Hardie Holdings Pty Limited v State of New South Wales
[2012] NSWSC 1152
•25 September 2012
Supreme Court
New South Wales
Medium Neutral Citation: Hardie Holdings Pty Limited v State of New South Wales [2012] NSWSC 1152 Hearing dates: 27/8/2012 Decision date: 25 September 2012 Jurisdiction: Common Law Before: Harrison AsJ Decision: (1) The plaintiffs are to file and serve an amended statement of claim within 28 days.
(2) The plaintiffs are to pay the defendant's costs thrown away by the amendments.
(3) The eighth plaintiff is to provide security for costs in the form of the title deeds to their property known as "Goonama".
(4) The parties are to bring in short minutes of orders to give effect to these reasons in relation to security for costs.
(5) Costs of the defendant's notice of motion filed 6 September 2011 are reserved.
Catchwords: SECURITY FOR COSTS - application by defendant for security for costs - applicable principles - where at least one plaintiff has sizeable asset in the form of land holding - defendant estimated large costs - application for security granted
PLEADINGS - application for leave to amend statement of claim - agreement between parties - plaintiffs to amend statement of claim within 28 daysLegislation Cited: Corporations Act 2001 (Cth)
Uniform Civil Procedure Rules 2005Cases Cited: Commonwealth of Australia v Griffiths [2007] NSWCA 370; (2007) 70 NSWLR 268
Gwandalan Summerland Point Action Group Inc v Minister for Planning [2009] NSWLEC 140
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
Maritime Services Board of New South Wales v Citizens Airport Environment Association Inc (Court of Appeal, 23 December 1992, unreported)
Oshlack v Richmond River Council (1998) 193 CLR 72Texts Cited: G E Dal Pont, Law of Costs, (2003) LexisNexis Butterworths Category: Procedural and other rulings Parties: Hardie Holdings Pty Limited (First Plaintiff)
Cessnock Land Pty Limited (Second Plaintiff)
Hardie Greta Pty Limited (Third Plaintiff)
Hardie King Pty Ltd (formerly Fame Cove Four Pty Ltd) (Fourth Plaintiff)
Fame Cove Three Pty Limited (Fifth Plaintiff)
Stanford Land Pty Limited (Sixth Plaintiff)
Hardie Sanctuary Pty Limited (Seventh Plaintiff)
Biodiversity Land Pty Limited (formerly Eco Trades Pty Limited) (Eighth Plaintiff)
Dalbell Pty Limited (Ninth Plaintiff)
Nersu Pty Limited (Tenth Plaintiff)
Hardie Garnet Pty Limited (Eleventh Plaintiff)
Duncan John Hardie (Twelfth Plaintiff)
State of New South Wales (Defendant)Representation: M Cashion SC with T Rickard (Plaintiffs)
G Craddock SC with S Callan (Defendant)
C G Taylor & Son Solicitors (Plaintiffs)
Crown Solicitor (Defendant)
File Number(s): 2011/67050
Judgment
HER HONOUR: There are two motions before the Court. By notice of motion filed 6 September 2011, the defendant seek firstly, an order that the plaintiffs' statement of claim be struck out, either in whole or in part, pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005 (UCPR); secondly, an order that the plaintiffs give security for costs; and thirdly, an order that the proceedings be stayed until such security is given.
By notice of motion filed 3 April 2012, the plaintiffs seek leave to amend the statement of claim.
The first plaintiff is Hardie Holdings Pty Limited. The second plaintiff is Cessnock Land Pty Limited. The third plaintiff is Hardie Greta Pty Limited. The fourth plaintiff is Fame Cove Four Pty Limited. The fifth plaintiff is Fame Cove Three Pty Limited. The sixth plaintiff is Stanford Land Pty Limited. The seventh plaintiff is Hardie Sanctuary Pty Limited. The eighth plaintiff is Biodiversity Land Pty Limited (formerly Eco Trades Pty Limited). The ninth plaintiff Dalbell Pty Limited. The tenth plaintiff is Nersu Pty Limited. The eleventh plaintiff is Hardie Garnet Pty Limited. The twelfth plaintiff is Duncan John Hardie. The defendant is the State of New South Wales.
The plaintiffs relied on two affidavits of Christopher Gordon Taylor dated 2 April 2012 and 7 August 2012 and the affidavit of Sarah Potter 13 August 2012. The State relied on six affidavits of Bruce Cantrill dated 14 September 2011 (1), 14 September 2011 (2), 8 May 2012 (1), 8 May 2012 (2), 2 August 2012 and 21 August 2012 and the affidavit of Raphael Hudson dated 12 April 2012.
Hardie Holdings Pty Limited, the first plaintiff, is the holding company of the second to ninth and the eleventh plaintiffs (collectively, "the Hardie Group"). The Hardie Group is controlled by the twelfth plaintiff Duncan John Hardie ("Mr Hardie").
For the purposes of this application, I have taken the plaintiffs' case at its highest, that is the pleading in the proposed amended statement of claim ("PASC"). The plaintiffs' notion of motion originally sought leave to file the PASC and the defendant's notion of motion sought that the statement of claim be struck out. However the parties have reached an agreement as to the PASC. I will first set out the context of that agreement and will then consider whether the plaintiffs should be ordered to provide security for costs.
Background
In broad terms, the plaintiffs allege (both in the statement of claim and in the proposed amended statement of claim) that in or about late 2005, Mr Hardie commenced negotiations with the State of New South Wales regarding the basis upon which land owned by the Hardie Group could be incorporated into the State's "Lower Hunter Regional Strategy", directed towards ensuring growth and prosperity in this region.
It is alleged that these negotiations spanned 10 months, during which Mr Hardie and members of his staff spoke with Ministers of the NSW government, various local members, shadow ministers, labour party leaders and senior public servants. It is alleged that during these negotiations, the State "made clear" to Mr Hardie that the State would ensure rezoning of each of the "development sites" owned by companies in the Hardie Group to enable residential development in accordance with the Lower Hunter Regional Strategy. These development sites comprised the following:
(a) Land known as the Sweetwater development site, which later came to be known as the Huntlee development site ("Huntlee development site");
(b) land in the Bellbird Heights region of the Cessnock local government region ("Bellbird development site");
(c) land in the Greta region of the Cessnock local government region ("Greta development site");
(d) land in the Nulkaba region of the Cessnock local government region ("Nulkaba development site"); and
(e) land in the Millfield and Paxton region of the Cessnock local government region ("Sanctuary Village development site").
It is alleged that this assurance from the State was on the basis that certain environmentally significant land controlled or owned by companies in the Hardie Group would be transferred to the State to be incorporated into National Parks or other types of protected reserve.
On 16 October 2006, a Memorandum of Understanding ("MOU") was entered into between the State and Hardie Holdings (as agent for the other plaintiffs). It is alleged that this Memorandum "embodies" the agreement referred to above between the State and Mr Hardie. Relevantly, clause 2.1 provides that the parties are committed to using their best endeavours to implement the MOU. Clause 2.2.1 provides that the MOU was intended to express the parties' objectives and "firm intentions" but was not intended to create enforceable or binding legal obligations, and clause 2.2.3 states that nothing in the MOU is intended to constitute a representation, warranty or guarantee by or on behalf of the Government.
The plaintiffs allege that on or about 17 October 2006, the State of NSW through the Minister for Planning released the "Lower Hunter Regional Strategy" and confirmed that the development sites owned by the Hardie Group were to be residential areas. Also on this day, the State of NSW through the Premier, the Minister for the Environment and the Minister for Planning jointly announced the "Lower Hunter Conservation Plan" which confirmed that certain environmentally significant land controlled or owned by companies in the Hardie Group would be dedicated as new national parks and reserves in the Lower Hunter region.
It is alleged that the above conduct constituted a representation to the plaintiffs that the State would ensure the development sites owned by the Hardie Group would be rezoned for residential use ("the representation").
The plaintiffs allege that in reliance on the representation, on 22 December 2006, the plaintiffs entered into a contract with the State ("the Contract") which largely incorporated the terms of the MOU, and that an implied term of the contract was that each party warranted it had the ability to perform their respective obligations in a lawful and enforceable way. Relevantly, clause 4.3 indicates that nothing in the Contract should be taken to fetter the discretion of the Minister for Planning or Minister for Environment. Clause 11.10 provides that the Contract constitutes the entire agreement between the parties and any prior arrangements, agreements, representations or undertakings as to the subject matter of the Contract are superseded.
It is alleged that following the execution of this contract, the Hardie Group commenced the process of lodging rezoning and development applications for each of the development sites. The application process extended over the next three years.
On 9 January 2009, the Minister for Planning issued a decision that the Huntlee Development site be rezoned for residential use and on 2 February 2009 the Minister for Planning approved the rezoning and concept plan. Shortly thereafter, the Sweetwater Action group commenced proceedings in the Land and Environment Court against Huntlee Holdings and the Minister for Planning challenging the validity of the rezoning decision ("Sweetwater proceedings").
Before any other applications were approved, on 31 August 2009, a judgment was delivered in the Land and Environment Court in a case concerning Catherine Hill Bay. In that case, the State had entered into a Memorandum of Understanding and Agreement regarding the inclusion of the subject land in the Lower Hunter Regional Strategy in exchange for the landholder transferring certain environmentally significant land to the State (that is, agreements very similar to the MOU and the Contract pleaded in these proceedings). Having regard to these agreements, the court determined that the subsequent rezoning decisions made by the Minister for Planning were void and of no effect: Gwandalan Summerland Point Action Group Inc v Minister for Planning (2009) 75 NSWLR 269 ("Catherine Hill Bay decision").
On the same day, the Minister for Planning announced the State would not appeal the Catherine Hill Bay decision nor would it enact retrospective validating legislation.
On 19 October 2009, the State of NSW and Huntlee Holdings entered into consent orders in the Sweetwater proceedings by which the approvals for Huntlee were quashed and the land reverted to rural zoning.
On 8 April 2010, the State of NSW through the Director General of the Department of Planning advised Hardie Holdings by letter that the State had received legal advice and the Contract needed to be terminated. The plaintiffs allege that in reliance on the State's representation, they entered into a Deed of Termination on or about 13 October 2010 ("Deed of Termination").
As at the commencement of these proceedings in March 2011, none of the Hardie Group development sites have been rezoned.
The plaintiffs plead four causes of action against the State. They are, firstly, negligent misrepresentation (PASC [40] to [53]), breach of implied contractual obligation ([54] to [59A]), negligent exercise of statutory power (PASC [60] to [66]), and finally, breach of agreement (PASC [67] to [68A]). The plaintiffs allege that as a result, the values of the development sites have "collapsed" and claims the State is liable for this loss which is continuing. Furthermore, that as a result, various of the plaintiffs have defaulted on loans taken out to finance the developments, and the plaintiffs claim the State is liable for these losses which are continuing. The losses alleged to have been suffered by Mr Hardie, as principal shareholder of the Hardie Group, are described as "substantial personal losses", the forsaking of other development opportunities. As guarantor of the Bellbird loan and the Greta loan he also claims he faces potential loans being called in to the value of over $16 million. Further, he pleads that he and his wife have suffered personal stress and humiliation and incurred associated medical costs.
The relief claimed is for the substantial sum of $393,543,549.00 in liquidated damages, plus "unliquidated damages to be specified", plus interest and costs.
At the conclusion of the hearing of the plaintiffs' motion, the plaintiffs undertook to replead the offending paragraphs of the proposed amended statement of claim. To this end a document was, by consent, forwarded to my Associate outlining the paragraphs to be amended and the nature of each amendment. A copy of this document is annexed to the end of this judgment.
The plaintiffs are to file and serve a further amended statement of claim incorporating these changes within 28 days. The plaintiff is to pay the defendant's costs thrown away by the amendments.
Security for costs
The State of New South Wales seeks security for costs.
UCPR 42.21 relevantly provides:
"42.21 Security for costs
(1) If, in any proceedings, it appears to the court on the application of a defendant:
...
(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so,
...
the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given.
(2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct.
(3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed.
(4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given."
And s 1335 of the Corporations Act 2001 (Cth) relevantly reads:
"1335 Costs
(1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given..."
The threshold issue
The first issue to be determined is the threshold issue, namely whether there is reason to believe that the plaintiffs will be unable to pay the costs of the defendant if it is successful with its defence and the plaintiffs are ordered to pay the defendant's costs.
The defendant submitted that the plaintiffs would not be in a position to pay their costs should they be ordered to do so. The plaintiffs submit that they can pay the defendant's costs. Alternatively, the plaintiffs submitted that if they are ordered to provide security for costs, this should not be for past costs and should be only be for a set part of the timetable, namely from now up to when discovery is provided by both parties.
The plaintiffs comprise eleven companies and one natural person, Mr Hardie, who is the twelfth plaintiff. According to the Statement of Claim filed 1 March 2011, the first plaintiff, Hardie Holdings, is the holding company of the Hardie group of companies of which the second through ninth and eleventh plaintiffs are members. At all material times, the eleventh plaintiff Hardie Garnet Pty Ltd ("Hardie Garnet") was the ultimate owner of the companies in the Hardie group in its capacity as trustee of the Hardie family Trust No 2, of which the twelfth plaintiff, Mr Hardie, and his wife Mrs Lynley Hardie, were and remain the principal beneficiaries. I shall examine the position of the plaintiffs, taking into account that the position of the eighth plaintiff is different from the others.
Company Searches obtained online from the website of the Australian Securities and Investment Commission ("ASIC") indicate that Mr Hardie is the director of each of the following companies, except the tenth plaintiff. These company searches also indicate that the:
(a) the first plaintiff, Hardie Holdings, has two issued $1 shares, held by Hardie Garnet. There was until about April 2012 a registered charge over its fixed and floating assets by New Finco Pty Ltd. The Defendant does not know how the charge came to be released. It lodged an annual return with ASIC on 23 November 2001 and a financial report on 17 November 2005;
(b) the second plaintiff, Cessnock Land Pty Ltd, has 100 issued $1 shares, held by Hardie Holdings. It has not lodged a financial statement with ASIC since its annual return on 3 October 2002;
(c) the third plaintiff, Hardie Greta Pty Ltd, has two issued $1 shares, held by Hardie Holdings. There was until about April 2012 a registered charge over its fixed and floating assets by Westpac Banking Corporation. It has not lodged an annual return or financial statement with ASIC since registration;
(d) the fourth plaintiff, Hardie King Pty Ltd formerly Fame Cove Four Pty Ltd, has 1000 issued $1 shares, held by Hardie Holdings. It has not lodged an annual return or financial statement with ASIC since registration;
(e) the fifth plaintiff, Fame Cove Three Pty Ltd, has 1000 issued $1 shares, held by Hardie Holdings. It has not lodged an annual return or financial statement with ASIC since registration;
(f) the sixth plaintiff, Stanford Land Pty Ltd, has 2 issued $1 shares, held by Hardie Holdings. It has not lodged a financial statement with ASIC since its annual return on 3 October 2002;
(g) the seventh plaintiff, Hardie Sanctuary Pty Ltd, has 1000 issued $1 shares, held by Hardie Holdings. It has not lodged a financial statement with ASIC since its annual return on 3 October 2002;
(h) the ninth plaintiff, Dalbelle Pty Ltd, has been voluntarily wound up. It had 25 issued $1 shares, held by Hardie Holdings. It has not lodged an annual return or financial statement with ASIC since registration;
(i) the tenth plaintiff, Nersu Pty Ltd, has 2600 issued $1 shares owned by Mr Pittman, Mr and Mrs Grudgeon and Mr and Mrs Rumbel. It is not clear if this company is part of the Hardie Group. There was until about April 2012 a registered charge over its fixed and floating assets by National Australia Bank Ltd. It has not lodged an annual return or financial statement with ASIC since registration;
(j) the eleventh plaintiff, Hardie Garnet Pty Ltd, has two issued $1 shares, one held by Mr Hardie and the other by Mrs Hardie. It has not lodged a financial statement with ASIC since its annual return on 3 October 2002.
This analysis indicates that the plaintiff companies, which sit below Hardie Garnet in the structure, vary in their shareholding from 2 shares ($2) to 1000 shares ($1000).
An Assets and Liabilities Statement dated 11 August 2011 for the Hardie Holdings Group indicates an excess of liabilities to assets, with a total deficiency of $50,800,000. The balance sheet of Hardie Holdings as at March 2012 showed a deficiency of total equity of $81,795,003. This includes some $43,913,416 in unsecured loans to, inter alia, other companies in the group. The balance sheets as at March 2012 for the second to seventh plaintiffs indicate that most have a deficiency of total equity, and that the assets of each is in the form of property holdings.
As to the landholdings of the first plaintiff, Hardie Holdings, between 14 September 2011 and 18 April 2012, it divested itself of eight properties - of one of which was transferred to Hardie King Pty Ltd (formerly Fame Cove Four Pty Ltd). As at 18 April 2012 it holds four properties. It is not clear the extent to which any/all are encumbered.
It is pleaded by the plaintiffs that land holdings are the primary asset of each of the second to seventh plaintiffs (namely the Bellbird, Nulkaba, Sanctuary Villages and Greta developments sites), but that all are heavily mortgaged to secure loans which exceed the present asserted value of the land. This is reflected in the Assets and Liabilities Statement dated 11 August 2011 for the Hardie Holdings Group.
Between 14 September 2011 and 18 April 2012, the sixth plaintiff divested itself of six properties. As at 18 April 2012 it holds five properties. Between 14 September 2011 and 18 April 2012, the seventh plaintiff divested itself of the one property it held.
As to the eleventh plaintiff, Hardie Garnet Pty Ltd, it has a 29% shareholding in Huntlee Holdings Pty Ltd, which owns the Huntlee development site (this is the extent of the Hardie group's ownership of this site). Although the Huntlee development site has been valued at $24 million, it is not clear what financing arrangements are in place for this land. There is a registered charge over its fixed and floating assets by Lehman Brothers Real Estate Australia Commercial Pty Ltd. On 26 April 2011, the members passed a resolution for the voluntary winding up of Huntlee Holdings Pty Ltd and appointed a liquidator. On 16 June 2011 a notification of final meeting convened by the liquidator was lodged with ASIC along with a presentation of accounts and statement of final accounts.
As to the twelfth plaintiff, Mr Hardie, the plaintiff pleads that he is personally liable as a guarantor for loans in respect of the Bellbird development site ($11 million loan from Perpetual Nominees) and the Greta development site ($5 million loan from St George).
The plaintiffs' solicitor (letter dated 8 April 2011) has indicated that with the exception of the voluntary liquidation of the ninth plaintiff, the remaining corporate plaintiffs are not in a state of liquidation or likely to be liquidated and that Mr Hardie is himself not the subject of any bankruptcy application.
The defendant drew the court's attention to an article published on 11 August 2011 in the Newcastle Herald, which indicated that the twelfth plaintiff, Mr Hardie, had told the newspaper he had "departed" Australia and some of his landholdings in the Hunter region were "up for sale".
The plaintiffs' solicitor (letter dated 12 September 2011) indicated that Mr Hardie had bought property in New Zealand which will become his principal place of residence, that Hardie Garnet, as shareholder, did not anticipate receiving any distribution of Huntlee Holdings, and that the plaintiffs were not willing to put funds on trust for payment of the defendant's costs of the proceedings. However, so far as this last statement is concerned, this position changed at 1 August 2012.
The position of the eighth defendant Biodiversity Land Pty Ltd
Biodiversity Land Pty Ltd (formerly Eco Trades Pty Ltd) has 1000 issued $1 shares, held by Hardie Garnet. It has not lodged an annual return or financial statement with ASIC since registration.
The eighth plaintiff owns a number of properties. Between 14 September 2011 and 18 April 2012, it divested itself of eight properties. As at 18 April 2012 it holds 36 properties. There is no evidence as to any encumbrances on those properties.
Ms Sarah Potter, company secretary of Biodiversity Land Pty Ltd affirmed an affidavit dated 13 August 2012. She was cross examined at the hearing of this motion.
Ms Potter has deposed to the following:
"The company is the registered proprietor of property known as "Goonama" XXX Werah Creek Road, Wee Waa NSW 2388 more particularly described in rate notice of the Narrabri Shire Council as being Lot XXX & Lot XXX & Lot XXX & Lot XXX & Lot XXX & Lot XXX & Lot XXX & Lot XXXX & RP XXXX comprising an area of 2571.40 hectares and having a rateable value of $404, 000.00 ...
The land is unencumbered and the title deeds to the land are in the company's possession...
By resolution of the company's Board passed on 1st August 2012, it was resolved that, in the event that any or all of the plaintiffs in these proceedings are ordered by the Court to provide security for the Defendant's costs in these proceedings, the company will provide security in such amount as is ordered by the court, by depositing the title deeds to the land with the Court or by otherwise dealing with the title deeds or the land in such a manner as may provide that security in a form acceptable to the Court."
The eighth plaintiff owns a property, "Goonama", at Werah Creek Road, Wee Waa that has a rateable value of $404,000. That property is unencumbered. The property is being marketed for its ecological value due to the particular flora and fauna on the land (T36-37).
The defendant says that there are substantial question marks over Biodiversity's offer of the property and its capacity to meet a costs order. The property is next to the Pilliga State Forest and the defendant submitted that its rate value of $404,000 is a long way shy of what the costs will be in this matter by the time the matter goes to hearing. Senior counsel for the defendant further submitted that there is a real question of the saleability of that property due to its particular ecological value and that Goonama is essentially a parcel of land that is an offset (T47). According to the defendant, this property will not be purchased by anyone for development. They say that the property market for offsets is not the market for land generally, but is a specific market. The defendant say that despite being a genuine offer, the offer put forward by the eighth plaintiff in relation to Goonama is not sufficient on its own.
The defendant submits finally that the State, if successful, should be in a position to recoup its costs in cash, as opposed to the form offered by the plaintiffs, namely land used as an ecological offset. However, it is my view that the current position is that by credible testimony of Ms Potter, there is reason to believe that the eighth plaintiff will be able to pay the costs of the defendant, if the defendant is successful in its defence.
While the defendant submitted that Goonama may not be saleable and may not be worth $404,000, there is no evidence to show that is in fact the case. In any event, Biodiversity's balance sheet as at June 2012 shows that it has assets of $6,037,446.34, less liabilities of $8,276.94, giving it net assets of $6,029,169.40.
Conclusion
While I am satisfied that all plaintiffs (other than the eighth plaintiff), will be unable to pay the costs of the defendant if it is successful in its defence, the eighth plaintiff is not in that position. On balance I am satisfied that the eighth plaintiff's offer of security in the form of the title deeds to the land known as "Goonama" should be accepted. I order that the eighth plaintiff is to provide security for costs in the form of the title deeds to their property known as "Goonama" and the parties are to bring in short minutes of orders giving effect to these reasons.
For completeness I turn to consider the discretionary factors on an application for security for costs.
Discretionary factors
The factors relevant to determining whether to exercise the power to require security for costs were helpfully set out by Beazley J (as her Honour then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189. The factors are, relevantly:
(1) Impecuniosity of the plaintiff;
(2) Causation, eg where the plaintiff's impecuniosity was caused by the defendant's unlawful conduct the court may take that factor into account in refusing security;
(3) The bona fides of the claim, eg security will likely be ordered if the claim is a sham or is vexatious;
(4) Prospects of success;
(5) Stultification: if ordering security is likely to effectively end the claim, the court is unlikely to make such an orders;
(6) Who is standing behind the plaintiff;
(7) Delay; and
(8) Public interest.
I shall deal briefly with each factor in turn.
Impecuniosity
The defendant submitted that the first to ninth, and eleventh, plaintiffs are impecunious. As previously stated, the evidence indicates that each has a shareholding capital ranging from $2 to $1,000; that each holds land, as the primary (indeed often sole) asset of the company which is characterised in the pleadings as "failed" development sites; and that each has significant debts (in the millions of dollars) to various financiers which exceed the land value over which the loans are secured.
However, as previously stated, the eighth plaintiff is solvent, having net assets of $6,029,169 as at June 2012.
Causation
The plaintiffs say that it is clear from the pleadings that the revocation of the zoning decisions contributed to the plaintiff's current financial position.
The plaintiffs say that they took out loans based on valuations of their land and that those valuations had been based on the rezoning that was to occur, as represented by the defendant. Whether the defendant resiled from any representation it had given to the plaintiffs, and whether this will be shown to have caused the plaintiffs' current financial position, because the land value consequently fell, are issues that can only be properly be determined at trial.
The bona fides of the claim
It is common ground that the plaintiffs have pleaded (or will after the statement of claim is amended) plead four reasonable causes of action. Hence, the claim is bona fide.
Prospects of success
The defendant submitted that the plaintiffs will have significant difficulties proving liability by the state on the basis of "assurances" as to the result of zoning application processes (which processes are governed by a highly regulated legislative framework) and as to the alleged loss of the value of land when the valuations relied upon by the plaintiffs were based on significant assumptions as to the favourable zoning decisions and development.
The defendant submitted that if this Court is of the view that a reasonable cause of action is pleaded I should regard this factor as neutral.
Stultification
There is no evidence that the requirement for security would stultify the plaintiffs' claim.
Who is standing behind the plaintiffs
The defendant submitted that the fact that the first to eleventh plaintiffs are companies militates strongly in favour of ordering security for costs. They say that it is readily apparent that Mr Hardie and Lynley Hardie stand behind these companies and that Mr Hardie is impecunious. They also point to the fact that he has now chosen to adopt a domicile outside Australia, in New Zealand. The plaintiffs respond that there is no evidence of Mr Hardie's financial position and that he is a New Zealander by birth, who is entitled to return home.
The defendant conceded that there was no evidence as to the financial position proffered by Mr Hardie personally (T46). Lynley Hardie's tax return was in evidence (Ex 3) and it demonstrated that her income to June 2011 was just $22,184.
In my view Mr Hardie is promptly prosecuting the claim and there was insufficient evidence as to his financial position to determine the application on this basis. This factor reinforces my view that security, in the form proposed by the eighth defendant, should be given.
Delay
The plaintiffs say that the defendant's application was not brought promptly. They submit that it took over six months to bring the defendant's application and that the defendants should have brought the application before embarking on their detailed particulars requests. I do not agree with this submission that there was undue delay in bringing this application. This is large complex litigation and it is still in the early stages of preparation.
Public interest
The defendant submitted that this case does not give rise to a public interest argument.
Public interest will be a factor when determining whether to order security for costs where there is a curial determination on an area of law which may affect matters of public importance. Public interest may arise where the outcome will potentially benefit more than just the plaintiff or will uphold some interest common to other members of the community (G E Dal Pont, Law of Costs, (2003) LexisNexis Butterworths at 1010).
A key consideration is that the litigation in question is of interest and value to more than just the plaintiffs, or in other words the plaintiff can be seen as representing more than just its own interests. Kirby P (as he then was) declined to make an order for security of costs on the basis of public interest in Maritime Services Board of New South Wales v Citizens Airport Environment Association Inc (Court of Appeal, 23 December 1992, unreported). In coming to his decision he remarked:
"I am not convinced that the persons who stand behind the Association are acting simply on a matter which is of concern to them only. I would be prepared to infer that there would be a number of other persons - perhaps many - who have not troubled to bring proceedings but who have a keen interest in the ultimate subject matter of the litigation."
His Honour continued:
"I do not believe that it is appropriate to consider this case as just another suit between ordinary litigants disputing claims of private interest only to themselves. When considering whether "special circumstances" have been made out, and whether an order for security for the costs of the appeal should be made, it is appropriate to keep in mind the nature of the case and the public interest reasons which may lie behind the bringing of it."
Of further significance are the words of Kirby J in Oshlack v Richmond River Council (1998) 193 CLR 72 at 124:
"a discrete approach has been taken to costs in circumstances where courts have concluded that a litigant has properly brought proceedings to advance a legitimate public interest, has contributed to the proper understanding of the law in question and has involved no private gain. In such cases the costs incurred have occasionally been described as incidental to the proper exercise of public administration. Upon that basis it has been considered that they ought not to be wholly a burden on the particular litigant."
The result of this litigation may be of interest to other developers such as those involved in the proposed Catherine Hill Bay development. There is some public interest in these proceedings.
After taking into account these factors, in the exercise of my discretion, an order for security for costs should be made. In my view, the eighth plaintiff's undertaking in relation to "Goonama" should be accepted in satisfaction of the order for security for costs.
If I am wrong in relation to my acceptance of the eighth plaintiff's undertaking, I turn to consider what further amount of security should be ordered.
The amount of security
Mr Cantrill, a solicitor employed by the Crown Solicitor, has responsibility for the day to day carriage of the matter for the defendant. He has over 20 years experience in complex litigation including many tortious claims. He is assisted in the conduct of the proceedings on behalf of the State by a graduate solicitor and a paralegal. Senior counsel and junior counsel are briefed to advise and appear. Mr Cantrill sets out the fees for solicitors within the Crown Solicitors Office and counsel briefed.
Mr Cantrill gives evidence of the tasks undertaken giving rise to costs of $188,095.34 incurred from 1 March 2011 (when the proceedings commenced) to 12 September 2011. By 7 May 2012 fees plus disbursements totalled $498,491.84 exclusive of GST.
It is Mr Cantrill's opinion that evidence gathering was likely to be extensive and is likely to require experts, especially on the questions of causation and quantum of the plaintiffs' alleged loss at a cost of approximately $75,000. He identifies a number of future tasks likely to be required to be undertaken on behalf of the State in the conduct of the proceedings, leading up to a final hearing of estimated four to eight weeks' length. Mr Cantrill estimates that if the matter proceeds to hearing, the State would be likely to incur costs of at least $550,000 in fees and $300,000 in disbursements (ie a total of $850,000). He considers this to be a conservative estimate.
Mr Cantrill deposes as to the reasons for his estimate, that discovery, if ordered, will be a lengthy and complex exercise, and gives evidence that the substantial number of documents already involved in the case had caused him to obtain a document management system at a cost of $95,000.
Senior counsel for the plaintiffs submitted that if an order for security for costs is made the amounts should be a staged process. He submitted that the first amount should be from now up until the end of the discovery process. I agree with this proposition. It would be unreasonable to expect the plaintiffs to lodge security in the sum of $850,000. The amount estimated for costs occasioned by the State giving discovery is $95,000. Although it does not seem to include the costs of attending to the plaintiffs' list of documents, in my view it is an appropriate amount should security for costs, above that provided by the eighth plaintiff, have been ordered.
The Court orders that:
(1) The plaintiffs are to file and serve an amended statement of claim within 28 days.
(2) The plaintiffs are to pay the defendant's costs thrown away by the amendments.
(3) The eighth plaintiff is to provide security for costs in the form of the title deeds to their property known as "Goonama".
(4) The parties are to bring in short minutes of orders to give effect to these reasons in relation to security for costs.
(5) Costs of the defendant's notice of motion filed 6 September 2011 are reserved.
Parties agreed schedule of re-pleadings
References are to current paragraph numbers of the proposed Amended Statement of Claim
Parties agreed re-pleadings
23
Identification of representatives of the plaintiffs and the defendant and some estimate of the number of discussions. The substance of the relevant representations are to be stated, with particularisation of the date, location and persons involved.
24,25,26
For the 5-6 key meetings, identification of the persons at the meetings and the place of the meetings.
The dates and critical representations will be pleaded.
41
For the 5-6 key meetings, identification of the representatives of plaintiffs and defendant.
The dates and the critical representations will be pleaded.
42,43
Replace "and/or" with "and."
52
Reference the "representations " to relevant previous paragraphs.
54-55
Provide particulars of conduct and oral statements (from key meetings).
This will include details of the written communications referred to in the pleading, and in relation to oral representations the date, persons involved and the substance of the communication.
59
Identify duty of care in relation to (d)
62
Delete "in the alternative"
68
Clarification of the particulars
68A
Identify loss of opportunity damages
69,71,74,86
Change "Contract" to "Agreement"
Correct references to EP &A Act
Amend description of damages claim
**********
Decision last updated: 25 September 2012
1
3
2