Australian Property Custodian Holdings Ltd (in liq) (rec and mgr apptd) v Pitcher Partners

Supreme Court of NSW|2018-05-14|Before: Gleeson JA, Mr J

Solicitors: Bridges Lawyers (Plaintiff) Landerer & Co (First Defendant) File Number(s): 2017/137955

Judgment

GLEESON JA: Application is made by the first defendant, Mr Peter Meers (Mr Meers), that the plaintiff, Tiaro Coal Limited (in liq), provide security for costs.
In his interlocutory process filed 8 February 2018, Mr Meers sought security in the sum of $100,000 in respect of this proceeding up to the close of pleadings (tranche 1). It is not necessary to describe the nature of the proceeding in any detail. It is sufficient to record that the plaintiff claims compensation against Mr Meers and others for alleged breaches of directors duties under s 1317H of the Corporations Act 2001 (Cth) and in equity, as well as compensation claims against others on the grounds of accessorial liability.
The plaintiff accepts that the Court's discretion to order security is enlivened, both under Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.21 and Corporations Act, s 1335(1).
The parties have agreed that the plaintiff will provide security for costs in tranches and that the amount of security for tranche 1 should be $81,020. The dispute between the parties is limited to the question of the form of security to be provided by the plaintiff.
The plaintiff proposes to provide security in the form of a deed of indemnity from AmTrust Europe Limited (AmTrust), a United Kingdom registered insurance company, whose business includes underwriting legal expense risk. AmTrust is the 'after the event' (ATE) insurer of the litigation funder who is funding these proceedings pursuant to a funding agreement between the plaintiff and the funder, LCM Finance. The plaintiff has also offered to pay into court or provide by way of bank guarantee an amount of $20,000 as security for any costs that Mr Meers may incur in enforcing the deed of indemnity should it not be immediately honoured by AmTrust, an event which the plaintiff says is unlikely.

Relevant principles

In Blue Oil Energy Pty Ltd v Tan [2014] NSWCA 81 (Blue Oil Energy) the Court of Appeal (Beazley P and Tobias AJA) emphasised two matters, which have present relevance. First, it is going too far to say as a general proposition that security can only be ordered in favour of the defendant in a manner which is the least disadvantageous to a plaintiff. The true issue is whether the form of security to be ordered is adequate to protect the party seeking it: at [22].
Second, there is nothing in UCPR, r 42.21(2) or Corporations Act, s 1335(1) that contains any limitation as to the form of security which may be ordered. The former relevantly provides that the security should be given in such a manner as the Court may by order direct. The latter provides that the Court may require sufficient security to be given: at [23].
The parties accepted that in exercising its broad discretion as to the form of security for costs, the Court will usually apply the approach summarised by Hargrave J in DIF III Global (albeit that case involved a foreign plaintiff) at [40]: …, in exercising its broad discretion as to the form of security for costs in the relevant security circumstances, the Court will usually apply the following principles: (1) the plaintiff is entitled to propose security in a form least disadvantageous to it; (2) the plaintiff bears a 'practical onus' of establishing that the proposed security is adequate and does not impose an 'unacceptable disadvantage' on the defendant; (3) in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and (4) based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.
The first proposition in the summary given by Hargrave J in DIF III Global at [40] is to be understood as qualified by the second proposition in the summary, which reflects the statement in Blue Oil Energy that the true issue is whether the form of security ordered is adequate to protect the party seeking it.
The question for the Court is not one of relative adequacy. As Hargrave J stated in DIF III Global at [63], referring to the remarks of Priest JA in Yara v Oswal (2013) 41 VR 245 at [115]: [t]he central enquiry is whether the form of security put forward is adequate to achieve its object as security, namely, whether that form will give a successful defendant a fund or asset 'against which it can readily enforce an order for costs'.
Mr Meers did not dispute that having to enforce a judgment overseas does not put the defendant at an unreasonable disadvantage if the party against whom the judgment is to be enforced has sufficient assets in the overseas jurisdiction and judgment can be enforced there: Maxim's Caterers Ltd v Magnona Pty Ltd (No 1) [2010] FCA 450 at [6], [13] (Jagot J); and Berry v Innovia Security Pty Ltd [2014] FCA 357 at [34]-[35], [40] (Buchanan J), referred to with approval in DIF III Global at [21]-[25], [76].

Proposed deed of indemnity

The form of the deed of indemnity proposed by the plaintiff provides: 1. that it be entered into by AmTrust and Mr Meers as the first defendant; 2. that AmTrust "unconditionally and irrevocably undertakes to pay" to the first defendant any sum or sums which the plaintiff is legally liable to pay to the first defendant in respect of the first defendant's costs in the proceedings which relate to the costs incurred up to and including the costs of the first instance determination only of the proceedings (cl 2). However, the indemnity given in cl 2 is qualified in the second sentence of that clause as follows: … AmTrust will not be deemed to provide any undertaking to pay the Defendant and will not be liable to make any payment to the Defendant under this Deed (or at all) to the extent that the provision of such undertaking and or such payment would expose AmTrust to any sanction, prohibition or restriction under United Nations resolutions, and or the trade and economic sanctions, laws and or regulations of the European Union, United Kingdom, United States of America and or of Australia. 1. that the total liability of AmTrust should not exceed the Maximum Limit, (which will be specified as $81,020) plus any interest at the judgment rate payable from the date 7 business days following receipt by AmTrust of a relevant demand for payment (cl 5); 2. that a sealed copy of the relevant court order, or a certified copy of the relevant final costs certificate or a copy of AmTrust's approval of any agreement between the plaintiff and the first defendant as to the amount to be paid in respect of a costs order, is to be conclusive evidence of the liability of the plaintiff to pay the first defendant's costs and binding upon AmTrust (cl 7); 3. for payment to be made within 7 business days of the receipt of the valid demand under the deed of indemnity (cl 8); and 4. that AmTrust is deemed to be a principal debtor and its liability is not discharged or affected by any act or thing, including any insolvency or unenforceability against the plaintiff (cl 10).
In addition, the plaintiff has indicated that AmTrust is prepared to incorporate the following additional terms in the deed of indemnity: 1. the law and jurisdiction governing the deed will be the State of New South Wales; 2. in the event that the first defendant is successful in the proceedings, AmTrust will undertake not to seek security for its costs in respect of any application made by the first defendant in the United Kingdom to register any costs order in the proceedings.
AmTrust is a regulated insurer and subject to capital adequacy requirements. It is a subsidiary of AmTrust Financial Services Inc, a multinational insurance company registered in Delaware, United States of America. AmTrust's core product lines include underwriting legal expense risk, both in the United Kingdom and overseas, particularly in Australia and Canada (Ex B, pp 16 and 18). According to the audited Solvency and Financial Condition Report for the year ended 31 December 2017, approved by the Board on 8 May 2018, AmTrust had net assets (on a statutory accounts basis) of a little over £382 million.
Mr Meers did not dispute that AmTrust has significant assets in the United Kingdom and is of good financial standing and that it is unlikely that AmTrust would default on the deed.
Nor did Mr Meers dispute that the enforcement of the proposed deed of indemnity can readily be obtained against AmTrust in the United Kingdom and that the provision of the amount of $20,000 by payment into court or by way of bank guarantee represents a reasonable amount for any costs that Mr Meers might incur in enforcing the deed of indemnity in the United Kingdom.

Is the form of security adequate?

Counsel for Mr Meers advanced two arguments as to why the proposed deed of indemnity is not adequate to achieve its object as security. The first relied on an overarching submission that a defendant in the position of Mr Meers should be put in the position of being entitled to recover an amount of security without having to embark on any further litigation (to enforce the deed of indemnity in the United Kingdom). Thus, Mr Meers' preference is that security be provided by a cash deposit or bank guarantee.
Mr Meers further submitted that given the amount of the security is relatively small and that $20,000 was offered as "top-up" to cover the costs of Mr Meers seeking to enforce the deed of indemnity in the event that it is not immediately honoured by AmTrust, it is somewhat incongruous that the plaintiff could not procure an acceptable cash deposit or guarantee for the amount of the security being offered without the substantial complication of the arrangement the subject of the proposed deed of indemnity.
The second argument was directed to uncertainty as to what AmTrust has agreed to provide under the proposed deed of indemnity. Complaint was made in relation to three matters, which are addressed below.

Decision

The starting point is that the relevant enquiry is whether the form of security to be ordered is adequate to protect the party seeking it: Blue Oil Energy at [22]. It would be an error to approach the issue of the form of security by undertaking a comparison exercise of the relative attributes of the security offered by the plaintiff and the "conventional" or "familiar" forms of security by cash deposit or bank guarantee, with a view to determining which form of security was superior and which was inferior: DIF III Global at [65].
Insofar as Mr Meers seemed to suggest in argument that the "normal" forms of security by cash deposit or bank guarantee should be viewed as preferable to that offered by the plaintiff, I reject that submission. As Yates J remarked in Petersen Superannuation Fund Pty Ltd v Bank of Queensland Limited [2017] FCA 699 at [92], "… although courts are accustomed to ordering security in the form of payment into court or by provision of a bank guarantee, on present authority it would be wrong to see those forms as the only ones that could satisfy the requirement for sufficient security".
Contrary to Mr Meers' submissions, the provision of the "top-up" as a condition of the deed of indemnity, does not, in my view, constitute an unacceptable disadvantage if Mr Meers had to enforce his rights under the deed of indemnity in the United Kingdom. That the plaintiff has offered extra security to cover the costs of any enforcement in the United Kingdom which may be necessary, is a circumstance pointing in favour of the adequacy of the security offered, not a matter pointing to its inadequacy: DIF III Global at [82].

Clause 2

The qualification or exclusion from the indemnity in clause 2 is set out at [14(2)] above. Mr Meers submitted that the range of possible issues raised by this qualification were not clear from the materials that had been served by the plaintiff. Notably, the plaintiff did not attempt to explain why the qualification was included in cl 2. The plaintiff submitted that the qualification in cl 2 did not have any present relevance, given the nature of the claim against Mr Meers as an Australian-based director of breach of duty to the plaintiff, an Australian company. If that be the case, then there seems little justification for the inclusion of such a qualification in cl 2.
But there is a more fundamental difficulty. The qualification in cl 2 contains inherent uncertainties. First, there is no material before the Court on the present application concerning whether any present United Nations resolutions, or trade and economic sanctions or laws or regulations of the European Union or United Kingdom or the United States of America might affect the giving of the deed by AmTrust or the payment of the indemnity to an Australian defendant in Australian legal proceedings.
Second, the qualification to the indemnity is not limited to the existing state of affairs. It extends to all future United Nations resolutions or trade and economic sanctions, laws or regulations of the European Union or United Kingdom or the United States of America. By its terms, the qualification in cl 2 extends to any future action by the United Nations or the European Union or United Kingdom or the United States of America, which would preclude the giving of the deed or the payment of the indemnity. Of course, it is simply not possible to predict what those future actions might be.
Given that the plaintiff bears a "practical onus" of establishing that the proposed security is adequate, I am not persuaded that the deed in its present form containing the qualification in cl 2 provides sufficient security for Mr Meers' costs of this proceeding.
Counsel for the plaintiff indicated that if the Court reached that view, then the plaintiff requested an opportunity to discuss with AmTrust the possible deletion of the qualification in cl 2 of the deed. That opportunity will be afforded to the plaintiff by the direction I propose to give in terms of the time in which the parties are to bring in short minutes of order consistent with my reasons.

Clause 7(b)

Mr Meers submitted that it is not immediately clear what is meant by the words "relevant final costs certificate" in cl 7(b) of the deed. That expression is not defined. Mr Meers complained that the clause is ambiguous given, according to the submission, that a certificate as to determination of costs issued by a costs assessor pursuant to s 70 of the Legal Profession Uniform Law Application Act 2014 (NSW), as applying in New South Wales under the Legal Profession Uniform Law 2014 (NSW), may be the subject of an application for review, in which event the operation of the certificate is suspended, and a dissatisfied party may appeal to the Court on matters of law or with leave in relation to matters of fact.
The plaintiff seemed to accept in argument that cl 7(b) gave rise to some uncertainty as to what answered the description of a "final costs certificate". Counsel for Mr Meers acknowledged that the difficulty with cl 7(b) could be addressed by appropriate drafting. One possibility raised by the Court during the course of argument was deleting cl 7(b) in its entirety. However, given that the parties had not directed their attention to any drafting changes, it is preferable that the parties be given such an opportunity.

Set-off

Mr Meers complained that the deed did not make any provision precluding any entitlement of the plaintiff to set off, against monies claimable by Mr Meers under the indemnity, monies required to be paid by Mr Meers to the plaintiff.
Mr Meers submitted that he would be subject to an unacceptable disadvantage if his right to claim indemnity from AmTrust might be qualified by the set-off of any judgment or order for payment of money (such as a costs order in favour of the plaintiff) against a relevant costs order obtained by Mr Meers against the plaintiff.
That a superior court in its inherent jurisdiction may set-off one judgment or order for the payment of money against another, and this extends to orders for costs, is well established: In the matter of Fewin Pty Ltd [2017] NSWSC 1093 at [8]-[15] (Brereton J).
The protective object of a security for costs order is to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff. The effect of any set-off of judgments, if ordered by the Court, would be to reduce the amount owing by the plaintiff to the defendant in respect of costs. In such circumstances, the indemnity given by the AmTrust to Mr Meers would apply to the net balance (if any) due by the plaintiff to Mr Meers. There is no injustice to Mr Meers if having obtained an order for costs against the plaintiff, the Court makes an order to set-off a judgment or order for the payment of money (such as a costs order) which the plaintiff obtains against Mr Meers.
I am not persuaded that the deed of indemnity is inadequate as security for this reason.

Conclusion

The plaintiff should provide security for costs of Mr Meers in the sum of $81,020 for tranche 1, being the work described in the letter from Bridges Lawyers to Landerer & Co dated 11 April 2018. Such security should be provided by way of either payment into court or a deed of indemnity from AmTrust in favour of Mr Meers in the form of Annexure E to the affidavit of Dominic Calabria dated 1 May 2018, subject to the following amendments: 1. the second sentence of cl 2 of the deed should be deleted; 2. cl 7(b) of the deed should be amended or deleted (as the parties may agree) to address the ambiguity arising from the reference to a "final" costs certificate; 3. the deed should incorporate the additional terms offered by the plaintiff as referred to at [15] above.
The orders should also include proposed orders 2, 3, 4 and 5 of the draft short minutes of order attached to the email from the plaintiff's solicitor to the first defendant's solicitor, being Annexure D to the affidavit of Mr Calabria dated 1 May 2018.
I direct the parties to bring in short minutes of order consistent with these reasons within 10 business days.

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: 31 May 2018

At a glance

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Judgment (11 paragraphs)

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Legislation Cited (3)

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