FEDERAL COURT OF AUSTRALIA

South Townsville Developments Pty Ltd (in liq) v Lauvan Pty Ltd (No. 2) [2021] FCA 941

ORDERS

THE COURT ORDERS THAT:

1.    This proceeding be managed and heard together with the proceeding NSD 286/2021 and that evidence in the one proceeding be evidence in the other.

2.    To the extent necessary, leave be granted to the plaintiffs nunc pro tunc to use in proceeding NSD 286/2021 the following evidence filed in this proceeding:

(a)    paragraphs 144 to 155 and 162 to 168 of the affidavit of Dominic Mullins sworn 18 September 2020;

(b)    paragraphs 55 to 62 and 64 to 67 of the affidavit of Ross Stathakis sworn 7 September 2020; and

(c)    paragraphs 90 to 95, 103 to 107 and 115 to 118 of the affidavit of Shadd Danesi sworn 18 September 2020.

3.    The costs of the plaintiffs’ interlocutory application filed on 29 April 2021 be reserved for determination at the case management hearing on 13 August 2021.

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

ORDERS

THE COURT ORDERS THAT:

1.    This proceeding be managed and heard together with the proceeding NSD 1948/2018 and that evidence in the one proceeding be evidence in the other.

2.    The relief sought in paragraphs 1, 2 and 3 in the interlocutory application of the first, second, seventh and ninth defendants filed on 24 May 2021 be dismissed.

3.    The plaintiff furnish security for costs to the following defendants in the amounts indicated:

(a)    the first, second, seventh and ninth defendants in the sum of $150,000;

(b)    the third, fourth, fifth, tenth, eleventh and twelfth defendants in the sum of $150,000; and

(c)    the sixth defendant in the sum of $150,000.

4.    The security for costs referred to in Order 3 be:

(a)    in a form acceptable to the defendant(s) to whom it is furnished or, failing agreement on that form, in a form allowed by the Registrar of the Court; and

(b)    furnished within 21 days of these orders failing which the proceeding be stayed as against the defendant(s) to whom the security was not furnished until it is furnished.

5.    The defendants referred to in Order 3 have leave to apply to increase the amount of security for costs that they require.

6.    The costs of the following applications be reserved for determination at the case management hearing on 13 August 2021:

(a)    the plaintiff’s interlocutory application filed on 31 March 2021;

(b)    the first, second, seventh and ninth defendants’ interlocutory application filed on 24 May 2021;

(c)    the third, fourth, fifth, tenth, eleventh and twelfth defendants’ interlocutory application filed on 11 June 2021; and

(d)    the sixth defendant’s interlocutory application filed on 17 June 2021.

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

REASONS FOR JUDGMENT

STEWART J:

A.    Introduction

1    There are five interlocutory applications in two separate but related proceedings before me for determination.

2    In proceeding NSD 1948/2018 (the 2018 proceeding), the plaintiffs by interlocutory application lodged for filing on 28 April 2021 seek an order that that proceeding and proceeding NSD 286/2021 (the 2021 proceeding), in which one of them is the plaintiff, be managed and heard together. The plaintiffs also seek leave to use certain affidavit evidence filed in the 2018 proceeding in the 2021 proceeding. The two defendants to the 2018 proceeding oppose the relief that the plaintiffs seek.

3    In the 2021 proceeding, the plaintiff by interlocutory application lodged for filing on 31 March 2021 seeks, in effect, the same orders. That is to say, it seeks an order that the two proceedings be heard and managed together and that it has leave to use certain affidavit evidence filed in the 2018 proceeding in the 2021 proceeding.

4    Also in the 2021 proceeding, the first, second, seventh and ninth defendants by interlocutory application lodged for filing on 21 May 2021 seek orders summarily dismissing or permanently staying the proceeding as against them and, failing that, that the plaintiff furnish to them security for costs. They also oppose the relief sought by the plaintiff.

5    The third, fourth, fifth, tenth, eleventh and twelfth defendants in the 2021 proceeding, by interlocutory application lodged for filing on 11 June 2021, seek an order for security for costs.

6    The sixth defendant in the 2021 proceeding, by interlocutory application lodged for filing on 17 June 2021, also seeks an order for security for costs. He also opposes the relief sought by the plaintiff in its interlocutory application.

7    Because of the overlap between the five interlocutory applications, I made orders that the evidence in any one of those applications will also be evidence in all the others and the applications were heard together.

B.    Background to the proceedings

8    Both proceedings are brought in the liquidation of South Townsville Developments Pty Ltd (ST) and concern the development by that company of a property development that included 43 residential apartments in Townsville, Queensland, called the Allure Apartments. Disputes with regard to that development have already been the subject of much litigation some of which is discussed in South Townsville Developments Pty Ltd (in liq) v Lauvan Pty Ltd [2019] FCA 666 at [7]-[25] (the first ST judgment). Relevantly, there has also been litigation in the Supreme Court of New South Wales as reflected in Lauvan Pty Ltd v Bega [2018] NSWSC 154; 330 FLR 1, which was confirmed on appeal in Bega v Lauvan Pty Ltd [2019] NSWCA 36.

9    ST acquired the property for the development in 2012, the development proceeded in 2013 and was completed in September 2014. Over the next 12 months the apartments in the development were sold.

10    On 16 October 2015, Geoffrey Trent Hancock was appointed voluntary administrator of ST pursuant to s 436A of the Corporations Act 2001 (Cth). Mr Hancock was appointed liquidator of ST on 20 November 2015, the day that it was put into liquidation.

C.    The 2018 proceeding

11    The 2018 proceeding was commenced on 15 October 2018, the day before the expiry of the three-year period that commenced on 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 ST. The circumstances of the commencement of the case and why it was brought only at the last minute are the subject of the first ST judgment.

12    The first plaintiff is the company, ST, in liquidation. The second plaintiff is Mr Hancock as liquidator of ST.

13    The first defendant is Lauvan Pty Ltd and the second defendant is Mittabel Pty Ltd. The defendants lent money to ST for the purposes of developing the property under the terms of a facility agreement that was varied on a number of occasions. The loan was secured by a registered first mortgage over the property in favour of the defendants.

14    The original statement of claim in the proceeding was filed on 12 December 2018. In it the plaintiffs asserted against the defendants that certain interest provisions in the facility agreement are penalties and unenforceable, that certain of the variations to it are voidable transactions under Div 2 of Pt 5.7B of the Corporations Act, 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. The statement of claim included a schedule of payments said to have been made by ST under the facility agreement such that the defendants had been paid approximately $2.5 million more than they were entitled to.

15    On 2 February 2019, the defendants filed an interlocutory application for the dismissal of the proceeding as an abuse of process or, failing that, that the plaintiffs provide security for costs. A defence was filed on 25 February 2019. On 16 May 2019, the interlocutory application for dismissal of the proceeding was dismissed and the plaintiffs were ordered to put up security for costs. That interlocutory application is the subject of the first ST judgment.

16    The plaintiffs thereafter indicated that they wished to amend their statement of claim. An amended statement of claim was eventually filed on 24 October 2019. The amended statement of claim deleted the claim that the interest provisions in the facility agreement constituted penalties and were therefore unenforceable and the mortgagee in possession claims. It also deleted the schedule of payments said to have been made by ST to the defendants under the facility agreement and replaced it with a new schedule which reflected an overpayment to the defendants in the sum of approximately $3.2 million (up from the previous $2.5 million). That schedule includes amounts that it is said should be credited to ST on 2 and 23 April 2015. They are apparently the proceeds of the sales of units in the Allure development the details of which I will come to shortly.

17    A defence to the amended statement of claim was filed on 9 December 2019. It denied the pleaded allegations in relation to the schedule.

18    The plaintiffs filed evidence in the form of affidavits by Mr Hancock (two) and Andrew Peter Schwarz (an expert report on insolvency) in support of their claims on 6 March 2020 and 28 April 2020.

19    On 17 and 18 September 2020, the defendants filed evidence in support of their defence in the form of affidavits by Ross Stathakis, Paul Cook, Shadd Danesi and Dominic Mullins. The affidavits of Messrs Stathakis, Danesi and Mullins are important to the issues in the interlocutory applications that are the subject of these reasons because the plaintiffs rely on what is said in them to justify bringing the 2021 proceeding and it is that evidence that the plaintiffs seek leave to use in the 2021 proceeding.

20    The effect of their evidence is that Peter Bega procured the incorporation of ST with Mr Mullins and Mr Stathakis as directors who were to hold the shares in the company on trust for Mr Bega’s family. Mr Bega did this to hide his own interest in the development and, possibly, because he was a bankrupt (though it is not apparent on the evidence when Mr Bega’s estate was sequestrated). Mr Mullins and Mr Stathakis say that they acted on Mr Bega’s instructions in what they did with regard to ST.

21    There were three sales of multiple apartments in the Allure development to entities associated with Mr Bega’s family. First, seven apartments were sold to AB Veritas Pty Ltd, a company owned and controlled by Mr Bega’s son, Aidan Bega, for $3,080,000. The sale settled on 2 April 2015.

22    Secondly, five apartments were sold to MATAB Investments Pty Ltd, a company owned and controlled by Mr Bega’s other son, Matthew Bega, for $2,585,000. That sale settled on 23 April 2015.

23    Thirdly, four apartments were sold to Balis Properties Pty Ltd, a company owned and controlled by the brother of Mr Bega’s wife (Helen Bega), George Balis, for $2,160,000. That sale also settled on 23 April 2015.

24    Each of the purchasers under the three sale contracts had obtained finance from an independent financier to assist them to complete the purchase, but in each case the amounts provided by the financier was significantly less than the purchase price for the apartments payable under the respective contracts. In order to make up the shortfall at the completion of each sale, Mr Danesi arranged for Lauvan to obtain a bank cheque from Lauvan’s bank for the amount of the shortfall, which cheque was in each case payable back to Lauvan. With the assistance of Mr Mullins, Mr Stathakis took the bank cheque on each occasion to the settlement of the sale in Brisbane and produced it as part payment of the purchase price. Since the purchase price of each sale was to be paid to Lauvan and Mittabel under the facility agreement and in discharge of their security, the cheque could be presented at the settlement meeting as part payment of the purchase price. Mr Stathakis on each occasion brought the bank cheque back to Mr Danesi for him to deposit it back to Lauvan’s bank account.

25    This evidence is relevant to the plaintiffs’ claim that Lauvan and Mittabel were overpaid under the facility agreement. Whether or not that is right, at least to the extent of the sum of the amounts of the bank cheques on the three sales, depends on how those payments are to be characterised. On one view, presumably advanced by the plaintiffs, each payment by bank cheque was received by Lauvan on account of ST under the facility agreement and should have been so credited, the implication being that Lauvan lent a corresponding amount to the purchaser. On another view, presumably advanced by the defendants, the circular payments by bank cheque were done at the request of or with the knowledge and connivance of ST for some other purpose and without the intention of any of the parties that they were to be credited to ST.

26    By orders I had made on 10 September 2020, the plaintiffs were to file any evidence in reply by 13 October 2020. The date for the filing of evidence in reply was twice extended by consent, ultimately to 18 December 2020. As will be seen, those extensions, and the failure by the plaintiffs to meet the deadlines, are relevant to the defendants’ abuse of process claim in the 2021 proceeding.

27    The plaintiffs did not file any evidence in reply, but rather on 16 February 2021 filed an affidavit by their solicitor, Cheryl Anne Weston. Ms Weston explained that after analysing the evidence that had been filed by the defendants which is referred to above, she and Mr Hancock had concluded that a further amended statement of claim should be prepared and filed which would assert new claims against the defendants based on that evidence as well as join a number of other defendants. Ms Weston explained that it was necessary for Mr Hancock to seek additional funding before being able to bring the new claims which would necessarily take some time.

28    A timetable was set for the plaintiffs to provide to the defendants a draft further amended statement of claim and for the defendants to indicate whether they consented to it being filed.

29    I infer that the defendants’ consent was not forthcoming because on 11 March 2021 the plaintiffs filed an interlocutory application seeking leave to file a further amended statement of claim along the lines of what had been foreshadowed in Ms Weston’s affidavit. By that time the plaintiffs were again running up against a time limit, on this occasion being the six-year limit on the claims that turns on the property settlement that took place on 2 April 2015. Although I set a timetable for the interlocutory application to be able to be heard on 1 April 2021, the plaintiffs ultimately abandoned that course and elected instead to commence a new proceeding for the purpose of asserting the new claims against the existing two defendants and ten new defendants. That is the 2021 proceeding which I will come to shortly.

30    On 21 April 2021, with the defendants’ consent, the plaintiffs filed a further amended statement of claim. That is the current version of the statement of claim. It is necessary to identify the claims asserted in it in some detail because a central consideration in the applications that the two proceedings be heard together and the application that the 2021 proceeding be dismissed or stayed as an abuse of process is the extent of overlap between the two proceedings.

31    The first two claims are voidable transactions claims. They are the same as the voidable transactions claims pleaded in the original statement of claim. That is to say, it is pleaded that the fourth and sixth variations to the facility agreement were uncommercial transactions or insolvent transactions within the meaning of ss 588FB and 588FC of the Corporations Act respectively and that the fourth variation was also an unfair loan within the meaning of s 588FD, and hence that both variations were voidable transactions within the meaning of ss 588E(3) and/or 588E(6).

32    The plaintiffs claim $1,857,000 in respect of the voidable transactions claims.

33    In the further amended statement of claim the schedule of payments said to have been made by, or that should have been credited to, ST is deleted and replaced with a new schedule. The new schedule includes the following payments to the defendants on the facility agreement, the implication being that they were not credited, or not fully credited, to ST when they should have been:

(1)    Received on 2 April 2015 from the sale to AB Veritas – $2,845,000; and

(2)    Received on 23 April 2015:

(a)    from the sale to MATAB – $2,590,000; and

(b)    from the sale to Balis – $2,042,869.

34    It is pleaded that as a result of those payments, taking into account other payments I have omitted and adjustments for interest, the defendants have been paid $3,363,358 more than they are entitled to under the facility agreement. Ms Weston explains in her affidavit that the amounts set out above as having been received from the sales to AB Veritas on 2 April 2015 and to MATAB Investments and Balis Properties on 23 April 2015 were only partially credited to ST. The shortfall on each of the three sales was $395,000, $1.2 million and $905,000 respectively, being the amount of the bank cheque drawn on Lauvan’s bank, presented at the settlement meeting and then returned to Lauvan and re-credited to its account on each occasion. The sum of those three amounts is $2.5 million.

35    On that basis, of the $5,220,358 claimed by the plaintiffs, $2.5 million is in respect of the three disputed bank cheques.

D.    The 2021 proceeding

36    The plaintiff in the 2021 proceeding is ST, the company in liquidation. Mr Hancock is not a plaintiff in the proceeding. The proceeding was commenced by the filing of an originating process and statement of claim on 31 March 2021.

37    The first and second defendants are Lauvan and Mittabel, although no relief is sought against Mittabel.

38    The third defendant is AB Veritas, Aidan Bega’s company.

39    The fourth defendant is MATAB Investments, Matthew Bega’s company.

40    The fifth defendant is Balis Properties, George Balis’s company.

41    The sixth defendant is Mr Mullins.

42    The seventh defendant is Mr Stathakis.

43    The eighth defendant is Mr Bega.

44    The ninth defendant is Mr Danesi.

45    The tenth defendant is Aidan Bega.

46    The eleventh defendant is George Balis.

47    The twelfth defendant is Matthew Bega.

48    The way in which the defendants have arranged their representation is indicative of which amongst them have common interests. In that regard, Lauvan, Mittabell, Mr Stathakis and Mr Danesi are commonly represented. AB Veritas, MATAB Investments, Balis Properties and their three principals, Aidan Bega, Matthew Bega and Mr Balis are commonly represented. Mr Mullins is separately represented and Mr Bega is self-represented.

49    The statement of claim pleads the three contracts for the sale of multiple units within the Allure development to each of AB Veritas, MATAB Investments and Balis Properties (i.e., the sales referred to at [21]-[23] above) as follows:

(1)    AB Veritas: units 203, 205, 606, 704, 705, 706 and 805 for the sum of $3,080,000 which was guaranteed by Aidan Bega.

(2)    MATAB Investments: units 306, 406, 504, 506 and 605 for the sum of $2,585,000.

(3)    Balis Properties: units 100, 201, 402 and 502 for the sum of $2,160,000 which was guaranteed by Mr Balis.

50    In respect of the completion of the sale to AB Veritas the following is pleaded:

(1)    The sale was completed on 2 April 2015 for an adjusted purchase price of $3,097,633.33.

(2)    Of that amount, $1,719,370.53 was paid by an independent financier to Lauvan at the direction of ST.

(3)    Lauvan made available to AB Veritas a bank cheque for $1,395,000 which, by direction of AB Veritas and ST, was made payable to Lauvan.

(4)    The plaintiffs in the 2018 proceeding say that of that amount, $1 million was an advance to Helen Bega (Mr Bega’s wife) and the balance of $395,000 was an advance to AB Veritas to enable it to complete the purchase.

(5)    The defendants in the 2018 proceeding deny that the $395,000 amount was an advance to AB Veritas and say that the transfer of the units from ST to AB Veritas was done on the payment of $395,000 less than the purchase price. If that is correct, then AB Veritas owes that amount to ST and Aidan Bega is also liable for that amount as guarantor.

51    The evidence of Messrs Mullins, Stathakis and Danesi in their affidavits in the 2018 proceeding concerning the circulated bank cheque drawn on Lauvan’s bank, payable to Lauvan, presented at the settlement and returned to Lauvan is set out in summary form. It is then pleaded that if that evidence is correct, the purpose and effect of the steps taken by Mr Stathakis, Mr Mullins, Mr Danesi, Mr Bega, Aidan Bega and AB Veritas was to misleadingly facilitate the transfer of the units for $395,000 less than what ST was entitled to under the sale contract.

52    In addition to pleading that AB Veritas and Aidan Bega are liable to ST for that amount of $395,000, it is pleaded that:

(1)    each of Messrs Stathakis, Mullins and Bega as directors owed to ST duties under ss 181 and 182 of the Corporations Act and fiduciary duties;

(2)    they each breached those duties and/or were directly or indirectly knowingly concerned in each other’s breach of those duties; and

(3)    they each assisted in each other’s breaches of the fiduciary duties owed to ST with knowledge that the purpose and effect of the actions was to mislead the external financier and thus enable AB Veritas to purchase the units for $395,000 less than ST was entitled to receive for those units.

53    A cause of action is also pleaded against Aidan Bega on the basis that he aided and abetted, was directly or indirectly knowingly concerned in and otherwise involved with the breaches by Messrs Stathakis, Mullins and Bega and assisted them to mislead the financier. Similar causes of action are pleaded against Mr Danesi and Lauvan.

54    The pleading is then replicated in respect of the sale of units to MATAB Investments and Balis Properties, but on each occasion those companies and their principals, Matthew Bega and George Balis, are implicated.

55    On the MATAB Investments transaction the shortfall is pleaded to be $1.2 million and on the Balis Properties transaction the shortfall is pleaded to be $905,000.

56    Only the eighth defendant, Mr Bega, has thus far filed a defence.

E.    The overlap between the proceedings

57    It is apparent from what I have set out above that the overlap between the two proceedings is considerable. It is constituted by the events surrounding the three sales of units to AB Veritas, MATAB Investments and Balis Properties, and the characterisation of the payments made by the circulating bank cheques. The sum at issue in that part of the 2018 proceeding is, as I have said, $2.5 million out of a total claim of $5.2 million.

F.    The abuse of process case

58    It is convenient to refer to Lauvan, Mittabel, Mr Danesi and Mr Stathakis together as the Danesi parties. They submit that the 2021 proceeding constitutes an abuse of process and for that reason should be permanently stayed or summarily dismissed. Their abuse of process case has four separately identified elements to it.

59    First, the Danesi parties say that there is an unexplained delay in the bringing of the 2021 proceeding. They point to evidence which shows that Mr Hancock and those working for him or in association with him had a considerable amount of information from which he should reasonably have been able to bring the claims that are the subject of the 2021 proceeding at a much earlier time and therefore to have brought those claims within the 2018 proceeding. That information includes the transcripts of the proceeding before the NSW Supreme Court referred to above, a detailed statement by Mr Mullins and regular explanations by Mr Bega including with regard to the circulating bank cheques.

60    Secondly, the Danesi parties say that in the 2021 proceeding they will suffer irremediable prejudice by it having been brought so late and separately from the 2018 proceeding. They say the prejudice principally arises from the fact that in the 2018 proceeding Lauvan and Mittabel faced “only a discrete set of allegations in respect of the terms, and repayments, of the Construction Loan” in answer to which they filed the affidavit evidence of Messrs Danesi, Mullins and Stathakis referred to earlier. They say that if the 2021 proceeding continues, Lauvan and Mittabel are likely to lose half of the witnesses from whom they have served evidence.

61    As part of their submissions about irremediable prejudice, the Danesi parties submit that if the claims that are pleaded in the 2021 proceeding had been pleaded at the outset in the 2018 proceeding, they could have elected to remain silent. They say that Lauvan and Mittabel may have chosen not to put on any evidence from Mr Danesi, or from Mr Mullins and Mr Stathakis which would have meant that the plaintiff would not have been able to discharge the onus of showing actual knowledge by them of the alleged dishonest breach of duty. In short, they say that entirely different forensic choices may have been made and that the “egg cannot be unscrambled.”

62    The Danesi parties also submit that ST now seeks to use the affidavits served by Lauvan and Mittabel as admissions against those companies and the deponents to the affidavits which will cause them all substantial and irreparable prejudice.

63    The Danesi parties also point to the advanced stage of the 2018 proceeding, and how it will be substantially delayed if it has to wait for the 2021 proceeding to be ready for hearing.

64    The Danesi parties refer to the abandoned application to amend the statement of claim in the 2018 proceeding to include the claims that are now asserted in the 2021 proceeding, and submit that had that application progressed to hearing it would have been dismissed with reference to the principles in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175. In that regard, they say that substantial delay would have been caused by the amendment, it would have caused significant wasted costs arising from the need to re-do the evidence already filed, there would have been an irreparable element of unfair prejudice as already identified, case management considerations were against allowing it, it would have lessened the public confidence in the judicial system, and that no satisfactory explanation had been given for seeking the amendment at such a late stage. Thus, they submit that the 2021 proceeding is a stratagem to circumvent the self-created problems in conducting the proceeding as it should have been conducted, which was to bring the claims in the 2021 proceeding in the 2018 proceeding in a timely and organised way.

65    Thirdly, the Danesi parties submit that the 2021 proceeding was commenced in breach of ST’s Harman obligation. With reference to Hearne v Street [2008] HCA 36; 235 CLR 125 at [96], they say that ST’s reliance on the affidavits served in the 2018 proceeding in its statement of claim in the 2021 proceeding is a blatant and unexplained breach of the obligation not to use documents obtained under compulsion in litigation for any purpose other than that for which they were given unless they are received into evidence.

66    Fourthly, the Danesi parties complain that ST has selected only certain transactions in the 2021 proceeding (being the three sets of sale transactions to Bega-related companies) but not other transactions where there were “beneficiaries of offset arrangements with the full purchase price was not paid” but which do not involve Lauvan and Mittabel. They complain that 76% of the total amount of approved debts in the ST liquidation is money claimed by the Bega family, giving the Bega family every reason for the proceedings to succeed because they will obtain the vast majority of the fruits of judgment. On those bases, the Danesi parties submit that absent some other explanation it is open to the Court to find that the 2021 proceeding “may have been commenced for an ulterior purpose.”

G.    The case that the two proceedings should be heard together

67    The plaintiffs in the proceedings submit that having regard to the overlap of, and the relationship between, the issues in the respective proceedings, as well as the overlap of the parties in the two proceedings, it is consistent with the overarching purpose of the civil practice and procedure provisions to facilitate the just resolution of the disputes “as quickly, inexpensively and efficiently as possible”: s 37M of the Federal Court of Australia Act 1976 (Cth).

H.    The Harman undertaking

68    In Hearne v Street at [96], Hayne, Heydon and Crennan JJ described the “implied undertaking” identified in Harman v Secretary of State for Home Department [1983] 1 AC 208 in the following terms:

Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.

(Citations omitted.)

69    The obligation is not to use documents or information for a collateral or ulterior purpose to that for which they were produced. It is an obligation which can only be released by the court. See Hearne v Street at [107]-[108] and the authorities there cited.

70    It has been said that a party that seeks leave to be released from the implied undertaking must show “special circumstances”. The notion of “special circumstances” does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient that, in all the circumstances, good reason is shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for another non-litigious purpose. The discretion is a broad one and all the circumstances of the case must be examined. See Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; 218 ALR 283 at [31] per Branson, Sundberg and Allsop JJ; Treasury Wine Estates Ltd v Maurice Blackburn Pty Ltd [2020] FCAFC 226; 285 ALR 562 at [94]-[100] per Jagot, Markovic and Thawley JJ.

71    Mr Hancock and ST submit that “special circumstances” exist in the present case for leave to be granted to them to rely on the affidavits of Messrs Mullins, Danesi and Stathakis in the 2021 proceeding on account of the following cumulative factors:

(1)    The affidavits appear to confirm the involvement of the persons who provided them in what appears to amount to an agreement to mislead ST and others as to the amount being paid by the purchasers for the apartments purchased from ST, or at least shows that ST did not receive all of the monies to which it was contractually entitled when it transferred the titles to those apartments to the purchasers.

(2)    If it was not for the impending expiry of the limitation period, the 2018 proceeding would have been amended to include the issues which are now the subject of the 2021 proceeding with the result that no implied undertaking question would have arisen.

(3)    Leave to use the affidavits was sought as soon as possible after the 2021 proceeding had been commenced, and at this stage the only reference to the material that is the subject of the application for leave is in the statement of claim, i.e., there has been no breach of the implied undertaking at this point except for the naming of the relevant parts of the affidavits in the statement of claim.

(4)    If ST had taken the course of seeking leave to use the material before commencing the 2021 proceeding, by the time leave was granted it may have been too late as the relevant limitation period may have by then expired.

I.    Resolution

72    The Danesi parties’ complaint of abuse of process, and the applications that the two proceedings be heard together and that ST be granted leave to rely on the three affidavits that have been referred to, are all interrelated. They cannot be dealt with in isolation.

73    It is of obvious concern, and relevant to any consideration of abuse of process, that ST has commenced the 2021 proceeding against Lauvan in which it asserts a claim that arises from exactly the same factual narrative (i.e., the circulating bank cheques) as a claim that it is already asserting in the 2018 proceeding. That gives rise to issues of Anshun estoppel and abuse of process. ST seeks to overcome those problems by having the two proceedings heard together.

74    It is also of obvious concern that Mr Hancock and ST waited until the last minute before seeking, first, to amend the statement of claim in the 2018 proceeding to bring the new claims and, secondly, to then abandon that and instead commence the new proceeding. It is also true, as is submitted on behalf of the Danesi parties, that Ms Weston’s explanation for that conduct is less than comprehensive. The explanation amounts to the following:

(1)    To properly understand the evidence that was filed by Lauvan and Mittabel in September 2020 in the 2018 proceeding, it was necessary for her to obtain a copy of the pleadings and affidavits, and a transcript of the evidence, in the NSW Supreme Court proceeding to which reference was made in those affidavits.

(2)    Having read the documents from the NSW Supreme Court proceeding, she was able to work out what had occurred with the circulating bank cheques.

(3)    That enabled her to form the conclusion that the evidence filed in the 2018 proceeding amounts to an admission that Messrs Danesi, Mullins, Stathakis and Bega, together with Lauvan, agreed to mislead ST as vendor and/or the external financiers in each case to believe that the full contract price was being paid for the apartments, or that ST’s directors allowed the sales to be completed without ensuring that the full purchase price was paid which was a breach by them of their duties.

75    That explanation lacks detail, and in particular does not explain why the new claims could not have been formulated at a much earlier time taking into consideration that during the course of the NSW Supreme Court proceeding Mr Bega had sent Mr Hancock emails attaching the affidavits and transcripts and expressly referring to the circulating bank cheques – which he described as a “round robin of funds”.

76    I am, however, mindful that it is much easier in hindsight, once particular claims have been formulated, to point back to what evidence was available at a much earlier point in time to support those claims, than it is at the time to identify that evidence in amongst a morass of other information and to formulate claims in reliance on it. I am also mindful of the fact that Mr Hancock and those working with him had a number of issues to deal with, and they were unfunded for long periods of time. These matters are explained in an affidavit by Mr Hancock.

77    The Danesi parties’ complaint that the new claims were brought on the eve of the expiry of the limitation period, and had they been brought slightly later there would have been a good defence to them on account of that expiry, needs to be understood in that context. That is because, if a claim is brought within time, it can hardly be a valid complaint that if it had been brought slightly later it would have failed; the point of time limits is that the necessary steps are taken prior to the expiry of the limit and if they are then there can be no complaint about that expiry.

78    In that regard, I do not accept that had the application to amend the statement of claim in the 2018 proceeding proceeded to hearing it would have been refused. The principal objection to leave to amend being granted would have been that the urgency was essentially self-created, which would have been a concern for the Court in the management of its caseload rather than a cause for particular prejudice to the defendants to the 2018 proceeding, i.e., Lauvan and Mittabel. The proceeding had not yet been listed for hearing and not all the evidence had yet been filed. It is true that by the time the amendment application was brought the plaintiffs were late in filing their reply evidence, but I infer that that was because they were considering the defendants’ evidence and formulating their new claims.

79    Except for one argument which I will return to, the arguments that are raised by the Danesi parties against the two proceedings being heard together and in favour of a permanent stay or summary dismissal of the 2021 proceeding are all arguments available only to Lauvan and Mittabel because they are the only defendants common to the two proceedings. Dealing first with Mittabel, since no relief is claimed against it in the 2021 proceeding, and it appears to be an unnecessary party to that proceeding, it would appear to have good grounds for that proceeding to be dismissed as against it. I did not understand there to have been much resistance to that course. For the same reason, it would have a valid complaint about the two proceedings being heard together but for the fact that it and Lauvan are commonly represented so it does not appear to cause any practical prejudice, and the fact that the characterisation of the payments by the circulating bank cheques, in which it has a key interest, is common to both proceedings.

80    The only party that faces claims in both proceedings, and which has the complaint that had the new claims been sought to be brought by way of amendment in the 2018 proceeding that would have failed, is Lauvan. That raises the question, what would the position be if the 2021 proceeding was stayed, or dismissed, as against Lauvan? For the reasons already given, on this scenario I will assume that it is also stayed or dismissed as against Mittabel. The result would be that there would be two proceedings with no common defendants but there would be a substantial common narrative, being the narrative of the circulating bank cheques. The characterisation of the payments made by those cheques will be a common issue in both proceedings. There would thus be a risk of conflicting findings in the two proceedings, which is something that as a matter of firm legal policy should be avoided if possible. Those considerations drive one back to allowing the two proceedings to be run together.

81    Mr Sirtes SC, who appears with Ms Avery-Williams for the Danesi parties, submits that I should not adopt that course because of “fundamental unfairness” Lauvan and Mittabel would face in the 2018 proceeding which is that they would not be able to compel Messrs Mullins, Danesi and Stathakis to give evidence in the combined proceeding and they would thus lose their critical witnesses. Mr Sirtes submits that they could not be compelled because they would have become parties to the proceeding. It is this argument that is the only argument that is not only available to Lauvan and Mittabel as the only defendants to the earlier proceeding.

82    That submission does not seem to me to be correct. By s 12 of the Evidence Act 1995 (Cth), except as otherwise provided in that Act every person is competent to give evidence and a person who is competent to give evidence about a fact is compellable to give that evidence. The only exception that comes close to possibly applying is that in s 128, namely that a witness may object to giving particular evidence if it may tend to prove that the witness has committed an offence or is liable to a civil penalty. Neither of those possibilities exist in either of the present proceedings, and if the evidence of the witnesses in question might otherwise tend to prove either of those possibilities then that is already the case on the affidavits that have been filed. That is to say, if they have a valid objection to giving that evidence they have it in the 2018 proceeding on its own without any consideration of the 2021 proceeding.

83    Mr Sirtes submits that the only proper course is to permanently stay the whole of the 2021 proceeding, i.e., not only as against Lauvan and Mittabel. I, however, see no justification for such a course. One might ask rhetorically, why should no proceeding be brought, or continued, against the ten other defendants to the proceeding just because two of the defendants are facing a claim arising from the same factual narrative in another proceeding? Surely, the proper course is to hear the two proceedings together?

84    I simply do not see that there is any unfairness to Messrs Danesi, Mullins and Stathakis, as is submitted, for Mr Hancock and ST to rely on what they have said on affidavit to assert a new claim against them. One must assume in their favour that what they have said on affidavit is the truth. If that is so, and it gives rise to some civil liability, why should it not be relied on? I accept that forensic choices were made by Lauvan and Mittabel on what evidence they filed in the 2018 proceeding that may have been different if they had realised that additional claims would be asserted in reliance on that evidence. However, in the ordinary course of litigation choices are made all the time and on each such occasion the consequences of those choices must be considered. There was no representation by the plaintiffs in that case, whether express or implied, that they would not seek to bring further claims; there is no basis for an estoppel and none is relied on. It goes without saying that one should expect that if one files evidence which, if true, gives rise to a civil liability that an opposing party will rely on that evidence to assert that liability. It often happens in the course of a civil proceeding that an additional claim is introduced on the basis that if the defendant’s version is accepted, then an alternative claim will succeed. That is in effect what ST pleads in the 2021 proceeding.

85    I do not accept that Messrs Danesi, Mullins and Stathakis have any legitimate complaint about their affidavits in the 2018 proceeding being used as a basis to assert liability against them and others in the 2021 proceeding. It has been asserted that that is unfair, but I am not persuaded that it is, at least not relevantly so.

86    I accept that the 2018 proceeding will take longer than it would otherwise have taken, and potentially considerably longer because of the many additional defendants in the 2021 proceeding which is a factor that gives rise to inevitable further delays and the potential for cross claims. If Lauvan and Mittabel had a real interest in the 2021 proceeding progressing towards finality quickly, then they could have sought to have the claims in that proceeding other than the claim for overpayment under the facility agreement, which is the one that overlaps with the 2021 proceeding, progress separately and for the overpayment claim to be dealt with with the claims in the 2021 proceeding. They have not done that, although it is still open to them to do so.

87    In any event, I do not consider that delay to be decisive. I take it into account, but it does not outweigh the other considerations.

88    I cannot see the relevance of the fact that only transactions involving the Bega family companies are the subject of the 2021 proceeding and not other transactions involving other parties. There is certainly insufficient basis for me to draw the inference that is pressed upon me, namely that the 2021 proceeding is some kind of stratagem in concert with Mr Bega to return the proceeds of the litigation to Bega family members.

89    Insofar as the Harman obligation is concerned, I consider that special circumstances have been amply established for the reasons advanced on behalf of Mr Hancock and ST as recorded above (at [71]). Shortly put, the purpose for which the affidavits are relied on is to assert claims against the party who filed those affidavits, being Lauvan, and a number of other parties that arise from the same factual circumstances underpinning the proceeding in which the affidavits were filed. Moreover, because of the impending time bar it was not practical for Mr Hancock to seek leave to use the affidavits before bringing the new proceeding. Instead he sought that leave essentially as soon as the new proceeding had been brought.

90    In the result, in my view the proper course for the two proceedings, in order to do justice between the parties, and in recognition of the interests of creditors in the liquidation of ST and the overarching purpose of the civil practice and procedure provisions, is the following:

(1)    The Danesi parties’ application to stay or dismiss the 2021 proceeding should be dismissed.

(2)    There should be an order that the two proceedings are heard together and that the evidence in one is evidence in the other.

(3)    There should be an order that, to the extent necessary, Mr Hancock and ST are excused from the Hearne v Street obligation in respect of the affidavits of Messrs Danesi, Mullins and Stathakis as referred to in the statement of claim in the 2021 proceeding nunc pro tunc.

J.    Security for costs

91    It was initially submitted on behalf of ST that it should not have to put up security for the costs of the defendants in the 2021 proceeding because the financial difficulties of ST have been at least in part caused by the matters which are the subject of the proceeding. However, even if that was to be accepted – which is doubtful given that ST has debts estimated at nearly $14 million which overwhelms the $2.5 million claimed in the proceeding – ST does not claim that if it is required to put up security the proceeding will be stifled. It accepts that it has no funds of its own to pay costs that might be ordered against it, but it has funding made available to it by a funder.

92    In the circumstances, there is no basis for ST to resist putting up security for costs. The question is only the sum of the security that should be required. In that regard, on the basis of the usual affidavits from their solicitors the parties seek the following:

(1)    The Danesi parties: $398,250, being 75% of an estimate of $531,000 for the preparation of and attendance at a ten-day hearing;

(2)    AB Veritas, MATAB Investments, Balis Properties, Aidan Bega, Matthew Bega and George Balis: $430,500 for the whole proceeding on the basis of a seven-day hearing;

(3)    Mr Mullins: $460,405, consisting of an estimate of $325,600 for counsels’ fees for the preparation of and attendance at a ten-day hearing and 75% of an estimate of $179,740 for solicitor costs and disbursements in respect of the same.

93    It is plainly too early to estimate how long the hearing may be. It seems to me that the proper course is to order ST to put up security for costs in the sum of $150,000 to each of the three groups of defendants who have sought security. In the event that any of the defendants require further security in the future, they can apply for additional security. On such occasion they will have to document what costs they had incurred up to that time and they will have to estimate what costs they are likely to incur in the future. Given that the proceeding will be well advanced by then, a more accurate assessment should be able to be made than what can be made at present.

K.    Disposition

94    On the competing applications with regard to hearing the proceedings together and staying or dismissing the 2021 proceeding, there should be orders along the lines of what I have identified at [90] above. I will give the parties the opportunity to address me briefly on costs.

95    On each of the security for costs applications in the 2021 proceeding there should be orders as follows:

(1)    The plaintiff furnish security for costs in the sum of $150,000 in a form acceptable to the defendant(s) or, failing agreement on the form of security, in a form allowed by the Registrar of the Court;

(2)    The defendant(s) have leave to apply again for additional security if and when it is required.

Associate:

Dated:    10 August 2021

SCHEDULE OF PARTIES