Marminta Pty Ltd & Ors v. Harris & Anor
[2009] QDC 161
•18 June 2009
DISTRICT COURT OF QUEENSLAND
CITATION:
Marminta Pty Ltd & Ors v Harris & Anor [2009] QDC 161
PARTIES:
MARMINTA PTY LTD (ACN 060 701 626)
(First Plaintiff)AND
QUEENSLAND PREMIER MINES PTY LTD
(ACN 010 614 552)
(Second Plaintiff)
AND
CASELGO PTY LTD (ACN 010 885 613)
(Third Plaintiff)
v
ROBERT ANTHONY HARRIS
(First Defendant)AND
CAMERON JOHN SCHRODER
(Second Respondent)FILE NO/S:
D35/09
PROCEEDING:
Application
ORIGINATING COURT:
District Court Rockhampton
DELIVERED ON:
18 June 2009
DELIVERED AT:
Southport
HEARING DATES:
28 May 2009
JUDGE:
Newton DCJ
ORDER:
(a) The plaintiffs be granted leave to file the amended claim and further amended statement of claim;
(b) The first defendants application filed 13 May 2009 be dismissed; and
(c) The first defendant pay the plaintiffs’ costs of and incidental to the plaintiffs’ application filed 18 February 2009 and the first defendant’s application filed 13 May 2009, including any reserved costs thereof.
LEGISLATION:
Queensland Law Society Act 1952,
Companies (Queensland) Code s533(1)
Uniform Civil Procedure Rules 1999 rule 670, 671 and 672.CASES:
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1
Breen v Williams (1996) 186 CLR 71
Harpur v Ariadne Australia Ltd (No.2) [1984] 2 Qd R 523.CATCHWORDS:
PROCEDURE – COSTS – SECURITY FOR COSTS – OTHER MATTERS – where defendant seeks security for costs – where there is reason to believe that the plaintiff may be unable to pay the defendant’s costs if unsuccessful – whether discretion should be exercised in favour of granting security for costs.
PRACTICE – PLEADINGS – STRIKING OUT – whether plaintiffs should have leave to file amended claim and further amended statement of claim.COUNSEL:
Mr J B Sweeney for the Applicant (First Defendant)
Mr P. D Hay for the Respondents (Plaintiffs)
SOLICITORS:
South & Geldard for the Applicant (First Defendant)
Tucker & Cowan for the Respondents (Plaintiffs)
This is an application by the first defendant seeking security for costs (including the costs ordered by Clare SC DCJ on 25 February 2009).
The first defendant also resists an order (on the plaintiff’s adjourned application) that the plaintiffs have leave to amend in terms of an amended claim and statement of claim filed on 1 April 2009. In particular, the first defendant objects to any statement of claim containing what is said to be the untenable paragraphs 8A, 8B, 12A, 12B, 15A, 15B, 17, 23A and 23B.
Clare SC DCJ on 25 February 2009 ordered that:
(a) The plaintiffs were to serve on the defendants such amended claim and statement of claim as they may be advised; and
(b) The defendants were to re-list the matter within 7 days of being served if they wished to object to the amended documents.
The plaintiffs’ prayer for relief in the proposed statement of claim is in respect of:
(i) $114,301.96;
(ii) A declaration that between June 2001 and 14 May 2004 a fiduciary relationship existed between the plaintiffs and the defendants and a declaration that the defendants have breached fiduciary duties arising by reason of the fiduciary relationship; and
(iii) A declaration that the defendants hold any benefits and advantages acquired by reason of its fiduciary duties on constructive trust for the plaintiffs, alternatively an account of profits, and further or in the alternative equitable compensation.
In general terms the amendments sought to be made in the statement of claim relate to substantially the same facts already pleaded in respect of the breach of contract claim for the sum of $114,301.96.
The following statement of background facts is taken from the written submissions of Counsel for the plaintiffs:
(a) the defendants were at all times solicitors admitted to practice in the Supreme Court of Queensland;
(b) the defendants carried on business as such as a firm under the name Robert Harris & Co between 1 July 1989 and 31 August 2006;
(c) the defendants were retained by each of the plaintiffs’ to act as their solicitors in relation to several matters. There is some inconsequential dispute as to the precise dates of the retainers, however on the plaintiffs’ case, each of the retainers was entered into between April and Juner 2001;
(d) between July 2001 and June 2004 the plaintiffs were charged by and paid to the defendants a total sum of $301,526.15 over each of the retainers;
(e) on 22 September 2006, Fryberg J in Supreme Court proceedings 7559/06 (“the Supreme Court proceedings”) declared that: “there is no client agreement, within the meaning of the Queensland Law Society Act 1952 (Qld), between the applicants and the Respondent”.
(f) On 10 March 2008, in the Supreme Court proceedings, an approved costs assessor certified the legal costs payable by the plaintiffs to the defendants for the work under the retainers was only $173,468.62 (as opposed to the $301,526.15 actually charged by the defendants);
(g) On 22 May 2008, the defendants paid to the plaintiffs the sum of $162,854.96 comprising of:
(i) $128,057.53, being the difference between the amount charged by the defendants under the retainers and the amount certified as payable by the costs assessor (‘the overcharged fees”); and
(ii) Further sums of $21,713.91 and $13,083.49 respectively for costs owing by the defendants to the plaintiffs in the Supreme Court proceedings.
As a result of the payment of $162,854.96 on 22 May 2008 the question arises as to whether any claims survive the compromise in terms of the without prejudice offer to the plaintiffs that they accept this sum “in full and final settlement of all monies owing”.
Counsel for the first defendant has (accurately) identified the main heads of loss now claimed under the further amended statement of claim as:
(a) interest on the amount overcharged between 2003 and 2008;
(b) the difference between the costs awarded in the litigation before Fryberg J and the actual costs incurred with respect to that litigation; and
(c) other legal costs.
Although the further amended statement of claim represents the third attempt to plead the case on behalf of the plaintiffs the fundamental allegation can be identified as that in paragraph 17 which is in the following terms:
“In breach of:-
(a) section 481(1)(c) of the Queensland law Society Act 1952 (Qld),-;
(b) the First and Second Defendant’s fiduciary duties as pleaded in paragraphs 8D, 12D and 15D; and
(c) the terms implied in each of the Marminta Retainer, the First QPM Retainer, the Second QPM Retainer and the Caselgo Retainer (“the Retainers”)
Robert Harris & Co, without the fully informed consent of the Plaintiffs, or any of them:
(i) charged the Plaintiffs an amount for the Defendant’s work that was more than fair and reasonable having regard to the nature and extent of the work done;
(ii) did not charge the Plaintiffs an amount for work done equal to or lesser than an amount assessed as reasonable by a Tribunal Costs Assessor;
(iii) overcharged and recovered from the Plaintiffs the sum of $128,057.53 for legal services carried out in respect of the Retainers (“Overcharged Fees”);
Particulars
(A) Assessment of costs as set out in the letter from James McLellan to Tucker & Cowen Solicitors dated 18 February 2008;
(B) Cost assessor’s certificate dated 10 March 2008 in the sum of $173,468.62;
(C) Order of the Deputy Registrar in Supreme Court of Queensland matter no.7559 of 2006 dated 23 April 2008;
(D) $301,526.15 minus $173,468.62 equals $128,057.53
(iv) further or alternatively charged the Plaintiffs $128,057.53 more than they were entitled to charge pursuant to the Retainers; and
(v) failed to repay or account to the Plaintiffs for any part of the Overcharged Fees until 28 May 2008.”
The proposed amended defence[1] raises the following main issues:
[1] Exhibit RAH1. to the Affidavit of Robert Harris.
(a) The only relevant fiduciary obligation was to make full and frank disclosure of all information known to the solicitors which the client should know with respect to the costs agreements, and if there be aspects of such agreements in respect of which the solicitor may enjoy a position of advantage, to bring those matters to the attention of the client to enable the client to decide whether to enter into the costs agreement;
(b) As there was no “applicable scale” for the work to be carried out, the firm rendered its bills in accordance with the supposed costs agreements at $250 per hour plus normal outgoings, in the belief that the amounts charged were reasonable and in the belief that the costs agreements were enforceable[2];
[2] Paragraphs 12(f) and 12(b) of the proposed amended defence.
(c) After the agreements had been declared void and the amounts overcharged had been quantified, the amount of the overcharge together with assessed costs were repaid[3]; and
(d) In the premises of the compromise correspondence, any causes of action claimed in these proceedings were compromised and are not maintainable.
[3] Paragraphs 12(g) - (k) of the proposed amended defence.
It may be doubted whether the only fiduciary obligation upon the defendants was to make full and frank disclosure. In Breen v Williams[4] Gaudron and McHugh JJ stated that:
“In this country, fiduciary obligations arise because a person has come under an obligation to act in another’s interests. As a result, equity imposes on the fiduciary proscriptive obligations – not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach.”[5]
[4] (1996) 186 CLR 71
[5] Ibid at 113.
To frame the fiduciary duty as proposed by the defendants is, in my opinion, too restrictive. The plaintiffs should be entitled at trial to establish, if they can, that the defendants made unlawful gains without any disclosure thereof to the plaintiffs and that they failed to account for the gain, or to cooperate in the process of assessment for the purposes of an account as constituting breaches of the fiduciary duty.
The claim for equitable compensation is maintained by the plaintiffs in respect of:
(a) Loss of use of the overcharged fees during the period from when they were paid to when they were recovered; and
(b) Expenses that have been incurred by the plaintiffs in taking reasonable measures to recover the overcharged fees, which expenses are not costs of any court proceeding.
The claim for equitable compensation is a claim for the losses incurred by the plaintiffs in consequence of the alleged breach of fiduciary duty. As is made clear in the written submissions of Counsel for the plaintiffs, whether cheaper legal serves may have been able to be sourced elsewhere is of no relevance to this aspect of the claim.[6]
[6] Written submissions of Counsel for the plaintiffs p9 para 47.
The issue raised by the compromised correspondence must await determination at the trial of this action.
In my view the matters pleaded in the further amended statement of claim to which the defendants object should not be struck out. The issues raised by such pleadings are of sufficient clarity to enable the defendants to understand the claims being made against them and any residual uncertainties may properly be the subject of a request for further and better particulars.
SECURITY FOR COSTS
The defendants claim that there is reason to believe that the plaintiffs will not be able to pay the defendants’ costs of defending the claim if ordered to pay them. In his written submissions Counsel for the defendants identifies the following matters as supporting his clients concerns:
“…
(a) Mr Harris deposes to the fact that he does not believe that the plaintiffs or Mr and Mrs Beckinsale have the capacity to meet any costs orders, because:
(i) QPM and Mr and Mrs Beckinsale have been ordered to pay Mr French $2.67million as a judgment debt;
(ii) QPM has been ordered to pay Mr French $4.13million as a judgment debt;
(b) From the public record, it can be seen that each of the plaintiffs are thinly capitalised companies;
(i) Marminta has paid up capital of $2 and its assets are charged to “Insolvency Litigation Fund Pty Ltd”. Its sole shareholders are Frank and Helen Beckinsale;
(ii) QPM has a paid up capital of $100. Its sole shareholders are Frank and Helen Beckinsale;
(iii) Caselgo has a paid up capital of $100. Its sole shareholder is Grey Sail Pty Ltd. Caselgo owns two lots of land in Queensland, both of which are mortgaged. Caselgo has granted a fixed and floating charge over its assets to Equity Trust Limited.
(c) On 15 October 2008, the defendants asked the plaintiffs to provide current statements of assets and liabilities on the basis that the defendants were aware that there were judgments and costs orders against each of them for several million dollars;
(d) The plaintiffs have never provided any evidence of their capacity to meet any costs order;
(e) On 23 January 2009, the plaintiff’s solicitors did not seek to contend that the plaintiff companies had the abilities to satisfy any costs orders which might be obtained by the defendants in the proceeding and said “To address the concerns of your clients, Frank and Helen Beckinsale (being the sole directors of the plaintiff companies) have instructed us they are willing to provide a personal guarantee”. Draft guarantees were provided.”
In arguing that the discretion to order security for costs should not be exercised in this case the plaintiffs point to the following factors:
(a) The plaintiffs proceeding is genuine;
(b) The proceeding has reasonable prospects of success;
(c) The directors of the plaintiffs companies have offered their personal guarantee as to costs of the proceedings to the first day of trial; and
(d) The rejection of that offer, without any explanation, is not consistent with a genuine concern to have security. It is more consistent with an objective of forcing the plaintiffs to face the impost of paying money into court; and
(e) Despite rejecting the personal guarantees offered by the directors, the defendant never proposed any other form of security. Nor did he make demand for payment of security in any specific sum prior to this application.
The power of a court to make an order for security for costs derives from the provisions of rule 670 of the Uniform Civil Procedure Rules 1999:
1. On application by a defendant, the court may order the plaintiff to give the security the court considers appropriate for the defendant’s costs of and incidental to the proceeding.
2. This rule applies subject to the provisions of these rules, particularly, rules 671 and 672.
Rule 671 relevantly provides that the court may order a plaintiff to give security for costs only if the court is satisfied:
(a) The plaintiff is a corporation and there is reason to believe the plaintiff will not be able to pay the defendant’s costs if ordered to pay them; or
…
(b) The justice of the case requires the making of the order.
Rule 672 provides that in deciding whether to make an order the court may have regard to any of the following matters:
(a) the means of those standing behind the proceeding;
(b) the prospects of success or merits of the proceeding;
(c) the genuineness of the proceeding;
(d) for rule 671(a) – the impecuniosity is attributable of a corporation;
(e) whether the plaintiff’s impecuniosity is attributable to the defendant’s conduct;
(f) whether the plaintiff is effectively in the position of a defendant;
(g) whether an order for security for costs would be oppressive;
(h) whether an order for security for costs would stifle the proceeding;
(i) whether the proceeding involves a matter of public importance;
(j) whether there has been an admission or payment into court;
(k) whether delay by the plaintiff in starting the proceeding has prejudiced the defendant;
(l) whether an order for costs made against the plaintiff would be enforceable within the jurisdiction;
(m) the costs of the proceeding.
It is submitted on behalf of the plaintiffs that the directors’ offer to expose themselves to personal liability ought to be determinative against the defendant’s application for security. Support for this submission is identified in Harpur v Ariadne Australia Ltd (No.2)[7] where Connolly J stated:
“The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play. If however he is already available for whatever he is worth, the object of the legislation is seen to be satisfied.”[8]
[7] [1984] 2 Qd R 523.
[8] Ibid at 532.
It should be noted that in Harpur Connolly J was considering the provisions in section 533(1) of the Companies (Queensland) Code which provided as follows:
“Court may require security for costs. 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 defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.”
It is submitted on behalf of the plaintiffs that drawing the principle in Harpur to its logical conclusion, security for costs should not be ordered where the directors of a plaintiff company step out from underneath the corporate veil. The position would be different had the directors sought to use the companies as “stalking horses” to evade personal responsibility.[9]
[9] See Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, 4. where the Full Federal Court stated as follows:
“In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the parties seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.”
The offer of the directors of the plaintiff companies to be available for whatever they are worth, if nothing else, demonstrates the genuine nature of the proceeding. I accept that there is no practical difference between the present position and one where the directors were themselves parties to the action. I further accept that the suggestion that the directors might be impecunious is no answer to the principle in Harpur. Indeed, if it were the case that both the plaintiff companies and their directors were impecunious, that may well lead to a conclusion that an order for security would be likely to stifle the proceedings.
There is some cogency in the submission of Counsel for the plaintiffs that ultimately the application for security for costs does not sit comfortably with the fact that these proceedings result from the defendants own failure to discharge their obligations as legal practitioners under the Queensland Law Society Act 1952, coupled with their prolonged resistance to the correction of that failure. In my view, it is not appropriate in the circumstances of this case to grant the defendants application for security for costs.
ORDERS
I make the following orders:
(a) The plaintiffs be granted leave to file the amended claim and further amended statement of claim;
(b) The first defendants application filed 13 May 2009 be dismissed; and
(c) The first defendant pay the plaintiffs’ costs of and incidental to the plaintiffs’ application filed 18 February 2009 and the first defendant’s application filed 13 May 2009, including any reserved costs thereof.
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