FEDERAL COURT OF AUSTRALIA

South Townsville Developments Pty Ltd (in liq) v Lauvan Pty Ltd [2019] FCA 666

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiffs are to provide security for the defendants’ costs in the initial sum of $157,244 within 21 days of the date of this order, which sum may be increased by subsequent order of the Court on the application of the defendants.

2.    The form of the security referred to in Order 1 shall be as agreed between the parties or, failing agreement, as further ordered by the Court.

3.    Save for further case management, the proceeding is stayed until security is given.

4.    The defendants’ interlocutory application filed on 5 February 2019 is otherwise dismissed.

5.    Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Stewart J:

Introduction

1    Before me is an interlocutory application by which the defendants seek orders to the following effect: (1) dismissal of the plaintiffs’ claim, in whole or in part, on the basis that it is frivolous or vexatious, or an abuse of process; (2) alternatively, that the whole or part of the plaintiffs’ claim be permanently stayed; (3) further alternatively, that the plaintiffs provide security for the defendants’ costs of the proceeding in the sum of $279,840, and further orders that the proceeding be stayed and then dismissed if the security is not given within 21 days.

The parties

2    The first plaintiff is in liquidation. It carried on business as a property developer. The second plaintiff is the liquidator of the first plaintiff. I shall refer to him as Mr Hancock.

3    The defendants are corporations that lent money to the first plaintiff for the purposes of a property development. As will be seen, in the principal proceeding the plaintiffs assert against the defendants that certain interest provisions are penalties and unenforceable, that certain variations to the lending arrangement are voidable transactions under Division 2 of Part 5.7B of the Corporations Act 2001 (Cth), and that in respect of two units in the development the defendants, as mortgagees in possession, acted in breach of their duties to the first plaintiff causing loss.

Background

4    By some time in 2012, the first plaintiff was the registered owner of a property located at 69 Palmer Street, Townsville in the State of Queensland. The first plaintiff undertook a building construction project on the land which included at least 42 residential apartments that became known as the Allure Apartments.

5    For the purpose of financing the construction project, on or about 21 June 2013 the first plaintiff as borrower and the defendants as the lender entered into a loan agreement, referred to as a Facility Agreement, whereby the defendants agreed to advance the sum of $9,500,000 to the first plaintiff. Thereafter, the parties to the Facility Agreement concluded at least six variations to it which, amongst other things, included increasing the facility.

6    By 7 May 2015, the first plaintiff had made cash repayments of $14,630,205 to the defendants and at least two of the units remained unsold. They are units 305 and 503.

7    On 1 August 2015, before the first plaintiff was in liquidation, it commenced proceedings in the Supreme Court of Queensland against the defendants concerning the Facility Agreement and its variations. In that proceeding, the first plaintiff sought a declaration pursuant to s 12HD of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) and s 237 of the Australian Consumer Law (ACL), to the effect that certain of the variations to the Facility Agreement be varied, and damages of approximately $2 million for unconscionable conduct in breach of both the ASIC Act and the ACL.

8    The unconscionable conduct complained of was the provision in the fourth variation that two properties within the development would be transferred to the defendants for nil consideration and the provisions of the sixth variation that eight properties within the development would be transferred to the defendants at a large discount. It was pleaded on behalf of the first plaintiff that the defendants were in a very strong bargaining position relative to that of the first plaintiff, the terms that were agreed were not reasonably necessary for the protection of the legitimate interests of the defendants and that the benefit received by the defendants was exorbitant and completely inconsistent with the usual market terms encountered in agreements of the same type.

9    The first plaintiff also complained in the Queensland proceeding that the interest rate provided for under the Facility Agreement was exorbitant and should be reduced.

10    On 29 September 2015, on the application of the defendants the Supreme Court of Queensland made orders transferring the proceeding to the Supreme Court of New South Wales pursuant to s 5(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Qld). At that time there had been no hearing on the merits of the issues raised, no defence had been filed and no substantive steps had been taken.

11    Thereafter, on 16 October 2015, Mr Hancock was appointed as administrator of the first plaintiff pursuant to s 436A of the Corporations Act, i.e. voluntary administration, by resolution of the directors of the first plaintiff.

12    In his capacity as administrator, Mr Hancock made enquiries as to whether there were any legal proceedings on foot to which the first plaintiff was a party. Those enquiries included by letter to the Prothonotary of the New South Wales Supreme Court. By reply from the Prothonotary dated 27 October 2015, Mr Hancock learnt of the first plaintiff’s proceeding in the NSW Supreme Court.

13    On 20 November 2015, at a second meeting of creditors, Mr Hancock was appointed liquidator of the first plaintiff pursuant to a resolution that placed the first plaintiff in liquidation under s 439C(c) of the Corporations Act. Mr Hancock says that there were no funds in the liquidation to enable him to pay the legal costs that would be incurred in continuing the proceeding so he had no choice but to agree to the proceeding being dismissed.

14    To that end, on 15 December 2015 Mr Hancock wrote to the Prothonotary of the Supreme Court of NSW advising that he consented to the proceeding being dismissed.

15    There is evidence that in January 2016, when the Supreme Court proceeding was still on foot, a discussion took place between Mr Hancock and representatives of the defendants about the two units, 305 and 503, which had not yet been sold. Mr Hancock said that he intended to sell the two units by public auction and, failing that, an expressions of interest campaign.

16    In the context of that discussion, there was a disputed conversation about the Supreme Court proceeding. Paul Cook, a finance consultant to the defendants, says that in answer to an enquiry about what was to happen with that proceeding, Mr Hancock said words to the following effect:

There’s nothing in it. Apart from getting a sale of lots 503 and 305, we’re not pursuing any action at all.

17    Shadd Danesi, the defendants’ sole director and shareholder, says that the answer by Mr Hancock was to the following effect:

They are nonsense. We will not be proceeding with them. There is nothing in it.

18    In contrast, Mr Hancock says that he used words to the following effect:

I don’t have a sense for the proceedings brought by the company in Queensland. It is only early days in the administration. At this stage, I don’t intend to continue the proceedings as I don’t have a sense of the proceedings and I do not have any funds.

19    It was not contended that I can or should resolve that dispute on the affidavits before me. I will return to this disputed conversation later.

20    In circumstances that are not entirely clear, consent orders providing for the proceeding to be dismissed and for the first plaintiff (being the only plaintiff in that proceeding) to pay the defendants’ costs as agreed or assessed were signed by Mr Hancock and a solicitor for the defendants and dated 1 February 2016.

21    Further consent orders, to the same effect but with one difference, dated 4 February 2016 were signed by a solicitor for the first plaintiff and the same solicitor for the defendants. The difference was that there was a paragraph, numbered 2, which was crossed-out in manuscript. The printed writing that was crossed-out provided that it was a term of the dismissal of the proceeding that the first plaintiff may not commence further proceedings against the defendants or either of them on the same cause of action or causes of action pleaded in the statement of claim. Paragraph 1 provided for the dismissal and paragraph 3 for the costs.

22    Three versions of the 4 February 2016 consent orders (i.e. those with the crossed-out paragraph) were in evidence. The first two had no initial or signature recorded adjacent to the crossing-out. They were annexed to an affidavit of the defendants’ solicitor in the present proceeding and an affidavit of Mr Hancock.

23    The third version of the 4 February 2016 consent orders was annexed to an affidavit of Mr Danesi. It was part of an annexure which he described in his affidavit as being the orders made in the Supreme Court proceedings. The annexure includes a standard form ‘record of proceedings’ before Registrar C Bradford in the Supreme Court on 8 February 2016. It bears manuscript which I infer is that of the Registrar recording the orders that were made as being “Orders 1. + 3.” (i.e. dismissal and costs). Preceding the record of proceedings is a copy of the 4 February 2016 consent orders bearing the date stamp of the Court of 8 February 2016. Paragraph 2 of the orders is crossed-out as explained above. Adjacent to the crossing-out is an initial in manuscript which appears to be the same as the first part of the signature of the defendants’ solicitor which appears on the following page.

24    From the above, I infer that to the knowledge of the defendants, at least through their then solicitor, they knew that Mr Hancock was prepared to consent to the dismissal of the Supreme Court proceeding but not on the basis that he was thereby prevented from commencing fresh proceedings on the same causes of action. The proceeding was dismissed on that basis.

25    It is important to draw attention to s 91(1) of the Civil Procedure Act 2005 (NSW) which applied to the dismissal of the proceeding. It provides that dismissal of any proceeding does not, subject to the terms on which any order for dismissal was made, prevent the plaintiff from bringing fresh proceedings or claiming the same relief in fresh proceedings. Section 91(2) then provides that, despite subsection (1), if the proceeding is dismissed following a determination on the merits, the plaintiff is not entitled to claim any relief in respect of the same cause of action in any subsequent proceeding.

26    The result is that the dismissal of the Supreme Court proceeding, which did not follow a determination on the merits, does not by itself prevent the same claims being brought again in a new proceeding. In that way, the dismissal of the proceeding in the Supreme Court is similar in effect to a discontinuance of a proceeding in this Court as provided for in r 26.14 of the Federal Court Rules 2011.

27    At much the same time as the consent dismissal of the Supreme Court proceeding was being attended to, Mr Hancock appointed North Ward Realty to sell units 305 and 503 and a sales campaign ensued. Subsequently, on 3 March 2016 North Ward Realty reported that although there had been four registered bidders and bids at the auction, there had been no offers above $300,000.

28    An expression of interest campaign followed but no offers were received.

29    On or about 3 May 2016, the defendants took possession of the units and appointed North Ward Realty to market them. Valuations were sought and received and ultimately the two units were sold by the defendants as mortgagee in possession within the range of the valuations, albeit at the low end, and for more than the best offers that had been received in the previous campaign. Unit 503 was sold on 6 September 2016 for $375,000. Unit 305 was sold on 7 September 2016 for $355,000.

30    The next relevant event for present purposes occurred in April 2017. In the context of other litigation that the defendants were engaged in, a suggestion was made to representatives of the defendants that Mr Hancock had made enquiries about possible proceedings against the defendants. That caused Mr Cook on behalf of the defendants to send an email to Mr Hancock on 5 April 2017 asking him to confirm whether he intended to make a claim against the defendants.

31    Mr Hancock responded by text message from Hong Kong on 6 April 2017 in which he stated the following:

From what you said in your message it sounds like a bit of misinformation. All I am doing at the moment is doing my normal job carrying out the usual investigations that I am required to do but I haven’t commenced proceedings nor am I about to against anyone. I am back after Easter let’s catch up and have a beer mate.

32    There followed another disputed telephone call. Mr Cook says that he received a call from Mr Hancock during the evening of 6 April 2017 in which Mr Hancock said words to the following effect:

Did you receive my text? I confirm I have no intention of commencing any proceedings against [the defendants].

33    Mr Hancock says that he has no recollection of calling Mr Cook and saying the words attributed to him.

The present proceeding

34    The present proceeding was commenced by the filing of an originating process on 15 October 2018. That was the day before the expiration of the three year period that commenced at the relation-back day as provided for in s 588FF(3)(a)(i) of the Corporations Act. In terms of s 91 of the Corporations Act, the relation-back day is the day that Mr Hancock was appointed administrator of the first plaintiff, which occurred, as I have said, on 16 October 2015.

35    Mr Hancock explained on affidavit that in early 2018 he received from a third party an offer of funding to commence and prosecute new proceedings against the defendants “inter alia raising the causes of action which had been raised in the earlier proceedings”. He says that after some reconsideration and revision of the statement of claim filed in Queensland, he gave instructions for the filing of the originating process in the current proceeding.

36    The statement of claim pleads the Facility Agreement between the first plaintiff and the defendants of 21 June 2013 and the six variations thereto, all of which were pleaded in the Supreme Court proceeding. Subject to the terms of the agreements themselves, most of what is pleaded in relation to them is admitted.

37    The statement of claim pleads that by 7 May 2015 all but two of the units in the development had been sold and that, in addition to the cash repayments made to the defendants, the first plaintiff provided further benefits of $2,532,000 in the form of the transfer of title to units at less than their reasonable market value. It also pleads that on 3 May 2016, which is at a time after the Supreme Court proceeding was dismissed, the defendants served on the plaintiffs a notice under s 84 of the Property Law Act 1974 (Qld) and took possession of units 305 and 503, which were the last two unsold units in the development. It is pleaded that the defendants thereafter sold those units and appropriated the whole of the proceeds of the sale.

38    It is pleaded that clause 7 of the Facility Agreement and certain clauses of the fourth and fifth variations are penalties and therefore unenforceable.

39    The statement of claim further pleads that the fourth variation is an uncommercial transaction within the meaning of s 588FB, that it is an insolvent transaction within the meaning of s 588FC, that it is an unfair loan to the first plaintiff within the meaning of s 588FD, and that it is a voidable transaction within the meaning of s 588FE(3) and/or s 588FE(6) of the Corporations Act.

40    It is also pleaded that the sixth variation is an uncommercial transaction within the meaning of s 588FB, an insolvent transaction within the meaning of s 588FC and a voidable transaction within the meaning of s 588FE(3) of the Corporations Act.

41    It is also pleaded that the defendants, acting as mortgagee in possession of units 305 and 503, failed to observe their duty to the first plaintiff to exercise their power of sale in good faith so as to obtain a reasonable market value for the properties, thereby causing the first plaintiff loss. It is pleaded that the units were sold at the values referred to above (i.e. $355,000 and $375,000 respectively) but that the reasonable market values were $480,000 and $530,000 respectively. I shall refer to this claim as the mortgagee in possession claim.

42    By letter between solicitors, the defendants sought “particulars of how it is claimed that the defendants failed to exercise their power of sale in good faith so as to obtain a reasonable market value for [each of unit 305 and 503]”. The reply they received in respect of each unit was that the plaintiffs “are presently unable to provide the particulars sought, and will provide particulars after having the opportunity of inspecting documents produced on discovery and pursuant to subpoenas”.

Abuse of process

43    Although the defendants’ written submissions assert arguments relying on the doctrines of res judicata, Anshun estoppel and issue estoppel, their focus and the focus of oral submissions was on abuse of process. Mr Sirtes SC, who appeared with Ms Avery-Williams for the defendants, accepted that the defendants’ best case for a stay of the proceeding is on the basis of abuse of process and that I can disregard res judicata, Anshun estoppel and issue estoppel save to the extent that they are relevant to the abuse of process case. Res judicata cannot apply because of s 91 of the Civil Procedure Act 2005 (NSW). Issue estoppel cannot apply because no issues were determined. Anshun estoppel is a species of, or developed from, abuse of process, so its considerations are accounted for in what follows: Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; 147 CLR 589 at 602; UBS AG v Tyne [2018] HCA 45; 360 ALR 184 at [68] per Gageler J.

44    The defendants rely almost exclusively on UBS for the abuse of process case. They drew attention to the following passages from the joint judgment of Kiefel CJ and Bell and Keane JJ.

    The timely, cost-effective and efficient conduct of modern civil litigation takes into account wider public interests than those of the parties to the dispute: at [38].

    The just resolution of a controversy may be the permanent stay of the proceeding notwithstanding that the plaintiff is not at fault and that the merits of his or her claim have not been decided: at [40].

    The courts must be astute to protect litigants and the system of justice itself against abuse of process. “Inexcusable delay” is not a precondition of the exercise of the power to stay proceedings as an abuse of process. Any substantial delay is apt to occasion an increase in the cost of justice and a decrease in the quality of justice. Other litigants are left in the queue awaiting justice: at [45].

    The undue vexation which a stay of proceedings is concerned to prevent does not arise only when proceedings in respect of the same issue have been concluded by a judgment on the merits: at [46].

    The fact that discontinuance of a proceeding does not operate as a release of the claims, does not mean that discontinuance is irrelevant when the discontinuing party seeks by new proceedings to pursue a discontinued claim. An abuse of process is no less an abuse because the party adversely affected might have, by greater diligence in its own interests, prevented the abuse: at [56].

    Oppression is found not only in the significant delay in the resolution of the dispute and the inevitability of increased costs. At its core is the vexation of being required to deal again with claims that should have been resolved in the earlier proceedings: at [58].

45    In reliance on those statements of principle, the defendants submit the following.

46    First, that although the causes of action between the two proceedings, being the Supreme Court proceeding and the proceeding in this Court, are different, the factual substratum of the claims is the same; they all arise from the same set of facts save for the mortgagee in possession claim. The facts underlying the latter claim only arose after the dismissal of the Supreme Court proceeding. The defendants submit that they should not be vexed twice by the plaintiffs in respect of the same relationship, transaction and complaint as to interest rate and unit values.

47    Secondly, the defendants submit that it is not reasonable for the liquidator to have sat on the matter “for almost 3 years”. They criticise Mr Hancock for what they describe as the paucity of his explanation for having agreed to a dismissal of the Supreme Court proceeding and his subsequent commencement of the proceeding in this Court. From this they submit that I should infer that there was some forensic advantage to the plaintiffs in discontinuing and then some time later commencing a new proceeding in this Court.

48    Thirdly, the defendants say that they arranged their affairs following the dismissal of the Supreme Court proceeding, including taking possession of and selling units 305 and 503. They submit that to allow the plaintiffs’ proceeding in this Court to continue would be oppressive of them on this ground. In that regard, the defendants rely on the disputed conversation in January 2016, i.e. before the Supreme Court proceeding was dismissed.

49    The defendants submit that Mr Hancock’s version of the January 2016 conversation does not expressly deny the versions given by Mr Danesi and Mr Cook, in particular that Mr Hancock expressed his view to be to the effect that the merits of the claims was poor, and that I should therefore conclude that he did express that view. The defendants also submit that I should accept that Mr Hancock told Mr Cook in the telephone call on 6 April 2017 that he had no intention of commencing any proceeding against the defendants because Mr Hancock did not deny Mr Cook’s version of that call; he only said that he has no recollection of it.

50    Fourthly, with regard to the administration of justice the defendants submit that there has been delay, there will be additional costs, and in the eyes of a right-thinking layperson allowing the plaintiffs to prosecute successive claims two and a half years apart in different jurisdictions will bring the administration of justice into disrepute.

51    Fifthly, the defendants say that they had victory in the Supreme Court which ought not to be denied them.

Consideration

52    The joint judgment in UBS begins by acknowledging (at [1]) that there are “varied circumstances” in which the use of the court’s processes will amount to an abuse. Either of two conditions enlivens the power: where the use of the court’s procedures occasions unjustifiable oppression to a party, or where the use serves to bring the administration of justice into disrepute. I understand the defendants to be contending for both of these conditions, whether together or independently.

53    Their Honours (at [7]) adopted a statement of Lord Bingham of Cornhill in Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 at 31 to the effect that determination of whether there is an abuse of process requires the court to make:

a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not.

54    It is important to draw from this passage that there is no checklist of requirements, or a mechanical test, that can be applied. It is “a broad, merits-based judgment” that is required, which takes into account “the public and private interests involved”. Attention must be focused on whether, “in all the circumstances”, there is an abuse of process of the court by a party “seeking to raise before it the issue which could have been raised before”.

55    There are important respects in which the facts in UBS distinguish it from the present case. First, in UBS, unlike in the present case, the underlying factual circumstances had previously been to trial and determined. Certain of the plaintiffs had discontinued, but one plaintiff, which as with the other plaintiffs was under the common control of Mr Tyne, continued to final determination. It was in that context, that the Court held (at [52]) that although “[w]here discontinuance of proceedings brings the proceedings to an end, the later commencement of fresh proceedings may work no unfairness to the defendant”, that was not the case there because the proceedings were prosecuted to a final determination by a plaintiff controlled by Mr Tyne. That was relevant to the earlier observation (at [45]) that “there is no reason why the courts should tolerate attempts to manipulate other parties and the courts themselves by the deployment, by a single directing mind and will, of different legal entities under common control for such a purpose”.

56    It is also in that context that it was held (at [58]) that UBS was oppressed by the subsequent proceedings – not only arising from the significant delay in the resolution of the dispute and the inevitability of increased costs, but “at its core is the vexation of being required to deal again with claims that should have been resolved in the [earlier] proceedings”.

57    Similarly, it was in that context that it was held (at [58]) that “on the final determination of the [earlier] proceedings, it was reasonable for UBS to order its affairs upon the understanding that the dispute between it and Mr Tyne, and the entities that he controlled, arising out of those dealings was at an end”. The present case is quite different. The dismissal of the Supreme Court proceeding did not mean that there was a final determination, and the circumstances of the consent orders being made did not lead, and could not reasonably have led, to an understanding that the dispute between the company and the defendants was at an end.

58    Secondly, in UBS it was found (at [55]) that Mr Tyne perceived a forensic advantage to the Tyne-related parties in holding back one of the party’s claim. That led to duplication of resources and increased costs, and delayed the resolution of the dispute between the Tyne-related parties and UBS. That was not so in the present case. There is no suggestion that the plaintiffs had or perceive themselves to have a forensic advantage by discontinuing proceedings and later starting again.

59    I turn now to deal with the defendants’ particular submissions.

60    First, as I have indicated, the first proceeding was not prosecuted to finality. Indeed, the defendants were not called upon to file a defence, let alone put on evidence, prepare for trial, and conduct a trial. In those circumstances, I do not consider them to be particularly “vexed” by having to answer different claims, albeit arising out of the same substratum of facts and the same commercial relationship, in a later fresh proceeding.

61    Secondly, I do not consider the period of time from the dismissal of the first proceeding to the commencement of the second proceeding, being nearly three years, to be unreasonable. The subsequent proceeding was brought within the period of three years allowed by s 588FF(3)(a)(i) of the Corporations Act, and Mr Hancock has explained why the first proceeding was discontinued and why the later proceeding was then commenced. It is true, as the defendants contend, that that explanation is bare in that it lacks detail, but I do not regard it to be improbable and I do not see any basis to reject it. Further, I do not see any basis to draw the inference from the lack of detail that the plaintiffs had some forensic advantage in discontinuing the first proceeding and then later commencing a fresh proceeding. The defendants have not identified what that advantage might be.

62    It must be borne in mind that although underlying both proceedings is essentially the same substratum of facts and the same commercial relationship, the second proceeding pleads causes of action that were not pleaded in the first proceeding. It is correct, as the defendants submit, that all of those causes of action with the exception of the mortgagee in possession claim could have been pleaded in the first proceeding by amendment, but the process of seeking amendment might itself have led to disputes and the consumption of time and costs.

63    Thirdly, not only, as I have identified, is the present case not one where claims were prosecuted to finality in the first proceeding, but there is no evidence that the defendants arranged their affairs in any particular way because of the dismissal of the first proceeding. The defendants point to their having taken possession of units 305 and 503 and selling them as an example of them having arranged their affairs after the dismissal of this proceeding, but there is nothing to suggest that those events would not have occurred in exactly the same way if that proceeding had not been dismissed.

64    With regard to the submission that I should conclude that Mr Hancock expressed the view that the merits of the claims were poor, I do not regard that to be a fair reading of the evidence. In any event, in the absence of any detrimental reliance on such a representation, it does not seem to me to be able to be contended that it caused the defendants any prejudice. In the absence of prejudice, they were not “vexed”. Simply put, even if Mr Hancock had expressed the view at that early time that he regarded the merits of the claims to be poor, and he later changed his mind after having received some funding which enabled him to investigate and then prosecute claims against the defendants, that cannot without more cause relevant prejudice or oppression.

65    With regard to the 6 April 2017 telephone call, even if Mr Hancock had told Mr Cook that he had no intention of commencing proceedings against the defendants, in the absence of any reliance by the defendants on that statement it cannot bind Mr Hancock.

66    I am accordingly not satisfied that the proceeding in this Court is an abuse of process on the basis of being unjustifiably oppressive of the defendants.

67    Finally, I do not regard the conduct of the proceedings (i.e. in the Supreme Court and in this Court) by the plaintiffs to bring the administration of justice into disrepute. The narrative is a fairly straightforward one. Claims were instituted in the Supreme Court by a development company against its lenders, the defendants. Before that proceeding had developed much beyond being commenced and transferred to New South Wales, the development company went into administration, having the effect of staying the proceeding, and then into liquidation. A liquidator is appointed. He is unfunded and cannot form a proper view of the merits of the claims, and in any event does not have funds to pursue the claims. He accordingly agrees to have them dismissed, but expressly disagrees with the suggestion that that should be on the basis that the claims can never be brought again. Nearly three years later, after having received funding which enabled him to consider the claims and reformulate them, he brings them again, duly reformulated, in this Court.

68    There is nothing in that narrative which in my view would cause a reasonable lay observer to regard the administration of justice in a poor light by the second proceeding being allowed to continue. Moreover, leaving aside the present application to have the second proceeding stayed, which has been brought by the defendants, there has been little if any duplication of the use of public resources arising from the second proceeding being brought; the second proceeding does not reflect poorly on the timely and efficient administration of justice.

69    In all the circumstances, I am not satisfied that there is any abuse of process and the application for the permanent stay of the proceeding must be dismissed.

Summary dismissal of the mortgagee in possession claim

70    In their written submissions the defendants submit that the claim in respect of the mortgagee sales of units 305 and 503 ought to be dismissed “as no reasonable cause of action is disclosed, or there is no reasonable prospect of success”.

71    The defendants make the following submissions in support of this part of the application.

72    First, they submit that the claim is pleaded in a bare way and the particulars that they reasonably sought were declined.

73    Secondly, they submit that the pleading that the defendants failed to obtain a reasonable market value for the property is pregnant with an ipse dixit assumption that every sale below a reasonable market value implies a failure to act in good faith, which is unfounded.

74    Thirdly, the defendants submit that on their evidence the sales were made at values within the range, albeit at the lower end, of the market valuations obtained by the mortgagees at the time, and in any event above the best offers that had been able to be obtained during the public auction campaign which was run by Mr Hancock’s agents.

75    There is considerable force in the defendants’ submissions that on the evidence before me the prospects of the plaintiffs succeeding in the mortgagee in possession claim are remote. The plaintiffs put on no evidence to support those causes of action.

76    That notwithstanding, I am not inclined to summarily dismiss those claims at this stage. The principal reason is that the interlocutory application does not identify that the relief that will be sought is the dismissal of the mortgagee in possession claim on a summary basis. The only paragraphs of r 26.01(1) that are identified in the interlocutory application as being relied on are paragraphs (b) (i.e. frivolous and vexatious) and (d) (i.e. abuse of process). No reliance was placed on paragraph (a) which provides for summary dismissal on the basis that there is no reasonable prospect of successfully prosecuting the proceeding or part of the proceeding. Also, the mortgagee claim was not specifically identified in the interlocutory application as being subject to attack. In those circumstances, the interlocutory application did not give adequate notice of the claim that had to be met.

77    Mr Harris SC, who appeared for the plaintiffs, said that he did not understand that summary dismissal of the mortgagee in possession claim was sought on the basis of no reasonable prospects of success until he heard Mr Sirtes’ oral submissions. Mr Sirtes’ response was to point out that the defendants’ written submissions expressly articulate that the mortgagee in possession claim is sought to be dismissed on the basis of “no reasonable cause of action” or “no reasonable prospect of success”, and that the plaintiffs’ evidence on the interlocutory application was filed after the defendants’ submissions were filed. On that basis, Mr Sirtes submitted that the plaintiffs were on proper notice and they suffered no prejudice because they had the opportunity to put on any evidence that they may have.

78    The defendants did not seek to amend the interlocutory application to properly plead the summary dismissal claim. Had they done so, the question of prejudice and exactly how the interlocutory application and then the written submissions were understood, and the reasonableness of that understanding, might have been properly investigated.

79    In the circumstances of the absence of an application to amend the interlocutory application, and on the basis of the plaintiffs having not filed any evidence in support of the cause of action in question apparently because they did not understand that summary dismissal was being sought, I am not inclined to dismiss the mortgagee in possession claim at this stage.

Security for costs

80    There was no dispute as to the plaintiffs’ liability to put up security for costs, in particular given the fact of the first plaintiff being in liquidation. The only dispute is as to the amount of security that should be put up.

81    The defendants’ solicitor, Mr Morwood, who has been a litigation solicitor since 1977, gave the following evidence on affidavit to justify security in the sum of $279,840.

82    Mr Morwood “conservatively” estimates a hearing of seven days on the basis of the time occupied by previous proceedings regarding disputes arising from the same building development. On the basis of hourly rates that he sets out for the various lawyers (solicitors and counsel) involved, and the amount of time that would be required, he breaks down the expected costs as follows (the second column reflecting my summary of his evidence):

83    Mr Morwood then reduces the total figure that he reaches by deducting 25% on the basis that that would reasonably reflect party-party costs. He thus arrives at a final figure of $279,840 for security for costs.

84    The plaintiffs’ solicitor, Ms Weston, also deposed to an affidavit. She has been a solicitor practising in commercial litigation since 2004. She says that she estimates that the hearing will require no more than three days, and that the costs of producing the evidence, preparation for the hearing and the hearing costs will therefore be no more than approximately one half of Mr Morwood’s estimate.

85    Ms Weston contests the defendants’ entitlement to security for costs incurred by them prior to their filing the application for security for costs, and therefore excludes Mr Morwood’s figure of $15,700. Ms Weston accepts Mr Morwood’s reduction of anticipated solicitor-client costs by 25%. The result is that Ms Weston arrives at a figure of $144,292.

86    I do not regard it to be correct to exclude the costs incurred prior to the application for security for costs. The defendants are entitled to security for all their costs reasonably incurred in the proceeding in order to secure a costs order that they might ultimately be awarded. Such an order would include costs prior to the application for security for costs being made.

87    The defence has not yet been filed in this proceeding. It is therefore difficult to know just what will be in issue, and it is a particularly speculative task to estimate how long the final hearing is likely to be, let alone how much preparation will be required.

88    The defendant submitted that I should prefer Mr Morwood’s estimate on the basis that he has more experience than Ms Weston. I do not accept that invitation as I accept the experience and bona fides of both of Mr Morwood and Ms Weston, but equally neither of them is independent of their clients’ interests in the matter. Both their estimates, albeit far apart, may be within a reasonable range.

89    I prefer to arrive at a figure in the following way. I will take the plaintiffs’ estimate but I will add to it 75% of the costs said to have already been incurred by the defendants (i.e. 75% of $15,700 + GST = $12,952), and I make plain that in the event that the case develops in such a way that the security ordered is insufficient, then the defendants can renew their application and seek top-up security at an appropriate time.

90    In the circumstances, I will award security for costs in the amount of $157,244 (i.e. $144,292 + $12,952).

91    Mr Harris indicated that he thought that the plaintiffs would be able to put up security within 21 days of being ordered to do so, being the time period sought by the defendants. He however asked that the form of security be left to the parties to seek to agree on, which seems to me to be appropriate. Naturally, if there is any difficulty in that regard the matter can be relisted.

Costs of the interlocutory application

92    I will reserve the costs of the application at this stage.

Associate:

Dated:    16 May 2019