the distinction made in Lintel Pines Pty Ltd v Nixon and another [1991] 1 VR 270. The character of the injunctive undertakings in proceeding 8887 is in part to make it important that all issues arising from the same dispute are resolved at the same time. But those undertakings are related to the long term determination of key issues linked to both proceedings.
As to each of the matters potentially influencing the exercise of the discretion, there are also factors operating both ways. On balance, I am satisfied that the position as to most of the other matters marginally favours Grandine Developments. Arad was well aware early on of the impecuniosity of Grandine and his company. It would have been desirable for Le Soleil to apply for an order for security for costs earlier than it did. The position is only partly offset by the consideration that the report of Mr Richwold provided a trigger for making the application. The inference that I drew from all the material, including Mr Richwold’s noting of other factors contributing to the impecunious state of Grandine Developments, was that the dispute over the Ivanhoe site was the material cause of its demise.
As to the assessment of the strength of the claim, I am conscious of the difficulty of making a realistic assessment, as was Master Kings. There are troubling aspects of the way the claims are put. They include that the statement of claim contains no claim as to Arad. I accept that there is some validity in those criticisms. Nevertheless, I am still left with the assessment that there is substance in at least the claim for the taking of accounts. As to that, I am satisfied that there is a reasonable prospect of success. My examination of the materials has left me with an unease that it would be a windfall result for Le Soleil if Grandine Developments were to be shut out.
My overall conclusions are marginally in favour of Grandine Developments. If I were obliged to deal with the matter only on one or other of the bases put to me, I would have concluded that the greater injustice would flow from the making of an order for security. However, I consider that there is a more appropriate course than either making no order or making an order which provides a complete cover. It is that a fixed sum be provided. As noted in the cases referred to above, the court does not have to make an order that gives to the defendant a complete indemnity. I propose to order that the proceeding be stayed unless and until $10,000 is provided by way of security. I propose to order as to the costs of this appeal and before Master Kings that they be costs in the cause. In the event that the terms of an order giving effect to what I propose cannot be agreed by the parties, I give liberty to apply.
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