Jazabas Pty Ltd v Haddad

[2006] NSWSC 559

CITATION:	Jazabas Pty Ltd & 2 Ors v Haddad & 2 Ors [2006] NSWSC 559
HEARING DATE(S):	25 - 26 May 2006
JUDGMENT DATE :	9 June 2006
JUDGMENT OF:	Simpson J
DECISION:	order for security of costs to be made
CATCHWORDS:	security for costs
LEGISLATION CITED:	Corporations Act 2001 s1335(1) Environmental Planning and Assessment Act 1979 s82, s149 Local Government Act 1993 Supreme Court Rules 1970 Pt 53 r2 Uniform Civil Procedure Rules 2005 r42.21 Trade Practices Act 1975
CASES CITED:	Jazabas v Botany Council [2000] NSWSC 58 City of Botany Council v Jazabas Pty Ltd [2001] NSWCA 94 PM Sulcs & Associates Pty Ltd v Daihatsu Australia Pty Ltd (No 2), NSWSC unreported, 22 August 2000 Port of Melbourne Authority v Anshun [1981] HCA 45; 147 CLR 589
PARTIES:	Jazabas Pty Ltd - 1st Plaintiff BAS Developments Pty Ltd - 2nd Plaintiff Permtree Pty Ltd - 3rd Plaintiff Sam Haddad - 1st Defendant State of NSW - 2nd Defendant City of Botany Bay Council - 3rd Defendant
FILE NUMBER(S):	SC 20020/05
COUNSEL:	PE King / S Aspinall - Plaintiffs G Craddock - 1st & 2nd Defendants P Garling SC / G McNally - 3rd Defendant
SOLICITORS:	Cropper Parkhill - Plaintiffs IV Knight, Crown Solicitor - 1st & 2nd Defendants Houston Dearn O'Connor - 3rd Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

SIMPSON J

Friday 9 June 2006

20020/05 Jazabas Pty Ltd & 2 Ors v Sam Haddad & 2 Ors

JUDGMENT

1 HER HONOUR: The issue for present determination in these proceedings is whether an order for security for costs ought to be made against the plaintiffs in favour of all or any of the first, second and/or third defendants.

background

2 The substantive proceedings were commenced by statement of claim filed on 3 February 2005. This document named three plaintiffs, which are all related companies, Jazabas Pty Ltd, BAS Developments Pty Ltd and Permtree Pty Ltd; and three defendants, Sam Haddad, the State of NSW and the City of Botany Council.

3 On 12 and 13 May respectively, the second and third defendants filed notices of motion seeking, pursuant to SCR Pt 15 r26, that the statement of claim be struck out, and, in the alternative, that certain specified parts of the statement of claim be struck out. On 12 July, by consent, preliminary orders as sought were made, by consent, by Malpass Ass J. An amended statement of claim was filed on 5 October 2005. No alteration was made to the parties.

4 According to the assertions contained in the amended statement of claim, the first plaintiff, Jazabas Pty Ltd, is a developer of residential properties in eastern Sydney; the second plaintiff, BAS Developments Pty Ltd, is a building company that undertakes the construction of the first plaintiff’s projects; and the third plaintiff, Permtree Pty Ltd, which is the principal shareholder of the first plaintiff, is also engaged in residential property development. A common element of all three plaintiffs is the directorship of Mr Stephen Haigh. Mr Haigh is also a director of Evenvest Pty Ltd. Where it is necessary to refer to the individual plaintiffs or to Evenvest Pty Ltd, I will do so, respectively, as “Jazabas”, “BAS”, “Permtree” and “Evenvest”.

5 The amended statement of claim identifies Sam Haddad as a public officer of the second defendant (the State of NSW), who assumed special responsibility for safe land use planning associated with hazardous industry, and a member of the Senior Executive Service of the State Public Service of NSW, and the third defendant, the City of Botany Bay, as a local government authority incorporated under the Local Government Act 1993. I will refer to the defendants, respectively, as “Mr Haddad”, “the State of NSW”, and “the Council”.

6 The factual matrix against which the amended statement of claim was filed does not emerge with any degree of clarity from the amended statement of claim, or from the evidence. However, from the argument advanced, I think the following account represents a reasonable outline of the case the plaintiffs will seek to make. I have also drawn upon an earlier decision of this Court and another of the Court of Appeal, to which I will refer below.

7 Included in the local government area administered by the Council is certain land situated at 2 – 10 Nilson Street Hillsdale. Until and including the events the subject of the amended statement of claim, the land was vacant, and had been used as open space. It was owned by Amcor Pty Ltd (“Amcor”). Also included in the area administered by the Council were locations which, by reason of earlier industrial uses, were subject to various concerns about hazards and toxicity risks. In 1983 and again in 1985 the State of NSW, under its Department of Urban Affairs and Planning, undertook and prepared “Risk Assessment Studies”. Only the second of these was published. It identified a “risk reduction zone”. It seems (although it is not clear on the pleading) that the Nilson Street land did not fall within that identified as the risk reduction zone. It is, as I understand it, the plaintiffs’ case that the earlier (1983) Risk Assessment Study treated the land as being within the risk reduction zone. I take it to be implied that land identified as being within the risk reduction zone was exposed to some form of toxicity, which was likely to affect planning and development decisions with respect thereto.

8 In November 1992 the Council resolved to proceed with a draft Local Environmental Plan, and this was completed and placed on public exhibition between 7 September and 5 November of 1993. On 6 December 1993 the Council’s Director of Planning and Environment (Ms Cuthbert) reported to Council at length. On 8 December she recommended a Development Control Plan. On 10 December 1993 the Mayor of the Council, pursuant to his delegated authority, approved and adopted the recommendations.

9 Late in 1993 the Nilson Street land was offered for sale by public auction. On 5 November 1993 Amcor’s solicitor applied to the Council for a certificate under s149 of the Environmental Planning and Assessment Act 1979 (“the EPA Act”). On 11 November, and again on 29 November, the Council issued certificates, each of which stated, relevantly, that no Development Control Plan nor any draft Development Control Plan applied to the Nilson Street land; and that the land was not “affected by any Council policy to restrict development by reason of ... any other risk”. By letter dated 10 December 1993 the Council’s solicitors wrote to Amcor and its real estate agent, advising that the Council had resolved to prepare a Development Control Plan which would affect the Nilson Street land. It advised of the effect of the plan on floor space ratio, the proposed building footprint/ site coverage, and specified certain facilities that, in its view, any proposed residential flat development should incorporate.

10 Mr Haigh was interested, through the companies he controlled, in purchasing the Nilson Street land for the purpose of residential development. He telephoned the Council and spoke to Ms Cuthbert. He asked her, if, subject to compliance with the floor space ratio indications, and like matters mentioned in the letter of 10 December, there would be any problem in obtaining development approval. Ms Cuthbert replied that she did not believe so.

11 On 21 December 1993 Evenvest contracted to purchase the Nilson Street land. (The purchase was ultimately completed by Jazabas, but this is of no present moment.)

12 Early in 1994 Evenvest obtained another certificate under s149 of the EPA Act. This certificate repeated that the land was not affected by any Council policy to restrict development by reason of “any other risk”.

13 The purchase was completed (by Jazabas) on 28 June 1994.

14 Jazabas submitted an application for Development Approval which was granted on 4 June 1996. On 17 June Jazabas submitted a Building Application. It does not appear to have pursued this application. On 23 October 1997 Jazabas submitted a further Building Application. The Council did not, within the statutory time, determine the application. By reason of s82 of the EPA Act, this was deemed to be a refusal. Jazabas appealed to the Land and Environment Court. The Council contested the appeal. On 23 April 1998 Assessor Bly dismissed the appeal.

15 On 12 August 1998 Jazabas commenced proceedings in the Federal Court of Australia, claiming damages against the Council. It pleaded causes of action in negligent misstatement, and misleading and deceptive conduct under the Trade Practices Act 1975. Put shortly, Jazabas alleged that the s149 certificate, the letter of 10 December, and Ms Cuthbert in her conversation with M Haigh, had all, either expressly or by omission, falsely represented that the Nilson Street land was not affected by any Council policy to restrict development, or that there was no planning impediment to development of the land. The proceedings were later transferred to this Court and were heard by Rolfe J in December 1999 and February 2000. After the commencement, but before the hearing, of those proceedings, the Council took an unusual step. Having successfully contested Jazabas’ appeal to the Land and Environment Court, on 2 December 1998 it filed an appeal against the decision of Assessor Bly. It claimed, notwithstanding its own participation, that the decision was based on error of law. On 16 April 1999 Lloyd J upheld the appeal and remitted Jazabas’ Building Application to an Assessor for re-determination.

16 On 15 July 1999 an Assessor in the Land and Environment Court granted Jazabas building approval. On 15 August 1999 Jazabas sold the land, with the benefit of the building approval, securing a modest profit.

17 On 24 February 2000 Rolfe J delivered judgment in the proceedings before him. He gave judgment for Jazabas, in the sum of $1,218,832.00. The Council appealed to the Court of Appeal. On 12 April 2001 the appeal was (by majority) upheld and judgment entered for the Council.

18 On 19 April 2002 special leave to appeal to the High Court of Australia was refused.

19 I turn now to the amended statement of claim.

pleadings

20 The amended statement of claim is not an easy document to interpret or to follow. I will attempt, relying upon the manner in which it was approached by counsel for the defendants (without dissent from counsel for the plaintiffs) to identify the causes of action which it seeks to plead. These are contained in different segments of the document, representing the claims made against each defendant individually.

the claim against Mr Haddad

21 The amended statement of claim refers to passages in the 1985 Risk Assessment Study, which, it is alleged, were prepared, written, and approved for publication by Mr Haddad. It referrs to “representations” said to have been contained in the Risk Assessment Study. The representations to which reference is made appear (the pleading is rather obscure) to concern the boundaries of the risk reduction zone. These representations are characterised as “erroneous” and as a “misrepresentation”. Later, the “misrepresentations” are pleaded to have been made by Mr Haddad:

“... knowing them to be erroneous or without belief in their truth or not caring whether they were true or false and intending such persons [the State of NSW, the Council and the then Minister for Environment and Planning] to act on the basis that [it] was accurate.”

This appears to be intended to plead a cause of action in deceit (false representation).

22 The amended statement of claim also appears to be intended to plead a cause of action against Mr Haddad in negligent misrepresentation, another in misleading and deceptive conduct under the Trade Practices Act, another of misfeasance in public office, and another in injurious falsehood.

23 The plaintiffs claim to have acted in reliance upon the representations made by Mr Haddad, and, as a consequence of that, and the other breaches of duty or wrongful conduct alleged against Mr Haddad, to have suffered loss and damage.

the case against the State of NSW

24 In the amended statement of claim the plaintiffs allege that the State of NSW is vicariously liable for the acts and omissions pleaded against Mr Haddad. In addition, they appear to plead a case in negligence, and a case in conspiracy. The case in conspiracy, as pleaded, is that the State of NSW “combined and conspired” with Mr Haddad and/ or with the Mayor of the Council, and/or with other persons unknown “by unlawful means”. Again the pleading is obscure, but it seems that the object of the conspiracy pleaded is said to be the concealment of the 1983 investigations and report (presumably, the Risk Assessment Study) with respect to the toxicity of the land in the risk reduction zone. The “unlawful means” are identified as the misstatement of the risks in the 1985 Risk Assessment Study, neglecting to perform a public duty (identify the toxic risk), and failure to object to the residential zoning proposals put forward by the Council in the draft 1993 Local Environmental Plan.

25 No case in conspiracy is pleaded either against Mr Haddad or against the Council. The Mayor of the Council is, of course, not a party to the present proceedings.

the claim against the Council

26 So far as I can make out (with the assistance of counsel), four causes of action are pleaded against the Council. Two of these are fairly conventional torts. They are negligence and deceit. The case in negligence is variously particularised. Particulars of breach of duty include (but are not limited to) allegations that the Council failed to warn persons likely to be affected of the hazards and toxic risks associated with the relevant areas: “adopting a concealed policy” with respect to the elimination of the risks; failing to work with Mr Haddad to produce a plan for acceptable land use in the area; “tendering evidence from [Mr Haddad] in the Land and Environment Court ... which it knew to be incorrect ...”. Most surprisingly, perhaps, one of the particulars of breach of duty pleaded is framed as follows:

“(k) appealing the decision of Commissioner Bly in the Land and Environment Court proceedings and submitting that the Building Application should be granted notwithstanding that the Council understood that persons who may come to reside in the area could be subjected to great danger and submitting to the LEC that the problem was incapable of being remedied.”

27 The claim in deceit is based upon allegedly fraudulent misrepresentations to the plaintiffs by Council officers that “there were no risks to development of the land”.

28 The remaining two causes of action pleaded against the Council are abuse of process and misfeasance in public office. The abuse of process claim also relies upon the Council’s appeal from the decision of Assessor Bly to Lloyd J. This, it is pleaded, was made for an improper purpose, and to obtain an advantage collateral to and extraneous to those proceedings. It seems that what is alleged against the Council is that it took the appeal step that it did in order to circumvent Jazabas’ proceedings in this Court, to reduce its potential liability for damages, and to bring pressure to bear on Jazabas. One of the particulars is pleaded as follows:

“(c) arguing grounds which contradicted those argued by it before Commissioner Bly on different occasions in the same matter for the sole purpose of its legal tactics in the Supreme Court proceedings without regard to considerations of public health and safety.”

Another is:

“(d) prosecuting the appeal without regard to the interests of ratepayers and public health for the benefit of its insurers in Supreme Court proceedings.”

Another is:

“(f) using the court’s processes to put at risk residents and developers within the Council area for monetary gain.”

29 The pleading of the misfeasance in public office claim begins with an assertion that the Council was a public officer within the scope of the tort. It is alleged that the Council engaged in unauthorised or invalid acts which caused loss or damage to the plaintiffs.

30 Although, as I have already observed, there are parts of the amended statement of claim that are less than crystal clear, it does seem that a significant aspect of the plaintiffs’ cases lies in their assertion that the 1983 Risk Assessment Study was concealed by one or more (or all) of the defendants. They also complain of the conduct of the Council in appealing against the decision of Assessor Bly, and in the manner in which it conducted the proceedings before Rolfe J.

31 No defences have as yet been filed to the amended statement of claim.

32 On 26 May 2005 a notice of motion claiming security for costs was, pursuant to SCR Pt 53 r2, filed on behalf of the Council. On 25 June 2005 a similar notice of motion was filed on behalf of Mr Haddad and the State of NSW. On 27 April 2006 and 25 May 2006 the Council, and Mr Haddad and the State of NSW, respectively, filed an amended notice of motion (the Council) and a further notice of motion (Mr Haddad and the State of NSW), seeking relief identical to that earlier sought. The only variation, in each case, from the original notice of motion was to add s1335(1) of the Corporations Act 2001 as an alternative source of power.

the evidence in respect of the applications for security for costs

33 It was accepted on behalf of the plaintiff companies that each of them is in financial difficulties. Evidence was tendered which establishes this fact.

34 Evidence tendered on behalf of Mr Haddad and the State of NSW also establishes, to my satisfaction, that the nature of the proceedings is such that, when the trial proceeds, it is likely to occupy at least ten days of hearing time. An experienced solicitor in the Crown Solicitor’s Office has estimated that the costs to Mr Haddad and the State of NSW would be in the vicinity of $300,000. Her experience is that a successful party tends to recover approximately two thirds of its solicitor/client costs following assessment.

35 Given the impecuniosity of all three plaintiffs, she has legitimate concerns that, if her clients are successful, they will not be able to recover the costs they could expect to be awarded.

36 Similar concerns were expressed by the solicitor for the Council. In addition, that solicitor referred to the previous proceedings, before Rolfe J. The proceedings occupied eleven days of hearing time, and, at first instance, the Council incurred costs of $767,676.51. The appeal and the application for special leave to appeal to the High Court brought the total costs to $969,305.51.

37 Also in evidence, relevant only to the Council’s application, were the pleadings and judgments in the previous Supreme Court proceedings: Jazabas v Botany Council [2000] NSWSC 58, per Rolfe J; City of Botany Council v Jazabas Pty Ltd [2001] NSWCA 94. (It is from these judgments that I have drawn some of the factual background earlier set out.) These proceedings gave rise to a significant basis for the Council’s application, to which I will return.

38 The balance of the evidence consisted of an affidavit sworn by the solicitor for the plaintiffs (Mr Patrick Campion), two affidavits sworn by Mr Haigh, and a considerable bulk of documentary material. Counsel for the plaintiffs acknowledged that much of this material was tendered to establish the strength of the plaintiffs’ cases.

39 For example, one of the documents consisted of a transcript, dated 16 June 2002, of an interview with the then and present Mayor of the Council, Mr Ron Hoenig, for an ABC Radio National current affairs programme. Mr Hoenig was recorded as saying, inter alia:

“Well the ’83 document [the 1983 Risk Assessment Study] was never a public document. The ’83 document was the first time, basically at the Council and community’s request, that they underwent proper hazard studies, and on completion of the ’83 document, they then wanted to know what to do with it in terms of how they released it to the public or whether it should be released to the public. There was some concern about whether or not the population would panic, would not understand the material they had collated, not understood the risk assessment numbers, and I advocated to the Department at the time, they needed to release the document, and the ’85 document was the document modified for public consumption, to avoid public panic.”

40 Later, Mr Hoenig was recorded as saying:

“We were stuck between the devil and the deep blue sea. Do we tell 4,000 or 5,000 residents in Hillsdale that your land’s worthless, or alternatively do we try and encourage the removal of this one plant that had been undertaken to be removed. And we decided on the latter.”

41 Later still, the compere of the programme was recorded as saying the following:

“Surprisingly, Botany Mayor Ron Hoenig says he thinks the Council was negligent in all this. Here is a reading of comments by Councillor Hoenig in a closed Council meeting in 1998.
‘In reality, the fact is that this Council was aware and its planning officers were aware, and should have been aware at all times, that there is a risk assessment lying over the Hillsdale area.’
Councillor Hoenig went on to say that it was ‘nothing short of negligence’ that the Council didn’t consider the recommendations of the 1985 study.
In his office at Eastgardens, Mayor Hoenig said he hasn’t changed his mind.”

42 Immediately thereafter Mr Hoenig was recorded as saying:

“That was my view. It still is. It still is. The Council was very poorly advised in respect of even allowing that Jazabas site. That was parkland, or it belonged to APM, that the Council really didn’t want to give development approval, and was advised at the time there was no basis to prevent it. Now we accept responsibility, or I accept responsibility for that. As a result of that advice, certain things were put in train and the quality of the advice is now substantially improved because there is a change in personnel.”

43 Considerable reliance was placed upon this passage by counsel for the plaintiffs. However, it was immediately followed by this question (to Mr Hoenig) and his answer:

“(Q) But if you concede that that decision was negligent, then why take the developer to court, put him through the wringer to their considerable personal and financial expense?
(A) Well firstly it was my view, not the view of Council, of the Council lawyers, and not conceded by the Council officers, and not agreed to by the Council.”

44 The evidence adduced on behalf of the plaintiffs was largely intended to demonstrate that Mr Haddad and the State of NSW had concealed the 1983 Risk Assessment Study, and had produced, in 1985, a diluted and less alarming version, which was misleading. There were real difficulties in the nature of the evidence adduced to establish that contention, but, having in mind the nature of the application, I took a liberal view and, unless it was plainly inadmissible, admitted much of the evidence over objection.

the principles applicable to an application for security for costs

45 In each case the notice of motion invokes SCR Pt 53 r2 and s1335(1) of the Corporations Act 2001. The Supreme Court Rules have, of course, been overtaken by the Uniform Civil Procedure Rules (in form, although, in this respect, not in substance). By UCPR 42.21 the court may order, in a variety of specified circumstances, that a plaintiff 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. The circumstance which is relevant to the present application is para (d) which provides that such security may be ordered where:

“... 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.”

46 S1335(1) of the Corporations Act provides as follows:

“ 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.”

47 The mere fact that each plaintiff is a corporation which is impecunious is sufficient to activate the jurisdiction. It does not, however, necessarily follow that, by reason of that impecuniosity alone, an order ought to be made. The notes to UCPR 42.21 usefully set out the principles and refer to the authorities. Relevant considerations, drawn from the authorities, are summarised as:

“(a) whether the plaintiff’s claim is made in good faith and appears to be reasonably arguable; …

(b) the status of the defendant, for example as an insurer of the plaintiff, is a relevant, but not decisive, consideration against the grant of security; …

(c) whether the plaintiff’s lack of funds has been caused or contributed to by the conduct of the defendant; …

(d) whether the plaintiff’s proceedings are merely a defence against ‘self help’ measures taken by the defendant; …

(e) whether the making of the order would unduly stultify the plaintiff’s ability to pursue the proceedings; …

(f) the extent to which it is reasonable to expect creditors or shareholders (or other persons financially involved in the conduct of the proceedings, for example, litigation funders) to make funds available to satisfy any order for security which is made; …

(g) the likelihood of a costs order being made at the conclusion of proceedings and the public interest nature of the litigation.”

I forebear to repeat the authorities cited, to which ready access may be gained by reference to Ritchie’s Uniform Civil Procedure NSW . In PM Sulcs & Associates Pty Ltd v Daihatsu Australia Pty Ltd (No 2) , unreported, 22 August 2000, Kirby J usefully collected the authorities and distilled the principles, particularly, the considerations relevant to such an application. It is unnecessary for me to restate what his Honour said.

48 It is of some interest that the merit of the plaintiffs’ claims is not mentioned in any of these catalogues. However, all parties proceeded on the basis that this, to the extent that it can be evaluated, is a relevant consideration.

the relevant considerations in the present applications

49 The starting point in this consideration is the financial position of the plaintiffs. However, as I have already indicated, that is not decisive.

50 The next relevant consideration involves some assessment of the pleading in the amended statement of claim. In this respect I perceive real and significant difficulties for the plaintiffs. This application was not an application concerning the pleading and this is not the occasion to dissect or examine the pleading. However, an assessment of the pleading is relevant to an assessment of the merits of the cases sought to be made on behalf of the plaintiffs. It is sufficient to say that I discern real difficulties in the manner in which the pleading is laid out. I anticipate that the defendants will perceive the need to seek the intervention of the Court in relation to the pleading, unless the plaintiffs can be persuaded to effect some radical surgery thereto.

51 The Council also has available to it an argument, which in my view appears to have some merit, that at least some of the issues raised against it were incorporated in, and have been disposed of by, the earlier proceedings. A variation on this argument is that, even if the issues are not identical, those now pleaded were available at that time, and ought then to have been litigated, and that, on the principles stated in Port of Melbourne Authority v Anshun [1981] HCA 45; 147 CLR 589, Jazabas is now estopped from pursing these remedies. While this has some attraction, it is limited; neither BAS nor Permtree was a party to those proceedings, and no Anshun estoppel could extend to them. Nevertheless, the argument shows that it is likely that there will be a number of interlocutory issues to be resolved before the proceedings come on for final hearing.

52 It was the plaintiffs who sought to raise the merits of their claims on this application. I need only say that I am unpersuaded that they have as yet established any real likelihood that they will ultimately be successful.

53 An issue was also raised concerning those claims that relied upon evidence given by Mr Haddad in the Land and Environment Court proceedings. It is not necessary to go into the detail of this argument. It is sufficient to say that a real question exists as to the extent to which any litigant can rely, as a cause of action, or in support of a cause of action, upon evidence given in other proceedings.

54 I am satisfied that each defendant has made good its or his claim for security, and I propose to make orders accordingly.

55 None of the defendants specified the amount of security sought. The evidence persuades me that, as an interim measure, the sum in respect of the Council ought to be $100,000. Since Mr Haddad and the State of NSW have common representation, and the issues raised against them are largely overlapping, I propose to make one order only jointly in respect of them (in the same amount of $100,000) or, at their option, separate orders, each of $50,000.

56 I will leave the mechanics to the parties. I direct the defendants to bring in short minutes of orders reflecting these conclusions.

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