- Anglo Eastern Trust Ltd v Kermanshahchi

Judgment 1These proceedings are listed for hearing for 8 days commencing 19 November 2013. This judgment addresses two interlocutory applications which have been filed by the parties which needed to be determined with a degree of urgency in order to maintain the hearing date. The first application concerns the First and Second Defendants' application for leave to withdraw existing undertakings which limit their access to their assets subject to an exception for legal costs to a capped monetary amount, and replace that undertaking with an application with either a higher limit or without such limitation. The second application concerns the First and Second Defendants' application for an increase in the amount of security for costs provided by the Plaintiffs. I address two further interlocutory applications which are of lesser urgency in a separate judgment. Application to withdraw and replace undertakings 2By interlocutory process filed on 27 September 2013, the First and Second Defendants, Ms Clare Huang and CH Design Solutions Pty Limited ("CH Design") seek orders that, on the giving of substitute undertakings, they be permitted to withdraw, or alternatively be released from, certain undertakings given to the Court on 5 June 2013; orders for further security for costs, which I will address below; and, as alternative relief (which was not addressed in submissions) orders that the First Plaintiff, HY International (Aust) Pty Limited ("HY International") and the Second Plaintiff, Phoenix Explorer Pty Limited ("Phoenix") secure their undertakings as to damages given on 5 June 2013. 3The application for variation of the undertakings needs to be understood in the light of the history of these proceedings set out in my judgment delivered on 22 May 2013 ([2013] NSWSC 611) which dealt with an earlier application by the First and Second Defendants to vary the then existing undertakings to increase the limit for the amount of legal expenses which could be incurred by them in defending these proceedings from $300,000 to $700,000, and also addressed a converse application by the Plaintiffs to obtain "freezing orders" which would not have permitted expenditure on legal expenses by the Defendants. 4I noted in that Judgment that the authorities established that the aim of freezing orders and equivalent relief is to prevent the removal, dissipation or misappropriation of assets which would be available to meet a judgment and not to prevent legitimate spending or to operate as de facto security for a plaintiffs' judgment: Anglo Eastern Trust Ltd v Kermanshahchi [2002] EWHC 3152; Goumas v McIntosh [2002] NSWSC 713; Deputy Commissioner of Taxation v Bollands [2012] FCA 1050 at [22]. In particular, I referred to Neuberger J's observation in Anglo Eastern Trust Ltd v Kermanshahchi that "[i]t is certainly not normally ever the indirect purpose of a freezing order to prevent a defendant from defending himself in the very proceedings in which the freezing order is made" and also that, in the ordinary course, an exception permitting payment of legal costs would not be capped to a specific amount but limited to the payment of reasonable costs. I also referred to Barrett J's observation in Goumas v McIntosh (at [22]) that: "Where a Mareva order is being imposed in relation to the whole of a person's property, the approach must be to impose it in terms that create an exception for necessities, particularly reasonable living expenses and reasonable expenses of the litigation itself: see, for example, the views expressed by Powell J (as his Honour then was) in Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552." 5In the present case, caps on the expenditure of legal costs by the Defendants have existed since the First and Second Defendants volunteered a form of undertaking which capped the expenditure of legal costs, initially to $300,000, in October 2012. That undertaking was released and a further undertaking permitting expenditure of up to $700,00 given following my judgment of May 2013 and a further judgment in June 2013 dealing with orders. 6The First and Second Defendants now seek, as their primary position, to withdraw the further undertakings given in June 2013 and offer new undertakings so as to permit them to expend reasonable legal expenses without a specific monetary limit, and also to permit the First Defendant, Ms Huang, to sell, mortgage or encumber a residential property owned by her at Kellyville, NSW. On the second day of the hearing of this application, the First and Second Defendants offered an alternative form of undertaking that was subject to a limit on legal expenses of $1,100,000 (plus GST, including costs already paid as at the date of the undertaking) subject to a proposed qualification that that limit would be removed if the hearing presently allocated to commence on 19 November 2013 was vacated or additional hearing days were required beyond the 8 days presently allocated. 7It will be immediately noted, and the Plaintiffs emphasise, that an amount of $1,100,000 plus GST is an extraordinarily large expenditure on legal costs for an 8 day hearing in which, it appears, the Plaintiffs' estimate of their recoverable damages is in the order of $2 million and the First and Second Defendants presently rely, it appears, primarily on two lay affidavits of Ms Huang and her son although they have reserved the position as to an application to permit them to lead expert evidence. 8The First and Second Defendants' application is supported by detailed affidavits of their solicitors, Mr Frawley and Mr Siddle, sworn 27 September 2013, an affidavit of Ms Huang affirmed 1 October 2013 and a further affidavit of Mr Frawley sworn 18 October 2013. 9In broad summary, Mr Frawley's first affidavit sets out the costs incurred by the First and Second Defendants since he swore an affidavit in support of the earlier application to vary the terms of the undertakings and the costs paid by the First and Second Defendants. Mr Frawley also identifies the costs incurred since the date of his earlier affidavit that, his evidence is, were not anticipated when he swore that affidavit and the extent of costs incurred by the First and Second Defendants that may be recoverable under costs orders made in favour of them in respect of the numerous interlocutory applications which have been brought by both parties in these proceedings. He also gives evidence of an arrangement that his firm and junior counsel have reached with the First and Second Defendants to seek to limit their further costs of the proceedings. 10In particular, Mr Frawley notes that matters that had not been anticipated when the First and Second Defendants application to withdraw their earlier undertakings and give further undertakings permitting expenditure of legal costs up to $700,000 were given included that the Plaintiffs would then seek further freezing orders without exceptions for legal expenses or living expenses against the Defendants in April 2013 and serve Subpoenas for Production of Documents in that regard; that the Plaintiffs would bring a further application to amend the Amended Statement of Claim in late March 2013; that the hearing in respect of the application to vary the undertakings and other interlocutory disputes in April 2013 would take 2 days rather than 1 day, not least because the Plaintiffs had introduced the additional application for freezing orders into that application; that the terms of the orders to be made would then be the subject of a further dispute that would need to be resolved by the Court; that the Plaintiffs would not provide security in the form ordered by the Court, but in a different form, requiring further costs to be incurred in modifying the orders in respect of security for costs; and that the Plaintiffs would then issue numerous subpoenas, which the First and Second Defendants brought an unsuccessful application to set aside. I recognise that some of these matters had in fact occurred before the varied undertakings were given in June 2013; however, this is not an answer to the difficult choice which the First and Second Defendants faced either to seek to have their existing application determined or to be continually amending that application as events led to further costs being incurred, at the risk that the determination of that application would then be further delayed. 11Mr Frawley also gives evidence that he has revised upward his estimate of future costs, including by reason of the fact that the hearing is now anticipated to take 8 rather than 5 days; that both Senior and Junior Counsel have indicated that they require additional preparation time; and that the Plaintiffs have served more affidavits, including substantial expert evidence, than had originally been anticipated. As at 27 September 2013, Mr Frawley estimates that future legal costs could be in the order of $650,000 plus GST, of which he estimates approximately $490,000 to $550,000 could be recoverable on assessment. However, he qualifies that evidence by recognising that the Defendants would be unlikely to be able to afford the defence of the proceedings to a final hearing, if future costs were in fact incurred in that amount, and indicates that his firm and Junior Counsel have agreed to cap their fees at a significantly lesser amount plus GST, subject to certain conditions, although Senior Counsel is not presently party to that arrangement. 12Mr Siddle, who has primary carriage of the proceedings for the First and Second Defendants, gives evidence of invoices issued by his firm between November 2012 and September 2013, and his evidence is that he satisfied himself and remains satisfied that the costs and disbursements claimed in those invoices were reasonable. He also gives evidence of a further discretionary discount afforded by his firm to Ms Huang in June 2013, in addition to the arrangements for capped future fees that are now proposed, to which I have referred above. Mr Frawley also gives evidence that he was responsible for the issue of one invoice in the proceedings, while his partner Mr Siddle was on leave, and gives evidence that he satisfied himself and remains satisfied that the costs rendered in that invoice were reasonable. 13Ms Huang gives evidence, in her further affidavit affirmed 1 October 2013, of the present position in respect of her companies, which no longer carry on business; the means by which she has been meeting living expenses; the very limited funds in her and her companies' bank accounts; the circumstances surrounding her purchase of the Kellyville property and legal fees paid in the proceedings to date; and her agreement with her solicitors to encumber or sell the Kellyville property in order to pay future legal fees if the fixed monetary cap on legal fees is removed or expended to permit her to do so. 14After the first day of the hearing of this and other interlocutory applications, the First and Second Defendants made an open offer to the Plaintiffs by letter dated 18 October 2013, expressly to avoid the costs of a second day of hearing of the application, which provided a useful summary of the way in which the position as to costs had developed. The First and Second Defendants noted, inter alia, that Mr Frawley's initial estimate of costs for the proceedings, on which the existing cap of legal expenditure of $700,000 was based, had been based on an estimated 5 day hearing; was a "reasonably conservative" estimate, as I had observed in paragraph [68] of my Judgment of 22 May; and about half of those costs had been expended by the time of his affidavit dated 27 March 2013 filed in the proceedings. They noted that subsequent costs were incurred when it was necessary for them to bring an application, opposed by the Plaintiffs, to permit the release of funds to allow them to engage Senior Counsel in April 2013, and for the hearing on 17 and 23 April 2013 and the further hearing on 5 June 2013 which, as I noted above, were extended by the Plaintiffs' further application for a freezing order. They also noted that the anticipated costs of the proceedings would be increased by the fact that the hearing was now expected to take 8 rather than 5 days; the Plaintiffs' evidence was more voluminous than the First and Second Defendants had anticipated; the Plaintiffs had made an application for further discovery and interrogatories which was not anticipated at the time of the original estimate; those matters had in turn required a further application to vary the undertakings; and the filing of an Amended Statement of Claim had in turn necessitated the filing of a further Defence. 15By that letter, the First and Second Defendants' solicitors also recognised the concerns that I had expressed on the first day of hearing of this application, as to how available funds had been expended so quickly by the First and Second Defendants prior to reaching a final hearing, by pointing to the work that had in fact had to be done since May 2013. They noted, and I accept, that (with the exception of the application by the First and Second Defendants to set aside parts of subpoenas issued by the Plaintiffs on 26 July 2013) the categories of work they had undertaken were necessary in the strict sense, in that a solicitor who was retained in the proceedings could not responsibly choose not to undertake any of them so as to seek to reduce the level of costs incurred in the proceedings. 16The Defendants then offered an alternative undertaking which would increase the level of the First and Second Defendants' permitted legal expenditures by $400,000 plus GST, reflecting the "capped" legal fees which had been agreed with Ms Huang, and noted that Ms Huang would need to be permitted to sell or encumber the Kellyville property since she could not raise that amount without doing so. The Plaintiffs did not accept that offer or put any counter-offer. That offer is now reflected in the Defendants' alternative position in this application. 17Mr Frawley swore a further affidavit dated 18 October 2013 which addressed a concern that I had raised on the first day of the hearing of this application, as to how the costs in the proceedings had escalated to this level, particularly given the First and Second Defendants' apparently limited financial resources and the apparent risk that the cap on legal expenditure at $700,000 would be reached before their substantive affidavits had been filed in the proceedings. That affidavit addressed the state of preparation of the Defendants' evidence; the level of legal costs incurred as at 26 March 2013, from that date to 5 June 2013 (when I had made orders to give effect to my earlier judgment), from 5 June 2013 to 27 September 2013; and the circumstances in which this application was brought. 18The Plaintiffs rely, in opposition to the First and Second Defendants' application, on an affidavit of their solicitor Mr David Lalic dated 2 October 2013. Mr Lalic sets out, at some length, the history of the proceedings since their commencement. He indicates that his clients have expressed concern about the number of interlocutory processes filed by the Defendants and whether they were consistent with s 56 of the Civil Procedure Act 2005 (NSW). While I share a concern as to the number of interlocutory processes that have been brought in these proceedings, as I noted in my earlier judgment and will again note below, there seems to me to be no basis for singling out the First and Second Defendants for particular criticism in that regard, where both parties have been equally prolific in initiating interlocutory disputes and the First and Second Defendants have, on the whole, had a reasonable degree of success in those disputes. 19Mr Lalic also gives evidence that the Plaintiffs had made various assumptions as to various matters, without indicating any discussion with the Plaintiffs on which that evidence is based. They include an assumption that the Defendants had sufficient funds for the final hearing of the matter. It is not apparent to me that such an assumption would have had a reasonable basis, at least in an unqualified form, given the evidence led as to the Defendants' then financial position at the hearing prior to the delivery of my earlier judgment; the fact that the Plaintiffs would be aware of the extent of evidence which they sought to lead in the proceedings; the increase in the anticipated length of the hearing; and the continuing flow of interlocutory applications, including those initiated by the Plaintiffs. Mr Lalic also indicates that the Plaintiffs assumed that the First and Second Defendants would make no further interlocutory applications. That is, to say the least, a surprising assumption where the Plaintiffs plainly did not consider that they were bound to exercising any corresponding restraint, and have indeed brought two further interlocutory applications in the course of this application before the Court. 20Mr Lalic also gives evidence that, as at 3 October 2013, the Plaintiffs had not had the opportunity to engage a costs assessor to analyse Mr Frawley's estimate of legal costs, although he contended that certain legal expenses to which Mr Frawley had referred were not properly incurred by the First and Second Defendants or alternatively that the First and Second Defendants should have anticipated and made allowance for them when their earlier application to vary the undertaking to permit a higher level of legal costs was made. Submissions 21Mr Neggo, who appeared for the First and Second Defendants, and Mr Harper who appeared with Mr Assaf for the Plaintiffs, both made comprehensive written and oral submissions in respect of the application. I will not seek to summarise those submissions, beyond the minimum necessary to explain my decision, since there is a need to deliver judgment as to this issue promptly in order to seek to preserve the present hearing date, where the loss of that hearing date would in turn be likely to further increase the costs of the proceedings. 22Mr Neggo submits that, as I noted in my earlier judgment, the Court has power to release a party from an undertaking where new facts come into existence that would render its enforcement unjust, and accepts that the First and Second Defendants bear the burden of showing the legitimacy of the purposes for which the funds are to be expended and that they have no other assets from which those legitimate expenditures can be met. Mr Neggo submits, with substantial force, that it would be unjust to maintain the earlier undertakings where to do so would prevent the Defendants from retaining legal representation for the hearing. That is, in my view, a substantial matter. The Plaintiffs' submissions in response do not squarely address the fact that the position for which they contend would in fact have that highly prejudicial result for the Defendants, which in my view would not be consistent with the just resolution of the proceedings, as contemplated by s 56 of the Civil Procedure Act. 23Mr Neggo also submits that it would be unjust if the costs of interlocutory disputes, where costs orders were made in the First and Second Defendants' favour, nonetheless erode the limit of the costs which they can incur in the defence of the proceedings under the terms of the existing undertakings. Mr Neggo also points out, as the authorities to which I referred at the beginning of this judgment emphasise, that the undertakings given by the First and Second Defendants were not intended to provide any form of "security" for the Plaintiffs' judgment and that the payment of reasonable legal expenses in defence of the proceedings is not an improper dissipation of the First and Second Defendants' assets which that undertaking was intended to preserve from improper dissipation. 24The Plaintiffs' submissions take up the attack advanced in Mr Lalic's affidavit on the Defendants' conduct of the proceedings. The Plaintiffs contend that the real issues in the proceedings involve allegations of misleading and deceptive conduct and breach of statutory and fiduciary duty made against the First and Second Defendants and, it is suggested, have not brought any "substantial defence" to those allegations. Accepting that that is the case, those accused of serious misconduct are no less entitled to the opportunity to defend the proceedings brought against them, and whether the First and Second Defendants have any "substantial defence" to those allegations is not a matter that should be determined in this application. 25The Plaintiffs contend that the variation sought by the First and Second Defendants would allow them to erode their assets to the point where the Plaintiffs would receive almost "no protection". I accept, of course, that the expenditure of further legal costs will inevitably reduce the First Defendants' assets; however, that does not deprive the Plaintiffs of protection against illegitimate dissipation of assets; and, as the authorities make clear and as I have noted above, the Plaintiffs are not entitled to "protection" in the sense that the Defendants' assets should be preserved at the cost of depriving them of a proper opportunity to defend the proceedings, or to treat the undertakings as a form of security for any judgment in their favour in the proceedings or as preventing proper expenditures by the Defendants. 26The Plaintiffs also submit that the costs incurred by the Defendants were unreasonable and many of the costs would have been avoided had there been fewer interlocutory applications. I will address that submission further below. 27In particular, Mr Harper emphasises an issue that I also raised on the first day of the hearing of this application, whether the Defendants' costs incurred in respect of the proceedings had been reasonably incurred, where they had reached or nearly reached the higher limit on legal expenditures set only 4 months before, prior to filing substantive evidence (although that evidence has now been filed) and well before the hearing. Mr Harper emphasised a possibility raised in oral submissions in the first day of the hearing, namely that the First and Second Defendants or their solicitors had not taken sufficient steps to plan to complete the work necessary to bring the matter to a hearing within the existing limit of legal expenses. That was, of course, a possibility; but another possibility was that that earlier limit had been exceeded by reason of the unexpected expenditures identified in Mr Frawley's evidence and the amount of work that needed to be undertaken, without significant fault on the part of the First and Second Defendants or their solicitors, or at least with their being no more at fault for the proliferation of interlocutory applications in this matter than the Plaintiffs. 28I am satisfied that the evidence establishes that the latter is the true explanation of events. As I noted above, on any view, the amount of $1.1 million plus GST now sought to be incurred by the Defendants in their costs of the defence of the proceedings is substantial, even where it includes the costs of senior and junior counsel for an 8 day hearing. Nonetheless, I expressed the view in my earlier judgment, on the evidence then before me, that the Defendants' then costs estimate of $700,000 plus GST was reasonably conservative having regard to the work that was required to be done. The hearing has now lengthened by nearly a half; the volume of evidence on which the Plaintiffs rely is, on any view, substantial; and there have been, since Mr Frawley prepared his earlier cost estimate, eight further interlocutory applications, including the two further applications brought by the Plaintiffs in this hearing. The First and Second Defendants have brought four of those applications, succeeded in substance on two of them and failed on one (to set aside the subpoenas), with the fourth being this application. The Plaintiffs have also brought four such applications, failed on one, succeeded in part on a second, and two remain to be determined. It does not seem to me that, objectively, the First and Second Defendants' record in that regard shows that their position in respect of those applications was unreasonable, or at least less reasonable than that of the Plaintiffs. 29The substantive work done in the preparation for the hearing, as set out in Mr Frawley's and Mr Siddle's evidence, was in my view work that reasonably needed to be done. Each of Mr Frawley and Mr Siddle, who are officers of the Court have also given evidence attesting to the reasonableness of the costs incurred, to which I should give significant weight; and the substantial discount which the First and Second Defendants' solicitors have already provided and their and junior counsel's agreement to cap costs going forward provide further support that they are seeking to take a reasonable approach to the costs of the proceedings. Notwithstanding their vociferous criticism of the level of costs incurred by the Defendants, the First and Second Plaintiffs do not lead evidence that their own costs incurred in the proceedings are significantly less than those that have been incurred by the First and Second Defendants. 30The Plaintiffs submit that the Defendants' application to vary the undertaking does not advance the overriding purpose in s 56 of the Civil Procedure Act; however, that proposition needs to be compared with the position if that application was not brought or not granted; the cap on legal expenditures was then reached and the First and Second Defendants could not then fund further legal representation; and their legal representatives then cease to act, where they could hardly be expected to conduct a complex 8 day hearing without expectation of payment of their work for doing so. 31Mr Neggo also submits that the First and Second Defendants have the benefit of six interlocutory costs orders against the Plaintiffs. Those costs orders are not, in the ordinary course, presently enforceable, reflecting a policy including that a party could be prevented from pursuing a meritorious claim by being ordered to meet interlocutory costs orders at the time they were made. Mr Harper submits that the Plaintiffs may ultimately not have to meet such orders, in the sense that their liability for such orders may be set off against orders for costs made in their favour or substantive recoveries if they are ultimately successful in the proceedings. While I accept that submission, it does not seem to me to follow that the First and Second Defendants' ability to expend costs on the defence of the proceedings should be eroded by including within the cap substantial costs that the Plaintiffs, rather than they, will ultimately be required to meet in determining the amount that they may spend to defend the proceedings, even if the Plaintiffs are ultimately able to set off that liability against other payments then due by the Defendants to them. While this matter could be addressed by excluding the particular costs subject to such orders from the cap on the First and Second Defendants' legal expenses, it seems to me that it would also justify at least an increase in the level of the cap reflecting those costs. 32Mr Neggo also points to Mr Frawley's evidence that costs have been incurred in respect of matters that had not been taken into account in Mr Frawley's costs estimate underpinning the earlier cap on legal expenditures, and that additional costs will be incurred, as I noted above, by reason of the extended length of the hearing and the volume of evidence on which the Plaintiffs rely. Mr Lalic's evidence was that some of those matters could or should have been anticipated by the First and Second Defendants; even if that were the case, it does not seem to me to justify holding the First and Second Defendants to a cap on legal expenditure that would not permit them to pay costs which they would in fact need to incur to defend the proceedings, in part because of the interlocutory applications and other steps taken by the Plaintiffs, and which would leave them unable to fund the substantive defence of the proceedings. Outcome as to undertaking 33For these reasons, I have concluded that the First and Second Defendants should be released from the undertakings which cap their legal expenditure on the defence of the proceedings to $700,000 plus GST, on giving an acceptable alternate undertaking. 34Having regard to the authorities to which I referred in my earlier judgment and this judgment, it seems to me that the fixed cap on legal costs initially volunteered by Ms Huang in her original undertaking and maintained since that time has been productive of significant wasted costs in these proceedings, including the costs of two contested applications to vary that cap. I raised with Mr Harper, in submissions, how that cap could now be maintained if, immediately after it were reset, the Plaintiffs could then bring further interlocutory applications which would again cause it to be exhausted before the end of the hearing. Mr Harper did not, as I understand it, offer any real solution to that difficulty, and certainly did not suggest that, so far as the Plaintiffs were concerned, there would be no further interlocutory applications prior to the hearing. 35For this reason and the other reasons identified by Neuberger J in Anglo-Eastern Trust above, I have concluded that there is no realistic alternative to now accepting an undertaking substantially in the Plaintiffs' preferred form, with no monetary cap on legal costs, which may nonetheless only be reasonably incurred. That undertaking should also permit the expending, disposing of or dealing with the First and Second Defendants' assets, including the Kellyville property, for the purpose of paying or securing their reasonable legal expenses. 36I do not consider, however, that Ms Huang's evidence justifies extending the exception to the undertaking to dealing with the First and Second Defendants' assets for living expenses, particularly where there is a significant disparity between the permission for the Defendants to expend up to $4,000 per week for "reasonable living expenses" in the form of the existing undertaking and the Defendants' evidence of their assets, which would not support expenditures of that magnitude. Mr Neggo did not advance substantive submissions as to this matter. The words "their reasonable living expenses" should therefore be deleted from paragraph (b) of the proposed undertaking and the words "reasonable and proper" should be inserted before the word "expenses" in the second line of paragraph (c) of the proposed undertaking. 37As I noted above, the First and Second Defendants had also sought an order, in the alternative, that the First and Second Plaintiffs give security for their undertaking as to damages given to the Court on 5 June 2013 in an amount to be determined by the Court. I had addressed a corresponding application in my earlier judgment. I there noted that the First and Second Defendants had then accepted, in submissions, that the likelihood of potential loss under the undertaking only arose if the Plaintiffs were successful in preventing their expenditure on living, legal and business expenses as permitted by the existing exceptions to the undertaking. It does not seem to me that the position has materially changed in that regard, particularly where the undertaking will now be varied in a manner that does not prevent the First and Second Defendants incurring further reasonable legal expenses in the defence of the proceedings, and permits Ms Huang to encumber or sell the Kellyville property if it becomes necessary to do so to fund those expenses. In that situation, I do not propose to order further security for the Plaintiffs' undertaking as to damages, particularly where that application is brought so close to the hearing date. Security for costs 38The First and Second Defendants also seek an order, under Uniform Civil Procedure Rules 2005 (NSW) r 42.21 or alternatively s 1335 of the Corporations Act 2001 (Cth) that the Plaintiffs give further security for their costs of the proceedings in the amount of $430,000 (or, alternatively, such other amount as the Court deems appropriate), such security to be provided by way of funds paid into Court or by way of unconditional bank guarantee, and an order that the proceedings be stayed if that security is not provided within 14 days. 39I dealt with a previous application for further security for costs in my earlier judgment delivered in May 2013, and then ordered that the Plaintiffs provide further security for costs. I noted that the Plaintiffs had then agreed, without admission, to provide security for costs so that the issue then before the Court was the quantum and form of the security. I referred to the case law establishing that an application for security for costs should be brought promptly and that the Court was less likely to order security for past costs where there had been a significant delay in bringing the relevant application. The Defendants accepted, in that application, that an appropriate quantum of security would be $350,000 which exceeded, by a relatively small margin, the Plaintiffs' then estimate of the amount of the recoverable future costs of the proceedings, and I ordered that security be provided in that amount. The parties thereafter reached agreement as to the form in which that security should be provided although, as I noted above, the Plaintiffs ultimately did not provide security in a manner that was strictly compliant with that form, and it was then necessary for the orders for security for costs to be varied. 40The First and Second Defendants now contend that further security for costs should be provided, as, they contend, the necessary consequence of the fact that costs ordered in their favour in respect of interlocutory applications now amounts to a large part of the available security, so little security is available in respect of the costs of the substantive hearing and, second, the costs to be incurred in respect of the substantive hearing have now increased as noted above. Mr Frawley's evidence is that, having regard to the costs orders already made against the Plaintiffs, the Defendants are now only secured for further costs in the amount of $70,000 in the proceedings. The First and Second Defendants rely, in support of the application for further security for costs, on company searches of the Plaintiffs and the fact that the bank guarantee previously provided as security was procured by a director of the First Plaintiff, rather than being obtained by the First Plaintiff in reliance on its own assets. The Plaintiffs do not now, as I understand it, maintain the concession previously provided that security, or at least additional security, should be provided; on the other hand, they led no evidence that the Plaintiffs could satisfy a costs order against them, to meet the evidence led by the First and Second Defendants suggesting that they could not, and they do not submit that a further order for security for costs would stultify the proceedings. 41Mr Lalic in turn gives evidence, again without reference to any particular discussion with the Plaintiffs, that the Plaintiffs assumed that the Defendants' earlier application for security for costs had been resolved once and for all and that no further security would need to be provided by the Plaintiffs. I cannot accept that an assumption of that width would have had a reasonable basis, since it is commonplace that additional security is ordered where there is, for example, a significant change in circumstances, most often a significant lengthening of a hearing. However, I do accept that the Plaintiffs could reasonably have proceeded on the basis that, where a substantial contested security application had occurred not long before the date due for the hearing, it was not to be expected that the same issues would have to be reagitated shortly before the hearing, and that they could safely proceed to incurring the costs of preparation of their evidence on the basis that the question of security had been resolved absent a significant change in circumstances. 42The Plaintiffs submit that they have strong prospects of success and that their proceedings are inherently meritorious. That is, as I noted in my earlier judgment, a neutral factor in respect of an application for security for costs in complex proceedings, since security is ordered against the contingency that a plaintiff might fail in those proceedings: Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222. The Plaintiffs also submit that they are in substance a defendant in the proceedings, where the Plaintiffs initially brought an application to wind up Colorado Products Pty Limited (in liq). I do not accept that submission. I do not consider that a claim of this magnitude can in any real sense be said to be "responsive" to a winding up application, a fortiori after a provisional liquidator has been in place for a considerable period. The Plaintiffs also submit that the Court should be suspicious of the timing of the application, brought after the Plaintiffs had applied for leave to administer interrogatories and shortly before the First and Second Defendants were due to file substantive evidence, which has now been filed. I do not accept that submission, where the application for security for costs plainly raises overlapping issues with the application for variation of the undertaking, and would sensibly be brought at the same time as that application. 43The Plaintiffs also submit, with substantial force, to the delay in bringing the application for further security for costs which was brought about 8 weeks before the trial was due to commence. The Plaintiffs also drew attention to the Court of Appeal's observation in Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 at 309 per Moffitt P that: "The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim. That decision was recently referred to by the Court of Appeal in Li v State of New South Wales [2013] NSWCA 165 at [37]-[38] where Ward J observed that delay was not an automatic bar to the making of the order for security for costs and that the length of delay, the reasons for it and what had taken place in the interim were relevant; and again emphasised that a plaintiff was entitled to know its position in relation to security before it embarked to any real extent to litigation and before it was allowed to commit substantial sums of money towards litigating its claim. 44It is not necessary to deal with the basis of an application for security for costs at any length, since the principles applicable to such an application under s 1335 of the Corporations Act and UCPR r 42.21 are well established. In Polstead Pty Ltd v Shah [2009] NSWSC 560 at [6], Brereton J observed that three issues generally arise in such an application, namely whether the ground referred to in the section or rule is established; whether, if that ground has been established, an order should be made as a matter of discretion; and the quantum of any order and the terms on which it might be made. I accept, for the purposes of this application, that the Court has jurisdiction to order further security for costs, because the evidence as to the Plaintiffs' assets, uncontradicted by the Plaintiffs, means that there is reason to believe that they will be unable to pay the First and Second Defendants' costs if they are successful in their defence. As I noted above, the Plaintiffs do not contend that an order for security for costs would stultify the proceedings. 45On balance, I have concluded that the Court should not exercise its discretion to order further security for costs at this point, although the Plaintiffs should not assume that further security for costs would not be ordered if, for example, the hearing due to commence in November is vacated or there is any further increase in the length of the hearing. Although I have accepted that there have been a number of unexpected additional costs incurred by the Defendants, since the determination of the earlier application in June, it seems to me that the delay in bringing this application and its closeness to the hearing date is such that it would be unfair to the Plaintiffs to now order a substantial further amount by way of security shortly before the hearing is due to commence. It seems to me that there is also some force in the proposition that, when substantial further security had been ordered and provided in a contested application several months prior to the hearing date, and the Plaintiffs have since incurred significant costs in the conduct of the proceedings, including the preparation of their evidence, they should not now be exposed to a requirement to either put up significant further security or waste the expenditures which they have incurred in the preparation of the proceedings for hearing. It also seems to me that the additional security which is sought in large part relates to costs that have already been incurred by the Defendants, since the lengthening of the hearing date would only involve a modest amount of the additional security sought; and significant parts of that security relate, not to the additional interlocutory applications, but to matters such as the additional preparation time now required by the Plaintiffs' counsel which could have been anticipated at the time security for costs was previously sought. 46I should add that I do not consider that there is any inconsistency in the approach that I have adopted in respect of the limit of legal costs in the Plaintiffs' undertaking and the approach that I have adopted in respect of security for costs. On the one hand, the Plaintiffs should not be left to bear the consequence of an unchanged fixed cap on their legal expenditures, when additional costs have had to be incurred and that cap would prevent their retaining continued legal representation for the hearing. However, it does not follow from the fact that that cap should be modified that they should also have an order for substantial further security for costs shortly before the hearing, where a failure to provide that security would then bring about the waste of the Plaintiffs' investment in the conduct of the proceedings to date. 47For these reasons, as a matter of discretion, I do not propose to order that further security be provided so close to the hearing, without excluding the possibility that such security would be ordered in the future if there are further changes in circumstances. Orders 48The parties should bring in agreed short minutes of order to give effect to this judgment within 7 days.