Ashington Capital Pty Ltd v Parissen Capital

Affidavit evidence

1. In this application, Mr Lui and Mr Chiu also relied on Mr Lui's affidavit dated 17 October 2017 and Mr Chiu's affidavit dated 16 October 2017, read without objection for the purposes of this application only, setting out their account of the dealings between AWF, them and LRI and seeking to establish the basis of their claims against LRI. Mr Lui and Mr Chiu also rely on an affidavit, filed on 15 August 2017, of their solicitor, Mr Gregory Dunstan and an affidavit dated 25 August 2017 of a costs consultant, Ms Peta Solomon, which I will address below in dealing with the quantum of the security for costs that is claimed.
2. LRI relied on the affidavit dated 5 September 2017 of its solicitor, Mr Harris, to which I will refer below. LRI also relied on a second affidavit of Mr Harris dated 31 October 2017, which referred to additional documents and correspondence beyond those referred to in the affidavits of Mr Lui and Mr Chiu. Mr Harris' evidence, by his affidavit dated 31 October 2017, indicates that he is informed by Mr Li and believes that Mr Li did not agree that the consideration for any acquisition by LRI of AWD's shares would be $20 million.
3. By his further affidavit dated 13 September 2017, Mr Dunstan refers to matters raised in the defence of the proceedings, including a challenge to LRI's standing to the relief which it seeks, which parallel matters that are raised in Mr Lui's and Mr Chiu's Cross-Claim seeking orders to effect a transfer of the shares held by LRI in AWF to them. Mr Dunstan explains the basis of Mr Lui's and Mr Chiu's Defence in paragraph 6 of that affidavit as follows: "[Mr Lui and Mr Chiu] seek to challenge [LRI's] standing to seek the relief it seeks in this proceeding. I am instructed to prepare and file a defence that sets out the bases of [Mr Lui's and Mr Chiu's] objections to [LRI's] standing to seek the relief it seeks. One of the bases for [Mr Lui's and Mr Chiu's] challenge to [LRI's] standing, namely misleading or deceptive conduct of [LRI] in procuring the transfer, has already been raised in My First Affidavit. The other basis for [Mr Lui's and Mr Chiu's] challenge is that the transfer of shares was effected as part of contractual arrangements between [LRI] and [Mr Lui and Mr Chiu]. [Mr Lui and Mr Chiu] claim that [LRI] did not perform its obligations pursuant to those arrangements or in the alternative did not satisfy pre-conditions to retain such shares, as a result of which it has no entitlement to hold any shares in AWF and is required to transfer the shares back to Messrs Lui and Chiu. I expect that I will receive instructions to set out a case in a cross-claim, which would seek relief, amongst others, that would effect a transfer of shares held by [LRI] to Messrs Lui and Chiu. The bases of this relief would be, in substance, identical to the bases for resistance by [Mr Lui and Mr Chiu] of the relief sought by [LRI] by denying [LRI's] standing and entitlement to AWF's shares."

Whether the Court's jurisdiction to order security for costs is enlivened

1. The issues arising in an application of this kind are generally whether there is jurisdiction to make the order, in this case because LRI is incorporated outside the jurisdiction or because there is reason to believe that LRI will be unable to pay the costs of Mr Lui and Mr Chiu if ordered to do so; whether an order should be made as a matter of discretion; and the quantum of such an order: KDL Building Pty Ltd v Mount [2006] NSWSC 474 at [6]; Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 at [6]; Di Francesco v Pioneer Energy Pty Ltd (No 2) [2014] NSWSC 1923 at [3].
2. As to the first of those issues, Mr Lui and Mr Chiu also rely on the Court's jurisdiction to order security for costs under UCPR r 42.21(1)(a) on the basis that, as is common ground, LRI is incorporated in the British Virgin Islands. Mr Sulan did not contest the Court had power to order security for costs on that basis and he accepts that there is a practice of ordering security for costs where a plaintiff is ordinarily resident outside Australia and has no assets within the jurisdiction, unless the plaintiff can point to other circumstances: PS Chellaram & Co Ltd v China Ocean Shipping Company [1991] HCA 36; (1991) 102 ALR 321; 5 ACSR 633 at [7]. However, Mr Sulan submits that the Court would ordinarily not order that security be provided where a non-resident plaintiff has property of a fixed and permanent nature within the jurisdiction: David Clarke Air Conditioning Pty Ltd v Quann (No 2) [2016] WASC 176. Mr Sulan submits that the Court should not make such an order because LRI has assets in Australia, namely its shares in AWF.
3. Mr Harris' evidence, in his affidavit dated 5 September 2017, is that LRI had assets in Australia, being 9,000 of the 10,000 ordinary and fully paid ordinary shares in AWF, and he contended that the value of LRI's shares in AWF was in excess of the amount of costs which Mr Lui and Mr Chiu claimed they would incur as costs in the proceedings, because AWF held an amount in excess of $4.2 million in its solicitor's trust account, comprising the net proceeds of the sale of its shares in AWD pursuant to the Share Purchase Agreement to which I referred above. Mr Harris also referred to an agreement between the parties that those funds would be held in trust and not withdrawn without the written agreement of the relevant directors or an order of the Court. Mr Harris also gave evidence, on information and belief from Mr Li, that those funds were AWF's only asset and it did not have ongoing operations or business other than to distribute those funds to any legitimate creditors and its shareholders. Mr Harris also referred to certain claims by Mr Lui and Mr Chiu for expenses against those funds, that are questioned or disputed by LRI, to which I also referred above. Mr Harris' evidence, by way of submission, is that it is difficult to see why the Court would need to determine each disputed claim as to expenses in order to determine whether AWF should be wound up on the basis claimed by LRI. There is substantial force in that submission.
4. Mr Sulan submits that LRI's shares in AWF should be treated as being worth at least 90% of the net assets of AWF, after allowing for the disputed expenses claims, in the order of $2,545,397.42. Mr Sulan submits that, on that basis, LRI has sufficient assets within Australia to meet any costs order that could be made in Mr Lui's and Mr Chiu's favour. Mr Sulan relies on the proposition that, absent evidence to the contrary, the register of members is proof of LRI's shareholding under s 176 of the Corporations Act. That proposition does not seem to me to assist LRI, where the hypothesis of its failure in the proceedings must include the possibility that Mr Lui's and Mr Chiu's Defence and Cross-Claim, asserting their beneficial ownership of those shares, are established by evidence led in the proceedings.
5. Mr Sulan submitted that LRI was unable to dispose of its shares in AWF without the approval of AWF's board of directors, which would not be forthcoming without the consent of at least Mr Lui or Mr Chiu. Mr Alexis, who appears with Mr Afshar for Mr Lui and Mr Chiu, responds that there is no evidence as to the marketability of those shares and points to the risk that the shares could be encumbered in a manner that would have the result that they would no longer be available to satisfy an adverse costs order against LRI. Mr Sulan responds that LRI may have little practical ability to encumber its shares while proceedings are on foot and that LRI will give an undertaking not to encumber those shares. The first proposition seems to me to be speculative and the second is of limited assistance where Mr Li is outside the jurisdiction and the Court would have little practical sanction for any breach of that undertaking.
6. It seems to me that the proposition that LRI is recorded as the registered owner of 90% of the shares in AWF is not sufficient to exclude the jurisdictional basis for an order for security for costs. The Cross-Claim brought by Mr Lui and Mr Chiu at least places LRI's beneficial ownership of the shares in AWF in dispute. It seems to me that those shares cannot provide adequate security against an adverse costs order against LRI where at least one situation in which such an adverse costs order would be made against it would be where Mr Lui and Mr Chiu had succeeded in their Cross-Claim against LRI. If LRI is unsuccessful and the Court finds that LRI has no beneficial entitlement to the shares in AWF, it would be of no utility to Mr Lui and Mr Chiu that the shares which they had established that they beneficially owned could be used to meet their claim for costs against LRI. The jurisdiction to order security for costs is established on that basis.
7. For completeness, I note that Mr Lui and Mr Chiu also relied in submissions on UCPR r 42.21(1)(d) and s 1335 of the Corporations Act on the basis that LRI has no assets or relevant assets in the jurisdiction and would be unable to pay Mr Lui's and Mr Chiu's costs if ordered to do so. It was common ground that I need not address the question of LRI's financial position where a claim for security on that basis would not add anything to a claim for security for costs on the basis that LRI was resident outside Australia.

Discretionary factors

1. Once Mr Lui and Mr Chiu have discharged the onus of establishing a basis for an order for security for costs, the onus shifts to LRI to establish a reason why security should not be granted: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30]; Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; (2014) 98 ACSR 301 at [18]-[20]. Rule 42.21(1A) of the UCPR also identifies several matters to which the court may have regard in determining whether it is appropriate to make an order for security for costs, in an inclusive manner, including the plaintiff's prospects of success or merit of the proceedings, the genuineness of the proceedings, whether the plaintiff's impecuniosity is attributable to the defendant's conduct, whether the plaintiff is effectively in the position of a defendant, whether an order for security for costs would stifle the proceedings, whether the proceedings involve a matter of public importance, whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, the costs of the proceedings, whether the security sought is proportionate to the importance and complexity of the subject matter in dispute and the timing of the application for security for costs. Those factors are broadly consistent with those identified by Beazley J (as her Honour then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189 at 197-198.
2. A party's prospects of success and the merits of the proceedings are a relevant matter to whether security for costs should be granted. On the one hand, Mr Sulan submits that the "strong merits" of LRI's claim tell against the exercise of any discretion to order security. I accept that, of course, the Court may order the winding up of a company if it is of the opinion that it is just and equitable that the company be wound up and that deadlock or disagreement in the management of the company's affairs is a common situation in which such an order may be made: Re Catombal Investments Pty Ltd [2012] NSWSC 775 at [19]. I also accept that, unless Mr Lui and Mr Chiu can make good their challenge to LRI's claim to ownership of the substantial majority of the shares in AWF, then the matters on which LRI relies establish at least an arguable case for relief on the just and equitable ground. However, that proposition depends on the premise that LRI is properly entitled to the shares that are registered in its name and that Mr Lui and Mr Chiu cannot establish the challenge that they bring to its ownership of those shares. It is neither possible, nor appropriate, to seek to assess the prospects of that challenge in an interlocutory application of this kind.
3. Conversely, Mr Alexis submits that LRI's claim is weak and points to a perhaps surprising feature of that claim, namely that it implies that Messrs Lui and Chiu sold 90% of their shares in AWF to LRI for $1 per share, for a total sum of $9,000, at a time that AWF was undertaking transactions in relation to large and valuable assets which, Mr Lui and Mr Chiu contend, had expected returns exceeding $4 million, and has achieved returns in excess of that amount. Mr Alexis also submits that LRI's claim for oppression is misconceived where it is a majority shareholder and that it has not demonstrated the relationships on the board have broken down irretrievably.
4. Mr Alexis, in oral submissions, reviewed the documents underlying the claims of Mr Lui and Mr Chiu and their evidence (14.11.17 T4ff). It is not necessary or appropriate that I reach any findings of facts as to those matters which will be in dispute at the hearing. The case law indicates that, once a plaintiff's claim appears reasonably arguable, it will often not be appropriate to attempt a more detailed assessment of its prospects of success: Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664; (2004) 208 ALR 564 at [37]-[39]; Jazabas Pty Ltd v Haddad [2007] NSWCA 291; (2007) 65 ACSR 276 at [83]. I recognise that the recent decision of the Court of Appeal in Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 indicates that, in some circumstances, the Court will have regard to the merits of a claim, where it is in a position to assess them, and that qualifies an earlier view that the merits should be treated as immaterial when a claim was arguable. Mr Alexis fairly accepted, in oral submissions, that the Court would here apply the approach in Fiduciary Ltd v Morningstar Research Pty Ltd above and that his review of the underlying evidence was directed to demonstrating the complexity of the case, not to seeking to have the Court determine its underlying merits, which he accepted the Court could not do on an application of this kind (T25).
5. There are plainly issues that will involve significant factual contest at the hearing including the circumstances in which the amount of $20 million came to be inserted, by hand, in one version of the typed Chinese version of an agreement formed on 1 August 2016, but not in the other typed Chinese version of that agreement or in the English version of that agreement. There will also be a factual issue as to the correctness of representations made by LRI in respect of its ability to fund the relevant transaction and of any need to transfer the shares in AWF to LRI in order to satisfy its financiers. Issues of construction arise in respect of a document described as "Deed of Confirmation of Trust" signed by Messrs Lui and Chiu on behalf of AWD and by Mr Li by which, it appears, AWD declared that it held 95% of the shares in itself, or possibly Mr Lui and Mr Chiu declared that they held 95% of the shares in AWD (which were owned by AWF), for Mr Li. These matters are not such that they could establish that LRI does not have an arguable case and Mr Alexis did not rely on them for that purpose. LRI's claim plainly raises real issues to be tried, Mr Lui and Mr Chiu do not suggest that it is capable of summary dismissal and no further assessment of its merits can reasonably be undertaken at this early stage of the proceedings.
6. There is no suggestion that the proceedings are not genuine, subject to the parties' differing views as to their merit which I have addressed above. There is no suggestion that LRI is effectively in the position of a defendant. I do not understand it to be suggested in this case that an order for security for costs would stifle or stultify the proceedings, and that has also not been established where there is no evidence that those standing behind the proceedings could not provide the funds to allow the litigation to proceed: Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344; (2007) 65 ACSR 383 at [43]. There is no suggestion that the proceedings involve a matter of public importance, rather than a dispute as to the parties' private rights, or that any delay by LRI in commencing the proceedings has prejudiced Mr Lui or Mr Chiu. I will address the question of the suggested costs of the proceedings, and whether the security sought is proportionate to the importance and complexity of the subject matter in dispute below. There is no suggestion that the application for security for costs was not promptly brought.

Evidence as to quantum of security for costs

1. A substantial part of the affidavit evidence led in this application was directed to a dispute as to the very substantial amount that Mr Lui and Mr Chiu sought by way of security for costs. I will refer to that evidence before addressing the parties' submissions and reaching a conclusion as to that matter.
2. The amount claimed for security for costs was quantified by Mr Dunstan's affidavit filed on 15 August 2017. Mr Dunstan there sets out the work undertaken in the conduct of the proceedings to that date, including reviewing and considering the Points of Claim; investigation of some of the issues in dispute in the proceedings; collating documents relevant to the dispute; some conferences with Messrs Lui and Chiu to discuss LRI's allegations; attendances at two directions hearings; briefing junior counsel and correspondence with LRI's solicitors and identified costs incurred to that date as approximately $65,205. During that period, Mr Dunstan was representing each of AWF, Mr Lui and Mr Chiu, all of whom were taking an active role in the proceeding, although, as I noted above, AWF has subsequently filed a submitting appearance.
3. Mr Dunstan also sets out, at some length, the work likely to be required in respect of the future conduct of the proceedings. Mr Dunstan's evidence is that the proceedings would be lengthy and complex and that their length and complexity would be increased by the need for interpreters, and that other aspects of the proceedings are likely to involve complexities, including concerns raised in LRI's Points of Claim as to the expense claims by Mr Lui, Mr Chiu and entities associated with them. Mr Dunstan's evidence is also that he anticipates that there will be a factual contest as to the dealings between the parties, which will require credit findings and a review of events over several months. It appears that Mr Lui and Mr Chiu will contend that they entered into the relevant transactions in reliance on representations by Mr Li as to his or LRI's capacity to procure funds for, inter alia, the Sheraton Mirage project. Mr Dunstan's evidence is that, not surprisingly, he expects there will be a need for oral evidence from the individuals involved in the relevant transactions, since it is contended that there was a series of discussions, negotiations and agreements and representations in relation to the transactions. His evidence is that Mr Li would require the assistance of a Cantonese interpreter and that another potential witness, Mr Ge, would require the assistance of a Mandarin interpreter. Mr Dunstan's evidence treats substantially all issues and evidence in the proceedings and all steps taken in them as referable to LRI's claim and Mr Lui's and Mr Chiu's Defence rather than Mr Lui's and Mr Chiu's Cross-Claim.
4. Mr Dunstan also assumes that discovery will be required, although discovery will, of course, only be ordered in accordance with the principles set out in Supreme Court Equity Practice Note 11, after the close of evidence. At this stage, it is by no means apparent to me that this case is likely to require discovery, particularly in respect of the issues that are properly raised by way of LRI's claim, or the Defence to it, as distinct from Mr Lui's and Mr Chiu's Cross-Claim.
5. Mr Dunstan's costs estimate also assumes that the defence of the proceedings will be undertaken by him, junior counsel and senior counsel, "especially given the complexities" of the work. Mr Dunstan expressly assumes that he will charge his current rates through the relevant period, although they may increase over time. The consequence of that assumption is that Mr Dunstan will charge for work at his hourly rate, even if that work could properly be done by less senior staff at a significantly cheaper rate.
6. A schedule to Mr Dunstan's affidavit sets out the time which he estimates will be required for further steps in respect of the proceedings, again not distinguishing between the Defence and the Cross-Claim, which include, inter alia, Mr Dunstan and junior counsel each spending 20 hours in respect of discovery; Mr Dunstan spending 8 hours and junior counsel 2 hours in preparing a list of documents; Mr Dunstan spending 20 hours, junior counsel 20 hours and senior counsel 10 hours in reviewing and investigating LRI's evidence; Mr Dunstan and junior counsel each spending 30 hours in conferences with witnesses; Mr Dunstan spending 20 hours and junior counsel 30 hours in preparation of affidavits and exhibits; and time spent in respect of interlocutory hearings and general correspondence.
7. Mr Dunstan then adds substantial allowances of 240 hours for time to be spent by him, junior counsel and senior counsel for preparation for the hearing. The undifferentiated assumption that each of Mr Dunstan, junior counsel and senior counsel will spend the same time in those activities undermines the cogency of these estimates. That assumption seems to me to be likely an over-estimate in respect of time spent by Mr Dunstan and junior counsel, and very likely an over-estimate in respect of time spent by senior counsel. Mr Dunstan also assumes that 120 hours of time will be spent by each of him, junior counsel and senior counsel at the hearing, on the basis that the hearing of the proceedings would take three to four weeks. Mr Alexis accepted, in the course of oral submissions, that this may be an over-estimate of the length of the (T18) although he submitted that the effect of that over-estimate was mitigated by the fact that counsel and solicitors were likely to work longer on each day than Mr Dunstan had assumed.
8. Mr Dunstan also assumes that each of LRI on the one hand and Mr Lui and Mr Chiu on the other will call one expert witness, not identified in his affidavit but identified in submissions as a forensic accounting witness, and includes substantial costs in respect of expert reports and for an expert's attendance at the hearing over two days. The need for such a witness has not been demonstrated, nor has leave to lead such evidence been given. Mr Dunstan also makes substantial allowance for transcript costs, witness travel and accommodation and photocopying costs.
9. Mr Lui and Mr Chiu also relied on the affidavit of a costs consultant, Ms Solomon. Ms Solomon was not cross-examined, where this application was interlocutory in character. However, I am not bound to accept the evidence of an expert witness even if he or she is not cross-examined, and I am not persuaded by significant aspects of Ms Solomon's evidence.
10. Ms Solomon notes that the total anticipated costs for Mr Dunstan, junior counsel and senior counsel arising from Mr Dunstan's affidavit are $786,800 and goes on to observe (Solomon [27]) that: "I note that the anticipated professional costs of junior counsel and the solicitor total $508,900.00. Ordinarily I would consider the proportion of junior counsel's fees to the solicitor's fees to be in excess of that which would ordinarily be anticipated. However, a matter of this type would in most firms, in my experience, be conducted by a partner and senior associate." Ms Solomon's observation as to the unusually high allocation of work to junior counsel seems to me to be correct. I also accept Ms Solomon's evidence that work of this character would ordinarily be conducted by a partner and senior associate, with the qualification that it would ordinarily also be conducted with the use of junior solicitors, paralegals or contracted staff and service providers so as to reduce the level of costs incurred by using resources that are charged at lower hourly rates. It is unfortunate that Ms Solomon did not recognise the implications of a decision not to conduct the matter in that way, so as to minimise its costs, for her evidence generally.
11. Ms Solomon led evidence of the matters to which a costs assessor would have regard in determining the amount of recoverable costs in respect of the proceedings. She expressed the view that the hourly rates applied in Mr Dunstan's affidavit were likely to be applied in full on an assessment, on the basis that Mr Dunstan's and junior counsel's rates were "substantially below market rates". Ms Solomon also expressed the view that senior counsel's daily rate was at the top of the range in the relevant costs assessment "guidelines" and senior counsel's hourly rate was within that range, but a charge at the top of the range was likely to be allowed given the "complexity of the matter". I am by no means persuaded that this matter is at the high end of complexity, by the standards of matters generally dealt with in the commercial and corporations lists of this Court. Ms Solomon did not make any adjustment in her assessment of recoverable costs in respect of Mr Dunstan's assumption that proceedings which (she assumes) would run for several weeks would be conducted solely by a sole practitioner, junior counsel and senior counsel, and that all solicitors' work would be charged at that practitioner's rate, without any attempt to reduce the costs of the proceedings by the use of more junior or contract staff, and proceeds on the basis that a costs assessor will treat costs incurred on that basis as reasonable. I will address the difficulties with that approach below.
12. Ms Solomon expresses the view that, in her experience, in matters which could run to a three to four week hearing, solicitors' professional costs could range from $350,000-$450,000, excluding GST and that, in her opinion: "a total of $508,900.00 covering the solicitor's professional costs and junior counsel's fees for a matter of this type would not be considered unusual or unreasonable." I have pointed above to several matters that substantially undermine that view. Ms Solomon in turn expresses the view, without distinguishing between costs of the Defence and costs of the Cross-Claim that Mr Lui and Mr Chiu would likely recover, on an assessment, between $45,500 and $47,000 for incurred costs and disbursements between May and August 2017; between $680,000 and $720,000 for future professional costs including counsels' fees; $63,000 for future disbursements and between $10,000 and $15,000 for costs of this application, for total recoverable costs between $798,500 and $845,000. Ms Solomon's estimate of costs assumed that AWF would be entitled to an input credit for GST, and excluded the GST component of costs incurred in her estimate. Mr Alexis submits, and I accept, that that exclusion is unlikely to be applicable to costs incurred by Mr Lui and Mr Chiu.
13. LRI relied, in response, on Mr Harris' affidavit dated 5 September 2017 to which I have referred above. Mr Harris advanced particular criticism of Mr Dunstan's estimate of 720 hours and costs of $435,600 (inclusive of GST) in preparation for the hearing, excluding the preparation of evidence and attendance at the hearing, and 185 hours and costs of $94,325 (inclusive of GST) in preparation of evidence, and of the assumption made by Mr Dunstan that Mr Lui and Mr Chiu would call expert evidence. There seems to me to be substantial force in each of those criticisms. Mr Harris also notes that Ms Solomon's estimate that Mr Lui and Mr Chiu would incur recoverable costs in the range of $798,500 to $845,000 was based on assumptions made by Mr Dunstan as to the nature of the proceeding and the work required and included an amount of $55,500-$62,000 for costs to date and costs involved in this application.

The parties' submissions as to quantification

1. Mr Lui and Mr Chiu seek security for both past and future costs of the proceedings. An order for security for costs may extend beyond future costs to costs already incurred, where an application for security for costs is made promptly: Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 at [35]ff; Szanto v Bainton [2011] NSWSC 985 at [50]ff; Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [69]. I have noted above that the applications for security for costs were foreshadowed and brought promptly in this case. The court will take a "broad brush" approach to the quantum of an order for security for costs and will not attempt a detailed cost assessment in that regard: Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [18]; Re Colorado Products Pty Ltd (in prov liq) above at [66].
2. Mr Alexis submits that Mr Lui and Mr Chiu are likely to incur substantial costs in the proceedings and, even if the Court would not have to determine the dispute as to their claims for reimbursement of expenses on a final basis, significant costs would be associated with determination of the question of LRI's standing to seek a winding up order. Mr Alexis also submits that, if Mr Dunstan's assumptions as to the scope of the proceedings were to be accepted, then Ms Solomon's affidavit evidence supports the finding that the Defendants would incur substantial future costs in the proceeding. Mr Alexis also submits that those costs are proportionate to the complexity of the issues and to the value of the assets at stake. I am not persuaded by that submission, given the difficulties that I have identified above with the approach adopted in Mr Dunstan's and Ms Solomon's evidence and to which I will return below.
3. Mr Alexis accepted, in oral submissions, that Mr Dunstan proceeded, and Ms Solomon had assumed, that all of the work done, other than that done by senior and junior counsel, would be done by Mr Dunstan and charged at Mr Dunstan's hourly rate, because he was a sole practitioner (T19). For example, as Mr Sulan points out (T32), Mr Dunstan's and Ms Solomon's approach has the result that substantial costs are allocated to the conduct of discovery (which, as I noted above, the Court may or may not allow under Supreme Court Equity Practice Note 11) and the review, collation and preparation of a list of documents, all of which are to be charged at Mr Dunstan's hourly rate of $450 per hour or junior counsel's hourly rate of $400 per hour, rather than a lower rate that would be applicable to a junior solicitor, a paralegal, contract staff or outsourcing. Costs for preparation of the hearing are estimated on the same basis and costs for attendance at the hearing assume that Mr Dunstan will attend all of it, even for periods that may be of lesser significance where it would ordinarily be sufficient for counsel (particularly where two counsel are briefed) and a less senior solicitor to be present.
4. Mr Alexis emphasises, in oral submissions, that LRI leads no evidence to establish how the amount of $75,000 which it has offered to provide by way of security for costs was calculated and submits that that amount is "glaringly deficient" (T13). Four observations should be made as to that submission. First, LRI did not itself bear an onus to establish the amount of the costs that Mr Lui and Mr Chiu would incur in the defence of the proceedings, notwithstanding that the issues in dispute may have been narrowed had it sought to do so. Second, the question whether the amount offered by LRI is insufficient depends both on the scope of the work for which security is to be allowed, including whether work is properly attributable to the defence of the proceedings as distinct from the Cross-Claim, and whether all of that work was reasonably undertaken by Mr Dunstan and junior and senior counsel. Third, it would not be altogether surprising, in an application of this character, if the amount of $75,000 offered by LRI was less than the likely recoverable costs of the defence of the proceedings and the amount claimed by Mr Lui and Mr Chiu of between $798,500 and $850,000 exceeded the likely recoverable costs of the proceedings. Fourth, Mr Alexis' submission that the amount of $75,000 would be insufficient for the conduct of the defence to the end of the hearing finds some support, as Mr Alexis pointed out in oral submissions (T17), in the extent of the costs incurred by AWF and/or Mr Lui and/or Mr Chiu to date, which are addressed in Mr Dunstan's affidavit, notwithstanding his failure to distinguish between costs of defence and costs of the cross-claim in that respect.
5. Mr Sulan responds that it would not be reasonable to order that LRI provide security in the amount sought of between $798,500 and $845,000 for a "straightforward" winding up application under s 461 of the Corporations Act. In written and oral submissions (T24), Mr Sulan referred to the decision of the Court of Appeal in Treadtel International Pty Ltd v Cocco [2016] NSWCA 360; (2016) 117 ACSR 176 at [97], which is authority that the beneficiary of a bare trust in respect of a trust share does not have standing to bring an oppression claim. It is not necessary to address that proposition, for present purposes, since LRI's standing would arise from its being the member recorded in AWF's register of shareholders, irrespective of any allegation that it holds its shares on trust, and does not require that the beneficiaries of such a trust also have such standing.
6. In oral submissions, Mr Sulan also submits that a determination of the winding up application will not require the Court to determine the validity of each disputed claim for expenses by entities associated with Mr Lui and Mr Chiu, where the dispute as to those claims would be resolved by the appointment of liquidator, the proof of debt process and any appeal under s 1321 of the Corporations Act (T29). Mr Sulan also submits that, without evidence of the breakdown of costs incurred between AWF, Mr Lui and Mr Chiu, Mr Lui and Mr Chiu cannot establish they are incurring costs for which they ought to be awarded security. That proposition seems to me to be correct for the period where each of AWF, Mr Lui and Mr Chiu was defending the proceedings, but not for the period since a submitting appearance was filed on behalf of AWF.
7. Mr Sulan submits that, to the extent that claims are made by Mr Lui and Mr Chiu by way of Cross-Claim, LRI could not be required to provide security for costs. Mr Sulan submits, with substantial force, that a substantial amount of the costs for which Mr Lui and Mr Chiu seek security relates to their allegations of misleading or deceptive conduct against LRI, which could only be raised by (and are raised by) their Cross-Claim, and as to which security for costs should not be ordered: Motakov Ltd v Commercial Hardware Suppliers Pty Ltd (in liq) (1952) 70 WN (NSW) 64; Bank of New Zealand v Spedley Securities Ltd (1992) 27 NSWLR 91 at 100, 106, 108. Mr Sulan also submits that, where Mr Lui and Mr Chiu claim an interest in the AWF shares that are registered in LRI's name by way of the Cross-Claim, the costs of investigating factual issues surrounding the shareholding arise in respect of the Cross-Claim. In oral submissions, Mr Sulan also emphasised the difference between matters raised by defence and matters raised by way of Cross-Claim by pointing out that, even if LRI's claim was stayed by reason of a failure to provide security for costs, and there was no occasion for a defence to it, Mr Lui and Mr Chiu would still presumably pursue their claims by way of their Cross-Claim to seek to establish their claimed entitlement to the shares now registered in the name of LRI (T31).
8. Mr Sulan submits that both Mr Dunstan's evidence and Ms Solomon's opinions depend on the accuracy of Mr Dunstan's assumptions as to the amount of work involved in defending the proceedings, and he refers to Mr Harris' evidence challenging those assumptions. Mr Sulan challenges, for example, the proposition that each of Mr Dunstan, junior counsel and senior counsel would spend 240 hours (equivalent to six working weeks at 8 hours a day) to prepare for a 3-4 week hearing. That seems to me to be a substantial over-estimate of the time that would be required to be, or likely to be, spent. Mr Sulan also submits that the estimate of 195 hours for preparation of the evidence would also not be commensurate with the nature of the proceedings. Mr Sulan also points out that Mr Dunstan's assumption that Mr Lui and Mr Chiu will call at least one expert witness, with an associated cost of $30,000, does not explain why such evidence is needed or the issues to which it will be directed, and submits that the estimate of a 3-4 week hearing is not commensurate with the nature of the proceedings. Mr Sulan also submits that it would not be necessary for the Court, in determining whether AWF should be wound up on the "just and equitable" ground, to determine all disputes between the directors and shareholders.

Conclusion as to quantification

1. I am satisfied that an order for security for costs should not be made in the amounts claimed by Mr Lui and Mr Chiu. It seems to me that an order should not be made for security for past costs, where there is no evidence that Mr Lui or Mr Chiu, as distinct from AWF, incurred those costs and AWF has now filed a submitting appearance and would not be entitled to recover those costs.
2. In respect of future costs, it seems to me that the matters raised in Mr Lui's and Mr Chiu's Defence, and repeated in the Cross-Claim, are in substance matters of cross-claim rather than matters of defence. So far as the claim for misleading and deceptive conduct is concerned, it is now common ground that that is not available by way of defence, but only by way of cross-claim. So far as the claim that there are, in effect, conditions subsequent to the transfer of shares to LRI that have not been satisfied, they would not deprive LRI of standing as a member of AWF to seek the relief it seeks, and would likely be relevant as a matter of discretion, to be balanced against the evidence of deadlock in LRI and irreconcilable differences between its members and directors, unless Mr Lui and Mr Chiu succeed in having LRI's shares in AWF transferred back to them, which can only occur by way of cross-claim. As a practical matter, it also seems to me inconceivable that Mr Lui and Mr Chiu would raise these matters only by way of defence, and contend that LRI should be left in its present position of deadlock, rather than also raising them by way of cross-claim as they do.
3. It also seems to me that the matters raised by Mr Lui and Mr Chiu by way of defence would, in the ordinary course, have been pleaded by way of cross-claim and, to the extent relevant, repeated by way of defence, and the position as to security for costs should not differ because, by inadvertence or by design, Mr Lui and Mr Chiu have adopted the contrary approach. Whether the relevant matters were pleaded in the Points of Defence (as they are) or in the Cross-Claim (as they arguably ought to have been), those matters amount to Messrs Lui and Chiu seeking to advance their position by way of an attack, and they are in substance plaintiffs rather than defendants in respect of those matters. The position in that respect is analogous to that considered by Smart J in Sydmar Pty Ltd v Statewide Developments Pty Ltd (1987) 73 ALR 289 at 302, to which Mr Sulan referred, and in the several cases there referred to. Mr Alexis accepted in oral submissions that, if the Court took the view that there needed to be an appropriate discount because of the existence of the Cross-Claim, then "it would be a not unreasonable exercise of the Court's discretion to apply a discount" (T20).
4. As will be apparent from my observations in respect of the evidence on which Mr Lui and Mr Chiu rely, I am also not satisfied that Mr Dunstan's and Ms Solomon's evidence provides a proper basis for the quantification of security for costs. Indeed, I am affirmatively satisfied that the quantification of costs by Mr Dunstan and Ms Solomon substantially overstates the costs that would be properly recoverable on an assessment, in respect of both the proceedings as a whole and the Defence, as distinct from the Cross-Claim.
5. Mr Dunstan's and Ms Solomon's approach ignores the fact that the costs of conduct of complex litigation would ordinarily be reduced by using staff of different levels of seniority, with junior staff doing more of the work and partners focusing on matters of significance or on supervision, so as to allow a "blended" rate that is usually substantially lower than the partner's rate. The choice not to adopt that structure affects substantial aspects of Mr Dunstan's and Ms Solomon's costs estimate. In oral submissions, I drew to Mr Alexis' attention the difficulty that arose from the fact that, notwithstanding that Mr Dunstan's hourly rate may be lower than the rate of a principal in a large firm, it was likely that Mr Dunstan's hourly rate, when applied to every aspect of the work done other than work done by counsel, would be higher than a "blended" rate derived from the use of both junior and senior staff in the conduct of the proceedings (T19). Mr Alexis responded to that difficulty by relying on Ms Solomon's evidence that, where Mr Dunstan is a sole practitioner, a bill calculated on that basis is likely to be regarded as reasonable by an assessor. I do not accept that an assessor could reasonably proceed on that basis.
6. Even if Mr Lui and Mr Chiu are content to have the proceedings conducted on the basis that no attempt is made to reduce their costs by the use of junior and less costly staff, I do not consider that a costs assessor would, or at least should, treat costs of work undertaken by Mr Dunstan or junior counsel that would ordinarily have been undertaken by junior staff or outsourced at lower hourly rates as reasonably incurred so as to be recoverable in full against LRI. To the extent that Ms Solomon expresses the contrary view, I am not persuaded by her evidence. It does not seem to me that a sole practitioner is entitled to recover greater remuneration, or his or client is entitled to a larger amount by way of security for costs, because the structure of his or her practice does not permit delegation. This matter fundamentally undermines the costs estimates on which Mr Lui and Mr Chiu rely.
7. The question then arises as to what orders should be made in this situation. A first approach, left open by LRI, is to order security for costs in the amount of $75,000 offered by LRI by way of bank guarantee. A second approach is to dismiss the application for security for costs, on the basis that that would leave it open to Mr Lui and Mr Chiu to bring a further application on the basis of evidence that appropriately addresses the distinction between matters raised by way of defence and by way of cross-claim and quantifies the security for costs claimed on the basis that work could be done by less senior and less costly staff or outsourced where appropriate, even if Mr Lui and Mr Chiu do not propose to conduct the proceedings in that manner. At the conclusion of oral submissions, I invited Mr Alexis to indicate his clients' preference between those two possibilities, if they were to arise, but he wished to make no submission as to that matter (T42).
8. On balance, and with hesitation, it does not seem to me that I should take the first approach, because, notwithstanding the issues that I have noted above, it seems to me likely that the recoverable costs properly incurred in respect of the defence of the proceedings, including leading evidence that is properly led in defence of the proceedings, would significantly exceed the amount of $75,000 offered by LRI as security for costs. I do not think that I should take the second approach, which does not seem to me to promote the just, quick and cheap resolution of the real issues in dispute in this application, for the purposes of s 56 of the Civil Procedure Act 2005 (NSW).
9. A third approach, for which Mr Alexis contends in the alternative to his primary position, is that the Court should do its best to seek to determine the costs that are properly recoverable in the unsatisfactory state of the evidence. One difficulty with that course, which I raised in the course of oral submissions, is that there is little evidentiary basis for an allocation of work between the Defence and the Cross-Claim, because Mr Dunstan's evidence does not address that matter and LRI did not seek to lead affirmative evidence of the costs likely to be incurred in the proceedings. A second difficulty is that, because Ms Solomon did not seek to address the steps that could be taken to minimise costs by using persons of appropriate seniority to conduct different aspects of the matter, the Court has no evidence of the level of costs that would have been incurred had the matter been conducted in that way. Mr Alexis responded that there was sufficient material available for the Court to come to an informed decision on the likely quantum of security for costs, as his primary submission; or alternatively the Court could deliver a judgment and allow Mr Lui and Mr Chiu an opportunity to provide a further estimate that reflected the Court's determination of the principal issues in the application, by way of submission; or the Court could make an order for security for costs in a reasonable amount, but grant Mr Lui and Mr Chiu liberty to apply when the amount of security was exhausted; or the Court could order an amount in a staged process, if it was satisfied as to the amount to be awarded in the first stage (T42-43).
10. On balance, although again with hesitation, it seems to me that the proper course is to order that LRI provide security for costs of Mr Lui's and Mr Chiu's defence of the proceedings in the amount of $75,000, up to the point of commencement of the hearing, by way of payment into Court or a bank guarantee by an Australian bank in a form agreed between the parties or acceptable to the Registrar, and reserve liberty for Mr Lui and Mr Chiu to apply for further security for costs, including security for costs of the hearing. It seems to me that I can properly make that order, where the evidence and the Court's experience at least indicates that the properly recoverable costs of the defence, up to the point of the commencement of the hearing, would be at least that amount.

Costs and orders

1. Neither party has sustained the position for which it contended in this application and my preliminary view is that there should be no order for the costs of this application. However, I will hear the parties as to costs, if they wish to be heard.
2. I direct the parties to bring in agreed short minutes of order to give effect to this judgment within 7 days, or, if there is no agreement between them, their respective short minutes of order together with submissions, not exceeding 10 pages in one and a half spacing, as to the differences between them.

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: 04 December 2017