FEDERAL COURT OF AUSTRALIA

Leda Holdings Pty Ltd v Securcorp Limited [2013] FCA 1364

THE COURT ORDERS THAT:

1.    Pursuant to s 48 of the Federal Court of Australia Act 1976 (Cth), the proceeding be conducted in the Queensland District Registry of the Court and, pursuant to r 2.02 of the Federal Court Rules 2011 (Cth), the proceeding be transferred to that Registry.

2.    The costs of the interlocutory application filed on 14 November 2013 be the first and second respondents’ costs in the cause.

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

REASONS FOR JUDGMENT

1    This is an application by the first and second respondents in the principal proceeding to transfer the proceeding from the New South Wales District Registry to the Queensland District Registry of the Court.

2    The applicant in the proceeding opposes the application for transfer. The third respondent neither supports nor opposes the application for transfer.

Background

3    The proceeding was commenced by an originating application supported by a statement of claim filed on 27 September 2013. The interlocutory application seeking the transfer was filed on 14 November 2013. It is supported by an affidavit sworn on 14 November 2013 by David Robert Walter Tucker. Mr Tucker is a partner in Tucker & Cowen Solicitors, the first and second respondents’ solicitors in the proceeding. The applicant relies on an affidavit sworn on 25 November 2013 by Amanda Kim Banton. Ms Banton is a partner in Piper Alderman, the applicant’s solicitors.

4    In the proceeding, the applicant claims damages, and equitable and other compensation, against the respondents arising out of the applicant’s failed investment in a registered managed investment scheme known as the Securcorp Mortgage Income Scheme (the SMIS).

5    The principal allegations made by the applicant can be summarised as follows. At all times until 8 May 2013, the first respondent was the responsible entity for the SMIS. At all material times, the second respondent has been a director of the first respondent and was knowingly involved in the first respondent’s conduct about which complaint is made. Since about 8 May 2013, the third respondent has been the responsible entity for the SMIS and has assumed the first respondent’s liabilities and obligations in respect of the SMIS.

6    In about June 2007, the first respondent was approached by Backpackers Australia Pty Ltd (Backpackers) to provide funding to enable it to acquire certain land at Kirra on the Gold Coast in Queensland (the Kirra development). The first respondent was provided with valuations of the land undertaken by LandMark White Gold Coast Pty Ltd (LandMark White). These valuations had been prepared for the Commonwealth Bank of Australia (the CBA), the initial financier of the development. The CBA made a loan to Backpackers in respect of the Kirra development and became registered as first mortgagee in respect of the land.

7    During August and September 2007, the first respondent made certain offers to provide a loan to Backpackers in relation to the Kirra development.

8    On about 1 October 2007, the applicant, which is based in New South Wales, received an information memorandum from the first respondent. The applicant says that it accepted the terms of the information memorandum and paid $11.4 million to the first respondent to acquire units in the SMIS.

9    On about 2 October 2007, the first respondent advanced $11.4 million to Backpackers and took a second registered mortgage of the land.

10    During November 2008, Backpackers defaulted on its loan with the CBA. Subsequently, Backpackers went into liquidation and the CBA realised its security. The applicant says that, as events have transpired, the second mortgage held by the first respondent in respect of the land is of no value and that, consequently, the units acquired by the applicant in the SMIS are of no value.

11    There is a dispute between the parties as to the identity of the land that comprises the Kirra development. It would appear, however, that the land comprises at least the following properties (the properties):

    Lots 1-40, SP 100108, County of Ward, Parish of Tallebudgera, Title References 50208700-50208739 (Kirra on the Beach), at 92 Musgrave Street, Kirra, Queensland;

    Lots 1-5, BUP 104748, County of Ward, Parish of Tallebudgera, 4 Churchill Street, Kirra, Queensland;

    Lot 14, CP C28530, 9 Miles Street, Kirra, Queensland;

    Lot 13, CP C28530, 11 Miles Street, Kirra, Queensland;

    Lot 12, CP C28530, 17 Miles Street, Kirra, Queensland;

    Lots 1-4, BUP 3063, 51 Winston Street, Kirra, Queensland;

    Lot 9, SP 144095, 10 Churchill Street, Kirra, Queensland; and

    Lot 10, CP C28530, 12 Churchill Street, Kirra, Queensland.

12    An important question of fact in the proceeding will be the loan-to-value ratio (the LVR) respecting the funds advanced by the first respondent to Backpackers. There will be a question whether valuations provided by LandMark White to the CBA in June 2007 and September 2007 were properly arrived at. There will also be a question whether, had the first respondent obtained its own valuation of the properties, it would have become aware that the LVR respecting the loan it had made to Backpackers exceeded 80%.

13    In this connection, the applicant says that, under a constitution filed on 20 October 2009 with the Australian Securities and Investments Commission in respect of the SMIS (the constitution), the first respondent was only to invest members’ funds if the LVR in respect of the secured property was lower than 80%, unless mortgage insurance was provided. It can be taken that it is the applicant’s case that no mortgage insurance was provided in relation to the first respondent’s loan to Backpackers.

14    The applicant’s pleaded case is that, if the first respondent had become aware that the LVR in respect of the loan to Backpackers exceeded 80%, and was, according to the applicant, outside the first respondent’s lending policy, it would not have made the loan of $11.4 million to Backpackers. The applicant also says that, in those circumstances, the applicant would not have made its investment of $11.4 million for units in the SMIS.

15    The substantive allegations in the proceeding concern:

    whether the first respondent breached the constitution in making the loan to Backpackers;

    whether the first respondent breached various provisions of the Corporations Act 2001 (Cth) (the Corporations Act) in making the loan to Backpackers;

    whether the second respondent was a person knowingly involved in the first respondent’s alleged contraventions of the Corporations Act;

    whether the first respondent breached certain trust duties, including those arising under the Trusts Act 1973 (Qld);

    whether the first respondent breached a duty of care owed to the applicant; and

    whether the first respondent or the second respondent engaged in conduct that was misleading or deceptive.

16    Mr Tucker has expressed the view that, in light of the allegations pleaded in the statement of claim, and the answer made in the first and second respondents’ defences, it is likely that the first respondent would call evidence on:

    The dealings between the first respondent, the CBA and Backpackers, involving former employees of the first respondent (located in Queensland) and employees or former employees of the CBA who were located in Queensland at the time of the alleged events.

    The dealings between the first respondent and the applicant.

    The valuations and dealings with the valuations of the properties that had been prepared by LandMark White.

    Whether and in what circumstances the first respondent would have made a loan to Backpackers if it had known that the LVR respecting its loan to Backpackers exceeded 80%.

    The steps taken by the first respondent to ascertain the financial position of the two directors of Backpackers who guaranteed repayment of the loan to the first respondent.

    The feasibility of the Kirra development.

17    Mr Tucker said that he anticipates receiving instructions from the first and second respondents to call the three current directors (including the second respondent) and one former director of the first respondent, all of whom reside in Queensland. He said that he also anticipates that the first respondent would seek to call evidence from the current director and secretary of Backpackers and a former director of Backpackers (the two guarantors), both of whom reside in Queensland. He also anticipates that expert witnesses, who have expertise in the Gold Coast property market, and who reside on the Gold Coast or in Brisbane, will give evidence. Mr Tucker said that reliance would be placed on the first respondent’s records that are held electronically or in hard copy form at Surfers Paradise in Queensland. Mr Tucker described these records as “extensive documentation”. The first respondent’s principal place of business is recorded as being at Miami in Queensland. Its registered office is recorded as being at Bundall in Queensland.

18    Ms Banton has given evidence that, while the applicant’s position has not been finalised, she anticipates that the applicant will call evidence from the current directors of the applicant, Robert John Ell and William Robert Ell (Bob Ell); a former director, Colin Allerdice; the applicant’s former development manager, Phillip O’Callaghan; an executive assistant of the applicant, Craig Cornish; and Howard Schmiede, who formerly worked in the applicant’s Sydney office, but who no longer works for the applicant.

19    Ms Banton said that Bob Ell and Mr Allerdice are likely to be the applicant’s principal lay witnesses. They both reside in Sydney. She said that the other possible witnesses played a lesser role in the subject matter of the proceeding and she does not anticipate that their evidence would be lengthy. Mr O’Callaghan lives and works on the Gold Coast, but is no longer employed by the applicant. Mr Cornish lives on the Gold Coast and works at the applicant’s Gold Coast office. Mr Robert Ell lives in Sydney. Ms Banton did not provide an address for Mr Schmiede.

20    Ms Banton also said that she has had initial discussions with an expert witness located in Sydney. From oral submissions made by the applicant’s counsel, I assume that this witness, if called, would be involved in giving valuation evidence.

21    As will be apparent from the evidence recorded at [19] above, the applicant has an office on the Gold Coast.

22    For completeness, I should record that the third respondent’s currently recorded registered office and principal place of business is at Surfers Paradise in Queensland. Backpackers’ currently recorded registered office is at North Tamborine in Queensland. Its currently recorded principal place of business is at Chevron Island in Queensland. That said, Backpackers is in liquidation. The applicant’s counsel informed me that the liquidators are in Sydney. In oral submissions, he suggested that this must mean that its documents are held in Sydney. I do not think that that would necessarily be the case. There is simply no evidence on that particular matter.

Relevant legislation and principles

23    Section 48 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) relevantly provides:

(1)    The Court or a Judge may, at any stage of a proceeding in the Court, direct that the proceeding or a part of the proceeding be conducted or continued at a place specified in the order, subject to such conditions (if any) as the Court or Judge imposes.

(2)    ...

24    Rule 2.02 of the Federal Court Rules 2011 (Cth) (the Rules) provides:

A party may apply at the proper place for an order that the proceeding be transferred to another place.

25    The term “proper place” is defined in the Rules as:

proper place, for a proceeding, means:

(a)    the place where the proceeding is started; or

(b)    if the proceeding is transferred to another place—the other place, from the date of transfer.

26    In National Mutual Holdings Pty Ltd and Others v The Sentry Corporation and Another (1988) 19 FCR 155, the Full Court discussed the application of s 48 of the Federal Court Act and O 10 r 1(2)(f) of the Federal Court Rules 1979 (Cth), which provides for the transfer of proceedings in similar terms to r 2.02 of the Rules. The Full Court said (at 162):

… There is no onus of proof in the strict sense to be discharged by the party seeking to conduct or continue the proceedings elsewhere. It should be noted that the Court may exercise its powers under O 30, r 6 either on the application of a party or of its own motion. The Court must, however, be satisfied, after considering all relevant matters, that there is sound reason to direct that the proceeding be conducted or continued elsewhere. Its starting point is that the proceeding has been commenced at a particular place. Why should it be changed? On the one hand, if the party who commenced the proceeding chose that place capriciously the Court would be justified in giving no weight to the choice of place. At the other end of the scale, a proceeding may have continued for some time at the place of commencement with many steps having been taken there, for example, filing of pleadings and affidavits, discovery and inspection. Due weight would be given by the Court to such matters before directing that the proceeding should continue at a different place.

The balance of convenience is important, but its weight must vary from case to case. Ultimately the test is: where can the case be conducted or continued most suitably bearing in mind the interests of all the parties, the ends of justice in the determination of the issues between them, and the most efficient administration of the Court. It cannot and should not, in our opinion, be defined more closely or precisely.

27    More recently, in Mulhern v Pearce [2013] FCA 1138, Robertson J, after referring to National Mutual and Mortimer v Opes Prime Stockbroking Pty Limited (ACN 086 294 028) (Administrators Appointed) (in Liquidation) [2009] FCA 227, summarised (at [14]) the relevant considerations as follows:

•    There must be sound reason to direct that the proceeding be conducted or continued elsewhere. If the party commencing the proceeding chose the place capriciously the Court would be justified in giving no weight to the choice of place. The balance of convenience is important but its weight must vary from case to case. What needs to be ascertained is where the case can be conducted or continued most suitably bearing in mind the interests of the parties, the ends of justice and determination of the issues between them, and the most efficient administration of the Court (National Mutual Holdings Pty Ltd v The Sentry Corporation (1988) 19 FCR 155 at 162).

•    The location of parties and witnesses, the place where the cause of action arose and the convenience of the Court are all factors (National Mutual 19 FCR 155 at 162, Wang v Australian China Marketing Co Pty Ltd [2001] FCA 13 at [21], Aquila Resources Ltd v Pasminco Ltd [2004] FCA 39 at [27]-[34] and [42]-[43].

•    Typically there is no factor that is determinative but rather it is necessary to weigh all the relevant factors that might connect the proceedings to one jurisdiction or the other (Australian Competition and Consumer Commission v Fila Sport Oceania Pty Ltd [2003] FCA 430 at [19]).

•    The national character of the Court including its capacity to make flexible arrangements for the taking of evidence and the receipt of submissions is relevant (Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd [2002] FCA 1239).

•    The question of which District Registry should conduct the proceedings does not raise matters of high principle. Essentially it is a matter of case management and proper recognition of the legitimate interests of each of the parties reflected in the balance of convenience as between them and the convenience of the Court and any economies and efficiencies which may attach to one choice or the other (Lamb v Hog’s Breath Company Pty Ltd (No 1) [2007] FCA 49).

•    There may be flexibility - one Registry could conduct pre-trial management while allocating the trial to a judge in another Registry (Hog’s Breath at [10]).

•    There is no burden of proof governing the exercise of the discretion in s 48 of the Act (National Mutual 19 FCR 155 at 162).

The submissions

28    The first and second respondents, and the applicant, have provided written submissions in support of their opposing positions. I do not propose to set out the details of those submissions. It is sufficient for me to note that, in oral argument, counsel for the first and second respondents placed primary significance on the location of likely witnesses. She also relied on the fact that the proceeding has “an intensely strong Queensland flavour”, adopting language used by O’Loughlin J in Wang v Australia China Marketing Company Pty Ltd [2001] FCA 13 at [20], when considering a similar application. In doing so, she pointed to the fact that underlying the applicant’s claim were acts and transactions, particularly those involving the valuation of property, which centred on the property market on the Gold Coast in Queensland.

29    On the other hand, counsel for the applicant argued that the first and second respondents’ focus on the location of likely witnesses was, at the present time, more hypothetical than real. He submitted that the only persons whom the Court could confidently conclude would give evidence would be the applicant’s “two directors”. By this I take him to mean Bob Ell and Mr Allerdice whom Ms Banton identified as likely to be the applicant’s principal witnesses. While the applicant did not deny the possibility that, ultimately, a number of witnesses from Queensland might be called, counsel submitted that the present application was somewhat premature and that the better course would be to wait until more was known about the identity and location of all persons likely to give evidence in the proceeding. Indeed, he argued that any consideration of transfer should await the time when it is known who will be giving evidence. While accepting that it may be true that the genesis of the matters underlying the proceeding have a “Queensland flavour to them”, he submitted that the Court should not be satisfied at the present time that the considerations raised by the first and second respondents were sufficient to justify transferring the proceeding to the Queensland District Registry of the Court.

Consideration

30    I have considered whether the present application for transfer is premature and whether, as the applicant has urged, the Court should wait to see who the witnesses in the proceeding will be. I have come to the conclusion, however, that that course should not be adopted. This is because important decisions will need to be made about how the proceeding is to be conducted and, in particular, how evidence, including expert evidence, is to be adduced. There may also be important decisions to be made concerning the need for, and extent and timing of, discovery. These decisions are best made by the relevant docket judge who, in all likelihood, will hear the proceeding. In light of the matters placed before the Court in relation to the present application, I do not think that the application is premature, although I accept that some information about the proceeding is uncertain.

31    This is not a case where the choice of where to commence the proceeding has been taken capriciously. Indeed, the first and second respondents stressed that no such case is advanced. Nevertheless, I am satisfied that there is a real likelihood that a significant number of witnesses located in Queensland will give evidence about transactions and events occurring in Queensland involving the valuation of Queensland properties. The case is really about the viability of the Kirra development, and what the first respondent, in Queensland, should have done or, indeed, would have done in relation to making a loan to Backpackers for the purpose of the Kirra development, had it been in possession of certain information. I can proceed on the comfortable assumption that valuation evidence will be given by those with expertise in the Gold Coast real estate market. Although counsel for the applicant submitted to the contrary, I believe that I can safely assume that it is likely that evidence will be adduced by both sides of the record from witnesses resident on the Gold Coast or in Brisbane.

32    I accept the applicant’s submission that there will be some inconvenience caused to the applicant by the transfer of the proceeding. I take into account that the applicant will be denied its choice of the place in which to bring the proceeding. I do note, however, that the applicant has an office on the Gold Coast from which it conducts business. The applicant’s indication that staff or former staff of that office are likely to be called as witnesses signifies an involvement of the applicant’s Gold Coast office and its business activities in the events or transactions relevant to the proceeding.

33    I do not think that this is a case where the considerations are evenly balanced, thereby favouring the retention of the proceeding in the New South Wales District Registry: see ESCO Corporation and Another v Wundowie Foundry Pty Ltd (2003) 58 IPR 443 at [6]. In my view, the presently known circumstances positively favour the transfer that is sought. The case presents as one that is substantially reliant on Queensland-based evidence from a number of Queensland-based witnesses.

Conclusion and disposition

34    I am satisfied that the economical and efficient conduct of the proceeding will be best promoted by transferring the proceeding to the Queensland District Registry. An order will be made accordingly. The first and second respondents have sought their costs of this application. In my view, the appropriate order is that the costs of the application be the first and second respondents’ costs in the cause.

Associate:

Dated:    16 December 2013