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Old Coach Developments Pty Ltd v Devren Pty Ltd

 

[2015] QCA 88

 

COURT OF APPEAL

 

PHILIPPIDES JA

  

Appeal No 3499 of 2015

SC No 5638 of 2012

 

OLD COACH DEVELOPMENTS PTY LTDFirst Applicant

PETER JOHN FRANCIS MILLERSecond Applicant

PETER JOHN FRANCIS MILLER &

SUSAN MARY MILLER

(AS TRUSTEES OF THE PETER MILLER

FAMILY TRUST)Third Applicants

TENTH ZECORE PTY LTDFourth Applicant

SUSAN MARY MILLERFifth Applicant

v

DEVREN PTY LTDRespondent

  

BRISBANE

 

THURSDAY, 21 MAY 2015

  

JUDGMENT

 

PHILIPPIDES JA:  On 19 March 2015, a claim brought by Devren Proprietary Limited, as plaintiff in the Supreme Court, against five defendants for declaratory and other relief was dismissed.  Devren has brought an appeal against that decision.  The present application for orders, including for security for costs, was brought by the defendants in the proceedings below, who are the respondents to the appeal.  It is convenient to refer to those parties as the respondents.

Devren’s claim concerned a joint venture project for the subdivision of land at Mango Hill.  It claimed it had suffered loss as the result of the respondents’ breaches of the joint venture agreement and other subsequent agreements and their breaches of fiduciary duty.  The respondents denied that they had breached the agreements or any fiduciary duty and contended that all steps concerning the joint venture project were undertaken at the request and with the authority of Devren.

Although various causes of action were relied upon, a central issue for determination by the learned trial judge was whether a person listed as a director of Devren, that is, Matthew Clair, had authority to bind it.  On that issue, his Honour found in favour of the respondents, holding that, although Clair was disqualified from being a director during any relevant period, he had ostensible authority to act on behalf of Devren.  His Honour also held that, although Clair had purported to remove Hobson as a director of Devren, that was ineffective.  Hobson remained a director throughout the relevant period.  Hobson had appointed Clair as a director of Devren and was aware Devren’s business cards listed Clair as managing director.  His Honour held those acts constituted representations by Hobson, from the outset of Devren’s dealings with the respondents, that Clair was a director of Devren and authorised to act on Devren’s behalf.  Hobson never informed the respondents that Clair lacked authority to bind Devren.  Moreover, his Honour found Devren did not challenge Clair’s continuing appointment as a director of Devren, even when Clair purported to remove Hobson as director.

There was nothing in Clair or Hobson’s conduct which ought to have caused the respondents to have reasonably considered there was a limitation on Clair’s authority to bind Devren. If there was a specific restriction on Clair’s ability to bind Devren, it was incumbent upon Hobson to speak out, as he was well aware, particularly given that throughout the relevant period, Clair was acting as Devren’s representative concerning the joint venture, a position specifically confirmed by Hobson in correspondence with the second respondent.  Hobson’s silence was properly to be characterised as allowing Clair to hold himself out as having authority.

Accordingly, Devren was bound by Clair’s actions throughout the period in question.

The trial judge held that there was no reason why payments made by the joint venture, at Clair’s direction, to specified entities should not properly be characterised as distributions to Devren.  They were made in accordance with and on instruction of Devren’s authorised representative.  The loss, flowing from the fact that Devren did not receive those payments, was a matter between Devren and Clair.

Further, in relation to the payment by the first respondent of solicitors’ fees during the period when the second respondent and Hobson were in dispute, his Honour found that there was no basis to conclude that the payments were outside the legitimate authority of the second respondent or contrary to the terms of the joint venture and other agreements.  Their payment was not a breach of contract.

As to the 4 May 2012 agreement between Devren and the respondents, it was held Clair had ostensible authority to bind Devren to it.  By that agreement, Devren forewent any entitlement to future income from the joint venture, including Lots 22 and 23.  In any event, his Honour held that the joint venture did not entitle Devren to have Lot 23 transferred to it unencumbered.  Although it did envisage a transfer of Lot 23 if Lot 23 was not sold, there was no basis to conclude a reasonable time had passed in relation to the sale.

As to Devren’s claim that the second respondent breached his fiduciary duties, the trial judge found that the second respondent’s action did not result in Devren being placed in a vulnerable position.  Devren had continued to have an active involvement in the management of the joint venture through its authorised agent, Clair.  There was no causal connection between the alleged breach of fiduciary duty and Devren’s losses.  Such loss arose by reason of Clair’s actions, not the second respondent’s.  In those circumstances, there could be no Barnes v Addy (1874) LR 9 Ch App 244 claim against the fifth respondent.

I turn to the notice of appeal.  Devren seeks orders that the respondents pay it the sum of $386,920 and transfer Lot 23 to it unencumbered and, alternatively, that they pay Devren the sum of $587,563.

There are 12 grounds of appeal.  A number of the grounds concern alleged error in the findings as to Clair’s authority to bind Devren.  Other grounds include whether the legal fees were properly chargeable to the joint venture; the findings in relation to work on the detention basin; whether the conduct of the second and fifth respondents was causative of the appellant’s loss; and whether the fifth respondent was knowingly a participant in the second respondent’s breach of fiduciary duty.

The respondents to the appeal have brought an application seeking orders that:

1.The appellant be forbidden from proceeding with the appeal.

2.The appellant provide security for costs in respect of the appeal.

3.Any other order that the court deems appropriate.

As to the first order sought, it appears that the basis the respondents contend that Devren should be “forbidden” from proceeding with the appeal arises out of Devren’s financial situation.  The respondents assert that Devren’s liabilities exceeded its assets by more than $4 million, in circumstances where it has ceased to trade and the shareholders are deadlocked.

In particular, it is contended that the directors of Devren have or may have contravened s 592(1A) of the Corporations Act 2001 (Cth) by incurring unpayable debt as a result of pursuing the present proceedings.  That debt was said to have been incurred when there were reasonable grounds to expect Devren was not able to pay all its debts as and when they became due.  I note that the provision in question concerns debt incurred prior to 23 June 1993.  In any event, it is premised on Devren being insolvent.  I note that, while the appellant concedes it is impecunious, it disputes that it is insolvent.  Winding up proceedings were brought by the second and fifth respondents but were dismissed.  The respondents say that the basis for the dismissal was that it was an abuse of process.  However, I note that no further winding up proceedings have been brought on the ground of insolvency.  I am unable to reach a concluded view about the issue of insolvency without hearing evidence.  I do not consider that Devren’s impecunious position alone provides a basis for precluding it from pursuing its appeal.

Another argument advanced by the respondents was that, in effect, the appeal is being pursued for the benefit of Devren’s solicitors.  An associated argument was that Mr Loel had “de facto” control of Devren and was a “de facto” director.  That the appellant’s solicitors will benefit from the payment of their legal fees does not establish a basis for preventing the appeal from proceeding.

Turning to the application for security for costs, the appellant’s prospects of success in the appeal are not impressive.  Difficulties with Devren’s case were referred to by Justice Applegarth when his Honour made an order for security for costs on 25 September 2013.  There are credit findings which will add to those difficulties.  But while there are significant obstacles, I would not conclude that the appeal is unarguable.

In opposing the application, it was submitted by Devren that, even if the respondents succeeded on the appeal, given they are currently self-represented, they will not be entitled to costs and will have no assessable costs of the appeal so that no order for security for costs should be made.  The respondents, however, have indicated they propose to engage solicitors, namely, Towns-Wilson Lawyers.

As I mentioned, the respondents were successful before Justice Applegarth in obtaining an order for security for costs.  That order specified that security for costs be paid in the amount of $50,000 upon an affidavit being filed and served by the respondents that they had engaged legal representation for the preparation and conduct of the trial.  The necessary affidavits to trigger the security for costs order were filed and served, the respondents having at that stage reappointed their former solicitors to act.  Security for costs, however, was not provided by the due date, whereupon the respondents, who had by then obtained different legal representation, brought an application that Devren’s proceedings be dismissed.  That application was refused and the time for the payment of security for costs was extended.  The security for costs was paid into Court.  The respondents’ solicitors subsequently withdrew from acting.  Thereafter, Devren obtained an order that the security for costs be repaid to it.  The trial was conducted without the respondents having legal representation.  Devren argued that the respondents, having had the benefit of a previous order for security for costs, payable on a trigger event, ought not, given the circumstances which eventuated, receive the benefit of a similar order.  However, I am not prepared to find that there was any conduct on the part of the respondents which would cause me not to exercise my discretion to make an order for security for costs in their favour.

Bearing in mind the appellant’s poor prospects of success and its financial position, it is appropriate to make an order for security for costs but I consider that the order for security for costs ought to be made on terms similar to that previously made; that is, that the order be contingent upon the respondents engaging legal representation and the filing and serving of an affidavit to that effect.

There are two further issues to be addressed.  The first matter is that the respondents seek security for costs in the amount of $153,350.  Devren contends that, if security is to be ordered, it ought to be in the vicinity of $10,000.  Devren argued that the sum claimed appeared to be on an indemnity basis and to have been arrived at by the second respondent himself, who did not have the relevant qualifications or experience to give reliable evidence as to the quantification of costs on the standard basis.  The estimates for some items were said to be “notably extravagant” and it was submitted that the respondents’ proposed solicitors appeared to have blankly agreed with the second respondents’ estimate and that the estimate can be assumed to be on a solicitor/client basis rather than costs recoverable on the appeal as assessed on the standard basis.

The respondents disputed that the cost calculations reflected costs on an indemnity basis.  It was asserted that the calculations made by the second respondent were made after his liaising with Mr Marias of Towns-Wilson Lawyers.  The fact remains, however, that there is no detailed quantification of estimated costs provided by an appropriately qualified person.  The respondents refer to the fact that 12 grounds of appeal are raised by the appellant (but it may be noted that four of the grounds cover the same question, namely Clair’s authority) and although, factually, there is some complexity in this matter, the legal issues concern settled principles of law.  The estimate, in my view, involves a considerable overstatement of what will be required to prepare for and conduct the appeal.

Another issue raised by Devren concerns the costs orders obtained on the dismissal of the proceedings brought by the second and fifth respondents to wind up Devren.  They were ordered to pay costs on an indemnity basis which were later assessed at about $15,900.  Upon failure to pay those assessed costs, a bankruptcy notice was issued on Devren’s behalf to the second and fifth respondents in the sum of some $16,000, which included interest.  The second and fifth respondents were unsuccessful in setting aside the bankruptcy notice and were ordered to pay costs fixed at $3,000.  They were also unsuccessful in applying for a review of that decision.  No part of the total of some $19,000 has been paid by the second and fifth respondents.  I note, however, the submission that it was anticipated by those respondents that payment would be made using Lot 23, over which a caveat had been lodged.  The respondents asserted that there was a dispute as to who was to remove the caveat and the removal was only able to be achieved on 15 May 2015.  I also note that it was stated that an application had been brought, or was being brought, for an extension of time to pay the costs.  I do not consider that it is appropriate to take those costs into account, presently, in the assessment of the appropriate quantum for security for costs.  I note that there is no reason to assume that the appellant will necessarily refrain from seeking to enforce those cost orders once they are finalised.

Devren also made reference to cost statements issued to the respondents for five orders for costs made in the present proceedings in its favour, which are said to total some $61,000.  I note that the respondents have lodged objections to the four cost statements due on 21 May 2005 and that the remaining one is due on 27 May 2005.  I also note that the respondents, in turn, have the benefit of one cost order in their favour in the present proceedings.  Devren asserted that no compliant cost statement had been served on it for that cost order, although a draft cost statement prepared by Hartwell Legal Costs had been disclosed, claiming some $7,000.  The respondents contended that Devren had not objected to the cost statement and should be taken to have accepted it.

I do not place weight on the various costs orders made in the present proceedings, which, it seems to me, have yet to reach a final resolution.  It is not appropriate to speculate on their outcome.

Security for costs is not ordered by way of indemnification for all costs.  Bearing in mind all the circumstances of the present case, the appropriate quantum for security for costs is $20,000.  I reach that conclusion bearing in mind that the appeal does involve factual complexities which new solicitors will need to familiarise themselves with.

I order that

1.The appellant provide security for the costs of the appeal in the sum of $20,000 in a form approved by the Registrar within 21 days of the filing and serving of an affidavit by the respondents that they have engaged solicitors, any such affidavit to be filed and served no later than 15 June 2015 and to exhibit the consent of the solicitors engaged to act for the respondents.

2.The respondents are relieved from any obligations to take any step in the appeal before 15 June 2015.

3.If the security is not given as required by paragraph 1 hereof, the appeal be stayed so far as it concerns steps to be taken by the respondents, unless the Court of Appeal otherwise orders.

4.In the event that the respondents file and serve an affidavit as referred to in paragraph 1 and thereafter cease to have legal representation, the parties be at liberty to make such further application to the Court as considered appropriate.

5.Costs of and incidental to this application be reserved.

 
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Editorial Notes

  • Published Case Name:

    Old Coach Developments Pty Ltd & Ors v Devren Pty Ltd

  • Shortened Case Name:

    Old Coach Developments Pty Ltd v Devren Pty Ltd

  • MNC:

    [2015] QCA 88

  • Court:

    QCA

  • Judge(s):

    Philippides JA

  • Date:

    21 May 2015

Litigation History

No Litigation History

Appeal Status

No Status