Federal Court of Australia

Hera Project Pty Ltd v Woolworths Ltd [2024] FCA 1339

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s interlocutory application filed 13 November 2024 is dismissed.

2.    The proceeding is dismissed pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and r 19.01(c) of the Federal Court Rules 2011 (Cth);

3.    I will hear the parties as to costs and application of the security amounts previously paid by the applicant.

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

REASONS FOR JUDGMENT

MCELWAINE J:

1    The trial of this proceeding is listed to commence on 2 December 2024, with a 10-day estimate. The date was fixed pursuant to orders made on 4 March 2024. A series of orders made on 27 May 2024 fixed a timetable for witness statements, the attendance before a Registrar to agree and settle a chronology of material events, a statement of agreed facts, a list of issues for determination of the trial and the common documents for the trial to be tendered without objection. The orders also provided for expert conclaves, the preparation and filing of a comprehensive Court book and the provision of written opening submissions.

2    The first order made on that day required the applicant to provide security for the respondent’s further costs of the proceeding up until the first day of the hearing in the amount of $550,000, with such security to be in a form that is satisfactory to the Registrar of the Court (security orders). The security was required to be provided by 4 pm on 30 September 2024, with liberty for the applicant to apply to vary the security orders by application filed by 4 pm on 14 June 2024. It was further ordered that if the applicant does not provide security in accordance with the security orders, then the proceeding is stayed until further order and the respondent has liberty to apply for its dismissal.

3    The applicant filed, but did not ultimately proceed with, an application to vary the security orders. The applicant failed to provide the security by 30 September 2024. The regrettable history of this proceeding caused by the applicant, was correctly and properly described by Mr Warren, its solicitor advocate, as “shocking and appalling” in oral submissions before me on 15 November 2024.

4    At a hastily convened case management hearing on 8 November 2024, initiated by the respondent, I was informed that the applicant’s sole director Mr Nickolaos Konstandellos had recently died, that many of the case management orders had not been complied with and that in consequence the trial date was in peril. No application was made at that time by the respondent to dismiss the proceeding. I made procedural orders requiring any application by the respondent to dismiss the proceeding, and any application by the applicant to vary the security orders or to vacate the trial, to be urgently filed and served and made returnable on 15 November 2024.

5    The applicant, by interlocutory application filed on 13 November 2024, seeks three alternative orders which may be summarised as:

(a)    The trial date be vacated and the matter relisted for trial on a date in June 2025, with consequential adjustments to the timetabling orders;

(b)    The security orders be vacated;

(c)    Alternatively to (b), the time limited for the provision of security be extended to 14 February 2025.

6    The applicant relies on an affidavit made on 13 November 2024 by Angellique Konstandellos (the deceased’s daughter) who was appointed as the director of the applicant on 2 November 2024.

7    The respondent, by interlocutory application filed on 11 November 2024, seeks the following orders:

(a)    The proceeding be dismissed by reason of the applicant’s failure to comply with the security orders;

(b)    The applicant pay the respondent’s costs on an indemnity basis; and

(c)    The question of whether there should be a non-party costs order against the intestate estate of Nickolaos be reserved.

8    The respondent relies on several affidavits made by solicitors:

(a)    Srishti Natesh, 20 June 2024, 7 November 2024 and 11 November 2024; and

(b)    Ian Bolster, 3 May 2023, 27 October 2023, 6 February 2024 and 14 May 2024.

9    Subject to certain passages in the affidavit of Angellique which were successfully objected to, those affidavits were read before me at previous case management hearings and on 15 November 2024.

What is the claim?

10    The events central to this proceeding commence with the acquisition of a parcel of land at Cranbourne pursuant to an agreement entered into in February 2012, whereby the vendors agreed to sell a portion of the land to Joslin Street SA Developments Pty Ltd. Completion of the contract was conditional upon several matters, including the registration of a plan of subdivision and the successful amendment of certain town planning controls. As with most local government development applications of complexity there were delays. In anticipation that the sale would complete, on 1 May 2012, Joslin entered into an agreement for lease in respect of a supermarket and liquor store, with ancillary facilities, that Joslin would develop, and the respondent would lease.

11    The agreement specified that on completion of the development the respondent would lease the supermarket for a period of 20 years with eight five-year options and a commencing annual rental of $1.2 million payable monthly. There were other provisions for a turnover rent. Performance of the agreement was conditional upon several matters, including unsurprisingly satisfactory development and completion of the shopping centre. There were various timelines that were required to be met by the developer.

12    The applicant secured in principle agreement that it would be nominated as the purchaser pursuant to the land sale contract in May 2013. The applicant was incorporated as the special purpose vehicle for the undertaking of the development. Thereafter, the applicant dealt with the respondent on all aspects relating to the proposed development. Steps were taken to advance it, including the engagement of architects, the approval of the supermarket floorplan and a commitment from the respondent that it would enter into an agreement for lease with the applicant.

13    The applicant was formally nominated as the purchaser pursuant to the land sale contract on 26 July 2013. Thereafter, it became bound by the contractual provisions. The respondent agreed to the nomination.

14    This led to the signing of a formal Agreement for Lease on 18 October 2013 (AFL). The AFL imposed various obligations upon the applicant to undertake the development in accordance with an approved form, including to use its best endeavours to obtain development approval by 30 June 2015, to obtain other forms of approval by 31 December 2015 and to achieve practical completion by 1 June 2017. Any failure entitled the respondent to terminate the AFL upon notice in writing.

15    The AFL contains certain clauses permitting an extension of time for cause. The applicant further contends that the AFL was subject to an implied term to the effect that if development approval was not achieved by the development approval date of 30 June 2015, and the respondent then sought to terminate the AFL, then it was obliged to do so within a reasonable time after 30 June 2015, being six months or by 31 December 2015. The applicant says that it did everything reasonably necessary to obtain the development approval (and used its best endeavours to do so) but for various reasons was unable to. One was a protracted dispute with the vendors of the land that resulted in a proceeding in the Supreme Court of Victoria that proceeded to trial and judgment. There were several decisions, each ultimately in favour of the applicant in that it eventually secured an order for specific performance against the vendors on 22 May 2017: Hera Project Pty Ltd v Bisognin (No 3) [2017] VSC 268. After a lengthy delay, the applicant was registered as the proprietor of the land on 12 October 2017. But it had less success in procuring a timely or satisfactory development permit and planning scheme alteration.

16    The applicant’s case is that the development approval timeframes passed without the respondent taking any step to terminate the AFL in the knowledge of the obstacles that the applicant had faced. The applicant pleads extensive correspondence as establishing that knowledge.

17    On 6 September 2018, tenders were called for construction of the development. On 24 October 2018, the planning permit for it was finally granted. However, on 7 June 2019, the respondent gave notice of termination of the AFL because the works required to be undertaken by the applicant did not achieve practical completion by the extended date of 31 May 2019. The territory of the dispute is whether the respondent was lawfully entitled to give that notice including, whether the AFL was varied, whether the respondent is estopped from terminating the AFL and whether its “purported termination” amounted to a repudiation of the AFL, which the applicant accepted on 11 July 2019. There is a further claim for misleading or deceptive conduct contrary to section 18 of the Australian Consumer Law. Some of the representations relied upon concern meetings that occurred in May 2017 and April and October 2018.

18    In consequence, the applicant claims substantial damages, although the particularisation of the claim is unsatisfactory. At best, I was informed from the bar table that the claim set out in one expert report exceeds $28 million.

19    The respondent vigorously denies the claim. It admits that it had “general high-level knowledge” of certain matters relating to the town planning requirements and the need to complete the contract to purchase, limited to the content of various documents that were provided to it. It also admits that it was generally aware of the litigation between the applicant and the vendors. Some specific facts that it relies on are:

(a)    That at a meeting on 10 October 2018, Nickolaos was told that if the applicant wished to extend the dates in the AFL, it was required to request an extension in writing to be approved by the board of the respondent. The applicant did not make that application;

(b)    On 24 January 2019, it advised the applicant in writing that certain conditions in the planning permit were unacceptable within the meaning of the AFL and in that respect it reserved all its rights; and

(c)    It repeatedly advised the applicant that any alteration to the commercial terms agreed to, including an extension of the dates in the AFL required board approval, which had not been obtained. Contrary to that advice, the terms were altered by the need to comply with externally imposed conditions of approval and/or by the applicant.

Some procedural history

20    The applicant commenced the proceeding on 24 June 2021. From 6 August 2021, 20 case management orders have been made, some on the papers and by consent, to set and adjust timetabling orders. Justice Rofe first made an order for security for costs on 28 October 2021, in the sum of $50,000 calculated to mediation and reserved to the respondent the right to apply for further security. Eventually, after some delay, the applicant complied with that order. Thereafter, the history of non-compliance by the applicant is extensive and regrettable. What follows is a summary.

21    On 19 December 2022, I determined a contested application that the applicant provide further security. I ordered that, to the completion of the trial evidence, security be provided in the sum of $150,000 and that the applicant be required to file its evidence and tender bundle of documents by 4 pm on 30 April 2023. That allowed for a generous period of 132 days for the applicant to provide security. My orders reflected the applicant’s evidence as to its financial position and the consequent difficulties in providing security for costs. One matter is that the mortgagee of the proposed development land entered possession and appointed a controller on 12 July 2019. On 13 December 2022, the mortgagee advised the applicant that it had in the exercise of its power of sale, sold the land for $6.4 million which resulted in a shortfall of the amount owing of $5.9 million. It then stated that “interest is continuing to accrue at penalty rates”. It may safely be inferred that there is a provision in the mortgage for interest to be capitalised. The applicant remains subject to that external administration.

22    The applicant failed to comply with the orders of 19 December 2022. On 3 May 2023, the respondent applied to dismiss the application. At a contested hearing on 25 May 2023, I ordered that unless by 4 pm on 23 June 2023, the applicant provided the required security then the proceeding is dismissed with costs. I also made an order that the applicant pay the respondent’s costs of the application on an indemnity basis payable forthwith. The applicant provided the security.

23    An agreement was reached to vary the timetable for the provision of the applicant’s evidence by extending the date to 4 September 2023. Orders were made to that effect by consent on 4 July 2023. On 31 August 2023, the applicant’s solicitor Mr Blythman advised that the revised timetable could not be met and requested a six-week extension to 15 October 2023. No explanation for the non-compliance was then provided. The respondent’s solicitors did not agree to the variation as proposed. As an alternative, they offered agreement on condition that time be extended as requested, provided that in the event of non-compliance the proceeding be stayed and the respondent have liberty to apply that it be dismissed. Mr Blythman accepted those terms, although at the time proposed a further variation by way of extension. That agreement was formalised by consent orders made on 11 September 2023. The applicant was given until 20 October 2023 to file and serve its witness statements as to fact and opinion evidence and until 26 October 2023, to provide in electronic form a Court book of documents proposed to be relied on. The applicant failed to comply with that order.

24    By interlocutory application accepted for filing on 30 October 2023, the respondent sought an order that the proceeding be dismissed pursuant to s 37P of the Federal Court of Australia Act 1976 (Cth) (FCA Act). That application was heard on 3 November 2023. The proceeding was not then dismissed. Orders were made extending the time for the applicant to provide its witness statements and Court book of documents until 22 November 2023, and the hearing of the respondent’s interlocutory application was adjourned to 23 November 2023.

25    One witness statement was filed in compliance with those orders. Another was foreshadowed during oral submissions on 23 November 2023. The respondent’s counsel foreshadowed a further application for security for costs.

26    On 14 December 2023, the applicant filed two witness statements without leave. Despite a request for an explanation, a satisfactory one was not forthcoming. A further case management hearing occurred on 8 February 2024. An order was made that any application by the applicant, together with any affidavits in support, for leave to rely on those witness statements or other evidence served out of time, be filed and served by 16 February 2024, and made returnable on 21 February 2024.

27    The case management hearing did not proceed on 21 February 2024 because counsel for the applicant was ill. The matter was adjourned to 4 March 2024. On 4 March 2024, orders were made granting leave to the applicant to rely on certain witness statements, for any further application by the respondent for security for costs to be filed and made returnable on 27 May 2024 and that the trial of the proceeding be set down to commence on 2 December 2024 with an estimate of 10 days. A costs order was made that the applicant pay the respondent’s costs of and incidental to the hearing on that day payable forthwith on an indemnity basis.

28    In May 2024, the solicitors engaged in correspondence to reach agreement as to the provision of further security for costs by the applicant. Agreement was not reached. Security for costs was next addressed at the case management hearing on 27 May 2024. The orders made on that day are important. They were:

1.     Pursuant to section 56 of the Federal Court of Australia Act 1976 (Cth), Rule 19.1 of the Federal Court Rules 2011 (Cth) and Subsection 1335(1) of the Corporations Act 2001 (Cth) the applicant is to provide security for the respondent's further costs of the proceeding up until the first day of the hearing, in the amount of $550,000, with such security to be in a form that is satisfactory to the Registrar of the Federal Court.

2.     The applicant is to provide security for costs pursuant to Order 1 by 4.00 pm on or before 30 September 2024.

2A.     Any application by the applicant to vary orders 1 and 2, which is supported by affidavit evidence is to be filed and served by 4.00 pm on 14 June 2024, with any such application returnable at 10.15 am on 21 June 2024.

3.     If the applicant does not provide the security in the amount required by Order 1 and by the time required by Order 2 and no application is filed or served pursuant to Order 2A, the proceedings will be stayed until further order and the respondent has liberty to apply for the dismissal of the proceeding.

4.     The respondent is to file and serve any witness statements and expert reports from any person intended to be called as a witness at the trial by 4 pm on 15 August 2024.

5.     The applicant is file and serve any witness statements and expert reports strictly in reply by 4 pm on 16 September 2024.

6.     The legal practitioners for the parties are directed to attend before a Registrar of this Court on a date to be appointed by the Registrar on or before 30 September 2024, to do the following:

(a)     agree and settle a chronology of the material events;

(b)     agree and settle a statement of agreed facts in chronological order;

(c)     agree and settle a list of issues for determination at the trial; and

(d)     agree on the common documents for the trial that will be tendered without objection, limited to those documents that are material and which will be referred to in the evidence.

7.     The applicant is to file and serve a list of the persons intended to be called in its case to give evidence at the trial, which list must be limited only to those witnesses able to give material evidence as to disputed facts and which is cross-referenced to witness statements made by the witness by 4 pm on 7 October 2024.

8.     The respondent is to file and serve a list of the persons intended to be called in its respective cases at the trial, which list must be limited only to those persons able to give material evidence as to disputed facts and which is cross-referenced to witness statements made by the witness by 4pm on 14 October 2024.

9.     Subject to further order and any evidence objection pressed at the trial, the evidence-in-chief from each witness will be adduced by adoption of his or her witness statements save that viva voce evidence must be lead as to any disputed conversation and which evidence will be excised from the adopted witness statements.

10.     Subject to any further order of the Court, a witness in evidence-in-chief must not be led on evidence that is not set out in a witness statements of the witness.

11.     On or before 31 October 2024, each of the experts in common fields of expertise are required to attend before a Registrar of the Court on a day to be appointed by the Registrar as facilitator pursuant to the Expert Evidence practice note (GPN-EXPT) to do the following:

(a)    conduct the conference required by paragraphs 7.4 to 7.9 of the practice note;

(b)     identify the matters upon which the experts agree;

(c)     identify the matters upon which the experts disagree, together with a short statement of reasons as to why; and

(d)     prepare a joint expert report in accordance with paragraphs 7.10 to 7.11 of the practice note.

12.     The applicant is to file and serve a court book in electronic format by no later than 4 pm on 7 November 2024 which complies with the Court practice direction for eBooks (GPN-eBOOKS) as a single paginated PDF document to be divided into five parts:

(a)     Part A: Current pleadings;

(b)     Part B: Witness statements or affidavits to be relied upon by the parties, separately divided as between the applicant and the respondent;

(c)     Part C: The agreed chronology and list of material events;

(d)     Part D: The documents listed in strict chronological order, with those documents about which there is a dispute as to admissibility or which are to be treated as confidential to be clearly identified; and

(e)     Part E: The joint expert reports and the outcome of the attendance of the experts before the Registrar.

13.     The applicant is to file and serve an outline of opening submissions adopting the format of the agreed list of issues for determination and limited to no more than 20 pages, minimum 12-point typeface, one and a half line spacing, by 4 pm on 14 November 2024.

14.     The respondent is to file and serve an outline of opening submissions, limited to no more than 20 pages, minimum 12-point typeface, one and a half line spacing, by 4 pm on 21 November 2024.

15.     Liberty to apply.

29    Amongst other submissions made on 27 May 2024, by Mr G Clarke KC for the applicant, was the following exchange:

MR CLARKE: The position, if I can outline it, is this. What my client proposes is that $200,000 be provided by way of security, cash or guarantee, to the satisfaction of the registrar with the first tranche of 100 on 31 August, and the second tranche on 30 September. And might I indicate, the source of the moneys - - -

HIS HONOUR: There’s a funder now, is there?

MR CLARKE: I’m sorry, your Honour?

HIS HONOUR: There’s a funder now, is there?

MR CLARKE: No. No. That’s part of the problem, your Honour. There is no litigation funder. After a very long period of time and serious attempts, that is not in place. Hope springs eternal, but the fact of the matter is that, until now and going forward, it’s anticipated that Hera will be self-funding this litigation.

HIS HONOUR: Self-funding or the directors or shareholders will be advancing some money.

MR CLARKE: That’s correct. And, so far as the further security, your Honour, I’m instructed that those moneys will be paid – provided, I should say – by Mr Konstandellos, who is the director of Hera, from funds that he will receive from a development that he has undertaken in a different matter, which is expected to come to fruition and provide the release of funds prior to those dates so that Mr Konstandellos is not sitting on his hands doing nothing; he’s out there working and he proposes to fund the litigation, in part, in that way.

HIS HONOUR: Sometimes, applications against corporate parties are resolved quite quickly if the directors and shareholders give a personal undertaking.

MR CLARKE: Yes, your Honour, but such an undertaking would be problematic because we don’t apprehend that my learned friend’s clients would accept such an undertaking. Cash – there’s nothing like cash. And it’s also the case, your Honour, that the first tranche of $50,000 was provided in cash or guarantee. Then the second $120,000, provided in two lots of 60, were also provided to the registrar in the usual way, and we’ve taken it that it’s appropriate that that course of conduct should continue.

30    The quantum of the security then ordered was based on expert evidence adduced by a costs consultant engaged for the respondent. The applicant did not provide satisfactory competing evidence. That explains why order 2A was made. I was concerned that the applicant should have an opportunity to vary the security orders by adducing adequate competing evidence. On 14 June 2024, the applicant engaged that liberty and filed an application for revision of the quantum of the security to $291,000 to be provided by a personal guarantee from Nickolaos. The applicant relied on an affidavit made by Nickolaos on 14 June 2024. It contained argumentative material, submissions and his inexpert assessment (undertaken with his solicitor) of the assessor’s expert report. The hearing of that application occurred on 21 June 2024. The applicant was then represented by different counsel, who was inadequately briefed at short notice. An adjournment application was refused. Thereafter the hearing was stood down to enable discussions to take place. On resumption, the applicant discontinued its application and consented to an order that it pay the respondent’s costs on the standard basis forthwith. The affidavit of Nickolaos was not ultimately read.

31    A Registrar of this Court assessed and issued a certificate of taxation in favour of the respondent on 11 June 2024 in the sum of $73,653 pursuant to the orders made on 4 March 2024. The applicant did not pay that amount. On 1 August 2024, the solicitors for the respondent served a statutory demand upon the applicant for those costs. A covering letter threatened that if the demand was not met by 5 August 2024, instructions would be sought to make a winding up application. The demand was not met, and no application was made by the applicant to set it aside. A consequence is that the respondent has the benefit of the statutory presumption of insolvency. No winding up application has been filed.

32    On 1 August 2024, the respondent’s solicitors requested confirmation from Mr Blythman whether the applicant intended to and would provide the security for costs of $550,000 by 30 September 2024. On 6 August 2024, Mr Blythman corresponded with the respondent’s solicitor relevantly as follows:

Steps are in train to meet our client’s obligation in that regard. This would have occurred sooner but for an unexpected delay in a property settlement which is the source of the funds.

It is certainly our client’s intention to provide the security for costs and the amount of $550,000 as ordered on 21 June 2024 (sic).

33    The obligation referred to is the statutory demand. On 13 August 2024, the respondent’s solicitors enquired of Mr Blythman when the statutory demand would be satisfied and sought confirmation “that your client has made payment or will make payment imminently”. That correspondence was not answered. On 19 August 2024, the respondent’s solicitors sent further correspondence to Mr Blythman and relevantly stated:

We refer to our email of 13 August 2024 requesting confirmation that your client has made or will imminently make payment of the debt by 14 August 2024.

Your client has failed to provide such confirmation and Woolworths records indicates that it has still not received payment.

Your email of 6 August 2024 referred to a property settlement being the source of the funds for the payment of the debt. We are instructed to seek proof of your client’s capacity to pay, including documents evidencing the property settlement and the amount of monies expected to be received by Hera following settlement. Please provide this information as soon as possible.

In the circumstances, Woolworths continues to have strong concerns about Hera’s ability to pay the security for costs that it has been ordered to pay by 30 September 2024.

34    On 11 September 2024, Mr Blythman telephoned a solicitor for the respondent to inform that Nickolaos had passed away within the previous week. In fact, he died on 27 August 2024.

35    On 17 September 2024, the respondent served two expert evidence reports. The time limited to comply with the security orders expired on 30 September 2024. A consequence is that the proceeding was then stayed, and the respondent was then at liberty to apply for dismissal. It did not immediately do so.

36    On 1 October 2024, Mr Blythman emailed the respondent’s solicitors on the subject matter of “Court hearing/security for costs” and stated:

The untimely death of Nickolaos Konstandellos (who died intestate) has complicated the finalisation of the property development transaction which was to provide a source for provision of the Security that was to be lodged with the Registrar of the Federal Court by yesterday.

Alternative arrangements were being pursued but as yet are incomplete. It is anticipated that this will be resolved within a week. When we have confirmation, evidence of same will be provided to you and your client’s indulgence sought in respect of the short delay that is envisaged.

Meanwhile, Angellique Konstandellos has been appointed as the Director of Hera Project Pty Ltd, replacing her late father.

37    It is not correct that Angellique had by then been appointed as a director of the applicant. The ASIC records state the appointment date was 2 November 2024.

38    On 8 October 2024, the respondent filed a further expert report. On 14 October 2024, the respondent served on the applicant a certificate for costs pursuant to the orders of 21 June 2024 in the amount of $25,900. Payment was demanded within 28 days, failing which the applicant was warned that enforcement steps would be taken. Payment has not been made.

39    On 19 October 2024, the respondent’s solicitors corresponded with Mr Blythman as follows:

…

We refer to:

a)     Order 1 of the orders made by McElwaine J on 27 May 2024 (May Orders) requiring Hera to pay security for costs in the amount of $550,000 (Security) on 30 September 2024; and

b)     Your email of 1 October 2024.

Security for Costs and Hera's financial position

We understand from discussions in mid-September that Mr Konstandellos passed away in September. Both we and Woolworths extend our sincere condolences for the untimely passing of Mr Konstandellos.

Your email of 1 October 2024 said that the untimely death of Mr Konstandellos complicated the "finalisation of the property development transaction which was to provide a source for provision of the Security", that alternative arrangements were being pursued, that it was anticipated that those arrangements would be resolved within a week and evidence of those arrangements would be provided to the Woolworths.

As of today, your client has not paid the Security. Nor has it provided any evidence of the alternative arrangements referred to in your email of 1 October 2024.

Woolworths is sympathetic about Mr Konstandellos' passing, however, as you will appreciate Woolworths has incurred significant costs in preparing its lay evidence and expert evidence to date and continues to incur costs as it finalises its expert evidence. This is in circumstances where your client is in breach of its obligation to provide Security by over two weeks.

Woolworths has serious concerns about your client's financial ability to provide security which is compounded by your client's failure to pay the debt of $73,653 owed by Hera to Woolworths, being unpaid indemnity costs pursuant to the order of Justice McElwaine on 4 March 2024 (Debt). The period for payment of that debt required by the statutory demand passed on 5 August 2024, as stated in our email of 13 August 2024.

Please urgently let us know by 12 pm on 25 October 2024:

1.     whether your client will be in a position to pay the Security and Debt and if so, by when; and

2.     evidence of your client's ability to pay the Security and Debt within a short but reasonable period.

If your client does not provide a satisfactory response or sufficient evidence by 12 pm next Friday, Woolworths will write to the Court seeking to have the matter relisted at his Honour's earliest convenience.

Lay evidence

Woolworths filed and served its lay evidence comprising of the witness statements of Messrs Brad Karge and Chris Keen on 20 August 2024.

Hera has not yet served any lay evidence in response. Please let us know whether Hera intends to do so and, if so, when. Further, given Mr Konstandellos' death, please confirm whether any additional evidence in chief as to reliance or causation will be led by any other officer of Hera, and if so when we can expect to see such proposed additional evidence in chief.

Expert evidence

We apologise for the delay in finalising our expert evidence. Given your assurances, we have continued to undertake the work to finalise the expert evidence, but please let us know if your understanding or expectation changes.

As Hera has not provided Security, we observe that the proceedings are stayed pursuant to Order 3 of the May Orders.

40    On 23 and 24 October 2024, the respondent filed a further expert report of Mike Cox and a supplementary expert report from him.

41    Mr Blythman provided a response on 25 October 2024 as follows:

We acknowledge receipt of your email of Saturday 19th October 2024 which was not read until last Monday. It has been referred to our client and we have received the following instructions:

1.     The Konstandellos Family appreciate the sympathetic response to the sudden death of Nickolaos Konstandellos, who was the sole director of Hera Project Pty Ltd. His daughter Angellique Konstandellos has replaced him in that role.

2.     Our client will provide today as much information as it can towards satisfying your requests with respect to the arrangement for the provision of the $550,000 Security for Costs and satisfaction of the existing cost orders.

3.     The transaction at 580 Thompsons Road, Sandhurst (Sandhurst), which involves development of a childcare centre, is progressing apace. Settlement of the purchase of the freehold was effected on Monday of this week. The land is valued at $4,750,000 but is encumbered by a first mortgage to Latrobe securing $3,412,500. (See valuation of Savills attached).

4.     The application for the planning permit for the subdivision of the land and the construction of the childcare centre on one of the lots has been approved by the City of Frankston (the planning aspects are being handled by specialist practitioners at Best Hooper and the permit itself is expected to be issued on Monday. The effect of grant of the permit (and subject to construction of the building and noting that there is an AFL for the centre operator) is to immediately increase the value of the property estimated to $8,150,000 for the childcare lot alone on Savills’ valuation. This means there is equity of well over $3,000,000.

5.     The Sandhurst purchase was entered into by the late Nickolaos Konstandellos in 2023 and he nominated Childcare Asset Management Pty Ltd ACN 678 021 817 (Childcare) as the substitute purchaser and settlement took place accordingly.

6.     Nickolos Konstandellos agreed with Childcare to forego his interest in the Sandhurst contract in return for Childcare (and its alter ego John LaPenta) agreeing to advance funds to him to satisfy the judgement debt (the subject of your client’s statutory demand) and to provide a bank guarantee or such other security as would be acceptable by the Registrar of the Federal Court to satisfy the $550,000 Security for Costs order, to be effected no later than 30 September 2024.

7.     The Sandhurst purchase settlement was delayed and as a result the dates had not been met by Childcare. However, it has notified that the payment of $100,000 to meet the two outstanding costs orders will be provided by 6 November 2024.

8.     Childcare is arranging provision of the Security for Costs which is expected to be by way of bank guarantee. At this point the entity that will provide the bank guarantee to the Court has not been notified to us but is expected early next week. Provision of the bank guarantee (or the funds) is a term om the agreement that Nickolaos Konstandellos entered with Childcare not long before his death.

As to the litigation we note that the proceeding is stayed pending provision of the Security of Costs to the Court.

We acknowledge the further expert witness statement of Mike Cox of Currie and Brown that we received last evening. As previously requested, would you please let us know if it is intended by your client to file any further witness statements and if so by whom. At this stage we envisage that there will be a further statement by Luciano Pozzebon. The other expert witness statements that you have filed are being considered and may result in further statements from our client’s experts.

As referred to above, we anticipate to be in a position to provide more material with respect to the costs matters early next week and we request your client’s forbearance while we arrange this.

42    Three observations should be made about that correspondence. No complaint is made about the late service of expert witness statements by the respondent: in particular, it is not said that the service of this material was relevant to the ability of the applicant to satisfy the security orders. There is an express representation that settlement of the Sandhurst property would result in a payment of $100,000 to satisfy the outstanding costs orders by 6 November 2024. The attached valuation report was objectively provided to assuage the concerns of the respondent about the ability of Nickolaos to cause the applicant to satisfy the security orders.

43    On 28 October 2024, the respondent’s solicitor requested Mr Blythman to provide an update about satisfaction of the outstanding costs orders and the provision of security by no later than 12 pm on 31 October 2024. Mr Blythman responded at 11:55 am on 31 October 2024 as follows:

At this point I am only in a position to provide a copy of the recently granted Planning Permit in respect of the Sandhurst property, the granting of which significantly enhances its value, as referred to in the Savills valuation that was provided earlier. It is attached.

An agreement has been prepared between Childcare Asset Management Pty Ltd, the registered proprietor of the land, to enable its equity to be utilised to satisfy the outstanding security for costs order. How this may be achieved may depend on the approach taken by the Registrar to the type of security that would be acceptable.

We don’t appear to have received a response to our enquiry as to whether your client intends to file any further expert witness statements.

44    The agreement referred to in that letter was not immediately produced. A copy is attached to the affidavit of Angellique. It is dated 20 August 2024. It is a difficult document to interpret. The parties are Nickolaos, Childcare Asset Management Pty Ltd and John LaPenta. The recitals state that Nickolaos and James Podaridis had entered into a contract to purchase the Sandhurst property, a plan of subdivision had been lodged to subdivide into three lots, Childcare intended to undertake a development on lot 2 and Nickolaos had nominated Childcare as the substitute purchaser “for his purchase” (sic). There are seven operative clauses which provide:

AGREEMENT

1.     The Company agrees to complete the purchase of Sandhurst including all of Nick's obligations under such contract and his legal costs.

2.     The Company agrees to pay to Nick as he directs via his solicitors William Murray:

2.1.     $115,000 within (10) business days after the settlement of the property known as 580 Thompsons Rd Sandhurst under the contract of sale;

2.2.     $550,000 by way of Bank Guarantee and/ or any other form of security accepted by the Registrar of the Federal Court of Australia with respect to the security of cost in the matter of Hera Project Pty Ltd ats Woolworths ("the Proceedings") by no later than 30's September 2024;

2.3     The balance of the funds due to Nick and/ or his Nominee shall be agreed pursuant to a schedule of payments which shall include the funding of the Proceedings by no later than 1st November 2024;

2.4     Upon the execution of this Agreement all Planning permits and Plans of subdivision plans and all architectural drawings and sketches shall be assigned to the Company; and

2.5     This Agreement is entered into on the basis that the Settlement of the Contract of Purchase of the property known and described as 580 Thompsons Rd Sandhurst is extended for (10) business days from 21st August 2024 and the Notice of Default is withdrawn by the Vendors and that the settlement occurs on or before 31st August 2024. This agreement does not provide Nick and/ or his nominee any right to lodge a caveat over the said property without the written consent of John and James which would have the effect of restricting and constraining the financing requirements with the property to meet the obligations under this agreement.

3.     Time of the essence.

4     On the basis that the Default Notice is withdrawn and John and the Company are given the opportunity to settle the property under the Contract of Sate, John and the Company release Nick and Hera Project Pty Ltd from all claims that they may otherwise have and shall indemnify Nick against all claims including for land transfer duty resulting from the purchase and this agreement.

5.     James and John being a director of the Company guarantees the performance of its obligations under this agreement.

6.     In order to secure the payment to Nick, James, the Company and John hereby charge the Sandhurst land with the obligation for payment of the sums above.

7.     This agreement may be executed by the parties using electronic signatures and by counterparts.

45    Settlement of the sale occurred on 21 October 2024 according to Mr Blythman’s letter of 25 October 2024. In her affidavit, Angellique frankly deposes that she does not “fully understand that deal” and relies on information conveyed to her by James. In part she deposes that:

(c)    …

I understand that notwithstanding the written terms of the agreement, the completion of the on-sale was dependent on permitting (being organised by the purchaser), which was anticipated to have been completed prior to 30 September 2024. I now understand that there has been a delay in permitting the plan of subdivision for this property and Childcare. A copy of the planning permit for the subdivision was issued on 25th October 2024 and is exhibited at AK-1 pages 37-42. The planning permit for the development of the Childcare premises has yet to be issued by the local council. From my discussions with the purchaser, I anticipate that a decision regarding the child care planning permit will be made in four to six weeks (assuming that the permit issue does not need to be resolved by VCAT);

I understand that the quantum of moneys available to Nick (and indirectly to the Applicant) from the on-sale is to determined by an uplift of the value of the property with the relevant permits, this process has been be adversely affected by the delay in permitting from Council and a number of objections. The Applicant now anticipates that the sums available from the on-sale will be insufficient to meet both its own costs and the total of the security for costs ordered, and which might in the future be ordered by the Court.

(d)     Advance payments were received from the sale of the Sandhurst property in March, May and July 2024 and were used by Nick to pay senior Counsel, expert witnesses and a number of personal creditors. At that stage, Nick believed that the Sandhurst property would settle before 30 September 2024 and there would be additionally sufficient funds to pay the security for costs as well. Unfortunately, the property was only settled in late October 2024, there are the permitting issues as set out above, and therefore receipt of the balance of the funds will be delayed as set out in the preceding paragraph.

(e)     The uncertainty generated by the unknown timing and quantum of moneys available from the sale of the Sandhurst property and from the litigation funding process means that as matters presently stand, the order for security for costs stultifies the proceeding. The applicant will be in a better position to further assess that position after the Sandhurst property is sold and it has received a decision regarding litigation funding.

46    No other evidence was adduced about how the status of the unexpressed further conditions precedent to payment under that agreement were entered into, when these matters were agreed, whether they operate as express variations to the written agreement or whether there is some new agreement that supersedes what is recorded in writing. Another unsatisfactory aspect of this evidence is the contradiction between (e) (being in a better position to make an assessment after the Sandhurst property is sold) and (d) (the sale completed in late October 2024).

47    The applicant failed to pay the two outstanding costs orders by 6 November 2024, despite the representation of Mr Blythman in his correspondence of 25 October 2024. Also, on that day, the respondent served an expert report from a valuer and on 7 November 2024, a supplementary expert report from the valuer.

Relevant evidence from Angellique

48    There is much material in the evidence of Angellique that is objectionable, was objected to and which objections I upheld. A considerable portion of her affidavit is drafted in the form of submissions and is not confined to relevant and admissible statements of fact. As this is an interlocutory matter, Angellique was entitled to depose to matters of information and belief, by disclosing the sources. To an extent she did so. No application was made to cross-examine her.

49    Her evidence discloses the following. Nickolaos died suddenly. His funeral was held on 6 September 2024. The Greek Orthodox religion traditionally provides for a morning period of 40 days, which concluded on 13 October 2024. There is no explanation why in that period urgent steps could not have been taken to appoint her as a director and to follow up on the Sandhurst land contract. Angellique and her husband have some knowledge relating to this proceeding and personally contributed unspecified amounts of money to the applicant to fund the development. Nickolaos died intestate, and did not have any substantial assets or income, save for an interest in the Sandhurst property.

50    Angellique does not consider that it will be possible to proceed with the trial commencing on 2 December 2024 because the applicant seeks to rely on further (unspecified) evidence, a complaint is made by reason of the late filing of certain evidence by the respondent, the time for compliance with a number of the procedural orders made on 27 May 2024 has passed (without compliance) and the applicant will need to “organise its own funding to conduct the proceeding” and to comply with the security orders, if they are not varied. There is a proposal to seek litigation funding.

51    Angellique contends that when the security orders were made, the applicant was “unable to submit” that in consequence the proceeding would be stultified. She gives as the reason that Nickolaos “was then hopeful” that the orders would be satisfied. The position is now that the applicant’s impecuniosity prevents it from satisfying the security orders and they operate to stultify the proceeding. To date, the applicant has paid approximately $642,000 in its own legal fees to advance the proceeding, there is an estimate of $350,000 or more to prepare for the hearing and to this must be added the daily hearing fees of approximately $60,000 as invoiced by the Court on 7 November 2024, transcript costs of approximately $15,000, the outstanding costs orders and the requirement to pay security of $550,000.

52    The short point is the applicant is in no position to fund the cost of this proceeding itself, which is self-evidently so because it is now a corporation that is presumed insolvent. At best, there is an expectation that the applicant may receive some funds from the arrangements concerning the Sandhurst property or may obtain some form of litigation funding.

53    As to the latter, there is in evidence correspondence between Mr Blythman and Maxima Litigation Solutions Ltd, which is a United Kingdom based litigation funding intermediary. In a letter to Mr Blythman of 6 November 2024, there is foreshadowed the intention of applying for an After the Event (ATE) insurance policy with that which is described as “coupled with a Deed of Indemnity or Anti-avoidance Endorsement” which it is contended “should suffice” to meet the security orders. These arrangements come at a cost, unspecified in the correspondence, but described as “a deposit premium” that “won’t be anything like the $550,000”. It is further stated that “on receipt” of the final expert witness statements from the respondent, an independent opinion will be sought from solicitors as to the prospects of success as the next step before an approach is made to potential litigation funders. In the view of the author of the correspondence, the hearing should be vacated “to sometime in 2025” which would be “suitable”. The author pays no regard to the overarching purpose, the impact of an adjournment on the respondent or disruption to the timely administration of justice in this Court.

54    Maxima in a further letter to Mr Blythman of 12 November 2024, relevantly states that a law firm in Sydney will be nominated for the purposes of providing an opinion as to the prospects of success, which may take between four and six weeks and, assuming a favourable opinion, negotiations will then begin with “two major insurers in London” each of which is backed by Lloyds for provision of ATE insurance and a deed of indemnity.

Resolution of the various applications

55    At the hearing on 15 November 2024, it was agreed by Mr Robins KC for the respondent and Mr Warren for the applicant that I should determine the following issues and not address seriatim the eight multiple applications as set out in the interlocutory application of the applicant filed on 13 November 2024. The issues are:

(1)    The applicant’s application to adjourn the interlocutory hearing;

(2)    The application to vacate the security orders;

(3)    If (2) fails, whether the time for compliance with the security orders should be extended; and

(4)    If (3) fails, should the proceeding be dismissed in accordance with the interlocutory application of the respondent.

56    I heard submissions in that order. I pause to note that there is no application to adjourn the trial because of the death of Nickolaos. Rather, his passing is relied on as one matter supporting the contention that there has been a material change of circumstance as supporting discharge of the security orders or an extension of time to comply.

Adjournment application

57    Mr Warren made an oral application to adjourn the hearing, which I refused for the brief reasons which I then gave. In substance, Mr Warren submitted that he had only been briefed on Tuesday 12 November 2024, was not across all the material, that additional evidence is required in relation to the steps required to meet the security orders and there are deficiencies (caused by insufficient time) in aspects of the evidence of Angellique. Mr Warren requested an adjournment of two weeks which, necessarily, would also result in vacation of the trial.

58    Mr Robins opposed the application by analogy with the well-known decision in AON Risk Services Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27. He submits there is little attempt to address the insolvency of the respondent in the evidence of Angellique and this proceeding has a “catastrophically serial history of non-compliance by the applicant”. Whilst the death of Nickolaos has no doubt caused some problems, there was substantial default whilst he was in control of the applicant. The respondent would suffer prejudice if the interlocutory hearing were adjourned as that would cause vacation of the trial, where some of the events in question occurred many years ago. Overall, despite that Mr Warren has only recently been engaged, the applicant has had legal representation from the outset and despite it, has often been in default.

59    In essence, I accepted the submissions of Mr Robins. The starting point is the overarching purpose at ss 37M and 37N of the FCA Act. On any objective view, the applicant has consistently failed to give effect to it. Whilst I appreciate the difficulty that Mr Warren finds himself in, no explanation was provided as to why the applicant left it so late to engage him, noting that Mr G Clarke had represented the applicant at almost all previous case management hearings. Notwithstanding the late engagement of Mr Warren, he managed to prepare detailed written submissions upon each interlocutory application. The deficiencies in the affidavit of Angellique could easily have been addressed by annexing basic documents, such as bank statements, to establish whether she and her husband (who may now benefit from a successful outcome of this proceeding, if the mortgagee does not hold a charge over the fruits of litigation) are able themselves to meet the security orders. It is for the applicant to adduce satisfactory evidence that the security orders if maintained will frustrate the proceeding by demonstrating that those who stand behind an impecunious corporation are also without means: Bell Wholesale Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 at 4, Sheppard, Morling and Neaves JJ.

60    The prejudice to the respondent in my view could not be remedied by the usual costs order given the substantial outstanding and unpaid costs. The evidence about the litigation funder is uncertain and what is missing is an explanation of why the applicant did not move with alacrity to put in place steps to satisfy the security orders between 27 May and 30 September 2024. Also, an adjournment of two weeks was not justifiable because it would have the consequential effect of vacating the trial for a lengthy period.

Vacation of the security orders

61    Mr Warren, having conceded in the light of my rulings on the various objections taken to the affidavit of Angellique that the evidence in support was insufficient to maintain the application, received instructions not to proceed with this aspect of the application.

Time for compliance with the security orders

62    Mr Warren submits that I should not shut the applicant out of its ability to continue with this proceeding in circumstances where it plainly cannot presently comply with the security orders and further time should be granted to enable it to pursue the option of making a request for litigation funding or of obtaining funding pursuant to the agreement relating to the sale of the Sandhurst property. Mr Warren accepts that the history of this proceeding demonstrates that the applicant has been dilatory in complying with case management orders and there was a long lead up time between May and September 2024 for the applicant to take steps to provide the security. He submits that it did so by entering into the Sandhurst property contract in the expectation that sufficient funds would be received by Nickolaos. Regrettably, that expectation has not been fulfilled. Mr Warren accepts that the inevitable consequence of extending the time for the provision of the security is that the trial date will be lost.

63    Still, Mr Warren placed considerable emphasis on the late delivery of witness statements, some from experts, by the respondent. The order of 27 May 2024 required the respondent to file and serve witness statements and expert reports from any person intended to be called as a witness by 4 pm on 15 August 2024. Some witness statements were provided on 20 August and others as late as 7 November 2024. The consequential effect is that the applicant could not comply with a further order to file and serve any witness statements and expert reports in reply by 16 September 2024. This impacted on the applicant’s ability to provide all relevant material to Maxima for submission to an independent solicitor to prepare an opinion on the prospects of success that would in turn be provided to a litigation funder. The respondent must accept some responsibility for the applicant’s inability to comply with the security orders.

64    Mr Warren also submits that there has been a material change of circumstance. The death of Nickolaos has impacted the Sandhurst property contract and the intention to concurrently pursue the option of litigation funding.

65    The death of Nickolaos has also hampered the ability of Angellique to “get to the bottom” of why the anticipated funding has not been received from the Sandhurst property contract. There may be some variation that was agreed to by Nickolaos which must be investigated. It is not unreasonable in the circumstances to grant further time to Angellique to interrogate the Sandhurst property issue and, if it is resolved favourably, to provide the security. It should not be concluded that the applicant has been “sitting there contumaciously on its hands”. The applicant has made a very substantial investment in the conduct of the proceeding thus far and the likelihood is that its efforts will be wasted if the security orders are not varied. The fact that the applicant is impecunious relevantly counts against it, but conversely if the proceeding ends now the respondent is unlikely to recover its costs whereas if further time is granted, and funding is secured from a litigation funder or funds are recovered from the Sandhurst property contract, the respondent will be in a better position.

66    Mr Robins opposes any variation to the security orders. It is accepted that there was some delay in the provision of some of the respondent’s evidence, but there was no suggestion at the time that this caused the applicant difficulty in its approaches to a litigation funder. Indeed, the correspondence from Mr Blythman of 1 October 2024 when referring to “alternative arrangements” made no mention of an approach to a litigation funder and did not contend that any such approach had been hampered by reason of the late delivery of material from the respondent. The proposal at that stage was to secure funding from the Sandhurst property contract.

67    His submission continues to the effect that no adequate evidence has been adduced by Angellique as to the arrangements with Childcare, on the face of it there is no certainty as to if and when any money will be received pursuant to it. Further, the applicant has received an extraordinary range of indulgences in the course of the litigation, no satisfactory explanation has been provided as to why urgent steps could not have been taken during the 40-day mourning following the death of Nickolaos, the respondent continued to incur costs in good faith and based on the written assurances from Mr Blythman of 6 August, 1, 25 and 31 October 2024. There is no prospect of recovering those costs from the admittedly insolvent applicant. Mr Blythman is criticised for not having provided any affidavit by way of explanation, the applicant has failed to obtain leave to deliver an expert report from its forensic accountant out of time (despite having been on notice of that for many months) and put at its highest the applicant’s current proposals to fund the litigation are a series of “if”, “maybe”, “possibly” and “somewhere over the rainbow” events about which there can be no confidence as to the likely outcome.

68    Mr Robins also makes the submission, consistent with the overarching purpose, that the requested variations of the security orders are inconsistent with the resolution of this proceeding quickly, inexpensively and efficiently. The inevitable consequence of any variation to the timetable for the provision of the security will result in the loss of the trial with the consequent impact on the efficient use of the judicial and administrative resources available to the Court, the efficient disposal of the Court’s overall caseload and the distinct prejudice that will be suffered by the respondent if the matter is adjourned where there is no prospect of recovering the costs that will be wasted.

69    In my view, there is no satisfactory basis to vary the security orders.

70    When pressed by me as to the additional period requested by the applicant to provide the security, Mr Warren submitted that three months to 15 February 2025 is required so that all matters may be investigated. That is an extraordinary request having regard to the history that I have set out. The applicant was afforded a very generous period between 27 May and 30 September 2024 to provide security for costs in the amount of $550,000. The final date for the provision of the security was not “plucked out of the air”. On 27 May 2024, the date for the provision of the security was proposed by Mr Clarke who informed me that he was instructed that it would be provided by Nickolaos from an alternative development project “which is expected to come to fruition and provide the release of funds” within that timeframe. Of course, Mr Clarke was speaking to the provision of security in a lesser sum and in two tranches, but the applicant lost the argument on that day and no application was made to further adjust the timeframe for provision of the security at that time. A subsequent attempt was abandoned.

71    The applicant was aware from the outset of this proceeding that the respondent would seek security for costs. On 28 October 2021, Rofe J made an initial order for security in the sum of $50,000 to the date of the mediation. When I increased the security by adding $150,000 pursuant to my orders dated 19 December 2022, I allowed a generous period to 30 April 2023 for the applicant to comply. It did not. That led to an application by the respondent to dismiss the proceeding. A self-executing order was made on 25 May 2023 requiring compliance by 23 June 2023. The applicant complied.

72    Despite the death of Nickolaos on 27 August 2024, which I accept did have some impact on the applicant’s ability to put in place and complete effective steps to ensure that the security orders were complied with by 30 September 2024, this does not explain why steps were not taken with great urgency by Nickolaos after 27 May 2024. At best, he caused an arrangement to be entered into as late as 20 August 2024 which contemplated a payment of $115,000 within 10 business days of the settlement of the Sandhurst property and $550,000 by way of a bank guarantee or other acceptable form of security by no later than 30 September 2024. In other words, he acted at a very late stage and on the assumption that all would go according to plan for the settlement of a property purchase. It did not for reasons unrelated to his death, which have now been sketched in outline in the affidavit evidence of Angellique.

73    Despite the written terms of the contract, there now appear to be other conditional arrangements which remain unsatisfied and operate as conditions precedent to the obligations of Childcare. The evidence about these arrangements is vague and unsatisfactory. What cannot be gainsaid is that despite completion of the sale in late October 2024, Childcare has not paid an amount of $150,000 within 10 business days thereafter nor provided the required bank guarantee for $550,000, albeit later than anticipated in the agreement. And there is no evidence that the “balance of the funds” (whatever they may amount to) have been agreed pursuant to a payment schedule.

74    Mr Blythman must have been acutely aware that, as the 30 September 2024 deadline approached, the applicant was at risk of being, yet again, in default of orders made by this Court and in the express knowledge that the respondent then had liberty to apply for the proceeding to be dismissed. Despite this, when he corresponded on 1 October 2024, knowing that the proceeding was then stayed, he provided an assurance that notwithstanding the complication caused by the death of Nickolaos on finalisation of the Sandhurst property contract, “alternative arrangements” were then being pursued which he anticipated would be resolved within a week and in consequence sought an indulgence “in respect of the short delay that is envisaged”. It is inconceivable that Mr Blythman sent this correspondence without instructions. I infer those instructions must have come from Angellique, which is consistent with his wrong statement in that letter that she “has been” appointed as the director of the applicant.

75    Moreover, in response to the respondent’s solicitors’ letter of 19 October 2024, Mr Blythman, on 25 October 2024, on instructions (again which I infer that must have been provided by Angellique) stated that Childcare “is arranging” the provision of the security by way of a bank guarantee which was expected to occur “early next week”. He has not adduced evidence of the basis for this statement and what emerges from the evidence of Angellique is that she has no direct knowledge of it. No satisfactory explanation has been provided as to why Childcare has not complied with the written terms of the agreement of 20 August 2024.

76    In these circumstances, I cannot be satisfied that there is any real prospect that security will be provided via this mechanism if the timeframe for doing so is adjusted.

77    No application was made in a timely way to appraise the Court of the difficulties faced by the applicant. Acting consistently with the overarching purpose, the applicant should at least have sought an urgent further case management hearing once it became apparent that the deadline for the provision of the security would not be met. The failure to do so until the difficulties were first agitated at the case management hearing on 8 November 2024, initiated by the respondent, is evidence of disregard for the importance of complying with the overarching purpose. And more so in this case where there has been such an extensive history of non-compliance by the applicant with numerous case management orders.

78    Section 56(3) of the FCA Act permits the Court to, inter alia, vary the time at which security is to be given. In Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2001] FCA 1603, Hely J at [11] in part observed:

[T] he ordinary practice is that an application to set aside, vary or discharge an order of a substantive nature made after a contested hearing in contemplation that it would operate until a final disposition of the proceedings, must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application.

79    Whilst I have accepted that the death of Nickolaos is a material change in circumstances, that does not answer why he did not apply himself diligently to the task of putting in place appropriate arrangements to meet the security orders until the agreement of 20 August 2024. It does not explain why an application was not made, whilst he was alive, to vary the timetable for the provision of the security in the expectation that the Sandhurst property contract would, eventually, produce the necessary funds. It does not explain why he did not instruct his solicitors to bring to the attention of the Court at an early stage that the applicant might not be able to comply with the deadline of 30 September 2024. It does not explain why the option of pursuing litigation funding, as an alternative or concurrently with the Sandhurst property contract was not put in place at a much earlier point in time. There is no satisfactory explanation of why the applicant, having made “serious attempts” to obtain litigation funding at some time prior 27 May 2024, but by that date having abandoned that as an option in favour of the Sandhurst property contract, then determined after the deadline had passed to pursue the option again.

80    There are very unsatisfactory aspects of the litigation funding option. The Maxima correspondence is premised on further delay, an extension of the deadline for the provision of security and an adjournment of the trial. It fails to take account of the desultory conduct of the applicant and, frankly, is so qualified as to what might occur that one can have no confidence that there is any real prospect that litigation funding might be secured. This option is permeated with multiple cascading uncertainty. If all requested material is provided to Maxima, an independent solicitor will be briefed for an opinion. The solicitor may require more information. The opinion may be favourable or unfavourable. It may be qualified. It may cast the prospects of success at a level that does not attract the interest of a litigation funder. The prospects may affect the premium that a funder requires. The applicant has not attempted to explain how it could possibly fund a premium. It cannot pay the costs as ordered of $99,500. There is no attempt to explain how the funder may have priority ahead of the mortgagee controller over any proceeds of success.

81    What in this case is clear is that the applicant has had the benefit of a very generous period within which to put its house in order and to provide the security. I do not accept that the late provision of witness statements and expert reports by the respondent materially contributed to the predicament in which the applicant now finds itself. Plainly, there was no impact on the Sandhurst property contract option. There is no explanation as to why at least preliminary steps could not have been taken to provide all information that was to hand about the applicant’s prospects of success to a litigation funder or an intermediary on the basis that as further information was gathered, updates would be provided. It is to be noted that no contemporaneous complaint was made by Mr Blythman to the effect now contended when the respondent first delivered witness statements and reports beyond the timetabling orders. I do not accept the submissions of Mr Warren to the contrary. What is missing from the applicant’s evidence is a detailed explanation of how it has been proceeding with alacrity to put in place the necessary arrangements to provide security and how in fact any non-compliance with the timetabling orders by the respondent, derailed it from its ability to pursue the alternative option of litigation funding.

82    I am satisfied that the respondent has suffered prejudice by reason of the failure to provide the security as ordered. True it is, that the proceeding was stayed from 1 October 2024, but in fact due to the assurances given by Mr Blythman in his correspondence of 1, 25 and 31 October 2024, the respondent continued in the preparation of its case and in the expectation that the security would ultimately be provided. It is also objectively the case that when the time for the provision of security was determined on 27 May 2024, the respondent must have reasonably believed that it could incur significant costs of preparing for the trial up to and including the first day based on the assurance then given by Mr Clarke (in accordance with his instructions) that security would be provided by 30 September 2024. Although the applicant subsequently applied to vary the order, it abandoned the attempt when it was called on for hearing.

83    Next there is the submission that if the order is not varied, it will stultify the litigation. It is a serious matter to make an interlocutory order which has the ultimate effect of preventing an applicant which has a genuinely arguable claim (the respondent has never contended that the proceeding should be dismissed as having no reasonable prospect of success) from pursuing its claims in court, perhaps more so where the quantum claimed is large. Acceptance of that proposition does not excuse the applicant from the need to place before this Court all evidence that is relevant to its stultification submission. Although the issue in Bell Wholesale related to the discretion to order security, what the Full Court said at 4 is equally applicable to an application to vary a security order:

In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.

84    Put at its highest, there is a generalised conclusion in the evidence that, because the applicant is impecunious, if a further indulgence is withheld that will be the end of the proceeding because Angellique and her husband, who may stand to benefit from success, are not able to provide personal funding. That bald contention is unsupported by any specific evidence. There is no mention of the position of the mortgagee, whether it continues to hold security over the applicant’s assets or whether any approach for funding has been made to it.

85    In any event, what is clear is that the applicant is insolvent, remains subject to external administration with a substantial accruing debt to its mortgagee, has failed to pay interlocutory costs orders and may now be the subject of a winding up application at the suit of the respondent.

86    Overall, whilst the applicant before the death of Nickolaos took some steps to put in place an arrangement (the Sandhurst property contract) that might have resulted in sufficient funds to comply with the security orders before 30 September 2024, the fact is that too little was done too late in the day. And the arrangement itself was never certain in the intended outcome either as documented (it required approval of the plan of subdivision and settlement of the contract of sale) or, in accordance with the evidence of Angellique, because there are other vague conditions that apparently must be satisfied before Childcare is obliged to make the payment of $115,000 and provide the bank guarantee in satisfaction of the security orders.

87    Balanced against the limited steps taken by the applicant to put in place mechanisms to satisfy the security orders and the inevitable serious prejudice that is likely to flow if an extension of time is not granted, is the identified prejudice to the respondent, prejudice to the administration of justice generally, consistent non-compliance by the applicant with the orders of this Court, the numerous indulgences which have thus far been granted favourably to the applicant, the very significant period of time that was allowed for the provision of security and the belated steps taken by the applicant in a last ditch and somewhat desperate attempt to secure a further extension of time on evidence that was neither fulsome nor satisfactory.

88    Consideration of all these relevant factors weigh heavily against the requested variation to the security orders. The application is refused.

Should the proceeding be dismissed?

89    Each of Mr Warren and Mr Robins proceeded on the basis that the facts relevant to the application to vary the security orders are equally relevant to the respondent’s dismissal application.

90    Counsel accepted that the discretion to dismiss a proceeding summarily at s 56(4) is one only to be exercised in the clearest of cases. The summary determination of an applicant’s claim is a serious matter. Speaking generally of the power to summarily terminate a proceeding, in Spencer v The Commonwealth (2010) 241 CLR 118 at [24]; 210 HCA 28, French CJ and Gummow J emphasised the need to proceed “with great caution”.

91    There is a minor matter in the submission of Mr Warren that should be answered. The respondent’s application specifies that the proceeding be dismissed pursuant to s 56(4) of the FCA Act and r 19.01(c) of the Rules. Mr Warren submits the rule only permits application for a self-executing order. That is not correct. The rule provides that if an applicant fails to comply with an order to provide security within a specified time (which is this case), the respondent may apply for an order that the proceeding be stayed or dismissed.

92    Justice SC Derrington identified certain principles that guide the exercise of the discretion in Sunshine Energy Australia Pty Ltd v Youssef [2023] FCA 189 at [8] – [9], which I gratefully adopt:

There is no doubt the Court has power under s 56(4) of the FCA Act to dismiss these proceedings for failure to provide the security for costs as ordered by the Court: Microbio Resources Inc v Betatene Ltd [1993] FCA 848. It is a broad, discretionary power: Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103; 327 ALR 523 at [18]- [20] per Murphy J. The only limitation is that power must be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCA 29; 2 FCR 1 at 3 per Sheppard, Morling and Neaves JJ. In Microbio, their Honours said at 9 – 10:

The Court is careful to see that orders for security for costs do not work injustice to parties against whom such orders are made, but if those parties do not comply with the orders and give no evidence or explanation as to why they have not complied with them, they cannot be heard to complain of injustice if, after a considerable length of time, and extensions of time, the ultimate sanction of dismissal is applied. It is incumbent on parties in such circumstances to provide evidence of their position.

In Idoport Pty Limited v National Australia Bank Limited [2002] NSWSC 18 (upheld on appeal [2002] NSWCA 271), Einstein J identified five factors relevant to the exercise of the discretion:

(1)    the period that has elapsed since security was ordered;

(2)    the fact that the plaintiff has been on notice of the application for dismissal;

(3)    the seeming inability of the plaintiff to further fund the Main Proceedings;

(4)    the prejudice to the defendants;

(5)    the position of the Court.

93    Of course, this list should not be applied as if it operates as a statutory command. Everything depends on the circumstances. Mr Warren also relies on the statement by Lander J in Smart Company Pty Ltd (in liq) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419 at [563]:

Usually, a respondent would have to not only establish the failure to comply with an order or orders but some sort of prejudice occasioned to the respondent by reason of the failure. If for example, a respondent was able to show that the failure meant that any trial could not be fair then ordinarily the respondent would have discharged the onus which the respondent undoubtedly bears on an application of this kind. The respondent might also be able to satisfy the Court that an order should be made if by reason of the applicant’s failure to comply with an order or orders of the Court the respondent has been put to very great expense which is irrecoverable.

94    His Honour was then concerned with the power to dismiss a proceeding for non-compliance with orders pursuant to the former O 35A r 2(1) of the Federal Court Rules 1979 (Cth). In the immediately preceding paragraph, his Honour noted that there are no universal rules that determine the exercise of the discretion. Of course, what his Honour said at [563] is covered by the fourth proposition from Idoport, which I turn to.

95    The first matter is against the applicant. It had from 27 May until 30 September 2024 to comply. As soon as it appreciated that it may not have been able to comply then, acting in obedience with the overarching purpose, an immediate application should have been made to my chambers for a case management hearing supported with a detailed affidavit by way of explanation. It had a further period until 15 November 2024 to move with urgency to determine why security had not been provided in accordance with the Sandhurst land contract and then to provide a definitive explanation why this option had not developed in accordance with the expectation of Nickolaos. It failed in each respect.

96    As to the second consideration, whilst technically the applicant was not put on notice of the interlocutory application brought by the respondent to dismiss the preceding until 11 November 2024, it has known since 27 May 2024 that non-compliance would inevitably result in the making of the application absent a satisfactory explanation or a negotiated variation. Assurances were provided by Mr Blythman commencing on 1 October 2024, that arrangements were in place to provide the security which inevitably postponed the respondent’s decision to file the application.

97    The third matter counts heavily against the applicant. It is insolvent, is indebted to the respondent for unpaid interlocutory costs, has failed to comply with a statutory demand and has offered no concrete proposal and timeframe to discharge its obligations and to proceed with the litigation by funding it. There are no more than options that may at some time bear some fruit, contingent upon the decisions of third parties and postponement of the trial. Mr Robins is correct to submit that these are speculative “if, but, maybe and perhaps” concepts. The multiplicity of uncertainties in the applicant’s proposals provide no adequate basis to grant further indulgence.

98    The fourth matter also falls against the applicant. I have found specific prejudice to the respondent in the costs incurred thus far in the expectation that security would be provided by 30 September 2024 and that further costs have been incurred in reliance on the applicant’s assurances thereafter. Based on the evidence of the costs assessor that I accepted when making the security orders, those costs to date must have either exhausted the security amount or be very close to doing so. There is no prospect of recovery, save for an order which permits the respondent to have access to the security of $200,000 that has been provided. The shortfall is very significant.

99    I am also of the view that there is no realistic prospect made out on the evidence that the applicant will be able to prosecute the proceeding to conclusion, which flows from the cumulative consideration of the facts and my analysis.

100    Combined with the applicant’s long history of non-compliance with Court orders and the unsatisfactory state of its evidence upon this application, the last-minute desperate attempt to assure the Court that if more time is granted there is a prospect that the security may be provided is unconvincing. The obvious prejudice that will be suffered by the applicant if the proceeding is dismissed is outweighed by each other factor and the recited history.

101    Regrettably, the applicant is responsible for the dire predicament in which it finds itself. This is a clear case which justifies dismissal of the proceeding.

Orders

102    For these reasons I order as follows:

(1)    The applicant’s interlocutory application filed 13 November 2024 is dismissed.

(2)    The proceeding is dismissed pursuant to s 56(4) of the Federal Court of Australia Act 1976 (Cth) and r 19.01(c) of the Federal Court Rules 2011 (Cth).

(3)    I will hear the parties as to costs and application of the security amounts previously paid by the applicant.

Associate:

Dated:    21 November 2024