Capima Pty Ltd v Hansen[2005] QSC 208

SUPREME COURT OF QUEENSLAND

[1] MULLINS J:  The defendants seek to set aside the order made by the Deputy Registrar on 27 May 2004 renewing the claim in this proceeding for a period of 12 months.

[2] The jurisdiction exercised by the Deputy Registrar was that conferred under r 24 of the UCPR.  It is common ground that the court has jurisdiction to discharge an order made by the Deputy Registrar on an ex parte application pursuant to r 24 of the UCPR.  It is also common ground that the court is not limited to the materials before the Deputy Registrar, but can take into account all the evidence that is now available that is relevant to the issue whether the claim should have been renewed. 

[3] The basis on which the Deputy Registrar renewed the claim was that there was “good reason to renew the claim”.  The approach to the question of good reason was considered by Stephen J in Van Leer Australia Pty Ltd v Palace Shipping KK (1979) 180 CLR 337 and that approach was summarised by Pincus JA in Muirhead v The Uniting Church in Australia Property Trust (Q) [1999] QCA 513 at paragraph [4] as follows:

“(1)There is a tendency to relax rigid time limits where that is legally possible and where it can be done without prejudice or injustice to other parties.

(2)The discretion may be exercised although the statutory limitation period has expired.

(3)Matters to be considered include the length of delay, the reasons for it, the conduct of the parties and the hardship or prejudice caused to the plaintiff by refusing renewal or to the defendant by granting it.

(4)There is a wide and unfettered discretion and there is ‘no better reason for granting relief than to see that justice is done’.”

Nature of claim

[4] On or about 3 June 1997 the first plaintiff as purchaser entered into a contract (“the contract”) with the defendant as vendor to purchase the land and the business of the turf farm (collectively referred to as “the turf farm”).  The contract price was $2,068,768.  The plaintiffs owned other property at Bundaberg (“the Bundaberg farm”) and obtained finance from Interstate Mortgage and Investment Pty Ltd (“IMI”) to purchase the turf farm and refinance their existing loan of $678,968.74 secured over the Bundaberg farm.  The amount borrowed from IMI by the first plaintiff in respect of which guarantees were provided by the second, third, fourth and fifth plaintiffs, who were directors of the first plaintiff, was $2.45m.

[5] The plaintiffs allege that, prior to the contract, representations were made to them by the defendant in respect of the existing trading history of the turf farm and projected sales.  The specific representations relied upon by the plaintiffs are particularised in paragraph 5 of the statement of claim.  

[6] The plaintiffs allege that the representations were false and that the first plaintiff was induced by them and relied on them to enter into the contract and to borrow the sum of $2.45m from IMI and the sum of $518,768 from the defendants by way of vendor finance.  The plaintiffs do not provide particulars in the statement of claim of the respects in which it is alleged the representations were false.

[7] In the claim, the plaintiffs claim damages of $2,068,768 for breach of contract, negligent misrepresentation and fraud.  Although the statement of claim pleads that the representations were made in trade and commerce within the meaning of that expression as used in the Fair Trading Act 1989, no claim for relief is sought in respect of a breach of a provision of that Act.  In any case, the plaintiffs are not consumers for the purpose of relying on that Act.  Although a claim for damages for breach of contract is made by the first plaintiff, there is no allegation that any of the representations were incorporated into the contract.  The contract is not included in the material before me, but it appears that it may have contained a term or condition to the effect that the trading figures and other financial data relating to the business provided to the first plaintiff and its advisers and financiers were true and correct in every particular.  Many defects in the statement of claim were identified by Mr Bain QC who appeared with Mr Hodge of counsel on behalf of the defendant.  The true nature of the plaintiffs’ claim emerges more clearly after considering the affidavit of the second plaintiff and the affidavits of Mr Ellem who is the solicitor for the defendant.

[8] Although not pleaded, it emerges that after the first plaintiff completed the purchase, it found that the income from the turf farm was not sufficient to enable it to meet its mortgage repayments to IMI and by February 1998 the first plaintiff was in default under the mortgage.  It is alleged that in late 1998 the third plaintiff questioned the defendant about the representations made by him prior to the contract and made the defendant aware of the financial problems of the turf farm at that stage.  IMI sued the plaintiffs in this court in proceeding 2870 of 1999 and obtained judgment on 13 August 1999 for $3,075,459.90 against the plaintiffs and for recovery of possession of the Bundaberg farm.

[9] The judgment in favour of IMI was obtained against the first plaintiff as the borrower and the second to fifth plaintiffs as the guarantors of the loan.  The basis on which the second to the fifth plaintiffs make a claim in this proceeding against the defendant is not pleaded by them, but presumably they claim damages on the basis that the alleged misrepresentations made by the defendant to the first plaintiff were also made to them and they relied on those to guarantee the repayment of the loan to IMI.  The nature of the claim by the plaintiffs against the defendant can be described as primarily a claim for damages for either fraudulent misrepresentations or negligent misrepresentations alleged to have been made by the defendant to them prior to the contract. 

Subsequent events

[10] On 7 October 1999 the plaintiffs commenced proceeding 9082 of 1999 in this Court against Anjavu Pty Ltd which was the valuer engaged to value the turf farm for the first plaintiff prior to the contract.  The valuer valued the turf farm, on the basis that the business was a going concern, at $3m.  The valuation on a bricks and mortar basis was $2,212,500.  The plaintiffs alleged that the valuation was prepared negligently and that the correct value of the turf farm was $975,000.  As the valuer had no assets, the plaintiffs elected not to pursue their claim against the valuer. 

[11] On 12 November 1999 the plaintiffs commenced proceeding 10152 of 1999 in this Court against IMI for damages for negligent misrepresentation or pursuant to s 82 of the Trade Practices Act 1974 (Cth).  The plaintiffs made the allegation that prior to entering into the contract the defendant had provided documentation to the plaintiffs and IMI which purported to represent the financial viability of the turf farm to them and one Mr Mark Newnham, on behalf of IMI, and the solicitors for IMI represented to the plaintiffs that the contents of that financial documentation and the contents of the valuation by Anjavu Pty Ltd were true and correct and that the plaintiff could proceed to purchase the turf farm and borrow moneys from IMI. 

[12] The following particulars were provided in paragraph 8(d) of the statement of claim in proceeding 10152 of 1999 in respect of a meeting that took place between the second plaintiff and Mr Newnham in May 1997:

“At that meeting Tom Stevens told Newnham that the Plaintiffs had not seen the ‘books’ on Archer Park and had not been satisfied as to the accuracy of the representations made by Hansen as to the financial viability of the turf farm.  Tom Stevens told Newnham that Newham should satisfy himself as to the accuracy of what Hansen was representing and that the figures were good enough to service the $2,450,000.00 should the loan finally be approved;”   

It was then alleged in paragraph 8(g) of that statement of claim that a couple of days after that meeting Mr Newnham told the second plaintiff that the figures which the defendant had supplied appeared to be correct and the agreement for the purchase of the turf farm could go ahead.

[13] The plaintiffs alleged in that proceeding that IMI owed them a duty of care to provide correct advice as to the financial viability of the business which the plaintiff was proposing to purchase and/or the accuracy of the financial data provided by the defendant.  The first plaintiff alleged against IMI that it was induced by and relied on its representations to enter into the contract and to borrow the sum of $2.45m from IMI and the other plaintiffs alleged that they were induced by and relied on those representations to provide guarantees to IMI for the debt of the first plaintiff.  The first plaintiff alleges that it suffered loss and damage in the amount for which IMI entered judgment against it or, alternatively, an amount of $1.5m which was claimed as the difference in value between what the first plaintiff paid for the turf farm and what it was worth.

[14] IMI’s insurer was HIH and the mortgage insurer for the mortgages held by IMI and the defendant was also HIH.  HIH went into liquidation.  The proceeding against IMI was subsequently resolved in a mediation that involved IMI, the plaintiffs and the liquidator of HIH.  The agreement that was reached was set out in a deed made on 9 May 2003 which provided for both the Federal Court and Supreme Court proceedings brought by the plaintiffs against IMI to be dismissed with no order as to costs; the first plaintiff give up vacant possession of the turf farm and the Bundaberg farm to IMI; the second, fourth and fifth plaintiffs to acquire the Bundaberg farm, free of encumbrance, from IMI upon payment of $150,000; and the plaintiffs to be released from any further obligations to IMI and the liquidator of HIH.

[15] This proceeding was commenced on 30 May 2003 to preserve the plaintiffs’ cause of action against the defendant, before the limitation period expired. 

[16] In order to carry out the terms of the mediation agreement, the second, fourth and fifth plaintiffs borrowed the sum of $310,000 from First Mortgage Managed Investments Limited (“FMMI”) in June 2003 which was used to pay the sum of $150,000 to IMI enabling them to acquire the Bundaberg farm and pay outstanding legal costs and other expenses.  In October 2003 IMI transferred the turf farm as mortgagee exercising power of sale to the defendant and Claudia Regina Hansen as joint tenants.      

[17] The second plaintiff states in paragraph 55 of his affidavit that: 

“With the handing over of the Turf Farm to IMI the Plaintiffs had lost the income stream associated with the business.”

The second plaintiff does not clearly state when that occurred.  It is suggested by the terms of the settlement deed that it occurred as a result of that agreement.  That is consistent to some extent with the second plaintiff’s statement that he and the fourth defendant (who is his wife) applied for the aged pension.  The income tax assessment notices for the third and fourth plaintiffs for 2003 and the second, third and fourth plaintiffs for 2004 also bear out the statement made by the second plaintiff that they were difficult times for himself and those other plaintiffs after resolving the litigation with IMI.

[18] The deterioration in the plaintiff’s financial position as a result of having purchased the turf farm is illustrated by the second plaintiff in his affidavit in that prior to the transaction with the defendant, the second to fifth plaintiffs owned the Bundaberg farm with a debt of about $678,000.  After the purchase of the turf farm and the resolution of the proceedings with IMI, the plaintiffs’ overall debt had increased by about $200,000 as a result of owing $310,000 to FMMI and $518,000 to Mr Alfred Mayne who was the assignee of the mortgages granted to the defendant in connection with the vendor finance (and I infer from the second plaintiff’s affidavit is still owed that debt).  The plaintiffs had incurred legal costs between 1999 and 2003 that they bore themselves of over $140,000.  The second plaintiff did not disclose the asset position of the plaintiffs after carrying out the terms of the settlement with IMI.

[19] In order to stabilise their financial position, the relevant plaintiffs sold one lot of the Bundaberg farm in July 2003 for $60,000 and another lot in August 2003 for $240,000.  The second plaintiff gave evidence (which I accept) that on the second sale FMMI required that the sum of $240,000 be repaid in order to obtain the release of its mortgage over that lot. 

[20] In paragraph 79 of the second plaintiff’s affidavit reference is made to the sale of 2 further lots from the Bundaberg farm in order to raise funds to proceed with the claim against the defendant.  One lot was sold in September 2004 which the second plaintiff gave oral evidence was sold for $60,000.  Another lot was sold in April 2005 in respect of which the second plaintiff gave oral evidence that the sale price was $36,000.  The second plaintiff states that the plaintiffs are now in a position to pay for lawyers to prosecute this proceeding.  They had been told that the legal costs for doing so would be $120,000 to $200,000.

Reasons given to the Deputy Registrar

[21] The affidavit of the solicitor for the plaintiffs that was filed in support of the application for renewal of the claim made on 27 May 2004 put forward the settlement of the other proceedings as the reason for the delay.  This was on the basis, inter alia, that the settlements had impacted on the ability of the plaintiffs to proceed against the defendant “both financially and practically”.  One of the reasons offered was that the settlements affected substantially the amount of the damages claimed against the defendant.  It is not apparent from the material relied on in this application how that remained the situation as at 27 May 2004. 

[22] The affidavit of the second plaintiff filed on this application sheds some light on the attitude of the plaintiffs when it came to deciding whether to serve the claim and statement of claim on the defendant or apply for renewal.  The second plaintiff states that because matters were financially difficult at the time the plaintiffs’ solicitors sought instructions in February 2004, the plaintiffs opted for the course of seeking renewal of the claim.  The second plaintiff states that they “were emotionally drained by the litigation that had occurred from 1999 to 2003”.  The second plaintiff adds, if the Registrar had refused to renew the claim on 27 May 2004, the plaintiffs would have instructed their solicitors to serve the claim and statement of claim on the defendant before it expired on 30 May 2004.

Whether claim should have been renewed

[23] The arguments put forward by the plaintiffs in favour of renewal are that it was their precarious financial and emotional position that prevented them from pursuing the claim against the defendant and that was caused by or contributed to by the defendant’s conduct which is the subject of the claim.  It was strongly argued by Mr Vasta QC who appeared with Mr Forde of counsel for the plaintiffs that if the renewal were set aside, the plaintiffs would now be denied the opportunity to pursue their claims against the defendant, but if it had been the Registrar who had not granted the renewal, the plaintiffs would have been in a position of still being able to serve the claim before it became stale.  It is argued on behalf of the plaintiffs that a large number of the representations were in writing.  I infer from the material before me that to the extent that the representations were reflected in written material, the plaintiffs still hold that material or are able to procure it. 

[24] The plaintiffs also rely on the fact that the third plaintiff raised with the defendant, as early as late 1998, queries about the representations made by the defendant prior to the contract and that the plaintiffs had financial problems with the turf farm at that stage.

[25] It is also relevant that the plaintiffs consider that they are now in a financial position where they can pursue their claim against the defendant. 

[26] The defendant swore an affidavit in support of his application to set aside the order for renewal.  In that affidavit he refers to the fact that he moved residence in October 2004 as a result of ill health.  The defendant states that when he moved, he did not know of the plaintiffs’ claim against him or even the potential existence of the claim and swears to becoming aware of the claim only when he was served on 25 May 2005.  The defendant also states:

“4.At the time that I moved, I discarded almost all documents and records that were more than 7 years old.  This included the files from the operations and sale of the turf farm that is the subject of this proceeding.            

5.I am extremely concerned that without my records I will be unable to properly defend myself against this action.”

[27] Despite the conversation which the third plaintiff claims to have had with the defendant in late 1998 about the representations and the financial problems that the plaintiffs had encountered at that stage, there is no suggestion whatsoever that the plaintiffs articulated any allegation of misrepresentation against the defendant in such a way in late 1998 or subsequently to put the defendant on notice that he may have to defend himself in respect of his conduct prior to the contract.  I find that at the time of renewal of the claim the defendant had no notice of the plaintiffs’ intention to pursue a claim for damages for misrepresentations against him.

[28] The response of the plaintiffs to the destruction by the defendant of his records that the defendant will be able to use the plaintiffs’ copies of the documents provided by the defendant to them or provided to IMI overlooks the fact that the defendants’ accounting records relating to the operation of the turf farm would be critical to evaluating the accuracy of the financial documentation that the plaintiffs received from the defendant.  Although the destruction of the records by the defendant occurred after the renewal, but before the service of the claim, the potential for such destruction existed at the time of renewal, in the absence of any notice by the plaintiffs to the defendant of their intention to make a claim for damages for misrepresentation against him.

[29] The statement of claim (which was not drawn by counsel who appear for the plaintiffs on this application) is poorly drawn and defective in a number of respects, some of which have been identified in these reasons.  The statement of claim would be vulnerable to being struck out in its present state.  That is suggestive of some difficulties with the plaintiffs’ claim.  More significant, however, on the issue of the strength of the plaintiffs’ claim against the defendant, is the allegation made on behalf of the plaintiffs in paragraph 8(d) of the statement of claim in the plaintiffs’ proceeding against IMI.  That allegation suggests that the plaintiffs were not prepared to act on the defendant’s representations, because they were not convinced of the accuracy of them, until independent verification by IMI. That is consistent with the election made by the plaintiffs to sue IMI, before pursuing the defendant. The second plaintiff did not attempt to explain this allegation in the affidavit filed for the purpose of this application. 

[30] The fact that a Registrar may renew a claim can never be treated by a plaintiff as a guarantee that the court will not set aside that order of renewal.  The very nature of an ex parte application for renewal is such that any order made in those circumstances is vulnerable to being set aside. 

[31] In determining whether there is good reason to renew a claim, the balancing of all the relevant matters is not a precise task.  In this matter there are severe consequences for the plaintiffs if renewal is not maintained, but also for the defendant if renewal is not set aside. 

[32] Taking all the relevant matters into account, I have decided that, on balance, the risk of prejudice to the defendant was so great at the time that renewal was sought 7 years after the claim arose when no notice had been given to the defendant of an intended claim by the plaintiffs, the plaintiffs could not discharge the onus of showing there was good reason to renew the claim at that time. 

Orders

[33] The orders which I make are:  

1.The order of the Deputy Registrar made on 27 May 2004 renewing the claim in this proceeding is set aside

2.The proceeding is dismissed

The defendant sought an order for indemnity costs in his application.  This is a matter where the plaintiffs have been unsuccessful in resisting the defendant’s application to set aside the order for renewal of the claim and my inclination is to order costs of the application and the proceeding on a standard basis in favour of the defendant.  I will hear submissions from the parties, before making the order for costs.