FEDERAL COURT OF AUSTRALIA Headway Group Pty Ltd v Spyre Projects Pty Ltd [2016] FCA 874 File number: VID 322 of 2016 Judge: MOSHINSKY J Date of judgment: 29 July 2016 Legislation: Corporations Act 2001 (Cth), s 1335 Federal Court of Australia Act 1976 (Cth), ss 48(1), 56 Federal Court Rules 2011, rr 2.02, 19.01 Cases cited: Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301 G1PC Pty Ltd (Trustee) v PetStock Pty Limited [2015] FCA 1466 Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 Muranna Park Pty Ltd v Southern Mortgages Ltd [2016] VSC 84 National Mutual Holdings Pty Ltd v The Sentry Corporation (1988) 19 FCR 155 Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222 Date of hearing: 29 July 2016 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: No Catchwords Number of paragraphs: 16 Counsel for the Applicant: Mr RJ Boadle Solicitor for the Applicant: McNamara Barristers and Solicitors Counsel for the Respondents: Mr AA Segal Solicitor for the Respondents: Tucker & Cowen ORDERS VID 322 of 2016 BETWEEN: HEADWAY GROUP PTY LTD Applicant AND: SPYRE PROJECTS PTY LTD First Respondent DANIEL LARUCCIA Second Respondent DOMINIC GUINEA Third Respondent JUDGE: MOSHINSKY J DATE OF ORDER: 29 JULY 2016 THE COURT ORDERS BY CONSENT THAT: 1. Pursuant to s 48 of the Federal Court of Australia Act 1976 (Cth), the proceeding be transferred to the Queensland Registry of the Court. THE COURT ORDERS THAT: 2. The applicant is to provide security for the respondents' costs of and incidental to defending the proceeding in the sum of $140,000 by payment into Court or by an irrevocable bank guarantee issued by an Australian bank for the same amount. 3. The sum is to be paid by 18 December 2016. 4. The proceeding is stayed until the sum is paid in accordance with these orders. 5. The applicant is to pay the respondents' costs of and incidental to the respondents' interlocutory application. 6. Liberty to apply on three days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT MOSHINSKY J: 1 The respondents have filed an interlocutory application seeking, in summary, an order that the proceeding be transferred to the Queensland Registry of the Court, and an order that the applicant provide security for costs in the amount of $140,000. 2 I will first give a brief outline of the proceeding before addressing the two issues raised by the respondents' interlocutory application. 3 The proceeding was commenced on 19 April 2016 in the Victoria Registry of the Court. The applicant filed an originating application and a statement of claim. The statement of claim identifies two development projects. The first, described as the "Duncan Street Project", relates to a project to develop property located at 17-21 Duncan Street, West End, Brisbane, Queensland. The second, referred to as the "Oxlade Drive Project", relates to a project to develop property located at 55 Oxlade Drive, New Farm, Brisbane, Queensland. The statement of claim is structured in two parts, with the first relating to the Duncan Street Project and the second relating to the Oxlade Drive Project. 4 The pleadings in relation to the Duncan Street Project allege that the applicant was engaged by the first respondent under a written contract to carry out project development and management, project funding and project feasibility work (the First Contract). It is alleged that the first respondent wrongfully terminated the contract. The applicant claims that it is entitled to payment of certain amounts and damages. The applicant also brings a statutory unconscionable conduct claim in relation to the same subject matter. The applicant claims damages from the first respondent. The applicant also alleges that the second and third respondents (who are directors of the first respondent) are liable as accessories. The applicant also has a misleading or deceptive conduct claim and a restitution claim relating to the same subject matter. 5 In relation to the Oxlade Drive Project, the applicant pleads a contract with the first respondent. This contract is alleged to have been oral and also to be inferred from conduct. It is pleaded that, to the extent that it is to be inferred from conduct, the conduct was the repeated requests by the first respondent to undertake feasibility or viability studies of a number of projects, with the understanding that, should one or more of the properties the subject of the studies show positive viability, then the applicant would be contracted to work on the projects on the same terms as the contract relating to the Duncan Street Project. In particular, it is alleged that the applicant would be entitled to "10 percent of the net bottom line profits of the Oxlade Drive Project". It is alleged that the first respondent wrongfully terminated the contract. Damages are claimed. The applicant also has claims based on estoppel and restitution relating to the same subject matter. 6 A detailed defence has been filed. In relation to the First Contract, the first respondent admits that it exercised its rights to terminate the contract, but says that the contract was validly terminated. The allegations in relation to the Oxlade Drive Project are generally denied. 7 Three affidavits have been filed in connection with the interlocutory application: an affidavit of Dominic Guinea (the third respondent) in support of the transfer application; an affidavit of Daniel Davey (the respondents' solicitor) in respect of the security for costs application; and an affidavit of John Paras (the principal of the applicant) in response. Transfer application 8 Section 48(1) of the Federal Court of Australia Act 1976 (Cth) provides that the Court or a Judge may direct that a proceeding or part of a proceeding be conducted or continued at a place specified in the order, subject to such conditions (if any) as the Court or Judge imposes. Rule 2.02 of the Federal Court Rules 2011 provides that a party may apply at the proper place for an order that the proceeding be transferred to another place. 9 At the outset of the hearing, the applicant indicated that it consented to the transfer of the proceeding to Queensland. It is therefore unnecessary to deal with this aspect of the application in any detail. However, I indicate that based on my review of the evidence I am satisfied that there is sound reason to direct that the proceeding be transferred to Queensland: see National Mutual Holdings Pty Ltd v The Sentry Corporation (1988) 19 FCR 155 at 162. Security for costs 10 The respondents' application for security for costs is brought pursuant to rule 19.01 of the Federal Court Rules 2011, s 56 of the Federal Court of Australia Act and s 1335 of the Corporations Act 2001 (Cth). 11 Section 1335 refers to there being "reason to believe" the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence: see the discussion in Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 at [15]-[16] per Maxwell P and Buchanan JA; Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301 at [16]-[17] per Macfarlan JA (with whom Tobias AJA agreed); Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222 at [7]-8] per Katzmann J; G1PC Pty Ltd (Trustee) v PetStock Pty Limited [2015] FCA 1466 at [13] per Robertson J. 12 In the present case, I think the threshold condition for the exercise of the power is satisfied. The applicant has a paid up share capital of $100 and there is no evidence of it having any substantial assets. It does not own any real property in Victoria or Queensland. There has been no substantive response from the applicant to a letter of enquiry as to its financial situation sent on behalf of the respondents. Mr Paras's affidavit does not provide any evidence which suggests that the applicant has any substantial assets. It merely contains the brief statement that the "Applicant has no outstanding debts and is thus not impecunious". No supporting documentation is provided. In any event, the affidavit does not state that the applicant has substantial assets. In these circumstances, there is reason to believe that the corporation will be unable to pay the costs of the respondents if they are successful in their defence. 13 The applicant submits that the respondents have not satisfied their onus of establishing the threshold condition for the exercise of power; that the evidence put on by the respondents is insufficient and no inference can be drawn from the applicant's failure to respond to the request for financial information or the failure to provide any affidavit evidence detailing any substantial assets. However, I consider that the material adduced by the respondents combined with the failure of the applicant to respond justifies a conclusion that there is reason to believe that the applicant will be unable to pay the costs of the respondents if they are successful in their defence: see Muranna Park Pty Ltd v Southern Mortgages Ltd [2016] VSC 84 at [17]-[21] per Gardiner AsJ and the cases there cited. 14 Once the jurisdictional condition is satisfied, the discretionary power to order security for costs is enlivened. For the following reasons, I consider that the applicant should be ordered to provide security. (a) No evidence had been led by the applicant as to its substantive financial position. Despite repeated requests, the applicant has failed to provide information regarding its financial status or set out any basis upon which it could satisfy an adverse costs order. (b) The applicant has not offered any alternative form of security for meeting such a costs order. (c) The evidence does not indicate that the applicant has any assets and is a $100 company. (d) It also appears the applicant's director has been associated with other companies, which have either been placed into external administration, liquidated and/or deregistered. 15 In relation to quantum, the affidavit of Mr Davey provides, with appropriate detail and reasoning, a foundation for the proposition that the party-party costs of the respondents to the first day of trial are likely to be $140,000. No responding material has been filed by the applicant. I therefore consider that the amount of $140,000 is appropriate. Conclusion 16 I will therefore make an order by consent that the proceeding be transferred to Queensland. I will also order that the applicant provide security for costs to the first day of trial in the amount of $140,000. I will hear the parties on costs. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky. Associate: Dated: 29 July 2016