Ashington Capital Pty Ltd v Parissen Capital

Solicitors: Jeremy Kriewaldt Lawyers (Plaintiff) King & Wood Mallesons (First Defendant) Ashurst (Second-Sixth Defendants) File Number(s): 2015/331802 (005, 006)

Background

1. By Interlocutory Process filed on 26 April 2018, the First Defendant, Brookfield Multiplex Capital Management ("BMC"), seeks, relevantly, an order under s 1335 of the Corporations Act 2001 (Cth) or r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that the Plaintiff, Australian Style Holdings Pty Ltd ("ASH") as trustee of the Australian Style Investments Unit Trust ("ASIUT") give further security for its costs of and incidental to the proceedings. By a Notice of Motion also filed on 26 April 2018, the Second to Sixth Defendants ("Directors"), who are directors or former directors of BMC, also seek orders that ASH give further security for their costs by a payment into Court within 14 days of the order; that the proceedings be stayed as against them until the security is provided; and, if ASH does not give that security within 14 days, that the proceedings be dismissed against them without further order of the Court.
2. By way of background, it appears that ASH has a paid up capital of $100 and 100 shares on issue; Mr Nicholas Bolton owns one share in ASH; and his two sisters own the remaining 99 shares in ASH. Mr Bolton was the sole director of ASH from April 2004 until November 2015, but the Australian Securities and Investments Commission ("ASIC") prohibited him from managing corporations for three years from November 2015 under s 206F of the Corporations Act. Mr Bolton's father then became the director of ASH until his death in early 2018. Mr Dukes, who was formerly a partner of the form of solicitors now acting for ASH in the proceedings, was appointed as a director of ASH on 20 April 2018, apparently on a basis that required Mr Bolton to make financial arrangements to satisfy conditions as to that appointment. At the time the application for further security for costs was filed, ASIC had initiated deregistration proceedings in respect of ASH, by reason of its failure to file documents with ASIC over the previous 18 months, although it appears that deregistration has not proceeded to completion. A property search indicates that ASH owns no properties in New South Wales or Victoria.
3. The proceedings were commenced on 11 November 2015 by ASH on behalf of the ASIUT, over two and a half years ago, and they relate to events that occurred nearly nine years ago, in late 2009. ASH has subsequently filed a Statement of Claim and an Amended Statement of Claim in the proceedings. ASH brings claims against BMC and the Directors in respect of the implementation of an entitlement offer in respect of the Brookfield Prime Property Fund ("Fund") by the issue of new partly paid units in the Fund in November 2009. ASH contends that BMC failed to investigate and implement alternative measures to remedy a breach of a loan to value ratio in a debt finance facility concerning a loan to the Fund, rather than proceed with that entitlement offer; that the explanatory memorandum issued in respect of the entitlement offer was misleading and deceptive; that BMC breached its fiduciary or other equitable duties owed to unitholders in the Fund and duties under s 601FC of the Corporations Act to act with care and diligence and in the best interests of unitholders; and that BMC caused loss to ASH, by diluting its interest in the Fund. ASH seeks a range of relief, including equitable and statutory compensation.
4. ASH also seeks declarations that each of the Directors breached statutory duties under s 601FD of the Corporations Act; that each of them was involved in or participated in breaches by BMC of its fiduciary or equitable duties as trustee of the Fund or breaches by BMC of its statutory duties under s 601FC of the Corporations Act; and compensation under s 1325 of the Corporations Act. Each of the Directors deny any such breach, take issue with ASH's standing to bring the claims and deny that ASH or ASIUT has suffered loss or damage.
5. Security for costs was originally sought by BMC in February 2016 and the Court made consent orders in April 2016 requiring ASH to provide "initial security" for the Defendants' costs in a sum of $300,000 in the form of an unconditional bank guarantee from an Australian authorised deposit-taking institution. Those orders expressly provided that they did not affect the Defendants' ability to apply for further security for their costs of defending the proceedings at a later date, after giving notice to ASH. That, of course, is what the Defendants have now done.
6. BMC filed its Defence in June 2017, and denies the substance of the allegations in the Amended Statement of Claim and that ASH is entitled to the relief sought. Orders were made in 2017 for ASH to serve its evidence, with which it did not comply. Orders were then made in late February 2018, and the time for compliance with those orders was later extended to April 2018, which required ASH to serve any documents that it intended to tender in chief at the trial and that were in its possession, custody or control, and ASH has now complied with those orders. ASH has retained several solicitors to act for it in the course of the proceedings, including Atanaskovic Hartnell, who ceased to act in April 2016, then again in November 2017 and for a third time in July 2018, a solicitor in the firm of Nick Stretch Legal and then Keypoint Legal, and now Kriewaldt Lawyers who have recently been appointed to act for it.

Affidavit evidence

1. The applications are supported by detailed evidence. BMC relies on an affidavit dated 13 July 2018 of Mr Alexander Morris, the solicitor acting for it, which sets out the background to the proceedings, leads evidence in respect of ASH's suggested impecuniosity and leads evidence as to quantum of the costs incurred and to be incurred by BMC in the conduct of the proceedings. I will return to these matters below.
2. The Directors rely on affidavits of their solicitor, Mr Andrew Carter, dated 26 April 2018, 27 April 2018 and 16 July 2018. Mr Carter's evidence is that one of the directors, the Second Defendant, has retired and another, the Fifth Defendant, ceased employment several years ago, although he undertakes some periodic work on a contract basis. Mr Carter also sets out the history of the proceedings, in considerable detail. By his second affidavit dated 27 April 2018, Mr Carter sets out costs and disbursements which had been incurred by the Directors to that point and I will address that evidence below. By his third affidavit dated 16 July 2018, Mr Carter refers to further correspondence between the solicitors and to the orders made in the conduct of the proceedings; draws attention to matters which raise a question as to the capacity of ASH to meet an adverse costs order in the proceedings; and updates the calculation of costs previously billed to the Directors in the proceedings, and sets out the work that is now likely to be done in the further conduct of the proceedings, in significant detail. The Directors also relied on the report of Mr Ross Nicholas filed 18 July 2018 in respect of the quantification of their costs.
3. ASH relies on the affidavits dated 26 April and 4 May 2018 of its former director and one percent shareholder, Mr Bolton; the affidavits dated 3 May and 13 August 2018 of its current director, Mr Dukes; and the affidavit dated 20 August 2018 of its solicitor, Mr Jeremy Kriewaldt, which provided further information as to ASH's shareholding in a listed company, Keybridge Capital Limited ("Keybridge").

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 there is reason to believe that ASH will be unable to pay the costs of the Defendants 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]. I will address those issues in turn.
2. I should first return to the evidence as to ASH's shareholders and its financial position. Mr Bolton's evidence is that the shares in ASH are now held as to one percent by him, as to 49% by one of his sisters, Georgia, and as to 50% by another sister, Alexandra. It appears that a recent transfer of 50% of those shares from Georgia to Alexandra did not occur in the manner contemplated by the Corporations Act, since ASH then had no directors able to approve the transfer, although I will assume, without deciding, that it may have taken effect in equity. Mr Bolton's evidence is also that the main assets of ASIUT, of which ASH is trustee, are litigation claims, including the claim in this proceeding and a claim against a firm of solicitors who acted for the former trustee of ASIUT in another matter. By his affidavit dated 3 May 2018, ASH's current director, Mr Dukes, accepts that ASH does not have sufficient resources available to it in its capacity as trustee of ASIUT to pay legal costs as they have been incurred and notes that Mr Bolton has in the past procured funds to assist ASH to pay such costs. Mr Dukes recognised the desirability of the proceedings being conducted more diligently than had been the case, and expressed an anticipation that that could occur by ASH obtaining litigation funding or implementing a more stable and dependable arrangement with Mr Bolton for the funding of litigation costs.
3. Mr Pike, who appears with Ms Tame for the Directors, submits that that evidence is sufficient to satisfy the threshold requirement for an order for security for costs that there is "reason to believe" that a corporation will be unable to pay a defendant's costs of the proceedings if ordered to do so: Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; (2014) 98 ACSR 301 at [15]-[17], [56]-[60]. Mr Pike also rightly points out that security may more readily be ordered where the only assets of a company are held as trustee, unless the trustee company establishes that recourse to property held by it on trust will be available to the defendant: Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) 7 ATPR 40-584 and see my summary of the relevant principles in Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385.
4. Mr Pike submits that a finding that there is reason to believe that ASH will be unable to pay the Defendants' costs is supported by the evidence that ASH has paid up capital of only $100; that it holds its assets on trust; that Mr Bolton accepts, in his affidavit, that it has limited resources; and that its significant assets are the claims made in these proceedings and other claims in other litigation. Mr Williams, who appears for BMC, also submits that ASH is impecunious, by reason of its limited capital, Mr Bolton's concessions as to its difficulty in funding the proceedings (which were reinforced by Mr Dukes' evidence in that respect) and its absence of ownership of real property.
5. Mr Insall and Mr Douglas-Baker, who appears for ASH, accept, in their submissions as to the history of the proceedings, that ASH has "limited resources" other than the claim it makes in these proceedings and certain other claims that are also the subject of litigation and that it has had difficulty in meeting, on a timely basis, its ongoing legal costs of the proceedings; submit that Mr Nicholas Bolton has, to the extent he has been able, provided personal financial support for ASH's conduct of the litigation, that the costs of the proceedings and his other affairs have been a severe strain on his personal resources and there have been periodic cashflow shortages; and submit that Mr Bolton has also incurred costs in an application to review ASIC's banning order and in respect of other litigation by ASH, which have imposed an additional drain on his resources. Mr Insall also accepts that, from time to time, ASH has been unable to pay its own solicitors' costs of the conduct of the proceedings, both in respect of Atanaskovic Hartnell and Nick Stretch Legal, and a litigation funder that was initially approached to fund the proceedings declined to do so. All of these matters are indicative of ASH's (and potentially also Mr Bolton's) impecuniosity and suggest that there is reason to believe that ASH will be unable to pay the Defendants' costs of the proceedings.
6. I am satisfied, by reason of ASH's limited share capital, its lack of real property and Mr Bolton's and Mr Dukes' evidence, that there is plainly reason to believe that ASH will be unable to pay the costs of the Defendants if ordered to do so.

ASH's reliance on an undertaking offered by ASG and Mr Bolton

1. By letter dated 17 May 2018, ASH proposed that another entity, Australian Style Group Pty Ltd ("ASG"), and Mr Bolton give a joint and several irrevocable undertaking to pay any adverse costs order made against ASH in the proceedings. It was initially a term of that offer that the amount of security for costs already provided by ASH be released but that term was not pressed at the hearing.
2. Mr Insall submits that the fact that those who stand behind ASH are prepared to give an undertaking to the Court to pay the successful Defendants' costs is a relevant factor to the exercise of the Court's discretion. I will note below that the premise of that submission is not established, where neither all the shareholders of ASH nor all the beneficiaries of ASIUT stand behind ASH in respect of the costs of the proceedings. Mr Pike accepts that it is relevant to consider whether persons standing behind ASH, who are likely to benefit from the litigation, have offered any personal undertaking to be liable for the costs and, if so, the form of that undertaking, and also refers to the relevance of the value or likely worth of that undertaking: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198; Jazabas Pty Ltd v Haddad [2007] NSWCA 291; (2007) 65 ACSR 276. Mr Williams submits that the offer of a personal undertaking by a person standing behind a company, or who stands to benefit from the litigation, is not determinative against the award of security for costs, although he rightly accepts that it is a relevant matter.
3. In Epping Plaza Fresh Fruit and Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at 198, Winneke P and Phillips JA observed that the Court should not readily accept an undertaking to pay costs from impecunious individuals who, at least at the time when such an undertaking is given, have no chance of making it good. Mr Williams also refers to Prynew Pty Ltd v Nemeth [2010] NSWCA 94 at [44]-[45], where Beazley JA (as her Honour then was) observed that: "The purpose of the security for costs jurisdiction would be rendered ineffective if a defendant sued by an impecunious company was denied security because, persons themselves impecunious, were prepared to offer to be responsible for the costs of the litigation."
4. The parties also referred to Westpac Banking Corporation v Southern Environmental Services Pty Ltd [2017] NSWSC 626 at [58]-[60], where Adamson J observed, in respect of the significance of an undertaking by those standing behind a corporate plaintiff, that: "The majority view (so-called because it was favoured by the majority in Jazabas v Haddad [above]) is that an undertaking by those standing behind a corporate plaintiff is merely a relevant consideration. It may be relevant to the question whether an order for security for costs will stultify the litigation because those standing behind the company are unable to provide security for an eventual costs order. Undertakings by shareholders can be taken into account in favour of the effective plaintiff. In some cases, the undertaking or undertakings, are accepted by the Court as being sufficient and the order for additional security is refused. However, in such cases, the value of the undertaking itself is also relevant: Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [above] at [23]-[24] per Winnecke P and Phillips JA. An undertaking given by an impecunious person standing behind an impecunious plaintiff can only be enforced, as a practical matter, by contempt proceedings and provides cold comfort to the effective defendant. The minority view (favoured by Basten JA in Jazabas v Haddad) is that the purpose of requiring a company to provide security for costs is to ensure that those standing behind the company are neither in a better, nor worse, position through having adopted the corporate structure than they would be had they not. On this view, if those standing behind a corporate plaintiff give an undertaking to pay a costs order made against the corporate plaintiff, there is no justification for ordering security for costs. Moreover, the value of the undertaking is not important since an impecunious natural plaintiff would not have to provide security as poverty is no bar to a litigant. I note that the difference was not determinative in Jazabas v Haddad since, in that application, some of the persons standing behind the plaintiff failed to come forward to offer undertakings to be liable for any adverse costs orders made against the plaintiff. I am bound by the majority view in Jazabas v Haddad."
5. It seems to me that her Honour was correct that a Judge sitting a first instance is bound by the majority view in Jazabas Pty Ltd v Haddad above, and I proceed on the same basis. Her Honour there ordered security for costs where she found that it was likely that the defendants would not recover their costs if they successfully defended the proceedings because of the plaintiff's financial position and that the plaintiff in that case had not discharged its onus of establishing that those standing behind it could not provide such security.
6. In order to establish that the undertaking offered by ASG had substance, ASH relied on ASG's financial report for the year ended 30 June 2017, now 14 months out of date, and a profit and loss statement for ASG for the period to 31 May 2018. The financial reports on which ASG relies are special purpose financial reports which need not comply with Australian accounting standards and which are not audited. Mr Insall points out that those financial statements have been signed by Mr Dukes and submitted that it would be inappropriate for a company in the position of ASG to incur the expense of an audit. I proceed on the basis that ASG is not required to prepare audited financial accounts. It remains that the absence of audit verification, quite apart from the time that has passed since the accounts were prepared, weakens the weight that can be given to them.
7. ASG's main asset is approximately 20% of the issued shares of a listed entity, Keybridge, which it appears is an investment and financial services group with investments in other entities. The evidence indicates that the share price of Keybridge has been declining over the last two years, and its shares are thinly traded on Australian Stock Exchange Limited ("ASX"). By his further affidavit dated 13 August 2018, Mr Dukes accepted that, as the evidence indicates, the value of AGS's shares in Keybridge had fallen, but contends that the value of AGS's shares in Keybridge, as at 30 June 2017 (over 14 months ago) was in the order of $3.5 million and that was more than sufficient to meet an adverse costs decision. Mr Insall submits that ASG's holding of shares in Keybridge would have a value of more than $2.78 million, notwithstanding the decline in the market value of those shares since June 2017. I can give little weight to that submission, which has no regard to the loss of value which would likely be incurred on a forced sale of a substantial quantity of shares in a thinly traded stock, in order to realise ASG's interest in Keybridge. Mr Insall also submits that ASG's shares in Keybridge are an asset against which ASG could borrow to permit the realisation of those shares in an orderly fashion. There is no evidence that a lender would in fact lend a substantial amount against those shares and I should not assume that matter without evidence. A further difficulty is that ASG's investment portfolio is highly concentrated, limited to its shares in Keybridge, and its financial position at the time that any undertaking could be called upon would depend, not on the value of those shares today, but on the value of those shares at that future time.
8. Mr Pike points to the fact that shares in Keybridge have, as I noted above, declined in value and are thinly traded on the ASX. Mr Williams also submits that ASG also does not have sufficient capacity to honour an undertaking, where its main asset is its share in Keybridge, the price of which has been declining, and where those shares are thinly traded. Mr Williams submits, and I accept, that the Court could not be satisfied that ASG could realise its shares in Keybridge in a timely way or in a manner that realised their current traded price, if it was required to do so over a short period in order to meet an undertaking.
9. Mr Williams also submits, in oral submissions, that there would be nothing to constrain ASG from disposing of its shares in Keybridge, or any other assets, between now and a time at which the Defendants may seek enforcement of the undertaking (T30). Mr Insall responded that it would be implicit in the giving of the undertaking that that could not occur, and ultimately offered an undertaking, on behalf of ASG, that that would not occur. It is not necessary to address that issue, given the conclusions I have reached on other grounds.
10. Turning now to Mr Bolton's undertaking, Mr Bolton's evidence provides little support for the view that his undertaking is of any substantial value to the Defendants. By his affidavit dated 4 May 2018, Mr Bolton indicates that, throughout the period since the proceedings were commenced, ASH has had limited resources available to it to fund the costs of the litigation, and reiterated his evidence that the only significant assets of the ASIUT are the claims made in these proceedings and other claims which are the subject of litigation. Mr Bolton suggested that those difficulties are the "principal reason" why these proceedings have, as he put it, "not been prosecuted as diligently as would be desirable". Mr Bolton also referred to his personal interest as a unitholder in ASIUT, the extent of which is not disclosed by the evidence. Mr Bolton's evidence is also that he has been willing, to the extent that he has been able, to provide personal financial support for the litigation by contributing money to ASH to pay legal costs, by way of loans to ASIUT, but those legal costs, and his other affairs, have been a severe strain on his personal resources. Mr Bolton's evidence was also that his disqualification as a director had affected his ability to earn a consistent income at the level he had previously achieved, although his evidence was that his consultancy work provided him with a "reasonably substantial income" although the timing of that income was not predictable. Those propositions were not supported by any detail of Mr Bolton's income, or corroborated by other evidence, but I will assume their correctness for present purposes.
11. Mr Bolton also referred to difficulties which had been experienced in paying the costs of the several firms of solicitors which have previously acted for ASH in the proceedings, and to the existence of other proceedings involving him, the Australian Taxation Office and ASIC. Mr Bolton also referred to unsuccessful attempts that had been made to obtain litigation funding for the proceedings, although he expressed hope that he would be able to provide financial support for ASH's future legal costs of the proceedings (implicitly, as distinct from the Defendants' exposure to costs) while litigation funding was sought and to other possibilities for the funding of the proceedings by other family companies. In his affidavit dated 4 May 2018, Mr Bolton also indicates that the "primary beneficiaries" of "various trusts" are his mother, his siblings, other family members and Mr Bolton. If these trusts include ASIUT, then those persons (other than Mr Bolton) have not offered any undertaking as to payment of the costs of the proceedings. I have referred to Mr Install's submissions as to Mr Bolton's financial position above.
12. Mr Pike points to the fact that there is no evidence as to Mr Bolton's means or assets, other than a generalised statement in his affidavit that his financial circumstances have improved and his income is now "more reliable". Mr Williams also points out that Mr Bolton has not offered security over his personal assets in favour of the Defendants, so that he would be unable to meet such an undertaking, notwithstanding that he may wish to do so, if there already exists or he is in future required to give such security in favour of a third party. Mr Williams also submits that it could not be said that the consequences for Mr Bolton of a failure to comply with that undertaking, at least in respect of the threat of bankruptcy, would provide a sufficient incentive to require him to do so, given the regulatory difficulties that he has suffered in other areas in recent years. Mr Insall responds that the threat of Mr Bolton's bankruptcy, which could arise from his failure to honour an undertaking to pay the Defendants' costs, should ASH (and ASG) be unable to do so, would constitute a serious additional impediment to his business future, and refers to the observations of Rowland J (with whom Ipp and Anderson JJ agreed) in Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325 at 328 as to the relevance of that matter. Mr Insall also submits, and I accept, that a failure to comply with an undertaking to the Court would have potentially serious consequences for Mr Bolton, although it may be that any penalty which the Court would impose would be mitigated by any inability to comply with that undertaking, because of a lack of financial resources to do so. I assume that Mr Bolton would seek to comply with an undertaking given to the Court, given the serious consequences of a failure to do so, if he had the capacity to do so. However, that does not answer the difficulties that he would face in doing so on the evidence as to his present circumstances.
13. Mr Pike also submits, and I accept, that the undertakings offered by ASG and Mr Bolton do not provide a fund or asset against which the Defendants could readily enforce an order for security for costs against ASH and does not fulfil the protective object of an order for security for costs. There is also, as I noted in the course of oral submissions, a difficulty as to how an undertaking by Mr Bolton or ASG to pay the Defendants' costs could be performed in the case of Mr Bolton's bankruptcy or ASH's insolvency, when Mr Bolton's or ASH's assets would need to be made available to all creditors and not only the Defendants, subject to any security offered by them to secured creditors and the statutory order of priority in an insolvency.
14. Having regard to these matters, I am not satisfied that the undertakings offered by Mr Bolton or ASG are sufficient to protect the Defendants' position or displace the need for an order for security for costs if such an order is otherwise properly made. I should note, for completeness, that an issue arose at the hearing as to whether ASG had already given security over the shares in the Keybridge which were said to underpin ASG's ability to provide an undertaking to meet ASH's costs of the proceedings. I did not accede to ASH's application to adjourn the proceedings to address that matter on the basis that I would allow it an opportunity to lead further evidence and make further submissions if that issue became material to the determination of this application. It is not necessary to address that question, since I have found that security should be ordered, even if those shares are not already secured in respect of other obligations of ASG. I have had no regard to that security in determining this application adversely to ASH.

Other discretionary factors

1. Mr Pike submits, and I accept, that once the Defendants establish a basis for an order for security for costs, an evidentiary onus shifts to ASH to establish 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]. Mr Pike also points to the protective purpose of an order for security for costs.
2. Mr Insall submits that no further order for security for costs should be made, on the basis of the undertaking offered by ASG and Mr Bolton which I addressed above, for several reasons. First, Mr Insall submits that ASH has already provided security for costs in the form of a bank guarantee for $300,000. That proposition is true, although that security was provided on a basis which expressly reserved the Defendants' ability to apply for security for costs, and the costs of the defence of the proceedings will, on the evidence, plainly exceed the amount of $300,000. Second, Mr Insall submits that, although there have been many directions hearings in the matter, there have been no substantial interlocutory hearings and the only major step completed by the Defendants in the timetable to date is the filing of their Defences. That submission does not have regard to the extent of work which, it appears, has been undertaken by the Defendants prior to filing their Defences, which would otherwise presumably need to have been undertaken at a later stage in the proceedings, although I will find below that the amount of security allowed for past costs should be discounted by reference to these matters. Third, Mr Insall submits that the many directions hearings in the matter have, to a large extent, been caused by ASH's impecuniosity, which has resulted from the Defendants' actions. The former proposition supports an order for security for costs and the latter is not established, as I will note below, where there is no evidence of ASH's financial position prior to the impugned rights issue, and an open question as to how that rights issue could have adversely affected ASH's financial position.
3. Rule 42.21(1A) of the UCPR in turn 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.
4. As I noted above, ASH's prospects of success and the merits of the proceedings are a relevant matter to whether security for costs should be granted. The case law generally 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 above at [83]. I recognise that the Court of Appeal's decision 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. There is no suggestion that the proceedings are not genuine, and I proceed on the basis that they are fairly arguable, where the evidence does not allow any more informed assessment of their merit.
5. Mr Insall submits that the impecuniosity of ASH was attributable to the conduct of BMC and the Directors in issue in the proceedings. I do not accept that submission, since there is no evidence as to ASH's financial position prior to the impugned rights issue and, if ASH was impecunious before the rights issue and remained impecunious after it, then the rights issue was not causative of its impecuniosity. As Mr Williams pointed out, there may also be a real question as to how an entitlement offer, which caused a dilution of ASH's percentage interest in the Fund so that it has a smaller percentage interest in the assets of the Fund, as increased by other unitholders' subscription for units, caused loss to ASH, unless it is also established that units in the Fund were issued at an under-value. In any event, as Mr Pike points out, even if ASH's submission that the Defendants' conduct had caused its present position was established, that would not have justified withholding an order for security for costs, unless it was also established that those who stand behind ASH and would benefit from the litigation if it were successful were also without means: Bell Wholesale Co Pty Ltd v Gates Export Corporation (No 2) (1984) 52 ALR 176 at 179. That has not been established in respect of either the majority shareholders in ASH, Mr Bolton's sisters, or the beneficiaries of ASIUT other than Mr Bolton.
6. There is no suggestion that ASH is effectively in the position of a defendant in the proceedings. The Court may decline to make an order for security for costs that would stifle or stultify proceedings, at least where 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]. Mr Insall submits that it is plain that ASH is not capable of providing security for costs and that the effect of ordering such security would be to prevent ASH from litigating that claim. The former does appear to me to be clear, given ASH's poor financial position. The latter is not established, where, as I noted above, there is no evidence that the majority shareholders in ASH, Mr Bolton's sisters, and the beneficiaries of ASIUT other than Mr Bolton are unable to provide the necessary financial support for ASH's conduct of the proceedings.
7. There is no suggestion that the proceedings involve a matter of public importance, rather than a dispute as to the parties' private rights.
8. Mr Insall submits that any application for security for costs must be made promptly; that security was ordered in March 2016; that the Defendants have been billed substantial costs since that time; that the Plaintiff has continued to incur costs of its own since that time; and that it is unfair to make an order for security in those circumstances. In response, Mr Pike fairly recognises that delay in seeking an order for security for costs is a discretionary factor to be taken into account in considering whether to grant security, or whether to grant security only for future costs and not past costs of the proceedings: Sagacious Procurement Pty Ltd v Symbion Health Ltd [2007] NSWCA 205 at [55]; Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611; Re Metal Storm Ltd (in liq) (recs and mgrs apptd) [2018] NSWSC 900 at [24]. However, Mr Pike submits that the timing of the application for security should not prevent the Court from granting security for past and future costs, where the correspondence in relation to the earlier order for security for costs, by consent, acknowledged the possibility that further security would be required in future; the Court's order for previous security reserved the Defendants' ability to apply for further security at a later date; ASH subsequently delayed the conduct of the proceedings, including by successive non-compliance with Court orders; the application for further security for costs was foreshadowed in early December 2017, but then delayed by the death of Mr Bolton's father and the fact that ASH had no director in office; and the application for security for costs was filed on 26 April 2018 and then deferred to allow ASH to put a further proposal for security, which has ultimately not been acceptable to the Defendants.
9. It seems to me the Defendants could properly defer an application for security for costs until the Plaintiff's case was clarified by identification of the documents on which it relied; ASH must have been on notice of the likelihood that substantial costs would be incurred in the defence of the proceedings, given the complexity of the underlying transaction, the nature of the allegations made, and the fact that they were made against a responsible entity and several of its individual directors; and ASH was also plainly on notice of the likelihood of a further application for security for costs, where the amount initially provided would plainly not be sufficient, their solicitors had acknowledged the prospect of such an application at the time that earlier security was offered and the Court had expressly reserved the Defendants' ability to bring that application. I also do not accept Mr Insall's further submission that, had an application for security for costs been made promptly, ASH may well not have incurred the further costs of the conduct of the proceedings, since it has continued the proceedings while on notice of the likelihood of such an application.
10. Conversely, Mr Pike submits that ASH's delays in commencing and conducting the proceedings have prejudiced the Directors and there is reason for concern as to that matter given the age of several of the directors and the fact that they have now retired. It seems to me that that matter tends against any exercise of a discretion to withhold an order for security for costs that would otherwise be justified on the evidence. 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.
11. I am satisfied that these matters do not support withholding an order for further security for costs, where there is reason to believe that ASH could not meet an order for costs made against it and the undertakings offered by Mr Bolton and ASG do not adequately address that risk.

Evidence as to quantum of security for costs

1. The Defendants 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) above at [69]. 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. In his affidavit dated 13 July 2018, Mr Morris set out the costs incurred by BMC to date which, on his evidence, now significantly exceed the amount of $300,000 by way of security for costs previously provided for all the Defendants' costs by consent. Mr Morris' evidence is that BMC has now incurred $761,446.80 in solicitors' fees, as at 13 July 2018, and $45,726.12 in disbursements including counsels' fees. Mr Morris sets out, in broad terms, the work to which those costs relate, which includes correspondence concerning earlier draft Amended Statement of Claims, a substantial document review and preparation of the Defence. Those steps apparently also include the costs of BMC's response to an application to the Takeovers Panel in connection with the proceedings, although it is by no means clear that those costs are properly recoverable as costs of these proceedings. Those costs are, by any standard, substantial in respect of the conduct of proceedings that have not yet progressed to the Defendants' filing evidence.
3. Mr Morris also sets out the rates which were charged by his firm, which are in the range of market rates for a large commercial firm conducting complex proceedings, sets out Counsels' rates, and estimates the costs likely to be incurred by BMC to the conclusion of a final hearing, excluding the costs of discovery which BMC may contest. Mr Morris also identified the disbursements likely to be incurred in respect of the conduct of a hearing, including transcript costs and other disbursements. Mr Morris estimates those further costs until the conclusion of a trial as $294,885 in solicitors' fees (excluding GST) and $332,909 in disbursements including Counsel and expert fees, with the result that the total fees incurred would be a total of $1,056,331 in solicitors' fees, excluding GST, and $378,635 in disbursements, excluding GST. Mr Morris assumes a ten day hearing for the purposes of that estimate, although Mr Carter, the solicitor acting for the Directors, assumes a shorter hearing of six days. Mr Morris estimates that BMC's recoverable costs of the proceedings would be 60% of solicitors' fees and 90% of disbursements. That discount is broadly consistent with the Court's experience, to which it may have regard in applications of this kind. Mr Morris estimates total recoverable costs and disbursements of $974,570.77, exclusive of GST, of which nearly $500,000 is referable to past costs and the balance is referrable to future costs and disbursements. Mr Morris' evidence was not challenged by cross-examination.
4. By his second affidavit dated 27 April 2018, Mr Carter set out costs and disbursements which had been incurred by the Directors to that point, and his evidence was that the majority of those costs related to investigation of the allegations made by ASH, including taking instructions from each of the five Directors as to the allegations for the purpose of preparing their Defences, and investigating potential Cross-Claims. Mr Carter referred to the complexity of the underlying transaction and the substantial number of documents that had been reviewed for the purpose of preparing the Directors' Defences. Mr Carter also referred to other steps which had been taken over the relevant period. As I noted above, by his third affidavit dated 16 July 2018, Mr Carter updates the calculation of costs previously billed to the Directors in the proceedings, and sets out the work that is now likely to be done in the further conduct of the proceedings, in significant detail. Mr Carter's evidence of future work includes preparation of evidence, document production and reply evidence, interlocutory applications, a mediation prior to the trial, and a six day trial. Mr Carter's evidence was not challenged by cross-examination.
5. The Directors also relied on the report of Mr Ross Nicholas filed 18 July 2018 in respect of the quantification of their costs. Mr Nicholas' evidence, which was also not challenged by cross-examination, was that the Directors should recover an amount of $583,870 on the ordinary basis for costs and disbursements to date, comprising professional fees of $531,185, Counsel fees of $43,685 and disbursements of $9,000. The Directors claim security for past costs in the amount of $433,000, after deducting half of the amount of the initial security for costs provided by ASH. The Directors estimate future costs of $570,000 having regard to Mr Carter's explanation of anticipated future work and on the basis of an estimate of a trial of at least six days (Carter 16.7.18 [52]-[94]; Nicholas, section 3). Mr Nicholas' evidence is that recoverable future costs and disbursements would be in the order of $410,000, in respect of the balance of the proceedings including the hearing.
6. On the basis of the findings I have reached above, there should be an order for security for BMC's and the Directors' past costs, less the security of $150,000 notionally held by each of BMC and the Directors. I accept the calculations undertaken by the legal representatives for BMC and the Directors as to the amount of past costs actually incurred by them. I recognise that Mr Insall raises a question whether it was necessary for the Defendants to carry out the work which is the subject of their claim for past costs and whether that work was reasonably carried out. However, I broadly accept the evidence of Mr Morris and Mr Carter, each of whom are experienced solicitors, in that respect, where no attempt was made to raise that with them in cross-examination, to give them the opportunity to address it. Nonetheless, it seems to me that a significant reduction in the amount to be secured for past costs is necessary where, even having regard to the evidence as to the complexity of the transaction and the volume of documents involved, the Defendants' costs incurred to date are very large for a case where they have not yet filed substantive evidence. A somewhat larger amount should be allowed by way of security for past costs for the Directors than for BMC given the need for their legal advisers to deal with several individuals in taking instructions. On that basis, I consider that the amount allowed for past costs should be reduced to $350,000 for BMC and $400,000 for the Directors, in each case less the amount of $150,000 apportioned to each of BMC and the Directors from the security provided to date.
7. There should also be an order for security for the Defendants' future costs of the defence of the proceedings to be given in stages, with security to be given now up to the point of commencement of the hearing and further security to be given, before the commencement of the hearing, for the costs of the hearing. Both Mr Pike and Mr Williams accepted, in oral submissions, that it would be appropriate to order security in tranches rather than for the entirety of the future costs of the defence of the proceedings. Mr Williams submitted that security should now be ordered for past costs, to the extent allowed, and future costs up to the commencement of trial, and a second tranche in respect of the costs of the trial should be ordered to be given six weeks before the commencement of the trial. That approach seems to me to be appropriate.
8. I accept the evidence given by the legal representatives of BMC and the Directors, and Mr Nicholas, as to the amount of the likely future costs of the defence of the proceedings, where there was no substantive challenge to that evidence. However, BMC's estimate of future costs will need to be recalculated on an estimate of a hearing of 6 rather than 10 days where there is no reason to prefer Mr Morris' longer estimate of the length of the hearing to Mr Carter's shorter estimate. Mr Morris' affidavit also did not split the future costs of the proceedings into the pre-hearing and hearing stages of the proceedings, although a schedule on which he relied in calculating that cost provides a basis to do so, and I will allow a short opportunity for further submissions as to the necessary split of those costs.
9. The Directors submit that the Court should order further security be provided by way of an unconditional bank guarantee from an Australian authorised deposit-taking institution that does not specify an end date, in a form that is acceptable to the Directors. That is the form in which security for costs was previously agreed between the parties and is a straightforward means of providing security for costs. I will, however, leave open the possibility that security could be provided in another form that is acceptable to the Defendants or ordered by the Court, having regard to the observations of the Court of Appeal in Blue Oil Energy Pty Ltd v Tan [2014] NSWCA 81, recently noted by Gleeson JA in Re Tiaro Coal Ltd (in liq) [2018] NSWSC 746. The order for security for costs should also preserve the Defendants' ability to apply for further security, if the amount of security ordered and provided proves insufficient.
10. The Directors also submit that, if ASH does not provide further security in compliance with the Court's orders, the proceedings should be dismissed. There is some force in that submission, given the history of ASH's non-compliance with Court orders and delays to date, and the length of time that has already passed since the events in issue and since these proceedings were commenced. However, it seems to me that the preferable course will be to order that security be provided within a month, to stay the proceedings until such security is provided, and to relist the proceedings for further directions in several weeks' time, likely toward the end of the Court term. If security has not been provided by that time, then there would be a strong case for the Court then to make orders dismissing the proceedings.

Orders and costs

1. 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.
2. There is no reason that costs should not follow the event in this application, and ASH should therefore pay the Defendants' costs of the application, as agreed or as assessed.

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: 12 September 2018