Hanover Properties Pty Ltd v Gallipoli Club Ltd

[2000] FCA 1502

FEDERAL COURT OF AUSTRALIA

Hanover Properties Pty Ltd v Gallipoli Club Ltd [2000] FCA 1502

SECURITY FOR COSTS - relevance of delay in the prosecution of proceedings - where application for security deferred on basis that it follow resolution of outstanding pleading issues - delays of both parties not determinative where conduct of proceedings unaffected - where financial burden of order would stifle progress of litigation - responsibility for security upon sole beneficiary of litigation - relevance of undertaking to make monies paid into Court by respondent and due to the applicant available, and a personal guarantee in respect of outstanding sums, in the event of any costs order against the applicant

Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304 Cited
Bell Wholesale Co Pty Ltd v Gates Export Corporation(No 2) (1984) 2 FCR 1 Cited

HANOVER PROPERTIES PTY LTD v THE GALLIPOLI CLUB LIMITED
QG 82 OF 1998

KIEFEL J
BRISBANE
25 OCTOBER 2000

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 82 OF 1998

BETWEEN:	HANOVER PROPERTIES PTY LTD (ACN 003 974 034) APPLICANT
AND:	THE GALLIPOLI CLUB LIMITED (ACN 055 501 829) RESPONDENT
JUDGE:	KIEFEL J
DATE OF ORDER:	27 OCTOBER 2000
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1.The respondent’s application for security for costs is dismissed.

2. The monies deposited in Court by the respondent in these proceedings be retained in Court until such time as the parties' costs of and incidental to the proceedings have been agreed or taxed and that such monies then be paid out of Court:

2.1 First, to the respondent in satisfaction of any balance of costs payable by the applicant to the respondent after setting off against such costs any costs payable by the respondent to the applicant.

2.2Secondly, as to the balance then remaining, to the applicant.

3. Within thirty (30) days of the date hereof, Gregory Laird Story provide to the Registrar of this Court and the respondent his personal guarantee for the payment of the balance of any costs owing to the respondent after payment to the respondent of  any amount pursuant to order 1 above in the following form:

“In consideration of the Court by order dated 27 October 2000 dismissing the respondent’s application for security for costs and in compliance with the Reasons for Judgment of Kiefel J published on 25 October 2000, I, Gregory Laird Story of……… Do Hereby Guarantee to the Registrar of the Federal Court of Australia at Brisbane and the Gallipoli Club Limited (“the respondent”) with respect to Proceeding QG 82 of 1998 (“the proceedings”) commenced by Hanover Properties Pty Ltd (“the applicant”) in the Federal Court of Australia Queensland District Registry, that I will pay to the respondent upon conclusion of the proceedings when the costs thereof are agreed or taxed, the balance of any costs owing to the respondent by the applicant after the respondent has been paid any amount from the money deposited in Court by the respondent to the credit of the proceedings pursuant to the order of Kiefel J made 27 October 2000 (“the guaranteed sum”).”

And I Further Agree:

(a)       that this guarantee is a continuing guarantee;

(b) my liability pursuant to this guarantee shall not cease by reason of any arrangement, grant of time, waiver, alteration in rights or any other agreement whatsoever reached between the respondent and the applicant unless this guarantee is specifically dealt with by such arrangement or agreement.

I do Further Hereby Indemnify the respondent in respect of the guaranteed sum or any part thereof which the respondent might pay.

4.Liberty to apply.

THE COURT FURTHER ORDERS THAT:

5.After the expiration of seven days from today, if the applicant has not either notified the Court that it does not intend to rely on conversations or dealings by John Hartley;  or has filed and served any affidavits dealing with conversations or dealings by John Hartley upon which the applicant intends to rely, the applicant may not in these proceedings bring any evidence relating to conversations or dealings between it or its servants, employees or agents and John Hartley.

6.The applicant pay the respondent’s costs thrown away by the adjournment of 20 October 2000.

7.Costs otherwise incurred in respect of the application be the respondent’s costs in the cause.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 82 OF 1998

BETWEEN:	HANOVER PROPERTIES PTY LTD (ACN 003 974 034) APPLICANT
AND:	THE GALLIPOLI CLUB LIMITED (ACN 055 501 829) RESPONDENT

JUDGE:	KIEFEL J
DATE:	25 OCTOBER 2000
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. In this matter the respondent to the proceedings, the Gallipoli Club Limited (“Gallipoli Club”), seeks an order for security for its costs in defending the proceedings.  The amount originally sought was $85,000, but this has been amended to a figure of $98,000.  Because of the submissions made by each of the parties concerning delay in the prosecution of the proceedings, it is necessary for me to refer briefly to the history of the matter.

2. The application was brought in August 1998.  There was a delay on the part of the applicant, Hanover Properties Pty Ltd (“Hanover”) in putting its statement of claim in a comprehensible form.  To advance the matter it was set down for directions before me on 26 March 1999 and again on 23 April 1999.  The pleading had not yet been filed.  On 27 April 1999 leave was granted to amend the pleading and further directions were made.  The claim then identified was one for breach of an option agreement in respect of which a notice to exercise had been given.  The claim identified was for the sum of $500,000 for which express provision had been made in the option agreement itself.  An alternative claim was made for losses associated with Hanover’s reliance upon certain representations made by the Gallipoli Club.

3. On 21 May 1999 further directions were made by consent and they included one that the parties undertake mediation by 31 July 1999.  For a number of reasons, mediation was not undertaken immediately and was not concluded until approximately February 2000.  Case review conferences were then held on 31 March, 27 June and 25 July 2000 respectively, and the proceedings were further monitored by the registry in September 2000.  During this period, Hanover foreshadowed a further amendment to its statement of claim.  It seems clear enough that the Gallipoli Club withheld its foreshadowed application for security for costs so that both applications could be heard together. The Gallipoli Club applied in any event and the matter came before the Court on 20 October 2000.  At that time Hanover’s proposed amendment comprised several new paragraphs, making up a new claim for damages in excess of $4.5M.  It  had been outlined in correspondence but not incorporated into the existing pleading.  The consistency of that claim with the earlier claim, based upon the terms of the option agreement, and what additional facts were necessary to found the new claim, were the subject of discussion.  It was important that the matter of amendment be resolved prior to further dealing with the application for security for costs, since the new claim for damages was said to be based upon a reasonably complex valuation of profits said to be lost by Hanover, and would have substantially increased the Gallipoli Club’s estimate of costs by a sum in the order of $100,000.  The matter was adjourned to enable Hanover to consider the alternative claim and if so to set it out.  I was advised the afternoon before the adjourned hearing date that Hanover did not intend to pursue it.  Subject to hearing further from counsel it seems to me that Hanover should pay the costs thrown away by the attendance of the parties on 20 October 2000.

4. Further, it does not seem to me that the delay on the part of either Hanover or the Gallipoli Club can be influential in the consideration of the question with respect to security.  The proceedings have not advanced to a point close to hearing.  It could not be said that the Gallipoli Club has stood by and allowed them to substantially progress without making its concerns known.  It put Hanover on notice, earlier in the proceedings, that it had concerns and it sought information about the company and those concerned with it.  Although it might have brought this application at an earlier point, I accept that it did not do so this year because of the prospective amendments to the statement of claim and that that was a reasonable course for it to take.  Whilst Hanover has itself delayed, I am unable to infer an unwillingness on its part to properly litigate, although it may be that there have been difficulties because of the financial position of Hanover and Mr Story, the person who is said to be the principal beneficiary of the litigation.

5. Of the future costs sought, the Gallipoli Club has assessed its costs on the basis of a six day hearing.  Neither counsel is really able to support or oppose that estimate.  At this point and absent statements, it is necessarily speculative and may be generous, as counsel for the Gallipoli Club concedes.  I do not in any event consider that this application depends upon whether there should be some reduction in the amount to be provided.

6. The sum of $60,000 has been paid into Court by the Gallipoli Club.  It is accepted that Hanover would be entitled to it even if it lost its claim for the larger sum.  In those circumstances, the applicant, by its director, has said that it would make those funds available to meet any costs order which might be made in favour of the Gallipoli Club.  The terms of such an order have not been resolved but might be made by way of undertaking.  It is appropriate to take the sum into account.  The application then centres upon whether security should be made available for the balance, a figure in the order of $38,000.

   7           Hanover does not have any assets or monies to meet an order for costs.  The shareholder of its holding company, Mr Shanley, says that the person who would take the benefit of litigation is Mr Story, the director I have referred to.  Mr Shanley himself has no assets or substantial income.  His evidence is consistent with that of Mr Story, which is to the effect that the arrangement between him and Hanover was that he act as its consultant in the Gallipoli Club project on a profit sharing basis, and in doing so he funded all of the costs.  Mr Shanley’s affidavit would seem to conclude his entitlement to the damages which might be forthcoming in the proceedings.  Mr Story is also prepared to give a personal guarantee, although it is not clear that he would have much in the way of surplus income which could be put towards any costs order.  I accept, as he says, that he is most unlikely to obtain a personal loan or bank guarantee in view of his lack of security. 

7. No other person has been shown to have any substantial interest in the litigation.  Cross-examination of Mr Story revealed only that there were some consultants to whom some fees totalling about $20,000 were owed.  It is true that the company’s records are not entirely clear and there has been some movement in the shareholding and in Hanover’s position - it was a trustee at one point - although Mr Story says that it is not now.  There is however nothing which amounts to evidence or even a concern of substance which might be weighed against the evidence of Mr Shanley and/or Mr Story, that it is Mr Story who is the person who would take the benefit of the litigation.  He has come forward.  He says that if he is forced to provide security beyond some undertaking with respect to the $60,000 already paid into Court, he and the applicant would be unable to continue the litigation. 

8. Whilst that might be a relevant consideration (see Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304), this application would seem to me to be concluded by the fact that the person to benefit from the litigation has been identified and he has accepted responsibility for costs (and see Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1). The fact that he will not likely be able to meet any additional costs should not prevent the litigation from proceeding to conclusion.

9. The application will be dismissed on the basis of two orders:  in the first place, an order by which the monies remain in Court to first meet any order for costs against the applicant;  and secondly one providing, for whatever it is worth, that Mr Story provide a personal guarantee for any costs recovered by the Gallipoli Club which cannot be met out of that fund.  I will leave it to counsel to draft the necessary minutes of order.

10. There is an outstanding direction with which Hanover has not complied.  It has been agreed and I order that after the expiration of seven days from today, if the applicant has not either notified the Court that it does not intend to rely on conversations or dealings by John Hartley;  or has filed and served any affidavits dealing with conversations or dealings by John Hartley upon which the applicant intends to rely, the applicant may not in these proceedings bring any evidence relating to conversations or dealings between it or its servants, employees or agents and John Hartley. 

11. There remains the question of costs and a further outstanding question as to whether the matter should be transferred or cross-vested to the Supreme Court of New South Wales. 

12. So far as concerns costs, as I have indicated, it would seem to me that Hanover should bear the costs incurred by the attendance on 20 October, 2000.  That leaves the costs incurred in the bringing of the application and its continuance through to 24 October 2000.  It seems to me that whilst the Gallipoli Club may have had good reason to bring the application in the first place, it was not wise in persisting with it after Mr Shanley and Mr Story each identified Mr Story as the only person to benefit from the litigation.  On the other hand, this was not entirely clear until Mr Shanley’s affidavit was filed late in the piece.  In these circumstances, subject to counsel’s further submissions on the matter, I am inclined to order that the costs associated with the bringing of the application be the Gallipoli Club’s costs in the proceedings.

13. I have not heard complete submissions as to the question of transfer.  The matter has been raised before in the proceedings.  At the least, it would seem to me necessary to transfer the matter to Sydney, unless Hanover could satisfy me that there was some reason for it remaining in Queensland.  The applicant will also need to address the contention, on the part of the Gallipoli Club, that the proceedings  should also be transferred to the Supreme Court of New South Wales because the trade practices element of them is less important than the main claim based upon a simple breach of option agreement.   I will hear further from counsel at a time to be fixed.

I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.

Associate:

Dated:             25 October 2000

Counsel for the Applicant:	Mr I Erskine
Solicitor for the Applicant:	Minter Ellison
Counsel for the Respondent:	Mr R Lilley
Solicitor for the Respondent:	Hemming & Hart acting as town agents for Garrett Walmsley Madgwick
Date of Hearing:	24 October 2000
Date of Judgment:	25 October 2000