Thousand Hills Property Pty Ltd v LBA Capital Pty Ltd
[2024] VSCA 312
•11 December 2024
| SUPREME COURT OF VICTORIA COURT OF APPEAL |
| S EAPCI 2024 0137 |
| THOUSAND HILLS PROPERTY PTY LTD (ACN 617 853 433) | Applicant |
| v | |
| LBA CAPITAL PTY LTD (ACN 628 451 267) | Respondent |
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| JUDGES: | BEACH and NIALL JJA |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 11 December 2024 |
| DATE OF JUDGMENT: | 11 December 2024 |
| MEDIUM NEUTRAL CITATION: | [2024] VSCA 312 |
| JUDGMENT APPEALED FROM: | [2024] VSC 597 (Gorton J) |
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PRACTICE AND PROCEDURE – Appeal – Application for security for costs in sum of $73,570 – Whether unacceptable risk that respondent, if successful, will be unable to recover its costs of application for leave to appeal due to impecuniosity of applicant – Whether appropriate to make order for security for costs in all the circumstances – Quantum of security for costs where issues on appeal relatively confined – Security for costs ordered in sum of $30,000.
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| Counsel | |||
| Applicant: | Mr JD McKay with Mr TK Egan | ||
| Respondent: | Mr MN Thomas | ||
Solicitors | |||
| Applicant: | Moray & Agnew | ||
| Respondent: | GPZ Legal | ||
BEACH JA
NIALL JA:
On 24 July 2019, LBA Capital Pty Ltd (‘LBA Capital’) signed a contract with Thousand Hills Property Pty Ltd (‘Thousand Hills’) for the purchase of 14 lots at 47 and 49 McIntyre Street, Burwood, together with any improvements on those lots. The Burwood property was undeveloped land. Under the contract, Thousand Hills promised to construct apartments on the property in accordance with plans that were annexed to the contract. A deposit of $883,200 was paid, but the proposed sale did not proceed.
The proceeding in the court below concerned who should get the deposit, LBA Capital or Thousand Hills. Thousand Hills contended that it accepted a repudiation by LBA Capital and was thus entitled to retain the deposit. LBA Capital contended that, when the various communications between the parties were seen in their full context, it was apparent that it did not repudiate the contract and that Thousand Hills was required to return the deposit with interest.
On 17 October 2024, pursuant to reasons published on 10 October 2024,[1] the trial judge made a declaration that LBA Capital did not repudiate the contract. Additionally, but subject to a stay, his Honour ordered Thousand Hills to return the deposit to LBA Capital.
[1]Thousand Hills Property Pty Ltd v LBA Capital Pty Ltd [2024] VSC 597 (‘Reasons’).
On 28 November 2024, Thousand Hills filed an application for leave to appeal against the orders made by the judge on 17 October 2024. In its application for leave to appeal, Thousand Hills advances two proposed grounds of appeal as follows:
1.The trial judge erred in finding that the respondent [LBA Capital] did not repudiate the contract of sale dated 24 July 2019.
2.The trial judge should have found that the applicant [Thousand Hills] accepted the respondent’s repudiation of the contract, and duly terminated the contract.
Before the Court this morning is an application by LBA Capital that Thousand Hills give security for LBA Capital’s costs of the application for leave to appeal (and any appeal) in the amount of $73,570, or such other amount as ordered by the Court.
LBA Capital’s material and contentions
Relying upon an affidavit affirmed by its solicitor, Nick Galatas, LBA Capital asserts that the evidence of Thousand Hills’ ‘current or impending impecuniosity is overwhelming’. It submits that Thousand Hills’ only known assets ‘is real property which [it] has subdivided and substantially sold and is [in] the process of entirely selling’. LBA Capital submits that Thousand Hills is a special purpose entity that exists only to develop the land at 47 and 49 McIntyre Street into apartments. Additionally, it relies on evidence given by the directors and shareholders of Thousand Hills (Mr Weng and Ms Guo) at trial about the ‘perilous financial position of the project and Thousand Hills’.
Specifically, LBA Capital relies upon Ms Guo’s evidence that:
Because of the construction costs have been increasing dramatically ... and the project is delayed, and the costs have increased dramatically …
…
our apartments were being making a loss of several million dollars …
And Mr Weng’s evidence:
… it was delayed so long, and because of the delaying, the interest, in fact, increased every year by one million dollars because the money I invested cannot be recovered and I cannot fully paid (sic) the money that I borrowed …
and the costs and related expenses increased by over two million dollars. Furthermore, in relation to the disability apartment, there were 14. We sold four and there are ten still not being sold. We might have to reduce price further …
LBA Capital observes that, notwithstanding Thousand Hills has been given the opportunity to provide disclosure about its financial position, it has elected not to do so.
LBA Capital also submits that, given Thousand Hills’ financial standing, this Court should draw an inference that Thousand Hills is suing, not for its own benefit, but for the benefit of some other person or persons — whether they be shareholders, related entities, a litigation funder and/or other persons. It submitted that those related entities or persons should not be permitted to benefit from an appeal without exposing themselves to a liability for costs in the event that Thousand Hills is not successful in this Court.
Finally, LBA Capital submits that Thousand Hills’ prospects of success on appeal are low, and that this is a factor which weighs in favour of the granting of security for costs.
Thousand Hills’ material and contentions
Relying upon an affidavit sworn by its solicitor, Christina Segaan, Thousand Hills submits that the application for security for costs should be refused. Thousand Hills contends that LBA Capital has failed to establish that Thousand Hills is impecunious. In her affidavit, Ms Segaan deposes to Thousand Hills being the sole registered proprietor of ten of the lots located at 47 to 49 McIntyre Street. Ms Segaan exhibits copies of ten title searches in support of her assertion, showing that the ten lots to which she refers are unencumbered.
Thousand Hills contends that no evidence was given at trial as to its actual financial position. The evidence relied upon by LBA Capital is merely a series of isolated comments, regarding different issues, which have been misconstrued by it. The relevant evidence at trial was merely to the effect that prices associated with the project increased after COVID; the costs of the project increased; and there was delay which contributed to the suffering of significant losses.
Moreover, specific identified losses would be borne by Mr Weng; and LBA Capital has not identified any evidence regarding ‘the general solvency or financial position of the applicant, including the nature and extent of its liabilities as compared to its assets’, or ‘the overall profitability of the project’. While there was reference at trial to losses, there was no suggestion that creditors would not be paid or that there would be no return to equity.
Thousand Hills submitted that its failure to respond to requests for financial information was ‘inconsequential’. It noted that, amongst other things, LBA Capital did not state before its request for information that it would apply for security for costs. It also asserted that, given allegations of LBA Capital’s ‘involvement in a multi-million dollar fraud’, it was ‘understandable’ that Thousand Hills had declined to provide financial information.
As an additional string to its bow, Thousand Hills contended that, in any event, any impecuniosity alleged by LBA Capital ‘is said to have arisen from the facts in dispute, militating against the award of security’.
Finally, Thousand Hills contended that its proposed appeal has a real prospect of success.
Consideration
LBA Capital seeks security for costs pursuant to r 64.38 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’) and/or s 1335 of the Corporations Act 2001 (Cth) and/or this Court’s inherent power. The principles governing such an application are well-settled. They were recently summarised in this Court’s decisions of Szwarcbord v Charbord Investments Pty Ltd,[2] and VS Property and Holding Pty Ltd v Deanside Land Pty Ltd.[3] We will not burden these reasons with a restatement of those principles.
[2][2024] VSCA 92, [27]–[30] (Beach and Orr JJA).
[3][2024] VSCA 154, [3]–[6] (Niall and Lyons JJA) (‘VS Property’).
The central issue on this application is whether, in all the circumstances, LBA Capital has persuaded us that there is an unacceptable risk that LBA Capital will, if successful in this Court, be unable to recover its costs of the application for leave to appeal due to Thousand Hills being impecunious. That said, given the submissions made by Thousand Hills, the other matters which must be considered when determining whether security for costs should be ordered in this case include:
(a)the prospect of success of the application for leave to appeal and appeal;
(b)whether the giving of security would stifle a reasonably arguable claim; and
(c)whether any impecuniosity of Thousand Hills arises out of the conduct complained of by it.
While, as has been said before, the onus is on an applicant for security for costs, who relies upon impecuniosity, to establish that impecuniosity, an inference of impecuniosity may be at least partially founded upon a refusal to provide evidence as to the financial position of the party from whom security is sought. That said, as has also been said before, it will typically be difficult to establish impecuniosity where the evidence discloses that the party from whom security is sought owns unencumbered real property, the value of which might reasonably be supposed to exceed the amount of any prospective adverse costs order.[4]
[4]VS Property [2024] VSCA 154, [6].
In the present case, Thousand Hills has refused to provide requested financial information. It has rested on the provision of evidence that it owns ten of the lots the subject of its development. Ordinarily, such a response might be enough to defeat an application for security for costs.
However, this is not an ordinary case. Evidence was given at trial by the directors and shareholders of Thousand Hills as to significant losses suffered by Thousand Hills as a result of delays and increased costs. In the circumstances of this case, it is less than satisfactory for Thousand Hills to depose merely to the existence of its assets, without any reference to liabilities which one might infer are very likely to exist and are also likely to be substantial.
Looking at the whole of the evidence, we have formed the view that there is an unacceptable risk that, if successful in this Court, LBA Capital might not be able to recover its costs from Thousand Hills.
As to the strength of the application for leave to appeal and proposed appeal, it seems to us that, without going into detail, while the proposed appeal might be reasonably arguable, it is not of such a strength that we are persuaded that security should not be ordered in all the circumstances.
As to Thousand Hills’ suggestion that any impecuniosity alleged by LBA Capital has arisen from the facts in dispute, we would simply observe that there is little (if anything) in the material filed and relied upon by Thousand Hills to support that assertion.
Quantum of security
At the risk of repetition, supported by its solicitor’s affidavit, LBA Capital seeks security for costs in the amount of $73,570. Thousand Hills has not responded with any evidentiary material contesting that quantum. That said, in our view, the proceeding in this Court is a relatively confined one. We would be surprised if LBA Capital’s costs, when taxed on the standard basis at the conclusion of the hearing of its application for leave to appeal (and any appeal), would be significantly in excess of $30,000. In the circumstances, we propose to order that Thousand Hills provide security for LBA Capital’s costs of the application for leave to appeal and the appeal in the sum of $30,000.
Orders
Subject to any further submissions, we propose to make the following orders:
(1)By 4:00 pm on 3 February 2025, the applicant provide to the Associate Judge who is the Senior Master, by payment into Court or in another form acceptable to the Associate Judge who is the Senior Master, security for the respondent’s costs of the application for leave to appeal and any appeal if leave be granted, until the determination of the application for leave to appeal and any appeal if leave be granted, in the sum of $30,000.
(2)If such security is not provided by 4:00 pm on 3 February 2025, the proceeding is stayed until further order.
(3)If such security is not provided by 4:00 pm on 7 April 2025, the application for leave to appeal is refused with costs.
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