Ashington Capital Pty Ltd & Anor v Parissen Capital

Supreme Court of NSW|2012-05-01|Before: Nicholas J

Judgment 1By notice of motion filed 11 November 2011 the first defendant seeks an order for security for costs against the plaintiffs pursuant to Uniform Civil Procedure Rules 2005 Pt 42, r 42.21 and s 1335 Corporations Act 2001 (Cth) and/or the inherent jurisdiction of the court. In terms, the order sought is for the provision of security for the first defendant's costs of the proceedings up to, but not including, the trial in the amount of $316,065 by way of either payment into court or bank guarantee in a form acceptable to the registrar. 2There is no issue that security should be provided. The issues are as to the quantum and the form of the security to be provided. The plaintiffs propose that security be provided by the third plaintiff for the first defendant's costs up to, but not including, the hearing in the sum of $150,000 by way of a charge or second registered mortgage over a property at Potts Point owned by Crayon Property Pty Ltd (Crayon), with certain undertakings from Crayon's directors. 3By the amended statement of claim an order is sought that the first defendant pay to the third plaintiff the amount of $774,292.47 in respect of the Project X Development fees from the assets of the Project X Trust, otherwise known as the Project X Hotel Trust (the Trust). The Trust was established to develop and manage a property in Double Bay. Pursuant to a Development Management Deed dated 20 September 2007 the first plaintiff appointed the second plaintiff as development manager of the Trust. The deed was terminated by a Deed of Termination and Release (DOTAR) dated 24 February 2010 made between, inter alios, the first and second plaintiffs and the first defendant. On 22 April 2010 the first defendant replaced the first plaintiff as trustee of the Trust pursuant to a Deed of Appointment and Retirement of Trustee. 4These proceedings were commenced by the first and second plaintiffs by statement of claim filed on 15 December 2010 in which an order was sought that the first defendant pay to the second plaintiff the amount of $1,171,500 in respect of the Project X development fees from the assets of the Trust. 5The defence and cross-claim were filed on 31 January 2011. Under the defence, liability is denied on the ground that, upon the proper construction of cl 4, cl 5 and Sch 2 of the DOTAR, the liability of the first plaintiff to the second plaintiff with respect to fees was extinguished, and the first defendant incurred a liability to the second plaintiff with respect to such fees fixed at an agreed amount of $397,207.53. Alternatively, under the cross-claim, a claim for rectification of the DOTAR was made to amend cl 4.3(a) and delete cl 5.3 to give effect to the common intention of the parties that any liability of the first cross-defendant to the second cross-defendant with respect to fees would be extinguished, and the cross-claimant would incur liabilities to the second cross-defendant with respect to such fees and expenses in amounts as set out in Sch 2. 6In mid-February 2011 a partial settlement was reached pursuant to which the first defendant agreed to pay the amount of $467,773.53. 7The amended statement of claim was filed on 28 October 2011 claiming payment of the amount of $774,292.47, consistent with the partial settlement. 8The pleadings are not yet closed. The first defendant is to file and serve any amended defence and amended cross-claim by 1 May 2012, and the plaintiffs are to file and serve any reply and defence to any amended cross-claim by 15 May 2012. Directions have been given for the serving of evidence. No date for hearing has been fixed. 9The issues for trial were summarised by Mr Keiran Breckenridge, the plaintiffs' solicitor, as follows (aff 20 December 2011, par 31): "(a) whether the services provided by the second plaintiff between October 2009 and 22 April 2010 constituted 'Development Management Services' within the meaning of the Development Management Deed dated 20 September 2007, so that the Project X Development Fees, as defined at paragraph 11 of the plaintiffs' amended statement of claim, fell due and payable in respect of the quarters commencing 1 October 2009, 1 January 2010 and 1 April 2010; and (b) whether the DOTAR provided for a release in respect of amounts owned to the second plaintiff by the first plaintiff on account of Development Management Fees; or (c) if it did not, whether the DOTAR should be rectified so that it does provide for such a release."

Components of amount claimed for security 10The first defendant claims that its likely party/party costs of these proceedings up to, but not including, trial is the amount of $316,065 excluding GST. The claim is for the amount estimated by Mr Mark Dickinson (aff 10 November 2011), a solicitor and legal costs consultant, based on assumptions he was asked to make contained in the letter of instruction from the defendants' solicitors of 31 August 2011. These included matters relating to costs incurred for work between 8 December 2010 and 31 October 2011, the hourly rates of the supervising partner, a junior lawyer, and senior and junior counsel, and that the likelihood that the solicitors and senior and junior counsel would be engaged in pre-trial preparation for between 10 - 14 days and in a trial of length between 5 - 7 days. 11The following was said to be a breakdown of the estimate: Costs incurred to date: profit costs $105,000, disbursements $27,000. Total $132,000 Security for costs: profit costs $5,280, disbursements $4,500. Total $9,780. Pleadings: profit costs $4,620, disbursements $4,050. Total $8,670. Discovery: profit costs $23,240. Total $23,240. Advices: profit costs $5,160, disbursements $5,100. Total $10,260. Interlocutory steps: profit costs, $11,720, disbursements $9,900. Total $21,620. Mediation: profit costs, $3,640, disbursements $10,225. Total $13,865. Witnesses: profit costs $27,120, disbursements $8,550. Total $35,670. Preparation for trial: profit costs $18,960, disbursements $42,000. Total $60,960. Totals: profit costs $204,740, disbursements $111,325. Total: $316,065 The disbursements in respect of security for costs, pleadings, interlocutory steps, and witnesses consisted of fees for junior counsel. The disbursements for advices, mediation, and preparation for trial consisted of fees to senior and junior counsel, and for the mediator and venue hire. Mr Dickinson and Ms C A Goulden, the first defendant's solicitor with carriage of the matter, say that the estimates are reasonable. 12The plaintiffs contended that, overall, the cost estimate was unreasonable, excessive, and disproportionate to the amount claimed. In particular, they challenged the amounts referable to costs incurred to date, and to future costs referable to further pleadings, advices on liability and evidence, discovery, mediation, and pre-trial preparation. It was put that the importance and complexity of the issues for trial, and the amount of time required for pre-trial preparation and for the trial itself, had been over-estimated.

The principles 13The object of an order for security for costs is to protect the party who is brought to court against the possibility that the plaintiff, if unsuccessful, will be unable to meet an order for costs. 14The Civil Procedure Act 2005 provides: "60 Proportionality of costs In any proceedings, the practice and procedure of the court should be implemented 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." 15The approach to be taken to an application such as the present was explained by White J in April Fine Paper Macao Commercial Offshore Ltd v Moore Business Systems Australia Ltd [2009] NSWSC 867; (2009) 75 NSWLR 619. The legal representatives of both parties have a duty to ensure that the litigation is conducted in a way which facilitates the just, quick and cheap resolution of the real issues in the proceedings (pars, 8, 13); the principle of proportionality of costs under s 60 of the Act is relevant; it is relevant to consider whether the sum claimed for security for costs bears a reasonable relationship to the value and importance of the subject matter in issue (pars 13, 14); the assembly of relevant documents and the taking of statements of evidence should be done at the earliest possible stage so that pleadings are prepared with the benefit of proofs of evidence and the client's documents (par 23); where there is work that can be done either by the solicitor or by junior counsel, and, as often happens, junior counsel is more experienced than the solicitor and charges at a significantly lower rate, then the solicitor's duty to his or her client is to ensure that the work is done at the lower cost (par 26). Ultimately, the matter is very much one of impression (par 31). 16As to quantum, the court's power under s 1335(1) Corporations Act is to require that "sufficient security" be given. There is nothing otherwise to limit the amount which may be ordered. Under r 42.21(1) the discretion is to order such security as the court thinks fit. The court is not bound to give the amount of security which a defendant says will be the amount of his costs, and does not set out to give the defendant a complete indemnity for costs (Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497, p 515). 17In Allstate Life Insurance Co v ANZ Banking Group Ltd [1995] FCA 1778; (1995) 134 ALR 187 at 197 Lindgren J said: "The amount is in the discretion of the court and should be such sum as the court thinks just, having regard to all the circumstances of the case. Obviously, a factor of prime importance will be the amount of a respondent's costs which an applicant, if unsuccessful, will be ordered to pay to the respondent if the proceeding continues to a determination by the court. But the estimation of that amount involves many factors, some of them imponderable. Generally speaking, it cannot be assumed that a failure by an applicant will be on any particular basis. Moreover, the course of events down to and during the trial may be relevant to the particular order for costs to be made. The assessment of the work which will be done in the respondent's interests is also difficult."

Determination 18In my opinion it is only possible to take a broad brush approach to the exercise of discretion in this case. I have not attempted the detailed task of a costs assessor in order to explain the assessment of quantum of security which I propose to order. The following observations indicate my impression derived from the evidence as to the approach to be taken in respect of the various categories of costs proposed by the first defendant for consideration. 19Estimated costs incurred to date are in the amount of $132,000. According to Mr Dickinson, the profit costs component had been discounted by one third, and the disbursements by 15 per cent, to reflect reasonable costs on a party/party basis. Invoices rendered between 24 December 2010 and 31 March 2011 were for costs in an undiscounted amount of $122,744.03. The partial settlement was reached in mid-February 2011. In cross-examination Ms Goulden accepted that some of these costs related to unpaid creditors' liabilities, issues which had been resolved, and issues still in dispute. The evidence indicates that of this amount a significant proportion relates to issues on which the plaintiffs were arguably successful. 20In addition, invoices rendered between 31 August 2011 and 31 October 2011 were for costs in an undiscounted amount of $54,612.72. The evidence indicates that a significant portion of these costs relate to the issue of security for costs for which I propose to make a discrete order. 21Included in this category is an amount for costs referable to 11 directions hearings between 20 December 2010 and 28 October 2011. The first defendant's solicitors appeared at three of these hearings, but not at the others which were attended by the plaintiffs' solicitors when orders were made by consent. 22These considerations support the conclusion that the amount claimed for past costs should be reduced for the purpose of assessment of the amount to be provided for security. 23The amount of $23,240 is claimed in respect of discovery. Clause 5, Practice Note No. SC Eq 11 provides that there will be no order for disclosure unless it is necessary for the resolution of the real issues in dispute in the proceedings. There was no evidence in this case which indicated, with regard to the Practice Note, the likelihood that the first defendant would seek an order for disclosure, or to enable the court to gauge the prospects of success of an application when made. Counsel for the plaintiffs stated that it was not their intention to seek disclosure. I am unpersuaded that it is reasonable to include an amount for disclosure in assessing the provision to be made. 24The remaining categories are in respect of estimated future costs of about $161,000. I have considered the details of the evidence upon which the estimates are based contained in the affidavits of Mr Dickinson and Ms Goulden, together with their oral evidence. I have also considered the evidence in support of the plaintiffs' case that the estimates are unreasonable, and which proposed lower estimates for consideration. This evidence is contained in the affidavits of the plaintiffs' solicitors, Ms Sharma Clemmett, and Mr Breckenridge, and Mr Craig Anderson, a director of the plaintiffs. I find it unnecessary to recite the details of the evidence so provided by the parties. 25The appropriate start point for the assessment of quantum is to ascertain the issues for trial as disclosed in the pleadings. They are summarised in par 9 above. 26The issue as to the provision of services involves consideration of the services the subject of the quarterly invoices of 1 October 2009, 1 January 2010, and 1 April 2010. The plaintiffs' evidence on this issue is found in the second affidavit of Mr Anderson of 30 March 2012 to which is exhibited a bundle of documents of about 919 pages. It suggests to me that the real contest will concern not so much the actual provision of the services, but whether upon the construction of the deeds the first defendant is liable to pay the amount claimed. So understood, it does not appear to be an issue of any unusual complexity. 27The construction issue is to ascertain the meaning of cl 4 and cl 5 of the DOTAR. It appears that the exercise is likely to be straight forward, with regard to the document itself and the application of the relevant principles. 28The scope of the rectification issue is indicated by the particulars pleaded under par 2 of the cross-claim. There it is claimed that the common intention is evidenced by discussions between Mr Byron Ko on behalf of Parissen Capital entities, and Mr Anderson on behalf of the first and second plaintiffs during the period 17 - 23 February 2010. There is a likelihood that additional witnesses will be the solicitors for the parties who attended the meetings at which the discussions took place. It appears that the ventilation of this issue is also likely to be straight forward. 29On the material available, I am satisfied that the issues for trial are not especially complex, and the parties are unlikely to encounter unusual difficulties in the preparation and presentation of the evidence. 30With regard to future costs to be incurred in relation to the obtaining of evidence, I observe that the defence and cross-claim were each verified by Mr Ko. It is therefore reasonable to assume that to enable verification of these pleadings a statement of evidence has already been obtained from him, and probably from other potential witnesses. 31It is common ground that about seven lay witnesses are likely to give evidence. These include Mr Anderson and Mr Ko whose evidence will be relevant to all issues. It is likely that the evidence of some of the others, the solicitors, will be confined to the rectification issue. 32Mr Breckenridge estimated that the hearing should not exceed three days, and preparation would engage junior counsel for four or five days, and senior counsel for three to four days. He estimates that the evidence of all witnesses would conclude during the second day of the hearing, leaving the third for submissions. 33Mr Dickinson accepted (T p 18) that the estimated costs for preparation would be proportionately reduced if the length of the hearing was about three days rather than five to seven days. He also accepted that the length of time and amounts relating to preparing witnesses, and obtaining advices would also be substantially reduced. Ms Goulden adhered to the estimate of five to seven days as a possible timeframe having regard to the number of witnesses involved and the matters in issue. 34As the authorities show, the matter is very much one of impression. The claim does not include provision for costs of the trial. I consider a reasonable estimate for the length of the trial to be 3 - 4 days. As earlier mentioned, the amount claimed for past costs incurred to 31 October 2011 should be reduced. I make no allowance to the first defendant for costs for disclosure. I take into account the principle of proportionality which requires that the sum claimed for security for costs bears a reasonable relationship to the value and importance of the subject matter in issue which, in this case, is a claim for the amount of $774,292.47 for development fees. 35I determine that the sum for which security should be provided is the sum of $165,000.

Form of security 36The plaintiffs' proposal, which the first defendant rejects, is that the third plaintiff provide security by way of a charge or second registered mortgage over Crayon's property at Potts Point. 37According to Crayon's financial report of 24 November 2011, its assets are the Potts Point property and a cash deposit in the sum of $67,063 of which $47,000 is held by Banksia Services Ltd (Banksia) and Permanent Custodians Ltd (PCL) on a term deposit as part of the security for a loan to Crayon from PCL, and its loan manager, Banksia. 38On about 7 November 2011 PCL lent Crayon the amount of $429,000, the security for which includes a first registered mortgage over the property, a set off agreement in respect of the monies held on deposit, a guarantee and indemnity from each of Crayon's directors, and a debenture charge dated 7 November 2011. 39In item 5 of Sch 1 of the debenture charge the term "mortgaged property" is defined to include all of Crayon's present assets irrespective of where located or when acquired and, thus, includes the Potts Point property. By item 3 of Sch 1 the maximum prospective liability is fixed at $20 million. Clause 9.1.5 precludes Crayon from creating or varying any encumbrances over the property, other than those in PCL's favour, without PCL's consent. There is no evidence of PCL's consent to the charge or second registered mortgage proffered by the plaintiffs. 40The notes to the financial report show that the property was valued at $660,000, based on a valuation in the report of Herron Todd White valuers, of 24 October 2011. On 3 April 2012 I held the report to be inadmissible and rejected its tender. There is no reliable evidence of the present value of the property. 41The purpose of an order for security is protective. In my opinion, satisfactory security should be in a form which provides a successful defendant with ready and certain access to the amount secured if and when entitlement to claim it arises. In the circumstances, I find that the plaintiffs' proposal should be rejected as unsatisfactory. It is an empty proposal because there is no consent from PCL. Furthermore, the extent of the protection it affords appears to me to be highly doubtful and uncertain both as to access and amount. I find that appropriate security should be provided by way of payment of the amount into court or by way of bank guarantee in a form acceptable to the registrar, or otherwise as agreed. 42It is important that these proceedings be prepared for trial without further delay. It is expected that the parties will comply with the directions ordered on 3 April 2012 for the completion of pleadings and the serving of evidence which should happen by 5 June 2012. The proceedings are before the registrar for directions on 8 June 2012. Any stay resulting from a failure to comply with the order for security should be postponed until after that occasion. 43On the issue of costs of the present application, the measure of success of each party has been substantially similar. In my opinion the appropriate order is that the plaintiffs' and the first defendant pay their own costs of and incidental to the first defendant's notice of motion filed 11 November 2011.

Orders 44It is ordered that: (1)the plaintiffs provide security for the first defendant's costs of the proceedings up to, but not including, the trial in the amount of $165,000 by way of either payment into court of that amount or by way of bank guarantee in a form acceptable to the registrar by 4pm 12 June 2012, or otherwise as agreed by the parties; (2)if the plaintiffs fail to comply with order 1 above, the proceedings be stayed; (3)the plaintiffs and the first defendant to pay their own costs of and incidental to the first defendant's notice of motion filed 11 November 2011; (4)the proceedings be stood over for directions before the registrar at 9am 8 June 2012; and (5)the parties have liberty to apply on 2 days notice.

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: 15 May 2012

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