Sportsco Pty Ltd v Singh Group Pty Ltd (No 2)

Facts

The underlying dispute related to the purchase of a franchise business.  Singh, the purchaser, submitted that the statutory demand on Sportsco for $70,500 was a refundable deposit under the franchise agreement. Sportsco, the vendor, applied to set aside the demand claiming there was a genuine dispute concerning the debt and that it had an offsetting claim.  Singh alleged there was an agreement that the money was refundable if it was unable to obtain finance for the franchise business.  Singh did not obtain finance.  While Singh was provided with an  an offer to lease premises from which the franchise would operate it was never executed by Singh.  Sportsco claimed there was a dispute as to what constituted the agreement and whether the agreement was subject to finance. It also claimed Singh was liable to pay a franchise royalty fee of five years as a consequence of the breach and was liable for damages of approximately $300,000.

Decision

Ferguson J referred to TR administration proprietor Ltd V Frank marketing and Sales Brochure Ltd as support forthe proposition that in considering applications to set aside statutory demands there is no in-depth examination or determination of the merits of the dispute ([6] to [7]). Ferguson J found the evidence filed on behalf of Sportsco did not rise above the low hurdle required to show there was a genuine dispute. Her Honour found that much of the evidence was mere assertion ([9]). Her Honour was critical of the claim by Sportsco that an agreement had been entered into but it was not produced, similarly when the execution of agreement was denied by Singh Sportsco limited its allegations to a claim that it understood the documents had been sent for execution. Sportsco failed to rebut specific allegations made by Singh, in particular the production of an e-mail setting out the basis of the agreement (ie the monies were refundable if finance was unobtainable). Ferguson J stated, at [15], that while in an application to set aside a demand it is not necessary to have all the evidence required at trial it is necessary to respond to material allegations which could have easily been placed in an affidavit in reply. With respect to Sportsco’s contention that a conversation regarding refundability of the deposit was made by an accountant in the employ of Sportsco who did not have ostensible authority Ferguson J critisised the absence of evidence in support of this serious submission.

BKW Investments Pty Ltd v Training Connect Limited [2011] FCA 1314

Facts

BKW is a business which provides the methodology and material for teaching subjects online.  Training Connect provides educational services in English literacy, numeracy and other subjects ([4]). The parties entered into 2 memoranda establishing a business relationship and the parties commenced negotiations for a license agreement. The negotiations were unsuccessful, the relationship broke down and soon thereafter Training Connect issued a statutory demand regarding monies it had previously paid to BKW.

Decision

Cowdrey J relied, at [26], upon Spencer constructions v TNM Aldridge propriety Ltd regarding the criteria for establishing a genuine dispute, which requires that

• the dispute be bona fide and truly exist in fact;
• the grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.

In that context Cowdrey J considered that the two memoranda showed that the parties were involved in commercial relations and prima facie the conditions within the documents governed their commercial relationship. The subsequent e-mails and events highlighted a genuine dispute regarding the operation of those conditions.  Those documents demonstrated that the dispute between the parties was real and not spurious, hypothetical or misconceived.  The issues raised by BKW were that payments it received were converted to license payments and, conversely, by Training Connect that the agreements were frustrated were such as to require judicial determination.

Cowdrey J accepted BKW’s submission that because there was no address provided in the notice of the statutory demand BKW had to approach the court to obtain leave to serve its application outside Australia. As such it was placed in a position of severe disadvantage which may amount to a substantial injustice ([33]).  His Honour found that the absence of an Australian address for service constituted a defect. His Honour however stated that given there was a genuine dispute it was not necessary  to formally determine whether the defect cause substantial injustice. BKW sought and obtained a costs order on an indemnity basis.  Cowdrey made an indemnity costs order because Training Connect failed to withdraw the demand when it became apparent that a genuine dispute existed.

Issues

Sportsco and BKW is a study in contrasts. In Sportsco the application failed because Sportsco failed to provide the minimum material necessary to satisfy the court that there was a genuine dispute.  It told heavily against Sportsco that it failed to meet allegations made by Singh in any affidavit in reply and that many of its claims were not supported by documentary evidence which should have been available.  In BKW the court set aside the demand because both parties alleged that the documentation supported their respective positions.  Almost invariably documentary evidence lies at the heart of an application to set aside a statutory demand.  While the courts do not require applicants to lay out their entire case in a “ready – for – trial” format the bar is not so low that a court will accept assertion over evidence.

Care should be taken in relying on BKW as support for an award of indemnity costs when successful in setting aside a statutory demand.  That is not the usual orders made in this jurisdiction. Even where the court finds that it was apparent there was a genuine dispute an order for indemnity costs is rare.

Facts

ASIC alleged that the approval of the consolidated financial accounts of Centro Property Limited. Centro Property Trust and Centro Retail Trust for the financial year ending 30 June 2007 contravened sections 180(1), 344(1) and 601FD(3) of the Corporations Act 2001. Those contraventions included failing to disclose $1.5billion of short term liabilities of Centro Property and $500 million of Centro Retail by classifying them as non current liabilities and failing to disclose guarantees of short term liabilities of an associated company of about US $1.75 billion that had been given after the balance date (see [24] for a detailed summary of the issues).  Middleton J found that those matters were well known to the directors or, if not well known to them, should have been [11] & [23].

Middleton J found, at [8], the directors failed “..to take all reasonable steps required of them, and acted in the performance of their duties as directors without exercising the degree of care and diligence the law requires of them.”  His consideration of the facts with respect to each director is found at ([289] – [532]).  It is too extensive to comment upon here.  The focus of this post is on the legal principles enunciated by Middleton J.

Decision

Middleton J highlighted the consequences of the breaches and why they are significant when he said, at [10]:

This proceeding is not about a mere technical oversight. The information not disclosed was a matter of significance to the assessment of the risks facing CNP and CER. Giving that information to shareholders and, for a listed company, the market, is one of the fundamental purposes of the requirements of the Act that financial statements and reports must be prepared and published. The importance of the financial statements is one of the fundamental reasons why the directors are required to approve them and resolve that they give a true and fair view.

Principles

Middleton j restated the obligations and responsibilities of a director as:

• Each director is placed at the apex of the structure of direction and management of a company. The higher the office that is held by a person, the greater the responsibility that falls upon him or her [14];
• regarding documents signed off, approved or adopted by directors “..before they are adopted by the directors, be read, understood and focused upon by each director with the knowledge each director has or should have by virtue of his or her position as a director” [15];
• “there is a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor. There is a responsibility to read, understand and focus upon the contents of those reports which the law imposes a responsibility upon each director to approve or adopt” [16]
• “All directors must carefully read and understand financial statements before they form the opinions which are to be expressed in the declaration required by s 295(4). Such a reading and understanding would require the director to consider whether the financial statements were consistent with his or her own knowledge of the company’s financial position.”[17]
• a director should acquire at least a rudimentary understanding of the business of the corporation and become familiar with the fundamentals of the business in which the corporation is engaged[17];
• a director should keep informed about the activities of the corporation[17];
• a director should monitor the corporate affairs and policies[17];
• a director should maintain familiarity with the financial status of the corporation by a regular review and understanding of financial statements [17];
• a director, whilst not an auditor, should still have a questioning mind [17];
• a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience or expertise. A director is not relieved of the duty to pay attention to the company’s affairs which might reasonably be expected to attract inquiry, even outside the area of the director’s expertise [18];
• While directors are entitled to delegate the preparation of books of account each director is expected to “..take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an enquiring mind to the responsibilities placed upon him or her. Such a responsibility arises in this proceeding in adopting and approving the financial statements. Because of their nature and importance, the directors must understand and focus upon the content of financial statements, and if necessary, make further enquiries if matters revealed in these financial statements call for such enquiries” [20];
• for a director considering financial statements “.. is for a higher and more important purpose: to ensure, as far as possible and reasonable, that the information included therein is accurate. The scrutiny by the directors of the financial statements involves understanding their content. The director should then bring the information known or available to him or her in the normal discharge of the director’s responsibilities to the task of focusing upon the financial statements. These are the minimal steps a person in the position of any director would and should take before participating in the approval or adoption of the financial statements and their own directors’ reports” [22];

Standard of proof

In a civil prosecution the appropriate test is the Briganshaw standard.  Further, where the applicant’s case rests on inferences from primary facts its is not sufficient for the circumstances to give rise to conflicting inferences of equal degrees of probability [103].

Financial Reporting

Middleton J endorsed the findings of Austin J in ASIC v Rich where the statutory standard encompasses an objective duty of skill or competence in the reading and understanding of financial material (see [123]).  In practical terms that requires, at [124], directors must:

..have the ability to read and understand the financial statements, including the understanding that financial statements classify assets and liabilities as current and non-current, and what those concepts mean. This classification is relevant to the assessment of solvency and liquidity. Equally, a director should have an understanding of the need to disclose certain events post balance sheet date. It would not be possible for a director to form the opinion required by s 295(4)(d) without such an understanding. It is not suggested that a director could vote in favour of a resolution in support of the required directors’ statements when he did not hold the opinions referred to at all.

While the Act requires the directors’ report be prepared by an entity rather than the directors themselves the report must be made by resolution and signed off by directors.  The directors have a “primary responsibility” for the declaration [128].  Directors can can rely on declarations by the CEO and CFO however Middleton J cautioned against taken such reliance too far, [131], stating, at [134]:

The obligation that a director may have to make a declaration, arising out of his or her performance of a chief executive function or a chief financial officer function is in addition to the responsibility that the director has under s 344 to take all reasonable steps to ensure compliance with the financial records and financial reporting requirements: s 295A(8).

At [139]ff Middleton considered the opeation of Part 2M.3 of the Act, relating to the integrity of annual financial statements.  Directors are responsible for compliance with Part 2M.2 & .3.  Under section 344 directors are not obliged to undertake the acts contained in those parts however under section 295(4) directors are required to form an opinion with all due care and diligence which, at minimum means, at [146], they “..must inform themselves as to the financial affairs company to the extent necessary to form each year the opinion required.”  In determining  compliance under section 344 the court must first determine what steps are required to comply with a relevant provision and then ascertain “what steps reasonably ought to have been taken by the directors to secure such compliance” [150]. It is an objective test.

Section 180 – exercise reasonable care and diligence

Middleton J made it clear that the statutory provision reflects the general law (see [164]) and summarised the directors responsibility thus, at [166] as:

Directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company. A director must become familiar with the fundamentals of the business in which the corporation is engaged; a director is under a continuing obligation to keep informed about the activities of the corporation; directorial management requires a general monitoring of corporate affairs and policies, and a director should maintain familiarity with the financial position of the corporation.

It is an objective standard of care which applies to both executive and non executive directors (see [172]).  In this case the directors responsibilities and duties were outside the realm of operational responsibility and the key issue , at [174], is:

..each director armed with the information available to him was expected to focus on matters brought before him and to seriously consider such matters and take appropriate action. This task demands critical and detailed attention, and not just ‘going through the motions’ or sole reliance on others, no matter how competent or trustworthy they may appear to be.”

In this case ASIC relied on the same conduct to allege a breach of both section 180 and 344.  Middleton considered the interplay between them and found, at [188]:

(a) The directors were required by s 180 to be diligent and careful in their consideration of the resolution to approve the accounts and reports; and

(b) The directors were required by s 344 to take all reasonable steps to secure compliance with the relevant provisions of the Act, and to at least inquire about any potential deficiency in the accounts and reports that they observed or ought by the exercise of the requisite care and diligence to have observed.

Accordingly it is possible to allege contraventions of both sections based on a common factual matrix.

Audit Committee

His Honour found, at [203], that while an audit committee had an important role of monitoring and oversight “..this is not to the exclusion of the role of a director to consider the financial accounts for him or herself. This does not involve a director being familiar with every accounting standard, but sufficiently aware and knowledgeable to understand what is being approved or adopted.” By way of obiter Middleton J suggested, at [206], that “.. it may well be that directors should have a degree of accounting literacy that requires a knowledge of accounting practice and accounting standards.”

Pleadings

His Honour made it clear that a party is confined to its pleadings (see [230] – [233]) and quoting the High Court in Kirk v Industrial Relations Commission as to the requirement when dealing with a civil offence:

“common law requires that a defendant is entitled to be told not only of the legal nature of the offence with which he or she is charged, but also of the particular act, matter or thing alleged as the foundation of the charge”. The Court continued (at [26] and [28]) to explain that the essential factual ingredients of the offence must be set out, and that, where the essence of the offence is a failure to do something, that which ought to have been done must be set out explicitly and with particularity..”

No case submission and summary judgment

The directors made a no case submission and summary judgment application which were rejected.  Middleton J did not put the directors to their election . When exercising his discretion Middleton J identified the following factors, at [539] as being relevant:

(a) A departure from the general rule can seldom be justified unless adherence to the rule would not serve the ends of justice or convenience;

(b) The Court will have regard to all the circumstances of the case, including the nature of the case, the stage it has reached, the issues involved and the evidence given;

(c) Regard should be had to whether, in all the circumstances of the case, putting the party to its election will result in the most efficient resolution of the proceeding – the Court will consider whether putting a party to its election will lead to the party unnecessarily leading the remainder of its evidence or, conversely, whether not putting the party to its election may result in a real risk that the Court will be required to consider the same evidence twice;.

(d) Departure from the general rule may be justified where the case alleges fraud or dishonesty – in those circumstances it would normally be wrong to permit a defendant to be cross-examined where there really is no evidence against him/her of fraud;

(e) Similarly, in ACCC v Amcor, Sackville J considered that defendants accused of serious breaches of the Trade Practice Act 1974 (Cth) which would render them liable to substantial civil penalties (and also cause potential loss of business reputation), and that the allegations were analogous to a fraud case, were reasons why the defendants should not be put to their election;

(f) Justice Davies in Trade Practices Commission v George Weston Foods Ltd (No 2) [1980] FCA 16; (1980) 43 FLR 55, rejected the fact that the proceeding was a civil penalty proceeding as a ground for not putting the defendants to their election. He nevertheless took into account as a matter to be considered that the allegation is one that calls for a standard of proof consistent with the seriousness of the allegations made.

The departure from the general rule is justified where the fraud is alleged against the moving party [543].

Middleton J found that the rules permitted a summary judgment application could be made even though a trial had commenced (see [548] – [549]).

ISSUE

While a considerable portion of the decision is a detailed analysis of the facts against the statutory obligations his Honour has set out in clear and precise detail the principles that apply to executive and non executive directors. He has summarised the law which has been extant for some time.  Given the case was involved and hard fought he also had cause to consider and rule upon issues relating to no case submissions, summary judgment and the role of pleadings in civil prosecutions.

Facts

The relevant conduct upon which the court exercised its discretion is set out at [5]:

(a) the issuing of the proceeding on 24 December 2008 in the name of Dr Cohen without obtaining his instructions or authorisation to do so;

(b) the maintenance of the claim (for nearly two years) in the name of Dr Cohen without any communication to him advising that he was the named representative plaintiff and therefore the subject of a number of obligations including that imposed by s 33ZD of the Supreme Court Act 1986 (Vic);

(c) the incurring of a number of costs orders against Dr Cohen – none of which were brought to his attention;

(d) the making of an allegation in the statement of claim central to Dr Cohen’s “claim” which, upon any reasonable investigation, was demonstrably false.

Decision

Principles

The key issues for consideration was whether there should be an award of costs against a legal practitioner acting without the authority of the client and, if so, whether to grant those costs on an indemnity rather than a party/party basis. In support of the former proposition Forrest J referred to the English  case of Fricker v Van  Glutten where his honour quoted, with emphasis added, the reasoning as follows:

As regards Mr Toppin, he has done what he ought not to have done. He got this informal consent, and acted on it, and occasioned the trouble that we are asked to set right; and following the course adopted in Nurse v Durnford and Newbiggin-By-the-Sea Gas Co v Armstrong we must order him to pay all Mr Weller’s costs, and all costs which he has been ordered to pay, and he must also pay to the defendants their costs so as to indemnify them. He must pay Mr Weller’s costs as between solicitor and client, and the costs as between solicitor and client, and the costs of the defendants as between party and party; and such costs must include the costs of this application both here and in the Court below. Mr Weller’s name should be struck out for the purpose of all future proceedings [emphasis added].

In determining whether the circumstances warranted the grant of indemnity costs rather than on a party/party basis his Honour’s specifically referred to Colgate Palmolive v Cousins and Ugly Tribe Company Pty Ltd v Sikola, extracting at [10] the special circumstances identified by Harper J in Ugly Tribe, inter alia:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty Ltd v. International Produce Merchants Pty Ltd.

(ii) The making of an irrelevant allegation of fraud: Thors v Weekes

(iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty. Ltd v Keeprite Australia Pty Ltd.

(iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v. Westpac Banking Corp.

(v) Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No. 2).

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v Petit-Breuilh (No. 2).

and, (providing emphasis):

The position changes where a litigant acts dishonestly in the litigation, or where the rights and privileges of a litigant are flouted or abused. Then, the rationale for refusing to order that the losing party indemnify an opposite party against that party’s costs is less compelling. Indeed, costs are more frequently if not invariably awarded on an indemnity or like basis (such as that of solicitor/client) where findings of dishonesty or serious misconduct have been made against the party ordered to pay. (citations omitted and emphasis added)

Analysis

The court awarded indemnity costs against Oldham Naidoo, finding special circumstances, being:

1. but for the actions of Oldham Naidoo, this proceeding, in all probability, would not have been commenced and, so it must follow, the defendants would not have incurred costs in defending the claim. There was never  a realistic prospect of a plaintiff (properly informed of his or her obligations and responsibilities) taking on this case [15]
2. Between the time of issue and February 2011 Dr Cohen was kept in the dark as to the role Oldham Naidoo had created for him as representative plaintiff, despite a number of pieces of correspondence between himself and Oldham Naidoo. Oldham Naidoo did not attempt to enter into a costs agreement with him; it had no retainer (oral or in writing) from him. During the time he was the named representative plaintiff, four costs orders were made against him – none of which he was informed of. He only learnt that he was the representative plaintiff when informed in October 2010 by his son. [16]
3. Oldham Naidoo’s  conduct was deliberate [17].
4. The conduct of Oldham Naidoo amounted to a serious breach of its ethical obligations and arguably  a contempt of court [18]
5. the court rejected taking into account Oldham Naidoo’s acceptance of responsibility for its actions and the making of appropriate concessions. Its position was indefensible. [19]
6. this is a case involving a patent abuse of process by Oldham Naidoo [20]

Issue

This decision is not notable in setting out any new principles regarding the award of indemnity costs. It is however useful, when read with Cohen (No 2), in setting out the methodology and factors relevant in the award of indemnity costs in those rare cases  involving legal practitioners. The scope for such orders is arguably greater under the Civil Procedure Act 2010 than previously was the case.

Facts

An expert giving evidence on behalf of Modi estimated that only 35 people viewed the message.  The Defendant argued that, as in Yousef Jameel and Dow Jones , the damage from any libel case would be so small as to be not warrent proceeding and so any case would be an abuse of the court process.

There was conflicting evidence as to extent of publication (see [19] – [ 22]). Cairns’ expert estimated the audience for the tweet to be around 100, by looking at the number of Modi’s followers in the court’s jurisdiction. While Cairn’s counsel accepted that not all of Modi’s followers would have seen the tweet directly, it was argued that some people would have received a communication of it by other means.

Decision and reasoning

Mr Justice Tugendhat found that the number of people who saw the message was only one of a number of considerations in a defamation case. He found at  [34]:

In any event, the Jameel type of abuse of process does not depend on numbers alone.  [Cairns] has resided in this jurisdiction in the past, and expects to return to live here again. There have been recent cases in which the court has declined to strike out claims based on a direct communication to a single publishee.

Mr Justice Tugendhat said that a real threat in a case such as this was that the statements at the centre of the libel claims might be more widely disseminated, and that the measure of the damage to the allegedly libelled person is about more than just the number of people who saw the original post.  His stated at [43]:

A claimant’s primary concern in a libel action is vindication, not damages for what has been suffered in the past.  So the damage that has occurred before the action is brought may not give an indication of the importance of the claim.  Vindication includes a retraction, or a verdict for the claimant, or a judgment to the effect that the allegation complained of is false. If one of these is achieved, then it may be unnecessary to pursue a further remedy by way of injunction.  So a claimant can legitimately and reasonably pursue a claim where the publication that has already occurred is limited, when his purpose is to prevent, or at least limit, further publications to a similar effect being made in the future. But that is subject to there being be a real prospect of further publication if the action is not pursued. A retraction or judgment in favour of a claimant can be expected to have the effect of preventing or limiting republication, even if a claimant is not asking for an injunction.

The court was not prepared to rule on issues of fact at a preliminary hearing, and that the substantial hearing would be the place for such issues to be decided.

Issue

Publication of defamatory statements by twitter throws up interesting issues of the extent of readership.  Some twitter accounts are heavily subscribed.  Most are not.  Where the readership is very limited the defence of section 33 of the Defamation Act 2005 (Vic) may be available.   It provides:

It is a defence to the publication of defamatory matter if the defendant proves that the circumstances of publication were such that the plaintiff was unlikely to sustain any harm.

As Justice Tugendhat found the number of those following a twitter account, the readership of the publication, is not a decisive factor.

LPD Corporation

In determining whether there was a genuine dispute Davies J set out the relevant principles:

1. any dispute must be a genuine dispute [3] and one which is bona fide and the grounds supporting the evidence of the dispute must be real and not spurious;
2. the level of proof required to demonstrate there is a genuine dispute is, using the influential decision of Dodds – Streeton JA in TR Administration Pty Ltd v Marchetti, is something between mere assertion and the standard of proof required by a court of law [4].
3. while the standard of proof is not high the  material should “.be of sufficient probative value that the Court is satisfied there is a real dispute.” [5] The application is akin to one for interlocutory injunction [6];
4. the same principles apply in any claim made by the Plaintiff for an offsetting claim [13];
5. the court will not accept uncritically equivocal statements lacking in precision, assertions which lack prima facie plausibility (relying on Eyota Pty v Hanave Pty Ltd (1994) 12 ASCR 785).

This decision is very instructive in highlighting the material that should (and should not) be included in affidavit material. Davies J analysed the evidence at [11] and [18] – [20].   The applicant’s evidence could be best summarised as generalised commentary of events and intentions intermingled with submissions.

Freestyle Energy Limited

The key question in this application was determining if there was an agreement between the parties as part of the process of determining whether there was a genuine dispute about the existence of a debt.

Genuine dispute

Ferguson J considered the relevant principles at [28] - [32]. In this case Ferguson highlighted Justice Finkelstein’s decision in JSW Parts Pty Ltd v Daraco Pty Ltd where there was no dispute about the fee but rather lack of clarity about the scope of the work..  In that context the fact that payments were made by a party does not constitute evidence of an agreement per se. Ferguson J extracted, at [33], Finkelstein’s reasoning on his point:

… making payments apparently in pursuance of a contractual obligation and without complaint does not always amount to an admission that those payments were lawfully due or, so far as this case is concerned, that the work required to be performed by Daraco had been performed adequately. There may be other explanations. Here we are dealing with relatively small sums of money. A contracting party may be willing to pay a small sum in order to avoid more significant costs that would arise if a dispute arose and litigation followed….

Ferguson J found there was sufficient doubt attendant upon the existence of an agreement to constitute a genuine dispute.  Her reasoning, in particular at [37], is a useful guide when dealing with a matter where there is an issue as to the existence of an agreement where she states, inter alia:

..A party may give reasons for why the debt is disputed. For example, it may be because the party says that goods said to have been supplied have not been received. Here what is said, is that there is a dispute about the debt because there is no binding contract that has been entered into by the parties. Mr Donaghey has sworn that no agreement was reached. There are no contemporaneous documents that clearly evidence that there was an oral agreement, such as to suggest that Freestyle’s argument is spurious. …the Court’s task is to identify the genuine level of a claim not the likely result of it and it is not helpful to perceive that one party is more likely to succeed than the other. Whether there was an oral agreement or not, is a matter that merits further investigation and it is not for me to inquire as to the credit of Mr Donaghey on this appeal.

Renegade Rigging Pty Ltd

The issue for Ferguson J to consider was the date of service of the statutory demand and the date of the application.  It is a very useful decision in that her Honour undertook a thorough analysis of the service provisions and requirements, drawing together the relevant authorities.

Service of Statutory demand

The preliminary question was when the statutory demand was served ([8] - [30]).  Her Honour undertook a very thorough consideration of the service provisions of the Corporations Act, the Evidence Act (as to presumption of delivery of postal articles, see  [15] – [21] – in particular section 160 of the Evidence Act (Cth)) the requisite proof of posting in the affidavit, being, at [22], that the envelope containing the statutory demand:

(a) bore the correct name and address;

(b) contained the relevant document to be served;

(c) bore the correct cost of postage; and

(d) was placed in the post.

Consideration of this issue was complicated slightly by the fact that there was a postal strike  during the relevant period which, it was contended, delayed delivery.  On this issue evidence was taken from a postal manager at the branch in which the letter was processed.

Date of application

Section 459G(2) of the Corporations Act requires an application to set aside a statutory demand.  Ferguson J considered at length the status of applications sent by facsimile ([41] – [50]).  Ultimately her Honour found that service by facsimile was acceptable.  In that context Ferguson J:

• cited Chernov J in Seventh Cameo Nominees Pty Ltd v Holdway Pty Ltd that how a document came to be served at the address for service was irrelevant and that it would be absurd if somebody who admitted to having received a document was not held to have been served with it [42];
• extracted the principles governing service in Woodgate v Garard Pty Ltd, a New South Wales Supreme Court decision of May this year, including that the question of whether email or facsimile is effective is determined by whether that mode of service actually brought the document to the attention of responsible officer [47];
• noted that provided the facsimile number was included within the statutory demand and the facsimile was transmitted within 21 days to the address for service the application was served for the purposes of section 459G [48].

Ferguson J acknowledges there i contrary authority on the question of service by facsimile. In my view her analysis is thorough and convincing.

FACTS

Mr Peter Spencer has conducted a vigorous campaign in the public arena and through Federal Court litigation against land clearing legislation and the attendant regulations.  A very useful summation is found at the ABC Law Report site.   He commenced proceedings against the Commonwealth in the Federal Court alleging that the restrictions imposed upon land clearing by New South Wales legislation constituted an acquisition of property. Because those laws were enacted in furtherance of an agreement with the Commonwealth such acquisition was made for the purpose of obtaining land other than on just terms and, accordingly, in breach of section 51(xxxi) of the Constitution.  The primary judge dismissed Mr Spencer’s claim pursuant to Rule 31A of the Federal Court Rules, the summary judgment provisions (see pars [10] - [13]).  The Full Court  dismissed Mr Spencer’s appeal (see [14] - [16] for more detailed discussion).

ISSUES

The decision, while unanimous, was considered in separate judgments of French CJ and Gummow, that of Hayne, Crennan, Kiefel and Bell JJ and a short judgment of Heydon J.  Rule 31A provides:

“(2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is defending the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.
(3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
(4) This section does not limit any powers that the Court has apart from this section.”

Per Hayne, Crennan, Kiefel and Bell

Their Honours regarded the starting point of any enquiry is, at [52], whether “..there is a “reasonable” prospect of prosecuting the proceeding, not an enquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail.”  The no reasonable prospect test differs from earlier rules of procedure relating to summary judgment applications where the exercise was a determination as to whether a proceeding would necessarily fail ([53]) with the test “requiring certain demonstration of the outcome of litigation, not an assessment of the prospect of its success” [54].

Their Honours in posing the question of how the expression “no reasonable prospect” should be understood explicitly refused to define it or provide a paraphrase by way of explanation ([58]). Instead their Honours stated :

• that in many cases where a plaintiff has no reasonable prospect of prosecuting a proceeding, the proceeding could be described (with or without the addition of intensifying epithets like “clearly”, “manifestly” or “obviously”) as “frivolous”, “untenable”, “groundless” or “faulty” [59];
• the word “reasonable”, in the phrase “no reasonable prospect”, is sufficiently, let alone completely, illuminated by drawing some contrast with what would be a “frivolous”, “untenable”, “groundless” or “faulty” claim [59];
• the Federal Court can only exercise its summary judgment power “.if, and only if, satisfied that there is “no reasonable prospect” of success” [60];

Per French and Gummow

Their Honours undertook a detailed study of Rule 31A’s provenance (see [18] – [21]) and its distinction to strike out applications ([22] – [24]).

Their Honours stressed that in both summary judgment and strike out applications the exercise of power must always be attended with caution ([24]) and the court must apply a practical judgment in determining whether an applicant has more than a “fanciful” prospect of success ([25]).  In that context:

• Where there are factual issues capable of being disputed and in dispute, summary dismissal should not be awarded to the respondent simply because the Court has formed the view that the applicant is unlikely to succeed on the factual issue [25];
• Where the success of a proceeding depends upon propositions of law apparently precluded by existing authority, that may not always be the end of the matter.

• Given existing authority may be overruled, qualified or further explained summary processes must not be used to stultify the development of the law. But where the success of proceedings is critically dependent upon a proposition of law which would contradict a binding decision of the High Court, the Federal Court hearing the application under s 31A could justifiably conclude that the proceedings had no reasonable prospect of success [25];

• Where an application under s 31A requires consideration of apparently complex questions of fact, then the caution is warranted because it may be resolvable without conducting  mini trial [26];
• The importance of those considerations is amplified if the case involves resolution of issues of law and fact, or mixed law and fact [25];

ISSUE

On one level Spencer is confined to the operation of Rule 31A of the Federal Court Rules. The rules are specific, distinct and differ from Rules 22 and 23 of the Victorian Supreme Court Civil Rules of Procedure or its equivalents in other jurisdictions.  That said their Honours comments on the general principles are relevant when preparing submissions in such applications.

Burchell & Anor v Hill & Ors

Facts

The plaintiff issued a subpoena to the National Australia Bank Limited, a non party. The NAB objected to producing the documents specified on the (not unusual grounds) that:

1. it was fishing for documents for the purpose of determining whether there was a cause of action against NAB;
2. it was oppressive and too wide;
3. the documents sought were irrelevant.

Analysis

The issue Muhktar AsJ considered was the scope and operation of the phrase “..to produce any document for evidence..” found in Order 42A.01.  He posited the question, at [3], as:

The question is: does the expression ”for evidence” mean that the only document capable of being sought under this rule is a document – a tenderable document – that the subpoenaing party wants to tender into evidence at trial? The Bank says the rule is to be so circumscribed and relies on the decision of Gillard J in Kennedy Taylor (Vic) Pty Ltd v Grocon.

The plaintiff/respondent submitted that the test was whether there is a legitimate forensic purpose in having the documents produced.  Reference to for evidence only requires that the documents may be needed for trial.  After a detailed review of authorities Muhktar AsJ set out the following applicable broad propositions:

1. at [15], “..the expression “for evidence” might be conjectural but the idea … is to convey an intention that an interlocutory subpoena under rule 42A should not be used as a substitute for non-party discovery. It is looking to obtain documents after the completion of the ordinary pleading and discovery process for use, or potential use, at trial. Whether the subpoena does, or does not, will depend on the terms of the subpoena…it will come to an examination, some times an impression by the Judge, of the breath of amplitude of the document description and nature, and whether the recipient is required to make a judgment whether a particular document satisfies the description
2. at [16], “..for evidence” means no more than the document produced may be potentially required for evidence, either in-chief or by cross-examination.”
3. at [17], “..for evidence” means no more than the document produced may be potentially required for evidence, either in-chief or by cross-examination. “
4. at [18], having regard to court’s practice prior to orders 42 and 42A “..the test was whether there was a legitimate forensic purpose in seeking documents before trial, and if it would be in the interests of justice to compel production. ..the essential test was whether the documents were identified with sufficient particularity.“
5. at [19], “..much might depend on the timing. At an early stage, a court might be more inclined to direct a party to rule 32.07 because at that stage attention is usually focussed on case formulation or pre-trial process. However, closer to trial, a court might be more supportive of the subpoena as long as it was not too wide.”
6. at [20], in determining whether the document can permissibly be subpoened “A useful test and one which I shall apply here is to ask whether the subpoena would have been objectionable if it was made returnable at trial.“

The NAB contended the subpoena was oppressive because there was evidence of illicit purposes.  Shortly before issuing the subpoena the plaintiff wrote to NAB and intimated that it was liable to compensate the plaintiff because a contravention of section 260A of the Corporations Act.  The court took into account the plaintiff’s disavowal of any ulterior purpose and noted that the subpoena was issued in the shadow of a looming trial.  The documents were relevant for that trial.  If they could be used for another purpose there would be a real question of the Court providing leave.  The Court was interested in the  issue at hand.  Compare this approach to that taken by Gillard J in Kennedy Taylor.

Issue

The propositions the court set out while very broad and general are a very useful point of reference when framing a subpoena under Order 42A and making application to set aside such a subpoena.  Some caution is warranted in relying on this decision as determinative of the scope of Order 42A subpoenas.  Gillard J in Kennedy Taylor (Vic) Pty Ltd v Grocon adopted a far more stringent test on the question of “evidence” as did Kaye J in Newnham v Davis. Muhktar AsJ essentially distinguished those decisions on the facts.

Re Bill Express Limited (in liq)

Facts

The applicant’s complaint at first instance, see [3],  was that the wording “all books and records relating to the affairs of [the] Bill Express [Group]” was oppressive and that the use of the expression “relating to the affairs” was uncertain and too wide.  On appeal the applicants in addition to maintaining the objection submitted the summons were beyond power because, see [6],:

1. summons issued under 596B of the Corporations Act must be “specified” whereas the summons described the documents as “relating to” the examinable affairs of the corporation;
2. the documents sought must be confined to examinable affairs of the corporation;
3. it is a fishing expedition;
4. it is too wide

Analysis

Davies J embarked upon a detailed analysis of sections 596D and 596B.  The court’s power under section 596B is enlivened when an eligible applicant provides sufficient facts which which satisfy it that the person summonsed may be able, rather than will be able,  to give information about the corporation or its examinable affairs.  It is not a high threshold (see [13]).  While the discretion is unfettered it must be exercised judicially (see analysis at [14]).

Davies J found that “relates”, a word capable of wide meaning, must be construed in the context within which it appears ([22]).  She found:

In this context, the phrase operates to indicate the requirement that there must be a connection between the documents sought to be produced and the examinable affairs of the company. It follows that a document that is unconnected with the company the subject of the examination or of its examinable affairs would not be a document required to be produced

Regarding point 2 of the applicants submissions her Honour summarised the guiding principles, after a detailed examination of the authorities,  as “the cases confirm that the scope and exercise of the power to order the production of documents for the purposes of an examination depends on the scope and exercise of the power to order an examination.” (see [26]). Where there is no limitation on the subject matter of the examination, other than it is about a corporation’s examinable affairs, the examinee must produce all books and records relating to the affairs of the  corporation.

Davies, extracting Re New Tel (In Liq) listed legitimate purpose of examination under 597 of the Corporations Act (see [27]):

(a) an examination is designed to serve the purpose of enabling an eligible applicant to gather information to assist the eligible applicant in the administration of the corporation;

(b) an examination assists the corporation’s administrators to identify the corporation’s assets, both tangible and intangible and also allows the corporation’s liabilities to be identified;

(c) the purpose is to protect the interest of the corporation’s creditors;

(d) the examination serves the purpose of enabling evidence and information to be obtained to support the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the corporation;

(e) an examination assists in the regulation of corporations by providing a public forum for the examination of examinable officers of corporations.

Her Honour considered the meaning of “specified books” ([29] – [34]). She found that section 596D(2) requires no other construction than the ordinary meaning of “specified” (see [33]).   To that end she stated:

Where an order is made under s 596B, the summons must identify the books and records required to be produced with sufficient clarity to enable the recipient to know what the documents come within the terms of the summons to be able to form a reasonable view about what must be produced in order to comply with the summons. The inquiry, in each particular case, is the degree of specificity required to provide the clarity and precision that the section mandates.

Her Honour found the summonses were not too wide or oppressive noting that

1. the applicants, although not officers of the company had significant involvement in its affairs.  The onorous nature of the request is no reason not to comply provided it complies with the statutory requirements of section 596D.;
2. the appropriate test in determining whether the summons is oppressive is “.whether the summons makes “reasonably clear” what documents must be produced.” (see [37])

Issue

Courts take a broad view regarding liquidators summonses.  There is limited utility in taking issue with broad terminology typically used in framing such summonses.

]]> http://www.peteraclarke.com.au/2010/04/08/production-of-documents-summons-and-subpoena-re-bill-express-limited-in-liq-2010-vsc-101-31-march-2010-burchell-anor-v-hill-ors-2010-vsc-96-31-march-2010/feed/ 0 http://www.peteraclarke.com.au/2010/04/05/no-case-submission-operation-of-section-159-of-the-fair-trading-act-blackman-ors-v-gant-anor-2010-vsc-109-31-march-2010/ http://www.peteraclarke.com.au/2010/04/05/no-case-submission-operation-of-section-159-of-the-fair-trading-act-blackman-ors-v-gant-anor-2010-vsc-109-31-march-2010/#comments Mon, 05 Apr 2010 13:24:21 +0000 Peter Clarke http://www.peteraclarke.com.au/?p=635 In Blackman & Ors v Gant & Anor Vickery J considered a very interesting no case application by the Second Defendant.  This is a case that has drawn considerable press coverage, including in the Australian and the Age.

FACTS (pars 4 – 11)

The Plaintiffs are the artist Charles Blackman and his trustee, Robert Dickerson.  The Second Defendant is Peter Gant, an art dealer.  Gant originally supplied three works of art to a Helen Stewart , another art dealer, together with two valuations of the works.  She was the former First Defendant.  Stewart sold the works to a a Robert Blanche, giving him a copy of the valuations.  The evidence is that Blanche relied upon one of the valuations when purchasing the works and used the other for insurance valuation purposes.  When, later, Blanche was advised that the works were not authentic he returned them to Stewart who refunded his money.  Stewart then returned the works to Gant.   The Second Defendant maintains the works are authentic.  The issue before Vickery J was confined to the Second Defendant’s no case application.

ANALYSIS

The Plaintiffs claim, at [12], that the valuations impliedly represent that the works were authentic and consequently a breach of section 9 of the Fair Trading Act.  The Plaintiffs claim loss and damage (see [21] - [24], [27] and [33] – [36]).

No case submission – generally

Vickery J, as is his wont, set out the principles governing consideration of a no case submission, at [2], quoting Kaye in Oakley & Anor v Insurance Manufacturess of Australia:

1. Where a no case submission is made in a trial by jury, the role of the judge is to determine whether, on the view of the evidence most favourable to the party against whom such a submission has been made (“the respondent party”), the jury could (not would) find in favour of the respondent party.
2. The test which is applicable, where a judge is sitting without a jury, is less stringent. In such a case the judge may uphold a no case submission, notwithstanding that the evidence, on the view most favourable to the respondent party, could support a judgment in favour of the respondent party.
3. In such a case the judge may perform an assessment of the quality of the evidence which has been called on behalf of the respondent party. In some cases, such an assessment may involve the judge evaluating the credit of witnesses from whom such evidence has been called.
4. In determining a no case submission, the judge is entitled to draw inferences from the evidence.
5. On a no case submission, the judge cannot draw an inference against the party making the submission (“the moving party”) based upon the absence of evidence from that party.
6. Although the judge, sitting alone, may assess the quality of the evidence in determining a no case submission, nonetheless the test which is to be applied by the judge, at that stage, is different to the test which the judge would apply in determining the ultimate outcome of the case, at the conclusion of a trial. Notwithstanding that the judge, in determining the no case submission, may assess the quality of the evidence, nonetheless the test remains whether, on the evidence so assessed, the judge “could” (not would) find for the respondent party on the evidence so far led. In such a case, the judge would only find against the respondent party if the evidence, so far adduced, is so unsatisfactory or inherently unreliable or equivocal that he were to conclude that he could not be reasonably satisfied of the case made by the respondent party on the evidence thus far adduced.

(my emphasis)

No case application – misrepresentation.

Counsel for the Second Defendant submitted, (see [14 ] – [16]) that the valuations were opinions of market value, not representations of authenticity.  As such the valuations did not constitute a representation under section 9 of the Fair Trading Act.  A valuation is an opinion of worth, not statement of fact, and as such is not a representation or misrepresentation.

His Honour did not accept this submission stating at [18]:

18 However, I am satisfied that there is evidence from which it is open to conclude that the valuations served a dual purpose. True it is that they contained an opinion of value. However it is open to conclude that the valuations also contained an implicit representation of fact that each of the works in contention were authentic works, each having been created by one of the Plaintiffs.

(my emphasis)

No case application – loss and damage.

It was also submitted that the sole recipient of the representation was Blanche.  Blanche is not a Plaintiff.  There was no evidence that he suffered any loss or that the valuations were circulated in the market place.   Vickery J extracted the relevant paragraphs and found that the relief sought included future loss and damage if valuations were used in the future in conjunction with the sale of the works (see [27] – [28]).  That element of the claim justified the claim for permanent injunction regarding the use of the valuations.  In considering sections 149 and 149A of the Fair Trading Act, empowering the grant of injunctive relief, Vickery J stated, at [30]:

30 These sections of the Fair Trading Act are framed in broad terms. On their face they arguably do not depend upon any person being actually mislead by conduct which contravenes section 9 of the Act. Rather, it is the conduct in breach of section 9 which may give rise to a grant of relief under section 149 .. The relief sought by the Plaintiffs in this case under paragraphs 1-3 of the relief claimed, would appear to fall within the ambit of these statutory provisions.

While Vickery J found there was a case to answer regarding the claim for injunctive relief he found there was no case to answer regarding the Plaintiffs’ claim for $25,000 in damages.  Section 159 of the Fair Trading Act requires a causal link between the contravening conduct and the loss and damage claimed, [34].  After analysing the evidence thoroughly (at [37] – [43]) his Honour found while thre was considerable evidence going to authenticity of the works (though he noted no declaration was sought on same in the pleadings - [41]) there was no evidence that valuations or their use had any effect causing the loss claimed.  On that point Vickery J found there was no case to answer the claim for $25,000.

No case application – the election.

The usual rule in making a no case submission is:

1. a judge will not rule on a no case submission unless the applicant states it will not call evidence in the event that submission is unsuccessful [44]. It is however a matter of discretion whether the judge puts the applicant to his election.  The exercise of the discretion depends on “..depends on matters which go to the just and convenient disposition of the litigation and the interests of justice.”
2. a judge will rule on whether to put the the applicant to his election after the submission is made.

His Honour did not put the applicant to his election because of the serious allegations being made; that an art dealer represented that fakes were authentic and sold fakes.  This is particularly serious for a dealer continuing to operate in the art market. In the circumstances the Second Defendant should have the opportunity to put on evidence against the case put against him.  Curiously his Honour regarded the publicity associated with the case as a factor, stating (at [46]), “I cannot ignore the measure of publicity that this case has attracted.”

ISSUE

No case applications are, not surprisingly,  infrequently made.  In a matter where the facts are actively contested the prospect of being put to an election rightly warrants a conservative approach.  If an application is contemplated it is critical to carefully analyse the Plaintiff’s evidence against the pleadings.  In this case the  Second Defendant was partially successful because the Plaintiff’s evidence focused on authenticity claims rather than evidence of actual loss.  As Vickery J made clear, one does not equate with the other.

Sanelli v Sanelli & Anor

Mukhtar AsJ in Sanelli considered a very full throated application by the plaintiff for indemnity costs.  At [29] Mukhtar AsJ set out the broad principles

29 An order for indemnity costs is a departure from the Court’s usual course and special circumstances must be shown. In my experience, applications for such orders are increasing in modern litigation but overall they are difficult to obtain, certainly in borderline cases. Great care must be taken in reaching a conclusion at the urging of a victorious litigant that the losing litigant somehow conducted itself delinquently as litigant so as to attract an indemnity order, as if it were an expression of the Court’s admonition. Such an order may be made where proceedings are commenced or continued in wilful disregard of known facts or clearly established law, or where there is undue prolongation of a case by groundless claims, or conduct of proceedings for an ulterior motive, or where a litigant acts dishonestly in the litigation or flouts or abuses rights and privileges. They tend to be cases where a Court might think that a litigant properly advised had no hope of success and therefore must be taken to have proceeded for some illicit motive or chosen to wilfully disregard the law. That would require a strong finding to sustain a judicially exercised discretion.

The Plaintiff claimed indemnity costs arguing that the second defendant never had a case [2], more technically described wilful disregard of the law, and a Calderbank letter where the Plaintff offered to bear her own costs if the second defendant would consent to monies held in Court being released to her.  The second defendant, notwithstanding withdrawing its defence 5 days from the scheduled commencement of the trial date argued that there should be no order as to costs because of the Plaintiff’ obstructionist behaviour.  The plaintiff’s claim was grounded on the equity of exoneration (usefully described at [23] – [27]) however the Plaintiff did not plead her case in those terms until approximately half way through the proceeding.  Mukhtar did not regard the extensive discovery and enquiry as being evidence of a lack of a defence.  Similarly he regarded some of the defences as being dubious.  Against this he noted that the ultimately successful claim was formulated lateish in the piece [34].  His Honour in analysing whether the rejection of the offer was unreasonable in the circumstances noted that the Calderbank offer was made 2 months before the Plaintiff amended her claim and at the time the offer was made the second defendant still had not “.. had all the relevant objective material to enable a litigator to give definite advice, or at least could say to their client that they had exhausted all means to dutifully investigate the case.” [40].  Timing of an offer an offer  is critical in determining the reasonableness in rejecting it.

O’Reilly v TS & B Retail Systems Pty Ltd

This was an appeal regarding a costs ruling made at the conclusion of a County Court trial.  The Court set out in some detail the exchange of offers and related correspondence.  A Defendant’s offer was made on Friday 16 May 2009 and left open until 5pm Monday 19 May 2009.  The plaintiff rejected that offer just before noon on 19 May and made a counter offer, leaving it open until 5pm the next day.  The court noted the very short period within which the offers were left open but regarded it as significant that even with such a short time frame the Plaintiff was sure enough  to reject the defendant’s offer with 6 hours to spare. The trial judge found it was unreasonable to reject the 16 May offer.  The Court approved of the trial judge’s analysis, recounted at [31],  including the haste of the Plaintiff’s response without properly considering the risks. The Court also highlighted the fact, at [20], that “..An order for indemnity costs does not entitle the party in whose favour it is made to recover whatever sums he incurs. Costs incurred unreasonably are not recoverable, nor are those of an unreasonable amount.”  The Plaintiff’s figures lacked credibility. It is very important for the offeree to be as temperate and resaonable as possible in any correspondence and couteroffers.

Tenth Vandy Pty Ltd v Natwest Markets Australia Pty Ltd (No 2)

As is his wont Croft J undertook a very detailed analysis of the operation of Order 26 [12] – [16],  Calderbank offers [17] – [20] and orders for non party costs [40] – [53].

Croft cited the factors of reasonableness set out in Hazeldne’s Chicken Farm Pty Ltd v Victorian Workcover Authority (No 2):

(a) the stage of the proceeding at which the offer was received;

(b) the time allowed to the offeree to consider the offer;

(c) the extent of the compromise offered;

(d) the offeree’s prospects of success, assessed as at the date of the offer;

(e) the clarity with which the terms of the offer were expressed;

(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.

His Honour made the point that in exercising its discretion it must judge the conduct of the offeree at the time of the offer but not with the benefit of hindsight.  To that end his Honour considered the offers in the context of the stage of the litigation process.  The authorities make it clear there is no rule requiring the maker of an offer to set out the reasons why the offer should be accepted.  It depends upon the circumstances.  In Tenth Vandy the Court did consider the analysis set out in the various Calderbank offers.  In his considerations the Court also noted the intemperate and “quite ridiculous offers to settle with the defendants on payment of sums in the millions of dollars..” [38]. The Court found that the plaintiff’s correspondence indicates that it was not behaving reasonably. Interestingly the Court in O’Reilly referred to some quite pungent correspondence. All the more reason for an author to remove as much emotion from correspondence as possible.  In considering the reasonableness of the refusal one should assume a court will be unimpressed by an offeree making serious allegations of misconduct or allegations relating to the proceeding unless it is relevant to the offer.

The Court ordered costs against a non party in this case.  It is an unusual order to make.  The basis for making an order was set out in [51] where Croft J said:

51 The jurisdiction to award costs against a non-party is not enlivened unless the non-party has a sufficient connection to the proceeding.  Elaborating on this requirement, and by reference to Burns Philp & Co v Bhagat, Bischof v Adams and also Guss v Geelong Building Society (in liq), Ashley J said:

“The Court’s power to award costs under s 24(1) of the Supreme Court Act is wide enough to order that costs be paid by a non-party. Focussing upon the general situation – that is, putting the circumstances raised by r.6323 to one side – it may be said that such an order is always exceptional. In the vast majority of cases it would be unjust to make an award of costs against a non-party. It may also be said that whilst certain categories of persons have been identified as persons against whom such orders may be made, the Court’s discretion is not confined to those categories of persons. A further proposition may be put, that is, that a non-party against whom an order is made must have a connection with the proceeding in question. Gobbo J dealt with the matter of connection in Bischof. His Honour concluded that in the exercise of the discretion it would be pertinent to take into account the extent of the connection between the non-party and the proceeding and the causal connection between the third party and the costs. His Honour pointed out, correctly in my respectful opinion, that in some cases the connection between the non-party and the proceeding may be slender, but there may be a close relationship between the non-party and costs (or increased costs) incurred. At the other extreme it may be that the non-party stands to benefit greatly from a proceeding, but may not have had any real part in supporting the proceeding, and so any real part in the incidence of costs.”

The court made the connection between the natural person and Tenth Vandy, his corporate vehicle, in the conduct of the litigation and incurring of costs by the defendant.  The Court was satisfied that the natural person was in effect the driving force behind the litigation and he had personal interest in the outcome.  It should be noted that just being a director is not a basis for a non party costs order. There must be a significant connection to the proceeding.

Interestingly, while  the Court made the non party jointly and severably liable for the costs the  non party’ s liability “…should be subject to the proviso that the liability … is not to arise unless and until the plaintiff fails to meet its obligations to pay the defendant’s costs” [56].  Such an order is indicative on the conservative approach of the Courts to make non party costs orders.

His Honour sets out the principles at [5] & [6] regarding the principles applicable in removing caveats under section 90(3) of the TLA, namely:

• it is broadly analogous to determination of interlocutoryinjunctions – the power is discretionary;
• the caveator has the onus of establishing there is a serious question to be tried that he has an interest in the land; and
  
• the balance of convenience favours maintenance of the caveat until trial;

The evidence

The agreement, reproduced at [7], in this case is exhibit A as an example of what to avoid when seeking to make a claim for an equitable right over property. The agreement seemed to relate to an agreement between the Plaintiff/sole proprietor’s husband and a putative business partner regarding purchase of shares in a pet food business.  His Honour forensically analysed the many deficiencies in the agreement, at [17] – [26].  The first observation made was that it consisted of 5 recitals and no operative clauses. The problems included the agreement:

• requiring the husband to pay $3 million for 15% share in a company that had not been established at the time of the agreement;
• referring to the parties a creditor and debtor respectively.  Hardly consistent with an investment;
• in one part limiting the interest to $3 million, at another recital registering the interest for not less than $3million.

Unusually in such applications the deponents were cross examined and his Honour found that that sole proprietor never knew of this agreement.  In examining the enforceability of the agreement his Honour noted that no demand for money by the business partner was made from August 2005 until 2007, that the husband had no interest in any corporate entity which might be the vehicle for the pet food busines and there was no evidence of a company conducting a pet food business.  The court found it relevant that notwithstanding a “clause” providing for the execution of an unregistered mortgage within 7 days of 8 August 2005 in favour of the business partner nothing had been done.  In such circumstances that constitutes evidence that it was not a caveatable interest (see [29]).

This application was made with the backdrop of Family Court litigation between the sole proprietor/wife and husband.  In that context it was relevant to consider the possible outcome of the litigation and the disposition of the property between the husband and wife.  The court found it likely that the wife wold remain the sole proprietor of the property.

While effectively His Honour found in favour of the plaintiff on the serious question issue he also found the balance of convenience also favoured her.  The husband and his business partner were engaged litigation which was moving at a “lamentably leisurable pace”, a factor which may prejudice timely resolution of the Family Court proceedings.  His Honour, at [44] found that the husband’s lawyers are seeking to dleay the trial of the Family Court proceedings on the basis of the claims made by the business partner.

Issues

Applications for removal of caveats are a regular feature in the Practice Court.  It is important to carefully analyse the underlying factual basis for the equitable claims. Those that rely on vague agreements, notoriously involving family members, can be susceptible to challenge.