Jazabas Pty Ltd v Haddad

[2010] NSWSC 594

CITATION:	Jazabas Pty Ltd & Ors v Haddad & Ors [2010] NSWSC 594
HEARING DATE(S):	5-6 November 2009
JUDGMENT DATE :	4 June 2010
JUDGMENT OF:	Fullerton J
DECISION:	1. The plaintiffs’ notice of motion is dismissed. 2. The plaintiffs are to pay the defendants’ costs. 3. Such costs as are payable to the third defendant are to be payable forthwith as reflected in the orders made by consent on 5 August 2009. 4. Such costs as are payable to the first and second defendants are to be payable forthwith.
CATCHWORDS:	COSTS - order for security for costs - appeal from judgment refusing to lift stay of proceedings - whether leave should be granted to extend the time for bringing appeal under Pt 49 r 8 UCPR - whether Associate Justice erred in exercise of discretion to refuse to lift stay - whether error disclosed by considering weight to be given to personal undertakings in accordance with Epping Plaza Fresh Fruit and Vegetables Pty Ltd v Bevendale Pty Ltd - whether sufficient weight given to whether public interest was affected by a determination of the facts in issue in substantive proceedings to justify lifting stay
LEGISLATION CITED:	Civil Procedure Act 2005 Fair Trading Act 1987 Limitation Act 1969
CASES CITED:	Australian Energy and Electrical Holdings Pty Ltd v Isbell [2006] QSC 34 Buckley v Bennell Constructions Pty Ltd (1974) 1 ACLR 301 City of Botany Bay Council v Jazabas Pty Limited [2001] NSWCA 94 Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 Fleet v Royal Society for the Prevention of Cruelty to Animals NSW and Ors [2005] NSWSC 926 Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405 House v The King (1936) 55 CLR 499 Jazabas Pty Limited & Ors v Haddad & Ors, 20 March 2009, CA 40292/2008 Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Lawteal Pty Ltd v Ofo [2006] NSWSC 365 Maritime Services Board of New South Wales & Federal Airports Corporation v Citizens Airport Environment Association Inc (1992) 83 LGERA 107 Marks-Isaacs v Fowler & Ors [2005] NSWCA 37 Micallef v ICI Australia Operations Pty Ltd & Anor [2001] NSWCA 274 Sharjade v Darwinia Estate & Anor [2006] NSWSC 708
PARTIES:	Jazabas Pty Ltd (1st Plaintiff) BAS Development Pty Ltd (2nd Plaintiff) Permtree Pty Ltd (3rd Plaintiff) Sam Haddad (1st Defendant) State of New South Wales (2nd Defendant) Botany Bay City Council (3rd Defendant)
FILE NUMBER(S):	SC 2005/20020
COUNSEL:	P King (Plaintiffs) G Craddock SC (1st & 2nd Defendants) G McNally SC (3rd Defendant)
SOLICITORS:	Kydon Segal Lawyers (Plaintiffs) New South Wales Crown Solicitor (1st & Second Defendants) Houston Dearn O'Connor (3rd Defendant)
LOWER COURT JURISDICTION:	Supreme Court (Associate Judge)
LOWER COURT DATE OF DECISION:	17 June 2008
LOWER COURT MEDIUM NEUTRAL CITATION:	[2008] NSWSC 593

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

FULLERTON J

4 JUNE 2010

2005/20020 JAZABAS PTY LIMITED & ORS v HADDAD
& ORS
JUDGMENT

1 HER HONOUR: On 17 June 2008 Harrison AsJ dismissed the plaintiffs’ application to remove a stay of proceedings imposed by Simpson J on 9 June 2006 consequent upon her Honour ordering that the plaintiffs provide security for costs, in nominated amounts, with respect to the costs of all three defendants.

2 On 25 October 2007 the Court of Appeal dismissed an appeal from the decision of Simpson J (Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291). Although the Court found that in deciding whether to order security for costs her Honour had failed to consider relevant matters and to ask herself the appropriate question such as to warrant leave to appeal being granted, the appeal was dismissed on the basis that the plaintiffs had failed to discharge the evidential onus of establishing that an order for security for costs would stultify or frustrate the litigation.

3 By notice of motion dated 1 May 2009 the plaintiffs sought leave to appeal from the judgment of Harrison AsJ refusing to lift the stay of proceedings. The appeal was brought in accordance with Pt 49 of the Uniform Civil Procedure Rules 2005 (UCPR).

4 There was no application before Harrison AsJ to vary or disturb the order for security for costs. Although the application proceeded before her Honour as if that question was raised on the application, and even if in a practical sense that might have proved to be the case in the way the proceedings were conducted, the validity of the order for security for costs, per se, does not arise in the proceedings before me.

The parties and the litigation

5 The parties have been engaged in litigation since the plaintiffs first commenced proceedings in 1998 in the Federal Court in connection with the zoning of land in Botany for the purpose of development. The plaintiffs are related companies who were, at the relevant time, engaged in property development. They claim to have suffered financial detriment for which the defendants are liable because at one time the land had been exposed to some form of toxicity which was known to the defendants but which was either concealed by them or the effect of which was misrepresented by them.

6 Stephen Haigh has at all times been a director of all three of the plaintiff companies. At the time of the proceedings before Simpson J he was also a shareholder of Jazabas Pty Limited (the first plaintiff) together with his wife and Kikiras Real Estate Pty Ltd (Kikiras). This remained the situation up until 16 November 2007 when Mr Haigh purchased the shares held by Kikiras for $1. The shares are held in trust by Stephen Haigh Nominees Pty Ltd. A chronology of events in relation to the acquisition and transfer of the shares is set out at [27] - [29] of the judgment. This was a matter of some significance in her Honour's decision to refuse to lift the stay. It is one of the matters said by the plaintiffs to disclose error.

7 The first defendant is a public officer who was, at the relevant time, a senior officer in the New South Wales Department of Planning. The State of New South Wales, as second defendant, is said to be vicariously liable for the acts and conduct of the first defendant. The City of Botany Bay Council is the third defendant.

The question of leave to extend the time for bringing the appeal

8 As the time for lodging an appeal from the decision of Harrison AJ pursuant to Pt 49 r 8 of the UCPR expired on 16 July 2008, the plaintiffs required a grant of leave to extend the time for bringing the appeal. The affidavit of Patrick Campion was relied upon in support of the application for leave. The first and second defendants opposed leave being granted and relied upon the affidavit of Jane Graham, a solicitor in the employ of the Crown Solicitor. The third defendant did not oppose leave being granted.

9 At the commencement of the hearing I made it clear to counsel that I regarded the question of leave as a preliminary issue of some importance. This was not only because of the opposition to leave being granted advanced by the first and second defendants, and what I regarded as a principled basis for that opposition, but because of my own concern about the history of the proceedings in this Court since 2005. This involved, in particular, the plaintiffs’ determination, with financial support from Mr Haigh, to take various interlocutory steps since June 2006 to disturb the orders made by Simpson J, including the misconceived attempt in September 2008 to invoke the jurisdiction of the Court of Appeal to appeal from Harrison AsJ’s refusal to remove the stay of proceedings rather than to bring proceedings in the Common Law Division under Pt 49 of the UCPR.

10 In addition, despite the fact that the first and second defendants have only recently sought to have the costs ordered by Simpson J in June 2006 assessed, it is not in dispute that the plaintiffs have not paid the first and second defendants’ costs in any proceedings that have issued since that time despite a succession of adverse costs orders, including orders made in the Court of Appeal. In all these circumstances Mr Craddock SC urged me to refuse leave.

11 In support of the opposition to leave being granted, I was also asked to take into account the fact that since the orders for security for costs and the stay of proceedings issued in 2006, a total of $177,491.63 has been lodged by Mr Haigh with the plaintiffs’ solicitors to fund various interlocutory proceedings, most if not all of which have been directed to disturbing those orders, rather than committing such funds as are available to pursue what the plaintiffs claim to be their rights to damages in the substantive proceedings. While it is accepted that Simpson J ordered a total of $300,000 to be lodged, the amount that has been expended by Mr Haigh might have been taken into account either by the defendants or by the Court as a demonstration of the improved capacity of the plaintiffs to meet their obligations as litigants. This in turn might have warranted some adjustment to her Honour's orders either by consent or by direction. The availability of $177,491.63 was evidenced by documents produced on subpoena in the proceedings before me. It was not the subject of any challenge.

12 Mr King sought to meet what I regard as the first and second defendants’ legitimate complaints about the conduct of the plaintiffs as litigants subject to an order for security. However, he did so with what I consider to be little appreciation of the governing principle mandated by s 58 of the Civil ProcedureAct 2005, and its application to this litigation. He did proffer an explanation for the very considerable delay in bringing the appeal proceedings in this Division, in that under his advice the plaintiffs sought to invoke the qualified jurisdiction of the Court of Appeal under Pt 60 r 17 of the UCPR to challenge the decision of Harrison AsJ rather than exercising the unqualified right to appeal from an Associate Justice to a Judge in this Division as provided for in Pt 49 of the UCPR. He appeared, however, to maintain the position that his advice was sound (or at least considered) despite the outcome and the adverse costs order that resulted.

13 I should also note in that connection that within a short time of the filing of the summons in the Court of Appeal in September 2008 the plaintiffs were advised by letter that the Crown Solicitor regarded the appeal as incompetent (in the sense that the Court of Appeal was not the appropriate forum to challenge a judgment of an Associate Justice), and enclosed filed submissions in support of that view. Their position was vindicated in the judgment of Giles JA (with whom McColl JA agreed) (see Jazabas Pty Limited & Ors v Haddad & Ors, 20 March 2009, CA 40292/2008).

14 The submission advanced by Mr King before me that Giles JA contemplated that the proceedings could be instituted in this Division within six months of that date without penalty is not reflected in the judgment. What his Honour in fact said at [8] was:

“It should be said that the debate is not over an entitlement to appeal to this Court or nothing. If there is not an entitlement to appeal to this Court there is, or would if exercised in a timely manner have been , an entitlement to appeal to a Judge of the Common Law Division.” (emphasis added)

15 After extensive argument on the question of leave, argument that involved a descent into the substantive issues raised by the appeal, and after exercising some restraint before concluding that the application for leave to appeal to the Court of Appeal was wholly misconceived, I resolved, albeit with some reluctance, to grant leave to extend the time for hearing of the plaintiffs’ notice of motion.

The history of the proceedings

16 The proceedings the subject of the stay were commenced by the filing of a statement of claim in February 2005 (“the current proceedings”). The current proceedings seek damages for misfeasance in public office, negligent advice and deceit in circumstances where it is alleged that the first defendant was responsible for issuing a risk assessment study in 1985 which contained material misrepresentations upon which the plaintiffs, as related companies, relied to their financial detriment. A breach of s 42 of the Fair Trading Act 1987 is also alleged. The proceedings are to be strenuously defended by all defendants. The third defendant, in particular, has signalled its intention to rely upon the defences of issue estoppel/res judicata, ‘Anshun estoppel’ and the Limitation Act 1969.

17 Earlier proceedings, involving only the first plaintiff and the third defendant, were commenced in the Federal Court in 1998. In those proceedings negligent misstatement and misleading and deceptive conduct were alleged against the third defendant relating, in general terms, to the same subject matter as the current proceedings. The Federal Court proceedings were then transferred to this Court where they were heard by Rolfe J. In February 2000 his Honour awarded the first plaintiff damages in the amount of $1,218,832. That judgment was reversed on appeal and judgment entered for the third defendant with a costs order in its favour (see City of Botany Bay Council v Jazabas Pty Limited [2001] NSWCA 94). An application for special leave to appeal to the High Court was refused.

18 The third defendant’s costs of that course of litigation, in the amount of $969,305.51, were unpaid at the time of the proceedings before Simpson J in 2006, and remained unpaid when the proceedings to remove the stay were heard and determined by Harrison AsJ in 2008. Since that time I am informed that only the costs of the special leave application have been assessed. The unpaid costs was a matter Simpson J took into account when reciting the concerns expressed by the third defendant as to the likelihood of it recovering its costs if the plaintiffs were unsuccessful in litigating the current proceedings given their proven impecuniosity. The fact that the financial position of the plaintiff companies had not improved over the intervening years was also a matter taken into account by Harrison AsJ when refusing the plaintiffs’ application to remove the stay. The plaintiffs complain that her Honour was in error in giving any weight to this state of affairs since the third defendant has not sought to have all of its costs assessed and for this reason, so it was submitted, it cannot fairly or properly be said that there are outstanding costs orders invoking the operation of r 12.10(a) of the UCPR.

19 I note that Simpson J also ordered that the plaintiffs pay the defendants’ costs of the proceedings before her in 2006, as did Harrison AsJ in the proceedings before her in 2008. At the time of the hearing before me the costs of the first and second defendants of both proceedings remain unpaid although the costs of the proceedings before Simpson J are currently the subject of assessment. The third defendant’s assessed costs of the proceedings before Simpson J have been paid, in the interim, in part, by monthly instalments of $2000.

The appeal from Harrison AsJ

20 The appeal is brought in accordance with the same principles as those governing an appeal from a single judge to the Court of Appeal (see Fleet v Royal Society for the Prevention of Cruelty to Animals NSW and Ors [2005] NSWSC 926 per Johnson J at [19]). Accordingly, I am obliged to adopt her Honour’s findings of fact, and the inferences properly drawn from those findings, unless they are so flawed as to warrant being overturned. In addition, and importantly so far as this appeal is concerned, the exercise of her Honour's discretion in refusing to lift the stay may only be reversed in accordance with the principles in House v The King (1936) 55 CLR 499 at 505.

21 It was not in dispute that the question of whether the stay should be removed was discretionary, being dependent, in the first instance, upon her Honour being satisfied that the plaintiffs had demonstrated a material change in circumstances over the years intervening between June 2006 when the orders were put in place, and May 2008 when the hearing before Harrison AsJ was convened, such that if the order remained in place the further conduct of the substantive proceedings will be inappropriately stultified.

22 The errors said by the plaintiffs to have resulted in her Honour's discretion miscarrying involve both errors of fact and law and errors of mixed fact and law. The errors were particularised in the notice of motion and further crystallised in the course of argument.

23 As to the change in circumstances it was submitted that:

(a) Her Honour was in error in applying the decision of Epping Plaza Fresh Fruit and Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at 197 when considering the weight to be given to the personal undertakings of Mr and Mrs Haigh; and

(b) Her Honour was in error in the weight she gave to the personal undertakings of Mr and Mrs Haigh (“the undertakings”).

24 As to the matters otherwise bearing upon the exercise of discretion it was submitted that:

(c) Her Honour was in error in the factual findings she made in regards to the plaintiffs’ incurring of costs in respect of previous litigation and the defendants’ rights to costs in respect of that litigation (“the costs question”);
(d) Her Honour was in error in the factual findings she made as to the extent to which the public interest was affected by a determination of the facts in issue in the substantive proceedings (“the public interest question”); and
(e) Her Honour was in error in the weight she gave to the public interest.

25 Mr King accepted that the appeal was not a hearing de novo. That said, he sought to tender fresh evidence on the appeal, including a further affidavit from Mr Haigh going to the issue of public interest and other issues that have engaged the parties in court proceedings since June 2008, and a further affidavit from Mr McCracken also going to the issue of public interest. He cited Lawteal Pty Ltd v Ofo [2006] NSWSC 365 at [67] - [70] as authority for the proposition that I should admit the further evidence. I rejected the tender as being irrelevant to the issues raised by the appeal, reserving argument as to any further basis upon which the evidence might be admitted in the event that I am persuaded that her Honour was in error and that a fresh consideration of whether the stay should be lifted was appropriate. In that connection I gave leave to the defendants to file a notice of contention wherein the relevance of any consideration of the public interest in the outcome of the substantive proceedings is challenged.

26 In opening the plaintiffs’ case and developing his oral submissions Mr King directed my attention to the judgments of Rolfe J in 2000, Simpson J in 2006 and the Court of Appeal in 2007. This was done not simply to put the facts and circumstances the subject of consideration by Harrison AsJ into context, but also with a view to demonstrating that her Honour failed to give what counsel described as “sufficient focus” to the fact that she accepted that the substantive proceedings appeared to be bona fide and not doomed to failure, despite there being a live issue as to whether the proceedings are statute barred. In the course of argument I made it clear that, in my view, her Honour's reference to these considerations at [9] of the judgment were entirely in accordance with what McClellan CJ at CL said in Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291 at [84] as to the neutrality of these considerations in the discretionary exercise in which her Honour was engaged. The complaint as to this aspect of her Honour’s judgment was not pressed.

The relevance of the undertakings

27 The proffered undertakings by Mr and Mrs Haigh were relied upon by the plaintiffs in triggering the exercise of the discretion to lift the stay. Her Honour referred to the evidence bearing on the issue at some length which I have extracted in full:

“[14] It is common ground between the parties that the plaintiffs are insolvent. When the application for security for costs was heard by Simpson J, Mrs Haigh had not given an undertaking as to costs, nor had Mr and Mrs Kikiras. At that time half of the ownership of Jazabas was held by Kikiras Real Estate Pty Ltd, the shareholders of which were Mr Dimitrios Kikiras and Mrs Zoe Kikiras. Since then the Kikiras’s shares have been transferred to Stephen Haigh (Nominees) Pty Ltd.

[15] Stephen Haigh is the managing director of each of the plaintiffs. He and his wife Beverley are now the sole shareholders of Jazabas. He asserts that from the plaintiffs’ side it is only he and his wife who are interested in the outcome of these proceedings. Mr Haigh has sought financial support from litigation funders for these proceedings but such support has been declined.

[16] Mr Haigh has given a personal undertaking to meet the costs of the defendants should they be successful in these proceedings and obtain an order for costs against the companies. His wife gave a similar undertaking in court.
…
[26] When the application for security for costs was determined there were four shareholders who stood behind Jazabas, Mr and Mrs Haigh and Mr and Mrs Kikiras. Aside from Mr Haigh, none of the other shareholders offered an undertaking to the Court. However, this situation has now changed.

[27] On 16 November 2007, Stephen Haigh purchased the two shares in Jazabas belonging to Kikiras Real Estate Pty Ltd (“Kikiras”) for the consideration of $1 each. The chronology in relation to this transfer is as follows:

[28] On 1 April 2007, Mr Haigh wrote to Kikiras Real Estate Pty Ltd and stated that the shares in Jazabas “ be immediately transferred to S Haigh to allow consistency in that the plaintiffs have no funds for provision of any security cost application. This would take away from the courts a middle of the road decision in our appeal that could allow security for costs .” The shares were in fact transferred to Stephen Haigh (Nominees) Pty Ltd (Ex A).

[29] Until 16 November 2007, Kikiras was a shareholder in Jazabas. Dimitrios (Jim) Kikiras became the sole director and shareholder of Kikiras some time in 2003. Prior to him selling his shares to Mr Haigh, Jim Kikiras and Kikiras were not prepared to meet any costs in these proceedings nor were they prepared to have any involvement in them.

[30] During the financial years ending 2006 and 2007, Mr and Mrs Haigh had taxable earnings of $6000 nett each for both years [see Ex B]. During cross examination, Mr Haigh explained that this was because that sum fell below the tax threshold. The bank account statements for the Haigh Family Trust between 26 August 2002 and 25 April 2008 show a negligible balance [Ex C]. Neither Mr nor Mrs Haigh own any property in their own names either jointly or separately. They present to the Court as being impecunious.

[31] Mr Haigh is a builder and developer. For many years Mr Haigh has been buying land in the Little Bay area using different corporate entities. Once the company purchases the land, the house is demolished, the land is sub divided and a dual occupancy dwelling is built. Mr Haigh draws the plans and obtains council approval to carry out the building work. BAS is usually the vehicle used to carry out the building work.

[32] Once the dual occupancy is completed, the company is sold with each part of the dual occupancy and that company then becomes a shelf company. Each new site purchased for development requires a new company name. Mr Haigh on cross-examination told the Court “ there are substantial profits in what we do ” (t 24). By way of example Mr Haigh cited the current contract BAS has for building work on land owned by Venice Ice Pty Limited, a company which he owns with his wife and Alan and Sonia Kilchran, all of who are also the directors. In 2007 Venice Ice Pty Ltd purchased the property for somewhere between $855,000 and $900,000. While building costs are estimated to be around $500,000, Mr Haigh gave evidence the dual occupancy, on completion, will sell for around $2 million in total (t 24). That leaves a surplus of approximately $600,000.”

28 Her Honour also summarised the competing submissions as to the weight of this evidence and its bearing upon the discretionary exercise in which she was engaged as follows:

“[33] According to counsel for Botany Council, the Court should not lend its seal of approval to parties who seek to overcome an order for security by replacing solvent shareholders with purportedly impecunious ones who then offer to stand behind the company, as such an offer is worthless.

[34] Counsel for Botany Council submitted that in order for the security for costs order in this matter to be effectively lifted, an arrangement was concocted whereby the shareholder who was not willing to put its assets on the line and stand behind the company for the purposes of the litigation, transferred its shares to the admittedly impecunious Mr Haigh for a substantial consideration.

[35] Counsel for Mr Haddad and the State of NSW submitted firstly, that the series of representations is sufficient to demonstrate that as a result of the sale of the two Kikiras shares in Jazabas to Mr Haigh for $1 each, Kikiras have an arrangement that the sum of $182,977.28 will be paid to Kikiras by November 2009; and secondly, that due to the impecuniosity of Jazabas and Mr Haigh, the only sensible conclusion is that the offer was based upon an expectation that Kikiras would share in the fruits of any success by Jazabas in these proceedings. At best Kikiras P/L has an interest in the proceedings as a potential beneficiary. Even if Mr Kikiras has an interest as a potential beneficiary, I regard this as being of little significance.”

29 Before concluding that the undertakings were not of sufficient weight to count against the provision of security her Honour said:

“[38] On the state of the evidence there are two alternate conclusions that are available. One is that the personal undertakings proffered by Mr and Mrs Haigh are of little worth. The evidence indicates they have no personal assets of any real value. I accept that Mrs Haigh defers to her husband in relation to financial matters and it is Mr Haigh who has control over funds in various corporate entities.

[39] Should the plaintiffs’ case be unsuccessful, Mr Haigh may choose to make some funds available to pay some or all of the defendants’ costs that are in the sum of $969,305.51. Jazabas has made an offer to pay the council’s costs in relation to the prior proceedings at the rate of $500.00 per month. Mr Haigh either may choose not to or may not be in a position to make good the undertakings his has given. In these circumstances, I do not view the undertakings as of any real worth. I accept that if the order for security is to remain in place these proceedings may be stultified. However, I do not view these undertakings as a factor of sufficient weight to count against the provision of security if it otherwise were appropriate.

[40] If I am wrong, and these undertakings are of real pecuniary worth there is no reason why Mr and Mrs Haigh could not utilise their assets to enable Jazabas or the other plaintiffs to put up security for costs. If that were to occur these proceedings would not be stultified.”

30 The plaintiffs complain that her Honour both misstated the evidence as to the personal undertakings given by Mr and Mrs Haigh, and misconceived the nature of those undertakings by embarking upon an analysis of their pecuniary or commercial worth when an inquiry of that kind was irrelevant. Mr King submitted that the fact that the undertakings were given is the only relevant consideration since the undertakings, by their very nature, expose Mr and Mrs Haigh to personal liability for the debts of the plaintiff companies so as to justify the stay being lifted.

31 I am not persuaded that her Honour has misstated the evidence in any relevant respect, or that her inquiry into the worth or value of the undertakings in a commercial sense was irrelevant. For reasons which I will expand upon when considering what is said to be error in her Honour's application of the law, I consider that inquiry to be a necessary and logical extension of the discretionary exercise in which she was engaged.

32 It was also submitted that it was not open to her Honour to find as a fact that Mr Haigh had “concocted” an arrangement to avoid the lodging of security because it was not put to him in cross-examination. I am well satisfied that in [34] her Honour was not making a finding to that effect but simply reciting, in a summary way, counsels’ submissions. I am further satisfied that the issue was squarely raised with Mr Haigh in cross-examination by reference to correspondence tendered in evidence before her Honour, in that it was put to him that he had, in effect, manipulated the situation where a liquid shareholder had been replaced by an impoverished shareholder to support the assertion that none of the shareholders of the plaintiff companies had any assets.

33 The primary argument advanced by the plaintiff before her Honour and pursued on the appeal, is that the provision of the personal undertakings mandated the lifting of the stay in accordance with what is submitted to be the binding principle for which Buckley v Bennell ConstructionsPty Ltd (1974) 1 ACLR 301 is the seminal authority, and that her Honour was in error in following or adopting the approach of the majority in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191.

34 The defendants’ joint submission is that Buckley is not authority for the principle for which the plaintiffs contend since, as her Honour correctly noted at [19], the judgment does not address the impact of a shareholder’s personal undertaking when the question whether security for costs should be ordered against a corporate litigant is under consideration, and for that reason alone it did not dictate the outcome of the question that she had to determine. It was further submitted that on a close analysis the position articulated by Street CJ at 305 lines 30-35 of the judgment in Buckley (to the effect that in the case of an impecunious corporate plaintiff a court might view the security question with a predisposition in favour of the defendant while regarding itself free, in the proper exercise of its discretion, to refuse to order security without the need to find special circumstances for refusing it) is not discordant with the observations of Winneke P in Epping Plaza at [17], [19], [22] and [24].

35 The plaintiff relied upon the observations of Basten JA in Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291 in support of what it was submitted was the binding principle in Buckley. At [5] his Honour identified what he saw as a double tension in reconciling the positions of personal and corporate plaintiffs where an order for security is sought and where promoters of an impecunious corporate plaintiff offer undertakings putting their personal assets at risk. At [26] he identified a conflict in the authorities on the issue of principle which his Honour saw as acceptance or rejection of the proposition set out by Callaway JA in Epping Plaza at [39]. In resolving that tension, and addressing what he regarded as the correct approach to be adopted in this State, his Honour made it clear that he was guided by the approach to the statutory purpose in providing a power to order security as explained by Street CJ in Buckley, and that he ultimately preferred the application of what he regarded as the logic in the approach of Cooper J in Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) 8 ACSR 405, despite the fact that his Honour recognised that there may be disputation as to the strength and scope of what he described at [26] as “the Gentry Bros’ general principle”. At 415 Cooper J stated:

“In the instant case once the shareholders of the applicant have agreed to accept personal liability for any judgment for costs against the applicant, the statutory purpose of s 1335 as explained in the authorities to which reference has been made is satisfied. The making of an order which secures the personal liability of the shareholders is in itself the provision of security: see for example Memutu Pty Ltd v Lissenden (1983) 8 ACLR 364 at 366; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 546; Appleglen Pty Ltd v Mainzeal Corp Pty Ltd (1988) 79 ALR 634 at 635-6.
Once the shareholders have been exposed to personal liability for the applicant’s costs, the weight to be given to the statutory purpose is gone. Those who stand behind the applicant once they accept personal liability for the applicant’s costs are in no worse position than they would be as litigants in person in the court: Harpur at 533; Yandil Holdings Pty Ltd at 546.
The offer by the shareholders of the applicant to accept personal liability for the applicant’s costs is a factor weighing heavily against the making of an order against the applicant for provision of a cash or other security for costs notwithstanding that the worth of the shareholders may ultimately prove insufficient to satisfy any judgment in whole or in part.”

36 Basten JA also acknowledged at [15] that the approach of Cooper J had been criticised in a number of subsequent decisions as creating an unwarranted fetter on the court’s discretion, but that he regarded the more appropriate question as being whether the fetter is unjustifiable having regard to the principle underlying the purpose of the statutory power to order security.

37 In the event that I am not persuaded her Honour was wrong in law in following the principle in Epping Plaza, the plaintiffs submitted that she applied it incorrectly since the evidence relied upon by the plaintiffs established that the undertakings of Mr and Mrs Haigh were in fact of sufficient worth to justify the exercise of discretion in their favour.

Was her honour in error in her approach?

38 In considering the competing submissions of the parties as to the relevant law to be applied where personal undertakings are offered, her Honour concluded that she should apply the principle in Epping Plaza in preference to Buckley as encapsulated in the following extract from the joint judgment of Winneke P and Phillips JA:

“[17] Consistently with this view, there may be cases where, in the exercise of its discretion, the Court will regard the fact that those who stand behind an impecunious company have bound themselves to assume responsibility for paying the defendant's costs as a relevant factor in favour of the plaintiff; see for example Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 (Clarke, J), especially at 545, Erolen Pty Ltd v Baulkham Hills Shire Council (1993) 10 ASCR 441, especially at 456 per Powell, J, K P Cable Investments v Meltglow Pty Ltd (1995) 56 FCR 189. But that is as far as it goes; the existence of such an offer to assume personal liability for an order for costs if made against the company, or even a formal guarantee to like effect, cannot be determinative in itself of the application for security, or else the discretion, which is otherwise conferred in general terms, will be impermissibly circumscribed. In Intercraft Cabinets v Sampas Pty Ltd (1997) 18 WAR 306 the Full Court in Western Australia was concerned with an undertaking to accept personal responsibility for costs against an impecunious company, and after reviewing the authorities Malcolm CJ, speaking for the Court, firmly espoused the view that "the availability of an undertaking of personal liability by the persons who stand behind the company is no more than a factor, albeit an important factor, to be taken into account in the exercise of discretion." With respect, that is our view too.”

39 At [24] their Honours stated:

“Furthermore, in our view the court should not readily accept an undertaking to pay costs from impecunious individuals who, at least at the time when such an undertaking is given, have no chance of making it good. Such an undertaking could not be an effective alternative security because it could only be enforced (at least for the time being) by proceedings for contempt…”.

40 She also noted that in Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291 Mason P indicated at [2] a strong inclination to adopt the approach of the majority in Epping Plaza (as did McClellan CJ at CL at [79] while, as I have noted above, Basten JA favoured the view of Cooper J in Gentry).

41 Her Honour did not expressly refer to the consideration given to the question by McDougall J in Sharjade v Darwinia Estate & Anor [2006] NSWSC 708 (a decision before the Court of Appeal in Jazabas Pty Ltd & Ors v Haddad & Ors considered the question) despite being made aware of the decision. At [29] and [30] McDougall J gave close consideration to the weight to be afforded the offer of personal undertakings by the directors of the plaintiff company in that case, and to the authorities bearing upon the question, including Epping Plaza, before concluding that neither the personal undertakings of the directors nor the assets that were said to make up their underlying value, dissuaded him from ordering security. In his Honour’s view, while in some cases a personal undertaking may be a factor of decisive weight, it is just one of many factors to be taken into account when considering an application for security which may bear differing significance in differing cases. His Honour emphasised the unfettered nature of the discretion and the need to have regard to all the circumstances of the case without any predisposition in favour of the award of security. He regarded the relevant inquiry as referable to the seven factors or guidelines identified in the judgment of Beazley J (as she then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198:

“1. That such applications should be brought promptly. This is a principle of longstanding…

2. That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations…

3. Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim...

4. Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate…

5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security…

6. An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking...

7. Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate…”

42 McClellan CJ at CL in Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291 at [74] also regarded the relevant principles as those summarised by Beazley J noting that it was a judgment that has been consistently applied in many cases.

43 I am not persuaded that her Honour was in error in inquiring into the pecuniary worth of the proffered undertakings of Mr and Mrs Haigh. Both KP Cable Investments and Epping Plaza authorise the approach she took. Not only was it an approach open to her but it was an approach favoured by Mason P and McClellan CJ at CL, in Jazabas Pty Ltd & Ors v Haddad & Ors and endorsed by McDougall J in Sharjade. Mr McNally SC, for the first and second defendants, also drew attention to the fact that it has been adopted by the Supreme Court of Queensland in Australian Energy and Electrical Holdings Pty Ltd v Isbell [2006] QSC 34.

44 Mr Craddock submitted that even were the approach of Basten JA adopted the principal in Gentry Bros was not relevantly engaged in any event since there was no undertaking given by the only shareholders in Jazabas Pty Ltd, namely Stephen Haigh Nominees Pty Ltd, the trustee company of the Haigh Family Trust, and that this was the case despite the assertion by the plaintiffs’ counsel that all those who stand to benefit from the litigation have emerged from behind the corporate veil. He submitted, without contradiction, that there was no evidence as to the asset position of that company. Although her Honour did not expressly decide the question, the significance of the position of the trustee company was agitated before her. Without resolving the question it is by no means clear to me that the trustee company could give an undertaking to make an award of costs against the company whose shares were held by it.

Was Epping Plaza properly applied?

45 Mr King submitted that consistent with the views of Winneke P and Phillips JA in Epping Plaza the question is whether there is any chance of the proffered undertakings being honoured. He submitted that the evidence before her Honour demonstrated that Mr and Mrs Haigh had recently, through another company with other shareholders, been able to borrow substantial funds to develop another project which had the prospect of returning a reasonable profit. Whilst it was accepted that this may not have made their position asset rich it did mean there was a chance of making good their undertaking, perhaps better than a mere chance. It was also submitted that it was not open to her Honour to express the view that Mr Haigh may choose not to honour his undertaking without giving him the opportunity to address his future motivations or intentions in evidence.

46 It was further submitted that the fact that the plaintiffs claim the full costs of the proceedings before Rolfe J in the current proceedings is another consideration in favour of giving significant weight to the undertakings. I am not persuaded the latter consideration has any weight at all for the obvious reason that it entails a circularity of reasoning in that it presumes the success of the proceedings that are the subject of the stay.

47 In so far as the application of the principle in Epping Plaza is concerned, I am satisfied that her Honour took into account the other corporate vehicles which had the potential to return a profit in grounding various of her findings at [32] – [40], and that she had the advantage of seeing Mr Haigh give evidence under cross-examination. Moreover, I am not persuaded that she gave insufficient weight to the matters the plaintiffs complain of in her assessment of the worth of the undertakings. While it is true that Mr Haigh was not asked whether he would in fact honour his undertaking, that does not necessitate a finding that it was not open to her Honour to express her concern about that fact in circumstances where Mr Haigh had gone to some lengths to restructure the shareholding in the plaintiff company and where his work as a builder, conducted through special purpose corporate vehicles, was a matter which emerged for the first time in the course of cross-examination. In Marks-Isaacs v Fowler & Ors [2005] NSWCA 37 Handley J pointed out the relevance to the question of whether to order security whether the person against whom the security is sought has genuinely placed before the court the relevant financial circumstances of those individuals and entities whose assets might be available in relation to costs.

The relevance of the public interest

48 Her Honour referred to the evidence relied upon by the plaintiff bearing upon the public interest at paragraphs [41] - [48] and at [49] - [53] and its significance as a factor relevant to whether the stay should be lifted the exercise of discretion. The complaint is that although her Honour accepted the submission that despite the proceedings being launched by the plaintiffs to recover damages, others in the community, particularly local residents, may also have an interest in the subject matter of the proceedings, and for that reason it was a factor she would to take into account over the opposition of the defendants, she did not give it sufficient weight in the discretionary exercise.

49 It is beyond argument that in any discretionary exercise the weight to be afforded matters relevantly bearing upon the exercise of the discretion under consideration are discretely a matter for the decision maker, and the occasion in which a challenge to matters of weight will attract intervention on appeal are narrowly confined. In the present case the plaintiffs have not persuaded me, whether by reference to the evidence before her Honour or to any analogous consideration of the question of public interest informing a security for costs question in the authorities, that the evidence was not given appropriate weight. Neither am I persuaded that such evidence as there was bearing upon the public interest should have, or even could have, overwhelmed the exercise of discretion in their favour. It may have been otherwise were her Honour to have found that the proceedings were brought by the plaintiffs to advance or protect an identifiable public interest; or that the proceedings were of some continuing public importance or that they inured in some identifiable way to the public benefit; or that they might properly be described as comprehending a public interest cause or proceeding within the necessarily broad reach of cases that might be comprehended by that term (see Maritime Services Board of New South Wales & Federal Airports Corporation v Citizens Airport Environment AssociationInc (1992) 83 LGERA 107). In my view it was not enough that some members of the public might have a continuing interest in the substantive proceedings or their outcome (however active and concerned those people might be) for the evidence going to the public interest, either alone or in combination with other factors to have the weight in the discretionary exercise contended for by the plaintiff. Accordingly, I am not satisfied that error has been made out on this ground.

The costs question

50 At the request of the third defendant her Honour was urged to take into account the operation of r 12.10 of the UCPR as an additional basis for refusing to lift the stay. In so doing, at [57] she took into account the submission advanced by Mr McNally that the costs of the three defendants in the in prior proceedings heard by Rolfe J had not been paid.

51 Rule 12.10 provides as follows:

“If:
(a) as a consequence of the dismissal of proceedings, a party is liable to pay the costs of another party in relation to those proceedings, and
(b) before payment of the costs, the party commences further proceedings against that other party on the same or substantially the same cause of action, or for the same or substantially the same relief, as that on or for which the former proceedings were commenced,

the court may stay the further proceedings until those costs are paid and make such consequential orders as it thinks fit.”

52 Her Honour considered what she described as “the outstanding costs” in [57] as substantial, with, at that time, an offer to pay the assessed costs of part of the proceedings at $500 per week. She came to the concluded view that Jazabas as a common plaintiff to both proceedings, had commenced the current proceedings for substantially the same cause of action, and substantially the same relief, as the proceedings heard and determined by Rolfe J in 2000.

53 Mr King submitted that her Honour proceeded upon two errors of fact in respect of the costs question, both of which were material. First it was submitted that there were no “outstanding costs” in the amount of $969,309 and, further, that Rule 12 was not properly invoked because the plaintiff was not liable to pay the costs of the third defendant until such costs are assessed and, second, there was no offer to pay those costs at $500 per week since that offer was in relation to an assessed costs order arising from the proceedings before Simpson J and the unsuccessful appeal from that judgment to the Court of Appeal.

54 As to the second matter the defendant conceded that her Honour was in error in attributing the instalment plan in relation to the current proceedings and not to the previous proceedings. However, a fair reading of her decision at [10] illustrates that this was well understood by her Honour if loosely expressed by her at [57]. In any event, so it was submitted, the error was not material since it was evidence that bore relevantly upon the impecuniosity of the plaintiffs. I am persuaded that the error was material in the sense dictated by Micallef v ICI Australia Operations Pty Ltd & Anor [2001] NSWCA 274 at [45]. A further complaint about her Honour’s reference to the insolvency of the plaintiffs is an error of the same order. It is clear that her Honour was not intending to make a finding of insolvency in the technical sense. Rather, she used the term to encompass the fact that the plaintiffs had not traded for some years; that they had no assets, nor access to funds and yet there were orders for costs, which if translated into judgment debts, must necessarily have exceeded the plaintiffs’ claimed capacity to meet their obligations.

55 As to the error said to flow from her Honour’s construction of Rule 12 I am of the view that there is neither an established error of fact as contended for nor any error of law since on a proper construction of the operation of the Rule there were in fact “outstanding costs”. I am satisfied that the Rule is not contingent upon a party establishing an outstanding judgment debt. Rather the provision is a practical measure by which the court can control use of its resources, contingent upon a demonstration of the party’s liability to pay costs where proceedings are launched “on the basis of the same or substantially the same cause of action or for substantially the same relief”.

56 I am not persuaded that any of the errors claimed to have infected her Honour’s discretion have been established such as to warrant a reconsideration of whether the stay of proceedings should be lifted.

57 Accordingly, I make the following orders:

1. The plaintiffs’ notice of motion is dismissed.
2. The plaintiffs are to pay the defendants’ costs.
3. Such costs as are payable to the third defendant are to be payable forthwith as reflected in the orders made by consent on 5 August 2009.
4. Such costs as are payable to the first and second defendants are to be payable forthwith.
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