YIC Industrial Pty Ltd v Spa Investments Pty Ltd (No 2)
[2021] QSC 7
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- Unreported Judgment
- YIC Industrial Pty Ltd v Spa Investments Pty Ltd (No 2)[2021] QSC 7
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YIC Industrial Pty Ltd v Spa Investments Pty Ltd (No 2)[2021] QSC 7
YIC Industrial Pty Ltd v Spa Investments Pty Ltd (No 2)[2021] QSC 7
SUPREME COURT OF QUEENSLAND
CITATION: | YIC Industrial Pty Ltd & Anor v Spa Investments Pty Ltd & Ors (No 2) [2021] QSC 7 |
PARTIES: | YIC INDUSTRIAL PTY LTD (ACN 139 276 627) (first plaintiff/respondent) RORY ANN QUINN (a bankrupt) (second plaintiff/respondent) v SPA INVESTMENTS PTY LTD (ACN 134 314 631) (first defendant/applicant) PIONEER AUSTRALIA PTY LTD (ACN 128 784 725) (second defendant/applicant) GALL STANDFIELD & SMITH SOLICITORS (a firm) (third defendant/applicant) |
FILE NO/S: | BS No 5692 of 2020 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court of Queensland at Brisbane |
DELIVERED ON: | 12 February 2021 |
DELIVERED AT: | Brisbane |
HEARING DATE: | Decided on the papers without oral hearing |
JUDGE: | Davis J |
ORDER: |
|
CATCHWORDS: | PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COSTS – POWER TO ORDER – RELEVANT CONSIDERATIONS GENERALLY – where judgement was made in favour of an unregistered company – where the plaintiffs commenced proceedings to set aside the judgement on the basis of fraud – where the defendants obtained summary judgment on that claim – where the defendants seek their costs of the proceedings on an indemnity basis against a third party – where the defendants allege that the first plaintiff is incapable of meeting any costs order made in favour of the defendants – where the defendants did not file an application for security for costs – whether costs should be awarded on an indemnity basis Bankruptcy Act 1966 (Cth) Uniform Civil Procedure Rules 1999, s 171, s 293, r 681, r 702, r 703 Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, cited Di Carlo v Dubois [2002] QCA 225, followed Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, cited Rosniak v Government Insurance Office (1997) 41 NSWLR 608, followed YIC Industrial Pty Ltd and Anor v Spa Investments Pty Ltd & Ors [2020] QSC 378, related |
COUNSEL: | AJH Morris QC and LA Jurth made written submissions for the plaintiffs/respondents and for John Watson Quinn MD Martin QC and DV Ferraro made written submissions for the defendants/applicants |
SOLICITORS: | AJH Morris QC and LA Jurth by direct access brief for the plaintiffs/respondents and John Watson Quinn Gall Standfield & Smith Solicitors for the defendants/applicants |
- [1]On 18 December 2020, I gave summary judgment for the defendants[1] and made orders that the costs should be determined on written submissions without further oral hearing.
- [2]Written submissions have now been received.
Background to the dispute
- [3]The history of the dispute is fully explained in YIC Industrial Pty Ltd and Anor v Spa Investments Pty Ltd & Ors.[2] It is only necessary to give a brief summary here.
- [4]The present first plaintiff, YIC Industrial Pty Ltd (YIC), owned land in Yeppoon and was, in 2009, controlled by the present second plaintiff, Mrs Rory Quinn and her husband, Mr John Watson Quinn.
- [5]YIC borrowed money from the first defendant, Spa Investments Pty Ltd, and the second defendant, Pioneer Australia Pty Ltd, on security of a mortgage given by YIC over the Yeppoon land and guarantees from Mr and Mrs Quinn. A loan agreement was entered into and a mortgage over the Yeppoon land was granted. Mr and Mrs Quinn signed guarantees.
- [6]The second defendant was not the first company known as “Pioneer Australia Pty Ltd”. There was an earlier one which had been deregistered. By error, the Australian Company Number (ACN) of the deregistered Pioneer Australia Pty Ltd appeared on the loan and mortgage documents and on the guarantees that had been given by Mr and Mrs Quinn.
- [7]YIC fell into default and it and Mrs Quinn were sued by the first and second defendants. By this stage, Mr Quinn had entered into an arrangement with his creditors pursuant to the Bankruptcy Act 1966 (Cth). The third defendant is a firm of solicitors who acted for the first and second defendants in the preparation of the loan documents and in the proceedings to recover the money. Notwithstanding a trial in this court and an appeal to the Court of Appeal, the error in the description of the second defendant was not noticed. The result of the litigation then was a judgment in favour of an unregistered company. However, the judgment was enforced by the second defendant as if it was named in it.
- [8]Some years before the litigation, the fact that a wrong ACN appeared on the mortgage in favour of the first and second defendants was noticed and the third defendant lodged a document correcting the Freehold Land Register.
- [9]The plaintiffs eventually discovered the error and commenced proceedings to set aside the judgment on the basis of fraud. Those proceedings were commenced by way of claim. A statement of claim was filed. The defendants filed a defence and then brought an application to strike out the proceedings[3] or alternatively for summary judgment.[4] For the reasons given in YIC Industrial Pty Ltd and Anor v Spa Investments Pty Ltd & Ors,[5] I refused to strike out the proceedings but gave summary judgment for the defendants.
- [10]Although Mrs Quinn was the second plaintiff, it was common ground that her status as a bankrupt meant that she could not participate in the proceedings.[6]
The present contest
- [11]The defendants seek special costs orders, namely:
- a costs order against Mr Quinn;
- costs on the indemnity basis.
- [12]YIC concedes that it should be ordered to pay the defendants’ costs on the standard basis. It resists any order that the costs should be assessed and paid on the indemnity basis. Counsel who appeared for YIC on the principal application made written submissions on Mr Quinn’s behalf resisting the application for an order that he pay costs.
Ought Mr Quinn be ordered to pay the costs?
- [13]The submission made by the defendants in support of the application that Mr Quinn pay the costs is:
“1. The applicants seek their costs of the proceedings on the indemnity basis and that such costs be paid by John Watson Quinn for the reasons set out in paragraph 39 of the applicants’ outline of argument dated 12 August 2020.”
- [14]The outline of argument dated 12 August 2020 is, relevantly, in these terms:
“39. The first plaintiff has no assets. The architect of this ill-conceived scheme is John Watson Quinn. He was asked to withdraw the proceedings and was warned if he did not do so an order for costs would be sought against him personally on the indemnity basis. He has caused the plaintiff to commence proceedings which are an abuse and has sought to justify it on a basis which is equally despicable. He has improperly alleged fraud and in particular against a firm of solicitors. His conduct warrants an order against a non-party and also that such costs be assessed on the indemnity basis.”
- [15]The only evidence in support of the assertion that YIC has no assets is an affidavit sworn by a solicitor of the third defendant firm that he has searched and can ascertain no real property being owned by YIC. That is hardly evidence from which it can be concluded that YIC has no assets.
- [16]The evidence in support of the allegation that Mr Quinn is “the architect of this ill-conceived scheme” is the fact that Mr Quinn is the sole director of YIC. There is evidence that on 4 June 2020 the third defendant wrote to Mr Quinn demanding that the proceedings be discontinued and asserting that YIC had no case. In the letter the defendants asserted that the costs (including the costs to that point) should be paid by Mr Quinn on an indemnity basis. There was a threat in the letter to apply for summary judgment or alternatively to have the proceedings struck out and to seek an order for costs on an indemnity basis against Mr Quinn personally.
- [17]As I will later explain, I was very critical of YIC’s case. However, it does not follow that a company director ought to be personally liable for the company’s costs of unsuccessful proceedings.
- [18]The real issue here is that Mr Quinn may have exposed the defendants to costs defending the proceeding brought by YIC where YIC cannot pay the costs. The defendants have not proved that YIC cannot pay the costs. Further, the defendants chose to file a defence and bring an application for summary judgment rather than bring an application for security for costs. If such an application had been brought, the plaintiffs’ position in relation to costs could have been protected.
- [19]In all the circumstances, I do not intend to make a costs order personally against Mr Quinn. I regard the following as important considerations leading me to that position:
- There is no convincing evidence that YIC is incapable of meeting any costs order in favour of the defendants.
- The defendants chose to plead their case and bring an application for strike-out or summary judgment without firstly seeking security for costs.
- The statement of claim showed a cause of action, was pleaded in accordance with the rules of pleading and was authored by Queen’s Counsel.
- The defendants were successful in having the proceedings determined in their favour after consideration of the evidence rather than on the basis that the proceedings were an abuse of process.
Should the costs be paid by YIC on an indemnity basis?
- [20]The usual order is that costs follow the event on the standard basis.[7] The award of costs on an indemnity basis in exercise of discretion is therefore a departure from the norm.
- [21]There are numerous decisions where circumstances have been identified justifying an award of costs on an indemnity basis. In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd[8] and Colgate Palmolive Co v Cussons Pty Ltd,[9] attempts were made to identify categories of cases where the making of an order for indemnity costs is justified. The central principle guiding the exercise of the discretion was stated by the New South Wales Court of Appeal in Rosniak v Government Insurance Office[10] and adopted by the Court of Appeal in Di Carlo v Dubois:[11]
“[38] … The court requires some evidence of unreasonable conduct, albeit that it need not rise as high as vexation. This is because party and party costs remain the norm, although it is common knowledge that they provide an inadequate indemnity. Any shifts to a general or common rule that indemnity costs should be the order of the day is a matter for the legislature or the rule maker.”
- [22]In giving summary judgment after hearing full argument on the application, I observed that the case which was being sought to be raised by YIC was “extraordinary”,[12] that parts of the case were “absurd”[13] and that no proper evidentiary basis was identified from which fraud could be inferred.[14] However, judgment was given under r 293. That rule required that an assessment be made on the available evidence to the effect that:
- the plaintiff had no real prospects of succeeding on the claim; and
- there was no need for a trial of the claim.
- [23]The fact that the plaintiffs failed to defend the application, and even the fact that the court was highly critical of the claim, does not inevitably lead to the conclusion that bringing the claim and defending the summary judgment application was so unreasonable as to justify a departure from the usual rule and an award of indemnity costs.
- [24]The plaintiffs retained Queens Counsel and junior counsel in the case. Those counsel drew and settled the statement of claim. The statement of claim properly alleged and particularised each of the elements of a cause of action for setting aside a judgment on the basis of fraud. Proper particulars of the alleged fraudulent knowledge and alleged fraudulent design are contained within the pleading.[15]
- [25]I observed in the primary judgment:
“[44] However, no submission, written or otherwise, was made by the defendants that the statement of claim did not disclose a cause of action. On its face, it does. The defendants argued that the current proceedings are an abuse of process because the dispute was finally determined in the earlier proceedings.
[45] When seeking summary judgment under r 293, the onus is upon an applicant to show that the plaintiff has no real prospect of success and there is no need for a trial. If the defendants here cannot succeed in proving those things, then it can hardly be said that the prosecution of the claim is an abuse of process. In those circumstances, given that the statement of claim does disclose a course of action, a strike out order would be inappropriate. The real issue here is whether the defendants have made out an entitlement for summary judgment under r 293.”
- [26]YIC’s counsel no doubt considered their own ethical obligations and pleaded a case in fraud which on its face is a proper one. The defendants did not submit otherwise. However, after full argument, the case alleged has been found to be one that ought to be dismissed summarily under r 293.
- [27]In all the circumstances, it is not appropriate to order indemnity costs against YIC.
Conclusions and orders
- [28]For the reasons I have explained, it is appropriate to make an order that YIC pay the defendants’ costs on the standard basis.
- [29]The defendant should not have their costs of the costs submission. They unsuccessfully sought special orders. It is appropriate to make no order as to those costs.
- [30]I order that:
- The first plaintiff, YIC Industrial Pty Ltd, pay the defendants’ costs of the proceeding on the standard basis except the costs of the submissions on costs.
- There be no order as to the costs of the costs submissions.
Footnotes
[1]YIC Industrial Pty Ltd and Anor v Spa Investments Pty Ltd & Ors [2020] QSC 378.
[2][2020] QSC 378.
[3]Uniform Civil Procedure Rules 1999, r 171, inherent jurisdiction of the court.
[4]Uniform Civil Procedure Rules 1999, r 293.
[5][2020] QSC 378 at [44] and [45].
[6]YIC Industrial Pty Ltd and Anor v Spa Investments Pty Ltd & Ors [2020] QSC 378 at [32].
[7]Uniform Civil Procedure Rules 1999, rr 681, 702, 703.
[8](1988) 81 ALR 397.
[9](1993) 46 FCR 225.
[10](1997) 41 NSWLR 608.
[11][2002] QCA 225 at [38].
[12]YIC Industrial Pty Ltd and Anor v Spa Investments Pty Ltd & Ors [2020] QSC 378 at [75].
[13]At [77].
[14]At [79].
[15]YIC Industrial Pty Ltd and Anor v Spa Investments Pty Ltd & Ors [2020] QSC 378 at [44], [45], [68], [74].