By Notice of Motion filed on 22 July 2019, the First Defendant, Mr Bobi Damcevski, applies for an order for security for costs in the amount of $70,000 and for a stay of the proceedings until such time as that security is provided, reserving liberty to him to apply for further security in respect of additional matters.
This is a second application for security for costs, in circumstances that a first was heard before Rees J who, in a judgment delivered on 18 June 2019, addressed the factual background, some of which appears to have been addressed in evidence before me, and noted that the Second Plaintiff, Georges Holding Enterprises Pty Limited, appeared to have almost no assets and that the First Plaintiff, Bondi Beverages Pty Ltd, had modest assets. Her Honour referred to a submission then made by the Plaintiffs, and repeated before me, that their impecuniosity was caused by Mr Damcevski. Her Honour also referred to a submission, to which she appears to have given some weight, that the proceedings involve a matter of public importance. I would give less weight to that matter, where it appears to me that the claim relates to a commercial dispute between two investors in a company, which is in the nature of a private claim, rather than establishing any general principle or matter of benefit to the public generally. Her Honour held that she should not then order security for costs, where Mr Damcevski had not then filed a Defence, and she was unable to determine the nature of the matters that would be in issue. Her Honour expressly reserved the opportunity for Mr Damcevski to bring a further application for security for costs once he has filed a Defence and the issues in the proceedings were crystallised, and that Defence has now been filed and that application has now been brought.
There were difficulties in evidence filed by both parties in respect of the application. In Mr Damcevski's first affidavit dated 1 May 2019, he set out an estimate of the costs that would be incurred in the conduct of the proceedings, as a total of $131,720 inclusive of GST, based in part on a costs agreement provided by a solicitor, to which I will refer below, and in part on an estimate of barrister's fees which, as far as one can tell from that affidavit, was prepared by Mr Damcevski rather than by the barrister and which, on one view, has the barrister undertaking work which would more efficiently and more usually be undertaken by a solicitor, and which are, at least in part, also included within the work as to which the solicitor estimates costs. For example, the costs of preparing statements and affidavits are included in the solicitor's costs estimate and the costs of receiving instructions and of drawing affidavits as to various matters are also included in Mr Damcevski's estimate of Counsel's costs. There is a substantial risk of duplication here, but it is difficult to tell, where it appears that the solicitor's costs estimate and Mr Damcevski's estimate of the barrister's costs have been prepared without regard to each other, and the solicitor retained in the matter, in particular, has not sought to estimate Counsel's fees.
There is a further difficulty, so far as Mr Damcevski's affidavit relies on a costs agreement provided by the solicitor, namely that that costs agreement makes clear that the solicitor is expressing only the most tentative views as to the costs likely to be incurred. Indeed, the solicitor's costs disclosure provides that:
"In many legal matters, such as your matter, we do not know how much work will be required to bring the matter to a conclusion and therefore it is impossible to provide an estimate of total costs to be incurred. The ultimate legal costs could be anything from $50,000 to $100,000 (or even more) plus GST. We therefore provide an estimate of $66,000 but you should not regard this figure as a reliable guide to actual legal costs which will be incurred. You can request a revised estimate at any time."
I put aside, for the moment, the fact that the Legal Profession Uniform Law (NSW) requires a costs estimate to be provided, however difficult the task, and note that the amount of $66,000 that is treated by the solicitor as not a reliable guide to actual legal costs which will be incurred is adopted as an estimate of the solicitor's costs in Mr Damcevski's affidavit.
By a second affidavit dated 7 June 2019 of Mr Damcevski, he again refers to the costs disclosure to which I have referred above. By a third affidavit dated 22 July 2019 of Mr Damcevski, he refers to the background to the proceedings, which it is not necessary to address for present purposes. Mr Damcevski also relied on a fourth affidavit dated 22 July 2019, parts of which were rejected, and parts of which were admitted with limiting orders under s 136 of the Evidence Act 1995 (NSW), again largely dealing with the factual background to the proceedings.
The Plaintiffs relied on an affidavit dated 7 June 2019 of Mr John Georges. A significant part of that affidavit sought to demonstrate that their impecuniosity was attributable to Mr Damcevski. Mr Rogers, who appeared for them, rightly did not read that evidence, since he rightly recognised that it would not be possible to establish that the Plaintiffs' impecuniosity was attributable to Mr Damcevski, where there was no evidence of their financial position prior to the matters alleged to have involved default by Mr Damcevski. A company that is impecunious, before the matters in issue in the proceeds occurred, does not become impecunious by reason of those matters, because it was always impecunious. The Plaintiffs here cannot establish that they have become impecunious because of Mr Damcevski's conduct, where they make no attempt to demonstrate their prior position.
The Plaintiffs rely on an affidavit dated 12 June 2019 of their solicitor, Mr Mitry, significant parts of which were rejected for form. They rely on a further affidavit dated 27 August 2019 of Mr John Georges, which addresses aspects of the background of the matter, to which it will not be necessary to refer, and a further affidavit dated 27 August 2019 of Mr Mitry which takes issue with aspects of the costs estimate on which Mr Damcevski relies.
[3]
Applicable principles
The principles applicable in an application of this kind are well-established and were dealt with at some length by Mr Babe, who appears for Mr Damcevski, and rather more briefly by Mr Rogers in his submissions. I reviewed those principles in Re Australian Style Holdings Pty Ltd as trustee of the Australian Style Investments Unit Trust [2018] NSWSC 1368, on which I have drawn for aspects of the summary which follows. The issues arising in an application of this kind, whether brought under s 1335 of the Corporations Act 2001 (Cth) or under the relevant provisions of the Uniform Civil Procedure Rules 2005 (NSW), are generally whether there is jurisdiction to make the order, because there is reason to believe that a plaintiff will be unable to pay the costs of a defendant if ordered to do so; whether an order should be made as a matter of discretion; and the quantum of such an order: Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 at [6].
It seems to me that the evidence is here sufficient to satisfy the threshold requirement for an order for security for costs that there is "reason to believe" that the Plaintiffs will be unable to pay Mr Damcevski'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. The Second Plaintiff has, as Rees J noted, virtually no assets. The evidence is that it has a small amount of money in a bank account, which is not indicative of any ongoing income or trading activities, and there are no financial records in evidence. The First Plaintiff has a more substantial amount in a bank account, although the amount in that account has reduced over time, with little evidence of income into that account. Its financial accounts are in evidence, but are 15 months old, for the period to 30 June 2018. They record substantial losses in each of the 2017 and 2018 financial years, leaving open the possibility that there is a further loss in the 2019 year, and no evidence is led as to the position of the company in that year. They record a reduction, of a very substantial amount, of the company's current assets from the 2017 to 2018 financial year, and there is no evidence as to the company's current assets in the 2019 financial year. They record a significant amount of intangible assets, by way of trade marks, where Mr Babe has pointed to an issue as to whether that company or Mr Georges owns those trade marks. It is not necessary for me to resolve that issue, since there is no suggestion that those assets could readily be realised in order to meet a costs order.
It seems to me that, where the Second Plaintiff is plainly impecunious; the First Plaintiff was in a deteriorating financial position, and the last accounts for it are 15 months old, there is plainly reason to believe that the Plaintiffs will be unable to pay Mr Damcevski's costs of the proceedings if ordered to do so.
The next question goes to discretionary factors as to whether the Court should order security for costs. In respect of those matters, an evidentiary onus shifts to the Plaintiffs to establish why security should not be granted, where it has been shown that there is reason to believe that they cannot pay those costs: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30]; Cornelius v Global Medical Solutions Australia Pty Ltd above. Rule 42.21(1A) of the Uniform Civil Procedure Rules 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; and whether the security sought is proportionate to the importance and complexity of the subject matter in dispute. Those factors are broadly consistent with those identified by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189 at 197-198.
Here, the Plaintiffs place particular emphasis on two of those matters. The first is a suggestion that, as I noted above, their impecuniosity was attributable to Mr Damcevski's conduct. I do not accept that submission, since there is no evidence as to their financial position prior to the relevant conduct and, as I noted above, if they were impecunious before that conduct and remained impecunious after it, then that conduct was not causative of their impecuniosity. In any event, the case law establishes that, even if it had been shown that Mr Damcevski's conduct had caused the Plaintiffs' present financial position, that would not have justified withholding an order for security for costs, unless it was also established should those who stand behind them 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 the shareholders in the Plaintiffs, or the persons ultimately holding an economic interest in them.
There is no suggestion that the Plaintiffs are here in the substantive position of a defendant. The proceeding is one that affirmatively seeks to establish rights. It seems to me that, and here I differ to some extent from the view formed by Rees J, the proceedings are a dispute as to the parties' private rights, and do not involve matters that have public application or are of wider public importance. For these reasons, it seems to me that discretionary factors which would support a withholding of an order for security for costs have not been established.
[4]
Quantum of security for costs
The next issue arising in an application of this kind is the quantum of security for costs. Here, the application has been brought promptly. There are obviously some past costs which will have been incurred, including costs of the Defence, although some part of other costs such as the previous security for costs application have been the subject of separate costs orders. The Court will take a broad brush approach to the quantum of an order for security for costs and will not attempt a detailed costs 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) [2013] NSWSC 611 at [66].
As I have noted above, the evidence led by Mr Damcevski in support of the quantum of security for costs seems to me to be unhelpful and unpersuasive in several respects. Plainly, the solicitors now retained in the proceedings have not devoted their minds to any careful assessment of the likely costs of the proceedings, having regard to the extent of the disclaimer contained in their costs estimate. There is a real possibility of duplication between the costs which are the subject of their estimate and the costs which are the subject of Mr Damcevski's estimate of Counsel's fees, quite apart from the fact that there is no evidence that Counsel involved in the matter (who, I interpolate, is a different Counsel from Mr Babe) has been involved in the estimate of his fees, and no costs estimate by or costs agreement with that Counsel is in evidence. For these reasons, it seems to me that Mr Damcevski has not established the basis of the claim for costs which is the subject of the security for costs application.
However, it does not follow from that, either as a matter of logic, or as a matter of the just, quick and cheap resolution of these proceedings, that the Court cannot make a broad brush estimate of the costs of the proceedings, on a conservative basis, such that the Defendants are secured for the minimum costs that could be incurred, leaving it to them to seek to bring a further application for costs if the amounts secured are exceeded. It is apparent, even at this preliminary stage, on the basis of the pleadings, that the issues raised involve significant disputes of fact and are likely to involve contested evidence. It seems to me inconceivable, as matters stand, that this hearing would be less than two days in length, and it may be significantly longer. To the extent that it involves a loss of opportunity case, possibly extending to opportunities in the United States, then there may be significant evidentiary complexities and, as Mr Damcevski rightly apprehended, the costs of leading expert evidence as to the prospects of sales in the United States may be significant.
Doing the best I can, on the basis of the evidence as it stands, it seems to me that it is inconceivable that the recoverable costs of the First Defendant of these proceedings would be less than $50,000, and they are very likely to be substantially greater than that, particularly if the hearing ultimately runs for two days or more. It seems to me that an order for security for costs should be made on a staged basis, such that $25,000 is payable within a short period, and the balance a period before the hearing. It may well be that the amount of security that is now ordered will ultimately prove to be insufficient and a further security for costs application can then be brought.
For these reasons, I make the following orders:
The Plaintiffs provide security for costs, in the form of a guarantee from an Australian authorised deposit-taking institution, or such other form as may be agreed with the First Defendant or the Registrar of the Court, in the amount of $25,000, by 4pm on 8 October 2019.
The Plaintiffs to provide further security for costs, in the same form or such other form as may be agreed with the First Defendant or the Registrar of the Court, in the amount of $25,000 by 6 weeks prior to the date allocated for the commencement of the hearing.
The proceedings be stayed if such security is not provided by the dates set out in paragraphs 1 and 2.
The Plaintiffs pay the Defendants' costs of the application, as agreed or as assessed.
The proceedings be adjourned for further directions in the Corporations Directions List at 10am on 14 October 2019.
[5]
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Decision last updated: 06 November 2019