Allsop Investments Pty Ltd v Jerkovic & Ors

Judgment

1. This judgment resolves several interlocutory applications in these proceedings brought by a corporate plaintiff, who claims to be a unit holder in a unit trust. The principal interlocutory dispute is the defendants' application for security for costs. But the Court also examines in this judgment a mechanism for containing the expenditure of legal costs in an action which but for the fact it engages the equitable jurisdiction of this Court, would probably be determined in either the Local Court or the District Court. These various interlocutory applications are best understood in the context of the ultimate issues for trial.
2. Until June 2018 it is common ground in these proceedings that the plaintiff, Allsop Investments Pty Limited ("Investments"), a company controlled by Mr Jeremy Allsop, held 20% of the units in the Mortdale Unit Trust ("MUT"), a unit trust which conducted the L J Hooker real estate franchise in the Sydney suburb of Mortdale. The business of the franchise included acting as managing agent of a rent roll of local properties. The third defendant, Mortdale Estate Pty Ltd ("Estate") is the trustee of the MUT and was appointed to that role under a January 2009 Trust Deed ("the Trust Deed"). The first and second defendants, Mr Joe Peter Jerkovic and Mrs Gina Jerkovic, ("the Jerkovics") held units in the MUT totalling a controlling interest in the other 80% of the unit holders in the MUT. The Jerkovics were also directors of Estate from January 2009.
3. By its Further Amended Statement of Claim, the plaintiff, Investments complains that between 2009 and 2018 the defendants, Estate and the Jerkovics, diverted trust assets from the MUT to the Jerkovics or their interests in breach of the Trust Deed and in breach of Estate's general duties as a trustee of the MUT. The diversion of assets is said to have principally involved a transfer of the MUT's rent roll and rental commission receipts into and a merger with a similar business at another L J Hooker franchise in the nearby suburb of Riverwood that the Jerkovics conducted through a company they controlled, GMJ Property Group Pty Ltd trading as L J Hooker Riverwood ("GMJ").
4. The plaintiff company also complains that it advanced $32,724 by way of a loan to Estate between September 2009 and October 2010 and says that this money was advanced not as a contribution of capital but solely as a loan, which has not since been repaid.
5. Investments further claims that in June 2011 and in July 2018 the Jerkovics orchestrated invalid calls for allegedly unpaid capital that the defendants claimed was due in respect of the plaintiff's units in the MUT. The plaintiff says that its MUT units were fully paid and the call was therefore without foundation. But Investments did not respond to the call, and Estate then purported to forfeit the plaintiff's MUT units. This forfeiture is part of the misconduct alleged against the defendants in relation to the MUT. A preliminary question in the proceedings will be whether the plaintiff's units in the MUT were validly forfeited in 2014 and 2018.
6. Investments further says that contrary to the Trust Deed it did not receive any distribution of income or capital from the MUT before its units were forfeited. It says that, as a result of the allegedly wrongful forfeiture of its units in the MUT, it was deprived of the benefits that it would otherwise have enjoyed by way of trust distributions from the sale in April 2019 of the MUT's assets for substantial sums to the Property Management Company of Australia Pty Ltd, a company associated with Mr Michael Noonan (referred to as "PMC" or "the Noonan interests" in these reasons).
7. Oral submissions made on behalf of Investments raised various allegations of fraudulent conduct and other misconduct against the Jerkovics. These are denied, but importantly for present purposes the allegations of fraud are unpleaded, a situation that will need to be regularised if this matter is to proceed to trial.
8. Estate and the Jerkovics filed a Cross-Claim on 20 December 2018 and filed an Amended Cross-Claim in April 2020. The Amended Cross-Claim pleads that the parties to the Trust Deed, who were the plaintiff, the Jerkovics and two other groups of interests, authorised Estate to purchase the L J Hooker real estate Mortdale franchise in May 2009 and a rent roll and goodwill of WEA Schloeffle & Son Pty Ltd for $480,000 ("the Schloeffle business"). The Amended Cross-Claim pleads that the acquisition of the Schloeffle business was funded by a combination of a 10% deposit paid into the MUT by the unit holders and that the balance was met by a loan from the National Australia Bank ("NAB"), secured over property interests of the Jerkovics that were contributed to enable the MUT to acquire the Schloeffle business.
9. The Amended Cross-Claim introduces a further allegation that it was a term of this original agreement to acquire the Schloeffle business that if any shortfall in moneys was to be repaid to the NAB by the Jerkovics, then Investments would have to pay Estate its proportionate share of the moneys borrowed from and repaid to the NAB. This agreement is said to arise as an express oral agreement, or alternatively by implication from the fact that the Jerkovics provided security for the loans to Estate over their other company interests. The Jerkovics are actively pursuing recovery on this Cross-Claim.
10. Between January 2009 and June 2011, the Jerkovics allege that they applied moneys to the MUT, including to meet Estate's obligations to the NAB that were well in excess of Estate's total proportionate obligations to meet the NAB facility. The Amended Cross-Claim pleads that Estate issued a call notice to the plaintiff for $80,000, allegedly pursuant to Trust Deed, clause 3.6. But the call was unpaid. The Amended Cross-Claim pleads that in July 2011 Estate and the Jerkovics agreed verbally with Investments that in consideration of Estate not forfeiting all of Investments' units in the MUT that Investments would forfeit 50% of its units in the MUT (on the basis that Investments had not paid the first call, and would pay the first call to the MUT). But the Amended Cross-Claim alleges that Investments made no further payments to the MUT. The Jerkovics interests say that between July 2011 and July 2018 they contributed proportionately far more of their own funds to the MUT than was contributed by the Allsop interests. The Amended Cross-Claim further pleads that in July 2018 Estate issued a call notice to Investments for the payment of $40,000 to the MUT but it was unpaid.
11. Interlocutory aspects of these proceedings have regrettably become complicated. The Jerkovics made a security for costs application when this matter first came before the Court in April 2020. Before determining this Motion, Hallen J ordered the proceedings be referred out to a Court appointed expert, Mr Trevor Vella, a forensic accountant, to undertake analysis of the financial position of the MUT and the transactions by which the defendants are said to have diverted its assets.
12. Another purpose of this order was to see if some light could be thrown upon the amount really at stake in these proceedings before the application for security for costs was determined. That supplementary purpose is very important because the evidence now before the Court creates a grave concern that not very much may really be in issue in these proceedings. The orders appointing Mr Vella were as follows: "THE COURT IN CHAMBERS: 1. Grants leave to the Cross-Claimants to file and serve an amended Cross-Claim upon the Plaintiff/Cross-Defendant by 4:00 p.m. on 29 April 2020. 2. Orders the Cross-Claimants pay the costs thrown away by the amendment of the Cross-Claim, such costs to be calculated on the ordinary basis. 3. Directs the Cross-Defendant to file and serve an amended Defence to the amended Cross-Claim by 4:00 p.m. on 15 May 2020. 4. Orders that Mr Trevor Vella be appointed as a single expert pursuant to Uniform Civil Procedure Rule 31.17 to prepare a report as to: (a) The: i. Gross income of the Mortdale Estate Unit Trust ("the Trust") in accordance with clause 2.3.1 of the Trust Deed for the Trust: ii. The costs, disbursements, commissions, fees, taxes, management charges and other proper outgoings of the Trust as may be paid out of the gross income in accordance with clause 2.3.2 of the Trust Deed; iii. The net amount after deducting from the amounts identified in (i) above the amounts in (ii) above in respect of the financial periods from 23 January 2009 until the date of the report including but not limited to the power of the Third Defendant as trustee of the Trust pursuant to clause 6.3.8 of the Trust Deed to pay out of the Trust Fund thereby constituted or the income thereof all costs charges expenses incidental to the management of the Trust which the Trustee may at any time incur to with, the carry forward losses; and having regard to the accounting practices and standards imposed on the Trustee pursuant to clause 8 of the Trust Deed, noting any amounts that are considered to be not reasonable or that are payments made to the first and second Defendants or related parties, and (b) Noting what payments were made from the bank accounts of the Mortdale Unit Trust to or for the benefit of the first and second Defendants or to associated persons or their legal and accounting advisors for the period from 23/1/2009 to the date of the report; and (c) as to whether the Trustee has used the assets and said net income, including the rent roll, sales and rental commissions for the benefit of the first and/or second Defendants and/or Riverwood Estate Pty Ltd such that the Trust lost the benefit of those assets or did not receive the benefit of the income, 5. Directs, if the answer to paragraph 4(c) is in the affirmative, then: (a) What assets were used, if any, and when and how were they used? (b) What was the value of the assets used at the time which they were used? (c) What was the income used, if any; (d) Identify the income used and the net outcome otherwise lost to the Trust. 6. Directs, for the purposes of the preparation by Mr Vella of his Report, the Plaintiff provide to Mr Vella a copy of the following documents: (a) The pleadings being the amended Statement of Claim filed 3 June 2019, the Defence to the amended Statement of Claim filed 21 June 2019, the amended Statement of Cross-Claim referred to above, the amended Defence to the amended Cross-Claim referred to above and also the Reply to the Defence; (b) The Notice to Produce served on the Defendants; (c) The subpoena against National Australia Bank which provided loan and banking facilities to the Mortdale Estate Unit Trust; (d) The subpoena against BDH Chartered Accountants who were the most recent accountants and tax agents for the Mortdale Estate Unit Trust; (e) The subpoena against Michael Noonan who is principal of Sanders Noonan Real Estate which purchased the rent roll from the Mortdale Estate Unit Trust in 2019; (f) The subpoena against LJ Hooker Head Office which was the Franchisor of the LJ Hooker franchise business conducted by the Mortdale Estate Unit Trust; and (g) The subpoena on Eclipse Accounting Group, with a view to Mr Vella identifying from those documents sought to be produced in the Notice to Produce and the subpoenas which he considers necessary to be made available to him for the purpose of preparing his Report. 7. Orders that Mr Vella notify the parties of the documents he has identified pursuant to paragraph 7 hereof. 8. Grants liberty to the Defendants to apply to the Court by notice of motion if agreement cannot be reached to limit access by the Plaintiff to the documents required by Mr Vella for the purpose of his report, such access not to be given for 10 working days after the documents have been identified by him or until the determination of any notice of motion filed by the Defendants, whichever is the latter. 9. Directs that Mr Vella have access (including taking copies of the documents) to the documents produced on subpoena which he has identified as being necessary for the purpose of preparing his Report. 10. Orders that, within 28 days of Mr Vella identifying those documents sought to be produced in the said Notice to Produce which are necessary for him to prepare his Report, the Defendants produce to Mr. Vella the originals or copies thereof which are in their custody or control. 11. Orders that the costs of the single expert be borne 50% by the Plaintiff and 50% by the Defendants (but not out of the monies held subject to the Mortdale Estate Unit Trust) in the first instance with liberty to the parties to apply for a variation of that order at the conclusion of the proceedings. 12. Orders that each of the parties deposits to the Trust Account of its or their solicitor, 50% of the cost of the preparation of the report to be prepared by the single expert as estimated by the single expert within 14 days of notification by the single expert of such estimate by way of security for costs with the report not to be commissioned until such deposit to Mr Loupos' Trust Account is confirmed by him. 13. Directs the Plaintiff to inform the Defendant in writing within 7 days of any proposed amendment to the amended Statement of Claim. 14. Stands over the balance of the Plaintiff's Notice Motion, in so far as it relates to the provision of security for costs pending the preparation of the report by the single expert, at 9:30 a.m. on Thursday, 16 July 2020 for directions. 15. Orders that the Return of Subpoena listed for 17 April 2020 be vacated. 16. Orders that the costs of the Notice of Motion be costs in the cause."
13. Since April 2020 the proceedings have become enmeshed in costly conflict about what material could be given to Mr Vella and what communications could take place with him. The matter first came before me on 30 March 2021 and again on 26 April 2021. On 26 April, the Court made detailed directions for the better case management of the proceedings, to control the parties' communications with Mr Vella and to ensure that his fees as a Court appointed expert were paid promptly.
14. Four matters have now been presented to the Court for decision, in three Motions (one brought by the plaintiff and two brought by the defendants). The Court is also considering certain requests from Mr Vella about the conduct of these proceedings. These were the following: (1) the defendants apply by their Motion of 13 December 2019 for security for costs from the plaintiff company; (2) the defendants also apply by Motion dated 26 February 2021 for the payment forthwith of costs orders previously made in their favour; (3) independently of any Motion filed by either of the parties, the Court expert, Mr Vella, seeks directions to regulate the further conduct of the reference; and (4) finally, the plaintiff seeks by his Motion of 31 January 2021 various forms of relief, some of which appear to be in the nature of final relief, and the defendants seek by their Motions various forms of ancillary relief, not all of which needs to be considered.
15. Mr G. Loupos, solicitor appeared for the plaintiff company on these applications. The Jerkovics were represented by Mr R. Tregenza of counsel, instructed by Jemmeson & Fisher. PMC and the Noonan interests were represented by Mr M. Stark, a solicitor from Baker & McKenzie.

(1) Security for Costs

1. The defendants apply for security for costs. The general principles relevant to the application of Corporations Act 2001 (Cth), s 1335 and Uniform Civil Procedure Rules 2005 ("UCPR"), r 42.21 are well-known and need not be repeated in these reasons. Reference is made to those principles, as summarised in J. Hamilton, G. Lindsay, M. Morahan and C. Webster (eds), New South Wales Civil Procedure Handbook 2019 (Thompson Reuters, 9th ed, 2019) at 1030 to 1037 and S. Hinchliffe, 'Civil Litigation Instituted by Impecunious Corporations: Security Against Costs', Halsbury's Laws of Australia (11 June 2019).
2. Three additional aspects of those principles, more directly relevant to the present interlocutory contest are referred to here. First, if an application for security is made in a timely way the order may include past costs but generally it is not appropriate to include in a security for costs order an amount in respect of costs incurred by the defendant during the period of the delay in bringing the application for security: JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64 and Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [69].
3. Second, it is not contended here that the plaintiff company has substantial assets, which would be available to meet a costs order against it, were it to be unsuccessful in these proceedings. Indeed, it is conceded that it does not. Mr Allsop, who controls the plaintiff and stands to benefit from any judgment that might be given in its favour, is prepared to make himself personally liable for any costs order made against Investments. But the defendants say that Mr Allsop is not a person of substance.
4. When a principal behind a corporate entity steps forward in answer to a security for costs application and offers to accept personal liability for the company's costs orders, the applicable principles are now reasonably clear, as result of the New South Wales Court of Appeal's consideration of this subject in Jazabas Pty Ltd v Haddad (2007) 65 ASCR 276; [2007] NSWCA 291 ("Jazabas"). In Jazabas the Court analysed the Victorian Court of Appeal's decision in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191; [1999] VSCA 43, at 197-8. Jazabas stands for the proposition that the willingness of a person who stands behind a corporate plaintiff to give an undertaking to pay a successful defendant's costs may be an important factor influencing the exercise of the Court's discretion to order or not to order security for costs. But it is not a factor of critical importance or decisive significance such that the Court should exercise the discretion with a particular predisposition if such an undertaking is given.
5. Third, a corporation which seeks to rely upon the fact that ordering security would stifle the proceedings will need to demonstrate the lack of means of others associated with the company, who may stand to benefit from the litigation: Hastings v Hastings [2009] NSWCA 294 at [14].
6. The defendants' application for security for costs has had a somewhat torturous history. Filed on 13 November 2019, it was originally listed for hearing before Hallen J on 16 April 2020, the hearing at which Mr Vella was appointed. The issue of security for costs and a number of other undetermined issues were listed before me, as described earlier in these reasons. Mr Allsop's evidence is that the plaintiff company is a bare trustee that does not own any assets and does not derive any income. But Mr Allsop undertakes to pay any costs order made against the plaintiff. Mr Allsop is not a person of demonstrable wealth. He owns a strata title unit at Wolli Creek. He estimates it is worth $750,000 and he owes $500,000 to a first mortgagee and $100,000 to his mother, leaving an equity of $150,000 in the property. He may have little equity in that property, but he has access to funds to conduct this litigation and has paid Mr Vella's fees to date.
7. There is reason to believe the plaintiff company will be unable to satisfy a costs order. So the evidentiary burden passes to the plaintiff to establish why an order for security should not be made: Cornelius v Global Medical Solutions Australia Pty Ltd (2014) 98 ACSR 301; [2014] NSWCA 65 at [18] - [20].
8. The parties contested many of the considerations that are commonly in play in a contest concerning security for costs. Ultimately, the weight of those considerations is against the making of an order for security for costs. The principal submissions on each side are first set out here following which the Court considers and evaluates those submissions.
9. The Parties' Principal Submissions. The defendants were dismissive of the plaintiff's prospects of success. But despite the need for some amendments (discussed below), the plaintiff's claim appears regular on its face and discloses a cause of action and the Court should proceed on the basis that the claim is bona fide and has reasonable prospects of success: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; [1995] FCA 76, at 197.
10. In a related submission, the defendants question whether the plaintiff will ever secure a judgment of any substance, even if successful. The defendants point out that the plaintiff claims the return of the sum of $52,700 advanced to acquire 20% of the units in the MUT. The defendants submit that the plaintiff agreed to forfeit 10% of the MUT units and that the other 10% were forfeited by notice and that the plaintiff's overall prospects of recovery are poor. But even if some recovery is possible, the defendants point out that it is a recovery of either a loan advance of only $32,700, or a 20% share in what is prime facie a loss-making business, none of which is likely to commercially justify proceedings in this Court.
11. It is true that the plaintiff's claim for the return of invested capital is only $32,700. But if the plaintiff makes out its claim for diversion of assets from the MUT, and establishes that the diverted assets would have made it profitable, then the claim may be larger. But the defendants' point about the size of the plaintiff's claim is sufficiently compelling that the Court is going to address it separately, whatever the outcome of the present Motion.
12. In a further related point, the defendants also submit that, to the extent that there are financial statements for the MUT available, they show accumulated losses for the period 2008 to 2019 of $54,366, even allowing for a large insurance payout to the MUT following a fire that took place at the business in 2013. They submit that the proceeds of sale of the MUT's rent roll in 2018 will still be required to discharge Estate's indebtedness to the NAB (the subject of Estate's Cross-Claim) and that there will be nothing left in the MUT. The defendants submit that even if the plaintiff establishes that it continues to hold its entitlement to 20% of the net proceeds of sale, after obligations to the NAB are satisfied, those net proceeds are unlikely to be substantial.
13. Hallen J attempted to have the parties gain greater clarity about the upside of the plaintiff's claim by having the expert report available to assist in the determination of the security for costs application. But the Court does not yet have the benefit of the expert report. The contest to date in relation to the Court expert, Mr Vella, indicates that proof of the MUT's profitability will require many further steps and will not be easy due in part to the difficulties associated with reconstructing its accounts between 2009 and 2018. But on the presently available evidence, the Court could not readily act upon the assumption behind the defendants' submission that the MUT, even if properly administered without the alleged breaches of trust, would have been a loss-making business. But how much profit it would potentially have made is still very uncertain and Investments would only ever be entitled to 20% of it.
14. In the end, this factor is neutral, and does not point either in favour or against the making of an order for security for costs. But consideration of the factor does indicate that the evidentiary contest in this case still has a long way to go in relation to a potentially modest claim and that the containment of future legal costs should be a high priority in this case.
15. The defendants also challenge the genuineness of the plaintiff's claim. The deficit in genuineness is said by the defendants to arise because Mr Allsop had been employed by Estate between 2009 and 2018 and he only commenced proceedings once he resigned his employment and steps were taken to forfeit his units. The defendants say that it was puzzling that Mr Allsop had worked in the real estate agency from 2010 to 2018 without receiving any distribution from the MUT but made no complaint throughout that time that he had received no distribution from the MUT.
16. But this analysis is disputed. Mr Allsop says he raised a problem with Estate's application of the income of the MUT before January 2010. Estate's answer then seems to have satisfied Investments, because Investments made a proportionate contribution to a deposit fund to acquire a further rent roll (from the Schloeffle business) in late 2010. The MUT acquired the L J Hooker franchise in Mortdale for $30,000 and the Schloeffle business rent roll for $480,000 both in 2010, with the balance after the payment of a deposit being funded by the NAB secured by fixed and floating charges over the assets of the Jerkovics and their company, GMJ.
17. The defendants' point is that if Mr Allsop had a genuine complaint that the business of the MUT conducted by Estate was doing as well as is now claimed, the proceedings would have been commenced many years before 2015 and not as late as 2018.
18. These contentions are not persuasive. Estate's continued employment of Mr Allsop is a complicating factor which is likely to explain delay in commencing these proceedings until his resignation, notwithstanding his dissatisfaction with the conduct of the trustee, Estate. This continues to be a neutral factor among the main security for costs considerations.
19. Investments also advances several considerations against the ordering of security for costs. First, the plaintiff argues that its present impecuniosity is attributable to the defendants' conduct, an issue sometimes described as "the causation" factor: Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 at [85].
20. But this is not a persuasive factor in this case. It can be accepted that the plaintiff is impecunious, and indeed Mr Allsop does not have substantial assets. But proof that the plaintiff's impecuniosity was caused by the defendants is not straightforward where, as here, the plaintiff's claim does not involve an allegation that an existing asset was subtracted from the wealth of the plaintiff by the conduct of the defendants. The inference of causation here still rests upon proof of the defendants' misconduct depriving the plaintiff of financial opportunities. This will only be proved or disproved at the final hearing. These are matters yet to be determined and cannot be relied upon by the plaintiff at an interlocutory level on the presently incomplete evidence.
21. There was a tendency in the plaintiff's submissions on the security for costs application to argue the case for final relief and to emphasise its strengths. The defendants engaged in similar counter-arguments, emphasising the strengths of their Cross-Claim. Such efforts do not properly apprehend the nature of the discretion being exercised in an interlocutory application such as this. It is not the task of the Court to determine the matter on a final basis. Nor is it the task of the Court, other than in the most general sense, to attempt to evaluate the strengths and the weaknesses of the cases to be presented by the parties at final hearing. A forecast of the outcome of proceedings such as these is not possible, so much is in issue. The plaintiff submits that its case is strong and that "the defendants' conduct should be strongly condemned by the Court". Whilst this is no doubt the plaintiff's and Mr Allsop's conviction, both propositions are in contest. The defendants' convictions about the case are equally strong.
22. The plaintiff also relies upon the defendant's alleged delay. The plaintiff contends that the defendants delayed more than 12 months after the commencement of the proceedings, and following the completion of the plaintiff's evidence, before bringing this application. These proceedings were commenced by Statement of Claim on 25 August 2018. The Motion seeking security for costs was filed on 13 December 2019. The plaintiff is correct that waiting approximately 16 months before bringing the application for security is not prompt. This has encouraged the plaintiff to expend costs in advancing the proceedings before facing the possibility of a stay, if security for costs were not to be provided.
23. This factor weighs to a degree against a grant of security for costs, because of the plaintiff's expenditure in the first 16 months before the application was first brought, making any resultant stay more costly for the plaintiff. But the chances of a security for costs order resulting in the plaintiff losing those sunk costs if a stay is granted could be mitigated to a degree by the Court not making a retrospective order for security, so that security would not be granted in respect of any costs incurred by the defendants before December 2019. But this factor still weighs in the plaintiff's favour.
24. But the delay which has occurred since December 2019 has largely been occasioned by the difficulties in bringing the process before the Court expert to a satisfactory conclusion, given the contentious communications that have taken place between the parties and the expert. Those delays are not obviously the fault of the defendants. The delays have aggravated the consequences for the plaintiff of the defendants' delayed filing of its original application for security for costs.
25. The plaintiff also says that it occupies the position of a defendant in these proceedings. Investments points to the Amended Cross-Claim brought by the defendants, which it claims is highly unlikely to succeed. The defendants contend the Amended Cross-Claim has good prospects of success.
26. This argument on behalf of the plaintiff is more persuasive and is considered further below. The plaintiff claims that its units in the MUT were wrongly forfeited and seeks their restoration. The plaintiff claims that the defendants have diverted assets from an income from the MUT. As the dealings with the Court expert show already, these are time consuming issues on which the plaintiff is the moving party, not the defendants. But the Amended Cross-Claim also raises potentially complex issues arising out of the same substratum of fact.
27. The plaintiff claims that the making of an order for security for costs now would act as an instrument of oppression against the plaintiff. The plaintiff submits the Court should examine the defendants' motives in bringing this application at this stage of the proceedings, at a time when the plaintiff has gained access to subpoenaed documents which the plaintiff claims supports the plaintiff's allegations of misconduct and fraud by the defendants.
28. But this is not persuasive. So far as the Court can see the defendants have been defending themselves against what they regard as a wholly unjustified claim. There is no evidence that the defendants deliberately delayed bringing an application for security for costs to disadvantage the plaintiff. As can be seen, the defendants delay is a factor that can be considered as weighing mildly against them on this application.
29. The defendants' estimate of costs, for which they seek security, is not detailed. Ordinarily, a claim for security for costs breaks a defendant's estimated future costs down into components of solicitors' professional costs and counsels' fees (with hours and hourly rates included) and other disbursements distributed across the different periods leading up to the preparation for trial and the trial itself. But the defendants' original evidence on this subject, an affidavit of Donna Boyce of 19 December 2019, was expressed in a summary form: "15. It is estimated that the First, Second and Third defendants are likely to incur further costs totalling in excess of $150,000 for solicitors and counsel costs if this matter proceeds to hearing. These costs are likely to be incurred because there are interlocutory hearings which have to be heard, evidence to be drafted and an estimated hearing of 3 days. We estimate counsel's fees are likely to be approximately $90,000 and solicitors fees and disbursements are likely to be $60,000."
30. That evidence did not explain how the figure of "in excess of $150,000" was reached. The evidence failed to give an explanation of the rates being charged by solicitors and counsel and the hours estimated to be taken at various stages of the proceedings. It did not distinguish between past costs and future costs. It did not distinguish between costs that have been incurred and paid in relation to the expert process in these proceedings and other costs. It is expressed as a minimum, with no defined upper limit.
31. These omissions were repaired to some degree by the subsequent affidavit of Kristyn Winner of 3 June 2021. Ms Winner's evidence was to the following effect. At the time of filing of the Motion on 13 December 2019 the defendants had incurred costs and disbursements totalling approximately $40,000. Since the Motion was filed on 13 December 2019 and up until the date of Ms Winner's affidavit the defendants had incurred further costs and disbursements of $67,000. And specifically, since the orders were made for the appointment Mr Vella on 16 April 2020 the defendants have incurred solicitors' costs of $24,182 and barristers' costs of $20,493.
32. The Court would observe that given the plaintiff has issued multiple subpoenas resulting in the production of 16 packets of subpoenaed documents, engaged in copious correspondence with Mr Vella, amended its Statement of Claim, had cost orders made against it and been involved in several adjournments of directions hearings, these fees are reasonable in the circumstances.
33. But as to future costs, the defendants estimate remains global and indefinite. Ms Winner estimates that the defendants are likely to incur further costs totalling in excess of $90,000 for solicitors and counsel if the matter proceeds to hearing, with an estimated hearing of four days, with counsel's fees at $50,000 and solicitors' fees approximately $40,000. Once again these are not excessive amounts for Supreme Court proceedings in the Equity division.
34. The making of a security for costs order requires judicial evaluation of future legal costs based upon evidence of sufficient cogency that the Court can have confidence in the estimates on which it is being asked to act. In considering the amount of security to be ordered and the Court's discretion in determining this, the Court can take into account "the adequacy of the evidence of the costs likely to be incurred": Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd [No 19] (1995) 134 ALR 187; [1995] FCA 1778 at 198. Although the evidence in this case shows every sign of being a global estimate, given what the Court foresees is necessary to review this case for hearing the estimate does not seem unreasonable. But it is not broken down and it is difficult to estimate how much is yet to be expended on dealing with Mr Vella and how much will be expended in other preparations for hearing and the hearing itself.
35. This factor would not of itself weigh against making an order for security for costs but the way the defendants evidence is expressed globally would nevertheless make it difficult to make an order for security for costs in stages, for example up to the fixing of the matter for trial and then the hearing itself.
36. But this factor is not decisive. In the Court's consideration other factors lead the Court to declining to make an order for security for costs in this case.
37. Consideration. The Court is not persuaded that an order for security for costs should be made. These proceedings contain a combination of factors which indicate that the Court should be cautious about making such an order. The weightier factors indicating that course are the following.
38. First, Mr Allsop is prepared to step out and make himself personally liable for any costs that may be ordered against Investments. He is the sole shareholder and controller of Investments and is the only person who would appear to be likely to benefit from its success in these proceedings. This is therefore not a case where Mr Allsop as an individual has engineered to take the fruits of the litigation without risking its costs. Moreover, persons other than Mr Allsop do not apparently stand to benefit from this litigation through Investments. And this is not a case where Mr Allsop's preparedness to be personally liable is worthless. He is not bankrupt. He has real estate of some value. And he has funded this litigation by paying Mr Vella so far.
39. Second, it is very difficult to separate out Investments' position as a plaintiff in these proceedings from its contentious position as a cross-defendant. Both the plaintiff's Further Amended Statement of Claim and the defendants' Amended Cross-Claim raise as an issue the same fundamental question of whether or not the plaintiff's units in the MUT were properly forfeited by Estate and whether Investments continues as a unit holder. Moreover, as a result of amending their Cross-Claim, Estate and the defendants are now conducting a substantive case against Investments, seeking substantial contribution to the repayment of Estate's borrowings from the NAB to which Jerkovics contributed security to underwrite Estate's borrowings. In this regard Investments is effectively in the position of a defendant: UCPR, r 42.21(1A). It would be contrary to authority for Investments to be required to give security when much of its time and resources in the proceedings will be expended as a defendant on the closely related Amended Cross-Claim. It is not possible to separate out Investments' position as a plaintiff on the Further Amended Statement of Claim and as a cross-defendant on the Amended Cross-Claim claim and only give security in respect of the former.
40. Third, even if security were to be ordered, there is the question of how it could be ordered. Given the expert process is well underway, the Court would be reluctant to order security for costs which might result in a stay of the proceedings while the plaintiff is still involved in a Court-ordered expenditure on a Court expert. The Court has required the plaintiff to expend this money by ordering the plaintiff to engage with the Court expert. It would be unfair for the proceedings to be stayed while the expert fruit of that expenditure was still unavailable. Thus, at the earliest, an order for security for costs would be made when the expert process was concluded. But the expert process has still some way to go. The lack of clarity in the defendants' evidence about future costs makes it even more difficult to formulate a staged security for costs order based upon estimated costs after the end of the expert process. But it is also understandable that that may be very difficult to do at this stage.
41. All these difficulties weigh in the balance against a security for costs order being made. The Court declines to make an order for security for costs and will dismiss the defendants' Motion of 13 December 2019.

(2) Payment Forthwith of Past Costs Orders

1. The defendants also apply in their Motion for the payment forthwith of past costs orders previously made in their favour. Unless the Court otherwise orders, the costs of any application or other step in proceedings that are the subject of a costs order or reserved costs, "are to be paid and otherwise dealt with in the same way as the general costs of the proceedings", that is at the conclusion of the proceedings: UCPR, r 42.7.
2. The ordinary application of UCPR, r 42.7, means that the costs of any party having the benefit of an interlocutory costs order will become part of that party's costs in the proceedings and is not enforceable immediately: Metropolitan Petar v Macedonian Orthodox Church [2007] NSWCA 142. Costs in respect of steps taken that ought to be regarded as reasonably taken in the management of the proceedings towards a hearing should be treated as costs in the proceedings generally: MetLife Insurance Ltd v Visy Board Pty Ltd [2008] NSWSC 111 at [10]. An order under UCPR, r 42.7 can be made at any time: Showtime Touring Group Pty Ltd v Mosley Touring Inc (2013) 296 ALR 597 [2013]; NSWCA 53 at [29]. The discretion under UCPR, r 42.7 is limited only by the dictates of justice but has commonly been exercised where an interlocutory decision, relates to a self-contained question, or where the costs of the interlocutory decision, are significant and there is likely to be delay in conclusion of the proceedings, or the costs were incurred by the unreasonable or unnecessary conduct of a party, or involved delinquent conduct by third parties such as legal practitioners: Gattellari v Meagher [1999] NSWSC 1279 at [9]; Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1; [2002] NSWSC 432 at [11] - [13] and Bagley v Pinebelt Pty Ltd [2000] NSWSC 830 at [7].
3. Orders under UCPR, r 42.7 will not be made in the defendants' favour. The defendants' 26 February 2021 Motion requests that two costs orders be payable forthwith: the first was made on 31 May 2019, and the second on 8 September 2020. Neither the nature of these orders, nor their place in the context in these proceedings, justifies the making of orders under UCPR, r 42.7.
4. The consent orders made on 31 May 2019 by the Equity Registrar provided for the amendment of the Statement of Claim and the payment of the defendants' costs thrown away as a result of that amendment; made provision for the filing of a Defence and a Reply; and then the orders provided for the service of evidence. The defendants' costs thrown away were agreed in the sum of $990. These were routine orders in respect of steps that should be regarded as reasonably taken in the management of the proceedings towards a hearing. Nothing in these orders appears to attract any other considerations that might enliven the Court's UCPR, r 42.7 discretion. The circumstances do not indicate a self-contained question, significant costs or unreasonable conduct warranting the exercise of that discretion.
5. Ward CJ in Equity made the orders on 8 September 2020. These provided that the plaintiff paid the defendants' costs thrown away of the listing on that occasion of a two-hour Motion for directions that day. The Motion was required to be amended so it was adjourned to 22 September 2020. Whilst the adjournment appears to have been occasioned by late service of the amended Motion, that is a routine aspect of case management and is not a matter which of itself attracts the UCPR, r 42.7 discretion. Accordingly, the Court also rejects that application.

(3) Directions for the Court Expert

1. The plaintiff's Motion of 31 January 2021 sought orders that the defendants comply with certain document requests that had been made by Mr Vella, so that the documents could be provided to him for the completion of his report. But in notations and orders made on 30 April 2021 the Court noted its concern about the burden that the parties' correspondence up to that date had placed upon Mr Vella. The Court indicated its intent to control that correspondence to reduce the overall burden of conducting his task as an expert. The Court indicated that disputes about the restrictions placed upon the use of confidential information supplied to Mr Vella would be determined by the Court, so that Mr Vella did not have to resolve those matters himself. Mr Vella was invited to consult the Court to raise any issues that faced him in his work as an expert.
2. And in the orders made that day Mr Vella was invited to provide to the Court a summary of the information that he required from the parties or elsewhere to complete his expert report, a statement of any clarifications of the scope of his task that he needed to complete his work in accordance with the commission from the Court, and a list of any fees presently outstanding from the parties.
3. Mr Vella provided a detailed letter on 7 May 2021 in response to the Court's request. It indicated that the question of any outstanding fees owing to him had been satisfactorily resolved, as his fees were then up to date. But as the Court indicated at the hearing on 4 June, the Court will make directions for the parties to place into their solicitors' trust accounts sufficient funds to cover Mr Vella's estimated costs to complete his report. Mr Vella may not be able to make that estimate until he has received all the other information from the parties that is discussed in this section of these reasons. But once he is in a position to give an estimate to the parties, he should do so. That will trigger a requirement that the parties place their own solicitors in funds and notify the other side that they have done so.
4. Subpoenas and Preliminary Issues Relating to Mr Vella. Some of the remaining issues between the parties about Mr Vella's task arose out of subpoenas which Investments had issued to the Commonwealth Bank of Australia ("CBA") and PMC and the other Noonan interests. On 30 April 2021 the Court declined to set aside these subpoenas and made them returnable before the Registrar on 10 May 2021. The Court granted first access to the defendants to the material supplied by the CBA and thereafter granted access to both parties. No restriction was placed upon the parties' access to the material produced by the Noonan interests.
5. The Court is faced with the issue of excessive correspondence by the parties with Mr Vella. The Court dealt with this issue by ordering the parties not to communicate with Mr Vella about any of the material produced on subpoena by the CBA or by the Noonan interests, without the leave of the Court. The parties appear to have substantially complied with this order.
6. Investments was the principal author of this correspondence. It wanted to ascertain from the Noonan interests which of the properties which Estate and GMJ sold to the Noonan interests were the same as the properties which Investments believed were originally assets of the MUT. The Noonan interests had a concern that as they had purchased rent rolls for value, that given full access to the rent rolls contract data Mr Allsop or Investments might misuse that information for their own commercial advantage. But Mr Loupos indicated to the Court at the hearing on 4 June 2021 that he was satisfied with the production of redacted copies from Noonans.
7. Mr Starkey on behalf of the Noonan interests indicated to the Court that the Noonan interests did not have a problem with Mr Vella having access to the unredacted versions of material produced by the Noonan interests in their entirety. To the extent that it continues to be necessary, the Court will require any party having access to subpoenaed information held by Mr Vella to give express written undertakings to the Court not to use that information for any purpose other than for these proceedings. Such an undertaking reflects the implied undertaking that already exists from the parties' use of subpoenaed material.
8. The Noonan interests and the plaintiff were in dispute about the costs of the Noonan interests (invoiced at $6,135.25) for producing material in response to the plaintiff's subpoena to them. The Court ordered the plaintiff to pay into its solicitors' trust account the sum of $2,500 to be held on trust on account of possible claims for costs on the subpoena to the Noonan interests. The parties were requested to attempt to resolve this minor conflict, or the Court would do so.
9. As a footnote to the plaintiff's subpoena to the Noonan interests, after their representative Mr Starkey left the hearing, Mr Loupos indicated that he was not satisfied with production from Noonans. But that issue was not expressly raised by Mr Loupos in the presence of Mr Starkey, which would have been the convenient time to raise it with him. In these circumstances, the Court will treat the subpoena as satisfied. If further material is required, a further subpoena will need to be issued. But because of the prior conduct of this matter, that will only be permitted to the plaintiff with the prior leave of the Court.
10. Mr Vella's Requests. Mr Vella's letter to the Court of 7 May 2021 raised a number of issues on which the Court sought oral submissions from the parties at the hearing on 4 June 2021. Those submissions had allowed the Court to deal with Mr Vella's requests. This judgment will be sent to Mr Vella so that he is informed by these reasons. His requests are dealt with below by reference to the paragraphs of his 7 May 2021 letter.
11. Mr Vella's 7 May Letter - paragraph 6. In paragraph 6, Mr Vella seeks a direction whether he is required to deal with what he describes as a "threshold issue", being whether management contracts entered into by GMJ ought properly in the ordinary course of business to have been entered into by Estate on behalf of the MUT. Mr Vella asks that if he is required to deal with this issue, and if so on what basis property management agreements were obtained from the time at which Estate acquired the Schloeffle business rent roll in October 2010, and what was the commercial rationale for the basis of allocation as between Estate and GMJ before the sale to the Noonans.
12. Mr Loupos first submitted that Mr Vella should deal with this question. Mr Loupos explains that the plaintiff's case is that in 2015 the defendants rewrote all of the property management agreements that had been in the name of Estate and transferred them into the name of GMJ, where they were left until 2019. He contends that when the defendants decided to sell the business to Noonans, they rewrote the property management agreements re-allocating them back arbitrarily between GMJ and the MUT. Mr Tregenza makes clear that these allegations are all contentious, including the alleged rewriting of the agreements, the alleged absorption of them all into GMJ, and their arbitrary reallocation back to the MUT.
13. It is important to maintain proper allocation of tasks between the Court expert and the Court. Looking at Hallen J's original orders, it was not anticipated that Mr Vella would be acting as an arbitrator of contentious factual issues between the plaintiff and the defendants, in which he would have to decide between different versions of the facts and different legal interpretations of those facts that would also be contested at trial.
14. Mr Vella should not have to decide the contentious question of whether the defendants engaged in re-writing rental management contracts in the name of GMJ and to the disadvantage of the MUT, as that decision will overlap with what will become the subject of cross-examination in the Courtroom at trial. Mr Loupos ultimately conceded that the matter was more apt for trial, but he said that he would be addressing that by further expert evidence. It would be unfortunate if this case became a trial of experts when the underlying facts, once discovered, may not be very complex and may not involve large sums of money.
15. But Mr Vella may be able to help to reduce the issues at trial. It would assist the trial judge to have a comprehensive analysis of what management agreements were entered into after 2015 in the name of GMJ, after previously being written in the name of the MUT. An account of those properties which were within a 2km catchment of the L J Hooker Mortdale office, for which contracts were written with GMJ rather than the MUT after 2015, would also be beneficial. Although this is strictly not accountant's work, if it cannot be agreed between the parties, it is desirable that it perhaps be done by Mr Vella as ancillary to his other tasks.
16. Mr Vella's 7 May Letter - paragraph 18. In paragraph 18, Vella asked for clarification as to whether or not management reports were produced for the 2019 financial year and were available for his use. Mr Loupos volunteered that he had left out the 2019 management reports in error, and would provide them to Mr Vella. As a result of the discussion in Court, Mr Vella should already have these. If not, Mr Loupos should provide them to him as soon as possible. If Mr Vella has any further difficulty with the production of documents to him, then he should raise it with the Court, as with any other matter where he believes he is not receiving the parties' full cooperation.
17. Mr Vella's 7 May Letter - paragraph 19. In paragraph 19, Mr Vella asks how properties were allocated to either the MUT or the GMJ rent roll, or for the purposes of their sale to the Noonan interests. He further asks if perhaps the allocation was based upon the identity of the managing agent specified in a management agreement, then he requests copies of those agreements in respect of both rent rolls. He further requests that if the allocation occurred based upon some other document, then that document should be provided.
18. As indicated above, this allocation is a central issue which will probably only be resolved at trial. The parties are largely agreed that a preliminary duplicating trial of the issue should not take place before Mr Vella. The plaintiff alleges that the second defendant, Mrs Gina Jerkovic decided to make the allocation upon a basis that she will have to explain and justify at trial. Mr Tregenza submits that if this is to be part of a fraud allegation, as appears to be the case, then the Court is the most appropriate forum for its determination. The Court agrees with this submission.
19. If the plaintiff's amended pleadings squarely raise fraud, the Court will determine whether the reallocation of these properties between the MUT and GMJ was appropriate or not. This means that Mr Vella would be justified in treating these transactions as present facts that can be assumed for his purposes. That may remove from him some of the issues that he might otherwise have been going to determine. If that leaves him with any lack of clarity upon the scope of his reporting task, he should raise that with the Court.
20. Mr Vella's 7 May Letter - paragraph 21. In paragraph 21, Mr Vella asks whether Mr Allsop, having examined, but not copied, the contracts for the sale of the MUT and GMJ rent rolls to the Noonan interests, can identify any properties on the GMJ list that Mr Allsop believes ought properly to be on the MUT list, or whether he can confirm there are no such properties. Mr Vella also asks whether Mr Allsop can advise what documentary or other evidence supports any assertion that any property on the GMJ list ought properly to have been on the MUT list, when the sale to the Noonan interests occurred. Mr Vella also seeks advice as to when the relevant properties came to be managed by the MUT.
21. Although the Court has decided that the appropriateness of the allocation of these properties for the sale of the MUT and GMJ rent rolls is a matter for trial, the Court expects that some preliminary analysis of the kind Mr Vella suggests would be very useful.
22. Mr Loupos submitted that he has prepared a document that would comply with Mr Vella's request at paragraph 21. At the time of the hearing, the Court was not convinced that Mr Loupos' document had been clearly structured to do that. So the Court indicated to Mr Loupos that the Court would give him an opportunity to prepare and refine the document Mr Vella wanted. But Mr Loupos was warned that he would only have one opportunity to do this, so Mr Vella was not left to work out what Mr Loupos' document meant. The Court does not find the material that Mr Loupos has put before it easy to follow.
23. So, the Court will make a direction for the plaintiff to provide the material Mr Vella requested in paragraph 21. At the hearing, the Court indicated that Mr Loupos might have to first send the material to the Court for approval. But the Court has reconsidered that and believes that the Court does not have to intervene in this process, if the material provided is comprehensible to Mr Vella. But once again, if Mr Vella has difficulty in understanding the material that is forwarded to him, he should seek directions from the Court. The Court expects a well-reasoned explanation from Mr Loupos to accompany this document so that Mr Vella can easily follow it.
24. Once Mr Vella receives this material, the question remains is what he should do with it. Given that the issue of the allocation of properties into the GMJ rent roll and the MUT rent roll before the sale in 2019 has been reserved for the Court's decision, Mr Vella will not have to determine whether a proper basis of allocation was followed by the second defendant. But it would nevertheless assist the Court to know for example which of the properties allocated to GMJ was within the 2km radius catchment area of the Mortdale agency conducted by the MUT, or had previously (that is before 2015) been under a management agreement with the MUT, if such an analysis can be done on the available material.
25. Mr Vella's 7 May Letter - paragraphs 28-32. Between paragraphs 28 to 32, Mr Vella indicates the approach that he proposes to take to a number of matters that were not made express in the Court's orders, or where the boundary of his task is not completely clear in the Court's orders. His concerns largely centre around paragraphs 4(a) and 4(b) of Hallen J's orders constituting his task. The areas of uncertainty include the following: who are the "associated persons" with the first and second defendants; whether "payment" includes taking up a liability in the MUT books of account; and whether he is required to reconstitute the financial statements of the MUT, a task he regards as "virtually impossible". In light of those observations, he then refines his task at paragraph 32 of the 7 May letter. Both Mr Loupos and Mr Tregenza agree with Mr Vella's approach, as refined in paragraph 32. That is the approach that he should take. The Court is of the view that Mr Vella should not attempt to reconstitute the MUT's financial statements.
26. But a contest still exists as to how much additional material Mr Vella should be given to avoid generating further disputes between these parties.
27. Mr Loupos explained that Mr Vella had been given the MUT's NAB bank statements, but not the material subpoenaed from the CBA, to which the Court only recently granted access. Mr Loupos claims that a CBA overdraft account of the MUT was used to divert money out of the MUT and into the credit card accounts of the Jerkovics until 2012. He further claims that from 2012, when the NAB account came into existence, the NAB and CBA accounts ran in tandem for the MUT and the defendants allegedly misused both accounts to divest the MUT of funds. Therefore, Mr Loupos wants both the CBA and NAB bank statements to be provided to Mr Vella.
28. Mr Tregenza did not object to the documents going to Mr Vella. But he was concerned about Mr Vella being given excessive amounts of submissions that may be propounding an unpleaded fraud case against the defendants. That concern is legitimate. But the Court agrees that this material should be given to Mr Vella because it fits well with his redefined task in paragraph 32.
29. Mr Tregenza says that when the defendants know what documents are being given to Mr Vella, they would like to add their own documents to the bundle to justify the relevant expenditure as being genuine business expenditure. Mr Tregenza points out that the Jerkovics' personal credit cards were used for making business purchases for the MUT and that it cannot be inferred merely from the payment of monies out of the NAB or CBA bank accounts into their personal credit cards that funds were being diverted from the business.
30. Ultimately, the thorough organisation of this material and its clear presentation to Mr Vella will greatly facilitate his analysis of material that is essential to one of his main accounting tasks. The Court will therefore make directions for a single bundle of documents to be prepared cooperatively between the parties containing all the material of this kind that they want to put in front of Mr Vella. It will need to be suitably paginated and indexed. First, Mr Loupos identify the material, in chronological order, that he wants to put in the bundle. This should be followed by the material that Mr Tregenza wants to add to the bundle. The bundle should highlight in some clear fashion on Mr Loupos' side the transactions that he says involved the diversion of funds. Mr Tregenza will then have an opportunity to put in any explanatory material to refute the inference of funds diversion, before the bundle goes to Mr Vella. Once the bundle is with Mr Vella, the parties can then under his direction give him written submissions dealing with the material. Once again, if Mr Vella does not receive satisfactory cooperation from the parties about the provision of these bundles and submissions, he can approach the Court. As part of the orders below, the Court has made directions drawing upon this detailed explanation about what is to be done.
31. A Draft Report from Mr Vella. Mr Vella has indicated that he may provide a draft report to the parties for their comment. Mr Vella should follow his normal practice in this regard. The Court expressed some concern about this at the hearing because of the parties' propensity to excessively communicate with Mr Vella. The draft report may provide an occasion to multiply such communications. But the parties should appreciate that the provision of a draft report by a Court expert is ordinarily so that the parties may have an opportunity to correct factual errors. But with a draft report the parties are not invited to engage in a full further round of submissions in relation to the merits of the case. Once again, if the parties' communications with Mr Vella cause him difficulty, or are likely to result in what he regards as excessive expense, he should consult the Court.

(4) Ancillary Relief on the Plaintiff's Motion and the Defendants' Motions

1. Finally, the plaintiff seeks by his 31 January 2021 Motion various forms of relief, some of which appear to be final relief.
2. On several occasions in the course of submissions Mr Loupos, on behalf of the plaintiff, indicated that as a result of the material he had obtained through the Court's processes he wished to propound a case "of fraud" on behalf of the plaintiff. The Court pointed out to him that the pleadings on behalf of the plaintiff did not presently allege fraud and that he would have to amend them before such a case could be brought. The law is clear that fraud must be specifically pleaded and that adequate particulars of any alleged fraud must be provided: UCPR, r 14.14 and Gazal v Government Insurance Office (NSW) (1992) 29 NSWLR 336 at 347.
3. It is unclear whether Investments proposes to make a claim in the tort of deceit, or whether it is relying upon an allegedly fraudulent or dishonest scheme, to enliven the second limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244; (1874) 43 LJ Ch 513; (1874) 30 LT 4; (1974) 22 WR 505. But whichever it is, it must be clearly pleaded if the plaintiff wishes to rely upon it.
4. The Court's directions with this judgment provide an opportunity for Investments to within 28 days serve draft proposed amended pleadings alleging fraud. But to save unnecessary applications to strike out pleadings, a draft Second Further Amended Statement of Claim should first be provided to the defendants for their consent to filing. Should Investments amend its pleadings, then it should be ready to pay the defendants' costs thrown away by the amendment.
5. Legal costs need to be contained in this case. Analysis of the issues in contest and the submissions made have given the Court some insight into the amounts in issue in these proceedings. Mr Loupos has undertaken preliminary analysis of the material produced by the Noonan interests. He says that some 26 properties that formerly belonged to the MUT were sold to the Noonan interests but that there are many property management contracts, which he submits are still unaccounted for by the defendants.
6. Mr Loupos has issued subpoenas to the Rental Bond Board of NSW ("RBB") to try and establish what properties were on the original MUT rental rolls. He says that once he ascertains that information, he proposes to write back to Noonans requesting that they search their records to provide documents which the RBB records indicate belong to the MUT. But that may not be a very productive exercise. There seems little reason to go beyond the existing subpoena that Mr Loupos has issued to the Noonan interests for them to produce information about the properties on the rent rolls sold under the sale contract to the Noonan interests. The Noonan interests are unlikely to have any more management agreements in respect of rental properties than were acquired from the MUT under the purchase contract.
7. Mr Loupos says that the information he has already obtained from the RBB shows that rental bonds, which were originally lodged in respect of properties owned by the MUT, later came to be lodged in respect of the same properties for GMJ. Mr Loupos submits that this proves the fraud that he is claiming against the defendants. This is a somewhat simplistic view of what the plaintiff may have to prove. The defendants deny any such fraud. Proof of fraud may require considerably more evidence. There may indeed be a more innocent explanation for the change of rental management agreements in respect of these properties from the MUT to the defendants' interests. The agreements may have expired by the effluxion of time and independently and later, the same properties may have been offered to GMJ. Some conflict of interest might still exist in the Jerkovics' position concerning these properties. But there is a tendency in the way that the plaintiff's case is being presented for Mr Loupos to leap to the conclusion that a fraud has occurred. The task for the plaintiff in proving fraud at any trial will be more difficult than his submissions currently acknowledge.
8. As earlier explained, two rent rolls were sold to Noonans, one by Estate on behalf of the MUT (in respect of L J Hooker Mortdale) and one by GMJ. The plaintiff alleges, as articulated through Mr Loupos but not as yet clearly pleaded, that at least from 2015 when the sale to Noonans occurred, that the defendants combined the rent rolls of the MUT and of GMJ and operated them as one business. Mr Loupos submits that they were only separated into two operations at the time of sale to the Noonan interests in 2019, a separation which Mr Loupos claims is established by Mr Vella's analysis so far.
9. Mr Loupos says that he can prove that some $97,000 was diverted from the MUT, during the 2015-2019 period that the rent rolls were merged. On its own this figure would not be sufficient to justify litigation in the Supreme Court of the scale into which this case has developed. Perhaps there are other claims. But the plaintiff needs to seriously analyse the cost effectiveness of this litigation on the current numbers that have been revealed to the Court, as the costs of litigation such as this are likely to far exceed such sums. For example, the plaintiff's claim will only be 20% of that $97,000, an amount of a little over $19,000. Mr Loupos also submits, as the Further Amended Statement of Claim pleads, that the plaintiff also has a claim to the repayment of a loan of $32,000 and the loss of 20% of the goodwill of the Mortdale office, which is said to be worth $35,000. The plaintiff's share of this goodwill would be no more than $7,000.
10. Taken together these amounts add up to only $58,000 (being $19,000 plus $32,000 plus $7,000). Perhaps there is more to the plaintiff's claim. But that is not obvious so far from the way that the claim has been propounded on the plaintiff's behalf. And it may be that a limitation defence will be deployed against the loan repayment claim of $32,000 (as it may be for similar sums claimed in the Amended Cross-Claim). Lengthy litigation over such sums using the processes of the Supreme Court cannot reasonably be justified and is not compatible with the overriding purpose of efficient justice expressed in Civil Procedure Act 2005, ss 56 and 57.
11. How is that overriding purpose to be achieved here? This is not a case that can readily be remitted to the District Court without promoting an unnecessary argument about whether this claim is within that Court's jurisdiction. The District Court Act 1973 confers limited equitable jurisdiction on the District Court. It has a capacity to grant ancillary injunctive relief: District Court Act, s 46. The District Court also has equitable jurisdiction similar to that of the Supreme Court in respect of declarations of trust but only up to a limit of $20,000: District Court Act, s 134(1)(e). To the extent the plaintiff could successfully establish a diversion of trust assets from the MUT, it may have to seek a declaration of a constructive trust over assets in the control of the defendants in an amount that would be likely to exceed this $20,000 cap.
12. The District Court has unlimited equitable jurisdiction under District Court Act, s 134(1)(h) in respect of "any equitable claim or demand for recovery of money or damages, whether liquidated or unliquidated" in an amount not exceeding the Court's jurisdictional limit. But this jurisdiction is limited to claims or demands that are not of the kind to which other parts of s 134(1) applies. It is conceivable that this matter could be remitted to the District Court if the plaintiff were to limit its claim to equitable compensation.
13. But there is no reason why the plaintiff should have to limit itself in this way. This leads to consideration of how the incurring of costs is to be contained in this Court and kept proportionate to the amount in issue. Civil Procedure Act, s 60, requires the Court to implement its practice and procedure with the object of "resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject matter in dispute".
14. The subject matter of the Further Amended Statement of Claim is not particularly complex. But for the jurisdictional limitations of the District Court, this is a case that would likely be remitted there. The situation calls for some method to contain legal costs on both sides. In the Court's view, this case is a suitable vehicle for the making of a costs capping order. But the Court has not yet flagged such a matter. The parties will need a short opportunity to put submissions in relation to it and the Court will permit that.
15. The Court has power under Civil Procedure Act, s 98(1)(b) and UCPR, r 42.4 to make cost capping orders, provided the Court gives adequate notice to the parties that such an order is on the cards. The Court's power to order maximum costs in proceedings is succinctly provided for under UCPR, r 42.4: "42.4 Power to order maximum costs (cf SCR Part 52A, rule 35A) (1) The court may by order, of its own motion or on the application of a party, specify the maximum costs that may be recovered by one party from another. (2) A maximum amount specified in an order under subrule (1) may not include an amount that a party is ordered to pay because the party - (a) has failed to comply with an order or with any of these rules, or (b) has sought leave to amend its pleadings or particulars, or (c) has sought an extension of time for complying with an order or with any of these rules, or (d) has otherwise caused another party to incur costs that were not necessary for the just, quick and cheap - (i) progress of the proceedings to trial or hearing, or (ii) trial or hearing of the proceedings. (3) An order under subrule (1) may include such directions as the court considers necessary to effect the just, quick and cheap - (a) progress of the proceedings to trial or hearing, or (b) trial or hearing of the proceedings. (4) If, in the court's opinion, there are special reasons, and it is in the interests of justice to do so, the court may vary the specification of maximum recoverable costs ordered under subrule (1)."
16. Civil Procedure Act, s 98(1)(b) and UCPR, r 42.4(1) powers may be activated on the application of a party or of the Court's own motion, and prospectively or retrospectively: G Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths) ("Dal Pont") [7.42] - [7.47]; Nudd v Mannix [2009] NSWCA 327; Nicholls v Michael Wilson Partners Ltd (No 2) [2013] NSWCA 141. This jurisdiction was discussed in Preston v Nikoladis [2017] NSWSC 1527 at [310]-[315]. It is preferable that any maximum costs order be made prospectively and not retrospectively: Re Sherborne Estate (No 2); Vanvalen v Neaves (2005) 65 NSWLR 268; [2005] NSWCA 1003 at [22]-[26], [31]; Dal Pont [7.42] - [7.49]; JP Hamilton, "Containment of costs: litigation and arbitration" (presentation, 1 June 2007).
17. The Court is minded to make cost capping orders in these proceedings against both sides to the following effect: "(1) Order that the plaintiff may not recover costs from the defendants exceeding the quantum of any money judgment obtained by the plaintiff against the defendants or any of them. (2) The cross-claimants may not recover costs from the cross-defendant exceeding the quantum of any money judgment recovered by the cross-claimants against the cross-defendant."
18. It is fair that costs capping orders be made equally between these parties. The Cross-Claim also does not seek a large sum of money. It is appropriate that costs on the Cross-Claim be limited in the same way. An order such as this will not only constrain costs but will also reduce arguments about costs later in the proceedings. These orders would of course be subject to UCPR, r 42.4(2).
19. An alternative approach to such orders would be to place a money cap on completing the work before the Court expert, a further monetary cap on further preparation for hearing and then another money cap on the costs incurred for hearing. But that involves further argument about estimated expenditure of costs, which is itself antithetical to the overall objective of containing costs, for what appears in reality to be quite a small claim. The Court will make directions at the end of these reasons for the parties to put on short submissions within seven days to either indicate that they agree with the making of such orders, or outlining any disagreement with the proposed orders and proposing alternative orders.

Conclusions and Orders

1. Both parties have had a degree of success on these Motions. Though the Court has not ordered security for costs against the plaintiff, the Court has of its own motion made orders to constrain any excessive expenditure of costs in these proceedings. The Court proposes to make an order that each party bear his or her own costs of all the Motions, unless one or other party wishes to argue for a different order. Any party wishing to contend for a different order should appreciate that it would do so at its own risk as to costs.
2. If any party contends that the Court has not dealt with all the issues on the various motions filed then they should contact my Chambers within 14 days under the liberty to apply.
3. Mr Allsop's formal commitment to guarantee the obligations of Investments to meet any costs orders made against it will need to be formalised. It is not necessary for this to be an undertaking to the Court, enforceable by way of action for contempt of Court. That would be more than what would be required of Mr Allsop were he to be made a party to the proceedings. Unless the parties wish to contend for a different order, the Court will order that Mr Jeremy Allsop shall be jointly and severally liable with the plaintiff for any order for costs made in these proceedings against the plaintiff. Liberty to apply is granted. If Investments or Mr Allsop want a different form of order they should apply to the Court within 14 days and it is open to variation. Otherwise, the order will become permanent.
4. For these reasons the Court will make the following orders and directions: 1. Order that Mr Jeremy Allsop be jointly and severally liable with the plaintiff to pay any order for costs made in these proceedings against the plaintiff. 2. Direct the plaintiff to provide a draft Second Further Amended Statement of Claim to the defendants within 28 days pleading and giving particulars of any allegations of fraud or dishonesty relied upon by the plaintiff. 3. Direct the defendants within a further 14 days to indicate whether they consent to the filing of the draft Second Further Amended Statement of Claim and if they do not consent they have liberty to relist the proceedings before Slattery J in relation to the amendment of pleadings. 4. Order that no party may issue a further subpoena to Mr Michael Noonan or to the Property Management Company of Australia Pty Limited, without the leave of the Court. 5. Direct that within 7 days, that is by 30 November 2021, each of the plaintiff/cross-defendant and the defendants/cross-claimants shall indicate to one another and to the Court whether they accept the making of the cost capping orders proposed in these reasons, or whether they propose alternative orders; and if they propose alternative orders, they are directed to provide written submissions of no more than 3 pages in support of their claim for such alternative orders. 6. Subject to Order (7), the Court orders that Mr Jeremy Allsop be jointly and severally liable with the plaintiff for any order for costs made in these proceedings against the plaintiff in favour of any defendant. 7. Order (6) of these orders may be varied upon application by the plaintiff, or by Mr Allsop, within 14 days. 8. Within 14 days of the Court appointed expert, Mr Vella, communicating to the parties his estimated costs to complete his expert report, the parties shall each place in their solicitors' trust account sufficient funds to meet 50% of those fees and each party's solicitors will notify the other party immediately upon those funds being placed in trust. 9. Direct that within 14 days, that is by Tuesday, 7 December 2021, the plaintiff shall provide to the Court expert, Mr Vella, to the defendants and to the Court a fully itemised list in response to the request made in paragraph 21 of Mr Vella's letter of 7 May 2021. 10. The parties are directed to cooperate between themselves to provide by 7 December 2021 an agreed bundle of documents to the Court expert, Mr Vella, including NAB and CBA bank statements, credit card statements, and any other material that each party expects will assist the Court expert to fulfil the refined task described by him in paragraph 32 of his letter to the Court of 7 May 2021 and thereafter they should submit to Mr Vella's directions about the provision of any further submissions about that bundle of documents. 11. The defendants' Motions of 13 December 2019 and 26 February 2021 are otherwise dismissed. 12. Otherwise dismiss the plaintiff's Motion dated 31 January 2021. 13. Order that each party bear its own costs of the Motions referred to in Orders (11) and (12) of these orders unless application for a different order is made within 14 days. 14. Grant liberty to apply.

Amendments 29 November 2021 - Coversheet - duplicate case reference removed. Throughout the judgment - "the" inserted before "MUT". [31], line 5 - "& Son" changed to "business"; line 9 - "GMJ" instead of "G&J". [50], line 1 - "of" inserted before "itself". DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 November 2021