McPhail Investments Pty Ltd v Stumer
[2012] QSC 242
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- Unreported Judgment
- McPhail Investments Pty Ltd v Stumer[2012] QSC 242
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McPhail Investments Pty Ltd v Stumer[2012] QSC 242
McPhail Investments Pty Ltd v Stumer[2012] QSC 242
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Trial Division | |
PROCEEDING: | Hearing |
ORIGINATING COURT: | |
DELIVERED ON: | 4 September 2012 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 10 August 2012 |
JUDGE: | Philip McMurdo J |
ORDER: |
|
CATCHWORDS: | PROCEDURE – COSTS – JURISDICTION – PERSONS NOT PARTIES TO PROCEEDINGS – where it was ordered that the plaintiff pay security for costs with a failure to do so resulting in the proceedings being stayed – where the plaintiff failed to comply with the order yet continued to pursue its claim - where the relevant non-party was the sole director and shareholder of the plaintiff company and where his law firm acted for the plaintiff company for the majority of these proceedings – where the non-party had a clear interest in the outcome of the matter – whether costs should be awarded against the non-party and on what basis Knight v FP Special Assets Ltd (1992) 174 CLR 178, cited The Beach Retreat Pty Ltd v Mooloolaba Marina Ltd [2009] 2 Qd R 356, considered |
COUNSEL: | D de Jersey for the defendants R A Perry SC for the plaintiff and Mr PG Lynch |
SOLICITORS: | Thomsons Lawyers for the defendants Lynch Morgan Lawyers for the plaintiff and Mr PG Lynch |
[1] On 20 July 2012, this claim was dismissed and judgment was entered for the defendants. It was also ordered that the plaintiff’s caveat lodged over the defendants’ land be removed. The plaintiff consented to those orders.
[2] This judgment concerns the costs of the proceedings. The plaintiff agrees that it should pay the defendants’ costs but upon the standard basis. The defendants seek their costs upon the indemnity basis, not only from the plaintiff but also from its sole director and shareholder, Mr PG Lynch. He opposes any order being made against him.
[3] The plaintiff company was incorporated in June 2008. Mr Lynch was one of its two directors at the outset. The other director left in September 2009 and Mr DA Henry was appointed as a director in December of that year. Mr Henry resigned in September 2011 so that throughout the life of these proceedings, Mr Lynch has been the plaintiff’s sole director and also its sole shareholder. The company’s paid up capital is $2.00. It is not suggested that it is a trustee. It has no apparent means to pay costs.
[4] I go then to the events which led to these proceedings and then to their dismissal. Shortly after its incorporation, the plaintiff entered into a deed with the defendants whereby they granted to it an option to purchase land owned by them at Narangba. The plaintiff intended to pursue some development approvals for the land. After several agreed extensions of the last date for the exercise of the option, the plaintiff exercised the option in January 2011, resulting in a contract for the sale of the land. The price was $1.6 million. The date for completion was 27 July 2011. Then on 20 July 2011, as it was entitled to do, the plaintiff unilaterally extended the date for completion to 27 September 2011.
[5] According to the statement of claim, on 21 July 2011 the defendants, through their then solicitor in a conversation with Mr Lynch, agreed to further extend the date for settlement until 31 May 2012. Mr Lynch is also a practising solicitor and his firm was acting for the plaintiff in this transaction. The defendants have always denied that the effect of this conversation between their solicitor and Mr Lynch was to extend the date for completion beyond 27 September 2011.
[6] On 26 September 2011, Mr Henry resigned as a director of the plaintiff. When settlement did not occur on the following day, the defendants terminated, or purported to terminate, the contract on 14 October 2011. By that stage the plaintiff had lodged a caveat in which it claimed an interest as purchaser under the contract.
[7] The proceedings were commenced by a claim filed on 27 October 2011. The plaintiff sought specific performance of the contract, upon the basis that the completion date had been extended until 31 May 2012, either by an agreement or an estoppel. The estoppel claim was based upon the same alleged conversation between Mr Lynch and the defendants’ solicitor. As the issues were joined upon the pleadings, the plaintiff’s case depended entirely upon the testimony of Mr Lynch. His firm continued to act for the plaintiff. They were the solicitors on record from the commencement of these proceedings until 13 July 2012.
[8] After the pleadings closed, the defendants filed an application for security for costs on 31 January 2012, with a return date of 27 February. On 9 February, they filed an application to place the case on the Commercial List, which I heard on 21 February. Because of the potential impact of the application for security for costs on the future of the proceedings, I did not place the case on the Commercial List at that stage.
[9] The application for security eventually came on for hearing in the Applications List before Applegarth J on 18 April. The defendants sought security in the amount of $116,239. In an ex tempore judgment, Applegarth J ordered security in the amount of $90,000. For the plaintiff it was then conceded that it would be unable to meet an order for costs if unsuccessful in the proceedings. As to its ability to provide security for costs, his Honour noted that there was evidence for the plaintiff which indicated that the plaintiff did not have the financial capacity to itself provide security and that there was evidence tendered by the plaintiff in the general terms that “… the plaintiff’s ability to source external funding, to meet any security for costs order made by it, is very limited”. His Honour also noted that nothing was then said about the capacity of those who stood behind the plaintiff to meet an order for security for costs. His Honour identified Mr Lynch as someone in that category and who had “an obvious interest in the matter”.
[10] The orders for security for costs were in these terms:
“3.The Plaintiff provide security, in a form satisfactory to the Registrar, for the Defendants’ costs up to and including the first day of trial in the sum of $90,000.
4.If such security for costs is not provided within 14 days, the Plaintiff’s proceeding against the Defendants be stayed, except in relation to any application (either through the civil applications or commercial list) to be made by the Defendants to remove the caveat lodged by the plaintiff over Lot 3 on RP 901321.”
[11] Mr Lynch was not present at the hearing before Applegarth J. His company was represented by counsel who was instructed at the hearing by a solicitor employed by Mr Lynch’s firm. According to an affidavit from that solicitor, he misunderstood the effect of the order for security, and in particular, the condition that any application by the defendants for removal of the caveat would be unaffected by a stay of the plaintiff’s proceeding. That condition may not have been necessary but the order was unambiguous. Nevertheless, it was understood by the solicitor to mean that security for costs would not have to be provided until after the determination of an application to remove the caveat. The evidence from the solicitor about his misunderstanding was not challenged by cross-examination. Nor was there a challenge to his evidence, and the corresponding evidence given by Mr Lynch in his affidavit, that this mistaken view of the effect of the order was reported to Mr Lynch on the day when the order for security was made.
[12] On 19 April, Mr Lynch received an email from the defendants’ solicitor in the proceedings (who was not the solicitor in the subject transaction) which attached, amongst other things, a draft order for security for costs. Mr Lynch says that he opened that email late on 20 April but he did not open the attachment, which was the draft order, because his employed solicitor had already told him of the outcome of the application for security.
[13] Also on 18 April, the plaintiff was ordered to pay the defendants’ costs of the application for security. On 30 May, Mr Lynch received a costs statement, claiming $23,870 for those costs. Attached to the same email was a copy of the orders made by Applegarth J. Mr Lynch says that he did not open either of them until after a hearing before me on 31 May.
[14] On that day the defendants renewed their application to place the matter on the Commercial List and asked for a hearing date for an application to remove the caveat. Counsel for the defendants then informed me that security for costs had been ordered but not provided. Mr Lynch objected to this statement, saying that he understood that the plaintiff was not required to provide security until the application for removal of the caveat had been determined. I informed Mr Lynch that this was not the order which had been made by Applegarth J. Mr Lynch says that this was the first that he knew of the true effect of the orders. Again this evidence was not tested by cross-examination.
[15] A further matter which was discussed at that hearing was whether Mr Lynch’s firm would continue to act for the plaintiff. That had been debated before Applegarth J, but the question was resolved by an undertaking by the plaintiff that it would terminate the retainer of Mr Lynch’s firm within seven days of receiving a witness statement from the solicitor who acted for the defendants in the transaction which conflicted “in any material way with the evidence of any witness statement provided by Paul Gerard Lynch”. As of 31 May, no such statement had been provided by the defendants. However, Mr Lynch was apprehensive that if there was an affidavit from that solicitor in support of the removal of the caveat, then the plaintiff would have to change solicitors. For that reason, the parties agreed that the application to remove the caveat should not occur in the next week or so, but should be listed, as it was, for 20 July.
[16] The defendants filed an affidavit from that solicitor on 6 July. Mr Lynch’s evidence is that he concluded that there was “likely to be a conflict of evidence” between that version and Mr Lynch’s version, so that the plaintiff should instruct new solicitors. A notice of change of solicitors was filed on 13 July 2012. According to directions which I had made, the plaintiff’s material was due to be filed on that same day, 13 July. No material was filed then or at all. I had directed that submissions were to be filed and served on 19 July. The defendants’ submissions were filed on that day but the plaintiff did not file any submissions.
[17] When the application to remove the caveat was called on 20 July, the plaintiff consented to the orders already mentioned, namely that there be judgment for the defendants and that the caveat be removed.
[18] The defendants rely upon the following matters as together warranting the orders which they seek:
“(a)the plaintiff is on its own admission unable to pay the defendants’ costs of the proceeding;
(b)the proceeding was abandoned when the defendants’ application to remove the plaintiff’s caveat was called on for hearing;
(c)Mr Lynch was the plaintiff’s solicitor and its sole director, he took an active part in causing the plaintiff to commence the proceeding and, as the company’s sole shareholder, he stood to benefit from the litigation if the plaintiff succeeded;
(d)at the hearing of the defendants’ application for security for costs, Mr Lynch refused to put his own assets into play to secure the defendants’ costs;
(e)the proceeding was unmeritorious as it was unsupported by a number of emails sent by Mr Lynch himself;
(f)the interests of justice support the order sought because the proceeding has disrupted the defendants’ retirement plans and the defendants are now in more debt than they ever have been before.”[1]
Of those, I am satisfied that the facts and circumstances within (a) to (d) established. But some comments about (c) and (d) are warranted.
[19] It appears to be undisputed that, as the ASIC records show, Mr Lynch has been the sole director and shareholder of the plaintiff since September 2011 and therefore throughout the entirety of these proceedings. As such, the conclusion is inescapable that he took an active part in causing the plaintiff to commence the proceeding. However, some of the evidence upon which he relies in the present debate might indicate that others had an interest in the outcome of those proceedings, namely Mr Henry and Mr George. But on no view of the evidence, including their affidavits, could it be said that the company had any other director or shareholder throughout this case. And as I have said, it is not suggested that the company is a trustee. On the face of things, Mr Lynch was to be the sole beneficiary of a successful outcome. If in truth others also had a commercial interest in the same outcome, nevertheless Mr Lynch had a substantial interest of his own. It is not suggested that he was acting as a mere nominee.
[20] As to the circumstance in (d), I have mentioned that Mr Lynch was not present at the hearing of the application for security for costs. However, it must be inferred that the instructions for the plaintiff’s response to that application came from Mr Lynch. As Applegarth J noted, there was nothing said about the capacity of those who stood behind the plaintiff to meet an order for security, and in particular that of Mr Lynch.
[21] The fifth matter relied upon by the defendants is the alleged lack of merit in the plaintiff’s claim. It is said that the claim was “unsupported by” certain emails sent by Mr Lynch. I will not detail those emails here. It is sufficient to note some things about this submission. As the submission appears to accept, the emails did not disprove the case which was pleaded by the plaintiff. I accept that they did not support that case. However the outcome would have turned upon whether there was evidence from Mr Lynch which supported the plaintiff’s pleaded case and, in turn, whether that evidence was accepted. As it happened, there was never an affidavit from Mr Lynch as to the merits. But it cannot be concluded now that the plaintiff’s case was bound to fail. I note that Applegarth J remarked that he could not predict the outcome of the proceedings other than to say that the plaintiff had an arguable case.
[22] As to the circumstances referred to in (f), I accept that this dispute and, in particular, the litigation has had the consequences which are there described. The defendants’ evidence about that is undisputed. That circumstance is relevant, but it is not a particularly strong basis for awarding costs against a non-party, particularly on the indemnity basis, where it cannot be concluded that the plaintiff’s case was hopeless.
[23] In Knight v FP Special Assets Ltd, Mason CAJ and Deane J said:
“For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject matter of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.”[2]
Each of the arguments here also refer to the judgment of Martin J in this Court in The Beach Retreat Pty Ltd v Mooloolaba Marina Ltd,[3] where it was duly emphasised that an order against a non-party involves a serious departure from the general rule that only parties to proceedings are subject to costs orders.[4]
[24] In favour of the defendants’ argument is the fact that they have established that the plaintiff is a company of no financial substance, that Mr Lynch has played an active part in the conduct of the litigation and that he was at least one potential beneficiary from an outcome in the plaintiff’s favour. But there is then the question whether the interests of justice require that he pay the costs. It does not follow that where those three circumstances are established, the non-party should pay the costs in every instance, for otherwise many applications for security for costs would be unnecessary.
[25] Absent a finding that the plaintiff’s case was always bound to fail, I am not persuaded that in this case the non-party, Mr Lynch, should be ordered to pay all of the defendants’ costs of the proceedings and upon the indemnity basis. However, it does seem to me that a point was reached when this claim for specific performance became hopeless in any practical sense. That was after security for costs was ordered and the plaintiff was unable, or at least unwilling, to provide that security.
[26] I accept Mr Lynch’s explanation of his misunderstanding of the effect of the order for security. That misunderstanding was removed on 31 May. From then, he knew that the security which had been ordered was overdue and that the plaintiff’s proceeding was already stayed. There is no evidence that he did anything to endeavour to provide that security. Of course there had been no appeal against the order for security.
[27] Once the plaintiff’s claim was stayed, then absent proof of any substantial, as distinct from theoretical, prospect that security would be belatedly provided, the application for removal of the caveat was bound to succeed. Regardless of the merits or otherwise of the plaintiff’s claim that the settlement date had been extended, the maintenance of the caveat notwithstanding the stay of the proceedings for specific performance would have been perverse.
[28] The evidence upon this hearing refers to efforts made by Mr Henry and Mr George to obtain finance to purchase the land, during the months of March through June 2012. The effect of this evidence is that they believed that the defendants would settle the proceedings, by accepting $1.4 million for their land, with $1.3 million to be provided by an external financier and the remaining $100,000 by Mr Lynch personally. Mr Lynch’s affidavit does not refer to those matters but he has tendered this evidence in the present hearing. From this it appears that there existed a real chance that the dispute would be settled until late June 2012, when the external financier withdrew its indicated support. At least from 29 June 2012, the plaintiff was without any apparent means of financing even the proposed settlement sum of $1.4 million. Of course no settlement with the defendants had been reached, even conditional upon finance. This evidence does not go so far as to show that the plaintiff had finance to complete the contract as at the date which, according to its case, was the extended date for completion which was 28 May 2012. However, it could be said that there was a possibility that finance might have been obtained by the time the case was tried and concluded (possibly) in the plaintiff’s favour. Overall then, the plaintiff’s difficulty in obtaining finance to complete the contract could not be said with certainty to put paid to a prospect of obtaining specific performance. But the provision for security for costs is another matter. A far as the evidence reveals, the plaintiff was unwilling or unable to provide security.
[29] It can now be seen that the plaintiff and those individuals with a commercial interest in pursuing this land, including Mr Lynch, were trying to settle the case without having any intention to prosecute it. In the meantime, the defendants were being put to substantial expense from this litigation. They had done what they could to protect their position by obtaining an order for security for costs. The plaintiff and Mr Lynch had little regard for that order, such that when he did realise what the order was, apparently he did nothing to have the plaintiff comply with it. Then when finance was withdrawn by the end of June, still the plaintiff did not withdraw its caveat and abandon the proceedings. The application to remove the caveat and the material in support of it was filed on 6 July and it was not until the last moment that the plaintiff acknowledged the inevitable outcome.
[30] In my conclusion, these circumstances make this case one of that exceptional kind in which a non-party should bear the relevant costs. Further, they warrant the assessment of the costs upon an indemnity basis. The costs in question should be the costs of the defendants from 31 May 2012, which is the date when Mr Lynch became aware of the true terms of the order for security. At that point, the proceedings should have been abandoned by Mr Lynch because they would remain stayed, with the inevitable removal of the caveat, because there was no willingness or ability to provide security for costs. Insofar as the plaintiff company is concerned, it could be appropriate to award indemnity costs from the time by which security should have been provided, which was 4 May 2012. But I will order them from 31 May, to avoid a complication in the process of assessment which could have no practical benefit to the defendants.
[31] It will be ordered that the plaintiff pay to the defendants their costs of the proceedings, including any reserved costs, the costs from 31 May 2012 to be assessed upon the indemnity basis. It will be further ordered that Paul Gerard Lynch pay to the defendants their costs of the proceedings from 31 May 2012 to be assessed upon the indemnity basis.