BizPay Group Pty Ltd v Bio Tec Pty Ltd

Affidavit of Mr du Maurier

1. Mr du Maurier is a solicitor who acts for BizPay. His affidavit contains the following paragraphs: "2. On or about 4 September 2024, the plaintiff, by its receivers and managers, Simon John Cathro and David Mark Mutton, entered an Asset Sale Agreement with BP Fiduciary Pty Limited ACN 649 000 591 (BPF). A copy of the Asset Sale Agreement is annexed hereto and marked 'A', which I have caused to be redacted in part to remove information which BizPay contends is commercially sensitive and confidential. 3. The Asset Sale Agreement contains the following terms, among others: (a) A sale of BizPay's assets (which is defined to include BizPay's claim in this proceedings, except for BizPay's cause of action in respect of misleading and deceptive conduct) to BPF (Clause 2.1); and (b) An indemnity in respect of the proceeding given by BPF in favour of BizPay (clause 7.1). 4. On 26 September 2024, I caused a letter to be sent to the solicitors for the defendants explaining that BizPay had entered the Asset Sale Agreement and stating that it was in the process of obtaining security for its costs by way of a loan agreement or indemnity. A copy of this letter is annexed hereto and marked 'B'. 5. On 9 October 2024, I caused an email to be sent to the solicitors for the first and second defendants attaching a letter enclosing a Notice of Assignment of Chose in Action. A copy of this letter and the Notice of Assignment of Chose in Action is annexed hereto and marked 'C'. 6. On 10 October 2024, Apex Fund Services Pty Ltd ACN 118 902 891 as custodian for the Special Opportunities Fund No. 1 ARSN 623 182 605 (SOF1) executed a Deed Poll of Indemnity in favour of BizPay and BPF. A copy of the Deed Poll of Indemnity is annexed hereto and marked 'D'. 7. A copy of a current company extract from the Australian Securities and Investments Commission's database in respect of Apex and dated 15 October 2024 is annexed hereto and marked 'E'. 8. I have reviewed the notices of motion filed by the first and second defendants and the third defendant in this proceeding. Those notices of motion together seek orders that the plaintiff pay the amount of $405,301.28 into Court as security for costs, comprised as follows: (a) In respect of the first and second defendants' costs: $239,922.33; and (b) In respect of the third defendant's costs: $165,378.95. 9. Annexed hereto and marked 'F' is the audited annual report for SOF1 for the financial year ending on 30 June 2023. This annual report discloses that SOF1 had a total equity position of $131,668,000 at the end of that financial year. I have no reason to believe that SOF1's total equity position has reduced significantly at all."
2. The letter from Matthew Watson dated 26 September 2024 referred to by Mr du Maurier was written in response to both motions for security filed by the defendants and is addressed to Bartier Perry Lawyers, who appear for the first two defendants, and Joseph G Capogreco and Associates, who appear for Mr Maalouf. It is relevantly in the following terms: "The relief sought by the Maalouf Motion and the Larry Motion (together, Motions) both seek orders requiring the plaintiff to pay security for costs into Court. Accordingly, we propose to address the Motions together in this letter. We are instructed to advise that: 1.The plaintiff has executed an asset sale agreement in respect of its assets (Sale Agreement), which contains terms to the effect that: (a) Part of the plaintiff's claim - namely, the causes of action in the plaintiff's Further Amended Statement of Claim which are assignable - will be assigned to the purchaser under the Sale Agreement, BP Fiduciary Pty Ltd ACN 649 000 591 (BPF) which will become responsible for conducting that part of the proceeding; and (b) The balance of the plaintiff's claim will be conducted by the plaintiff, and the plaintiff will be indemnified by BPF in respect of that part of the proceeding; and 2. BPF is in the process of obtaining a form of assurance from the Special Opportunities Fund No.1 (ARSN 623 182 605) (SOF1), either by way of an indemnity or a loan, in respect of any costs order made against BPF or the plaintiff in the proceeding. We are instructed that this assurance should be finalised within a matter of days. We will provide a copy of it to you once it has been executed. SOF1's most recent audited financial statements for the financial year ending 30 June 2023 (which are publicly available online) show that, as at 30 June 2023, SOF1 had a total comprehensive income of $6,702,000.00 for that financial year and an equity position of $131,668,000.00. SOF1 plainly has the means to meet an adverse costs order made against BPF or the plaintiff. For those reasons, there is no prospect that the plaintiff nor [sic, or] BPF would be unable to pay any costs order made in favour of the defendants. It is, moreover, inappropriate to continue to press your respective clients' security for costs applications, noting that our clients will shortly be seeking the Court's leave to join BPF as a plaintiff and amend the Further Amended Statement of Claim accordingly. We therefore invite your clients to discontinue the Motions, with each party bearing its own costs in respect of the Motions."
3. As already noted, BP Fiduciary has since become the second plaintiff as foreshadowed in that letter.
4. The Notice of Assignment of Chose in Action dated 8 October 2024 addressed to Bio Tec and Mr Larry, executed by the receivers of BizPay, and referred to in Mr du Maurier's affidavit, was in these terms: "We give you notice that: (a) BizPay Group Limited (Subject to Deed of Company Arrangement)(Receivers and Managers Appointed) (Assignor) has assigned to BP Fiduciary Pty Ltd (Assignee) absolutely the debt of $1,940,697.58 and interest on that amount due and owing by you to the Assignor. (b) You are irrevocably directed to pay the debt to the Assignee."
5. The Deed Poll of Indemnity dated 10 October 2024 executed by Apex Fund Services Pty Ltd as custodian for the Special Opportunities Fund No 1, referred to in Mr du Maurier's affidavit, is in the following relevant terms: "This Deed Poll of Indemnity is made on ____ September 2024 BY Apex Fund Services Pty Ltd ACN 118 902 891 as custodian for Special Opportunities Fund No. 1 ARSN 623 182 605 of GPO Box 4968 Sydney NSW 2001 (Indemnitor) Recitals: On 23 February 2022, BizPay Group Limited (subject to Deed of Company Arrangement) (Receivers and Managers Appointed) ACN 633 797 627 (BizPay) commenced Supreme Court of New South Wales Proceeding No. 2022/00053372 (Proceeding) against Bio Tec Pty Ltd ACN 608 650 111 (First Defendant) and Mike Larry (Second Defendant). On 22 March 2024, BizPay joined Roy Maalouf (Third Defendant) to the Proceeding. On 4 September 2024, BizPay assigned its causes of action brought in the Proceeding, except in respect of a claim for misleading and deceptive conduct pursuant to section 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth), to BP Fiduciary Pty Limited ACN 649 000 591 (BPF). The Indemnitor has agreed to indemnify BizPay and BPF in respect of their liability to pay the costs of any one or more of the defendants in the Proceeding. Operative Provisions: Indemnity The Indemnitor covenants to each of BizPay and BPF that within 14 days of receiving written notice of a costs order in accordance with clause 1.2 below, it will indemnify BizPay and/or BPF in respect of any liability to pay any costs order made in the Proceeding against BizPay and/or BPF up to a joint and several limit of $405,301.28. Any written notice issued pursuant to clause 1.1 above must: be sent by post to the Indemnitor's registered office or by email to the Indemnitor at [email address redacted] state the amount payable by the Indemnitor and the details of the account into which the Indemnitor should pay that amount; and include a copy of the order giving rise to BizPay or BPF's liability to pay costs in the amount stated in the written notice. Executed by the Indemnitor as a Deed Poll: SIGNED by Apex Fund Services Pty ) Ltd ACN 118 902 891 as custodian for Special Opportunities Fund No. 1 ) ARSN 623 182 605 in accordance with Rajiv Kalra 10 October 2024"
6. That Deed is not, however, the last piece in the puzzle. That fact is effectively explained by Keith Jones, the sole director and secretary of BP Fiduciary Pty Ltd, the second plaintiff. Mr Jones is also a director of Riviera Capital. The following matters deposed to by Mr Jones in his affidavit affirmed on 4 December 2024 should be noted.
7. Mr Jones executed an undertaking to the Supreme Court on behalf of Riviera on 3 December 2024. Mr Jones said he did so on behalf of Riviera "in its capacity as the investment manager of Special Opportunities Fund No 1… and in respect of any costs order made against the plaintiffs and in favour of any of the defendants, up to an amount of $403,301.28." The terms of that undertaking are as follows: "Undertaking to the Court By Riviera Capital Pty Ltd ACN 102 982 605 of Level 11, 60 Carrington Street, Sydney NSW 2000 as investment manager for Special Opportunities Fund No. 1 ARSN 623 182 605 (Indemnitor) Dated 3 December 2024 1.1 In this undertaking: (a) First Defendant means Bio Tec Pty Ltd ACN 608 650 111. (b) First Plaintiff means BizPay Group Limited (subject to Deed of Company Arrangement) ACN 633 797 627. (c) Proceeding means Supreme Court of New South Wales Proceeding No. 2022/00053372 (Proceeding). (d) Second Defendant means Mike Larry. (e) Second Plaintiff means BP Fiduciary Pty Limited ACN 649 000 591. (f) SOF1 means Special Opportunities Fund No. 1 ARSN 623 182 605. (g) Third Defendant means Roy Maalouf. 1.2 The Indemnitor retracts the proposed undertaking to the Supreme Court of New South Wales dated 25 November 2024. 1.3 The Indemnitor hereby undertakes to the Supreme Court of New South Wales to pay to the First Defendant, Second Defendant and/or Third Defendant any amounts payable by the First Plaintiff and/or the Second Plaintiff pursuant to a costs order made in the Proceeding and in favour of any one or more of the First Defendant, Second Defendant or Third Defendant, up to a joint and several limit of $405,301.28. 1.4 The undertaking in paragraph 1.3 above is given exclusively in the Indemnitor's capacity as the investment manager of SOF1 and in no other capacity. SIGNED by Riviera Capital Pty Ltd ACN 102 ) 982 605 as investment manager for Special ) Opportunities Fund No. 1 ARSN 623 182 ) 605 in accordance with section 127 of the ) Corporations Act 2001 (Cth): )
8. Mr Jones said that Riviera entered into an Investment Management Agreement on 8 October 2023 with Equity Trustees Limited "in respect of SOF1". Some clauses of that agreement are set out later in these reasons. According to Mr Jones, as at 31 May 2024, SOF1 held $134,410,989.67 in investments. Mr Jones says that BP Fiduciary "holds receivables payable by…BizPay…on trust, as part of a sub-trust which forms part of SOF1."
9. At paragraph 8 of his affidavit, Mr Jones explained that "SOF1 is a managed investment scheme" which is managed as follows. Equity Trustees Limited is the responsible entity of SOF1 and is responsible for the management of SOF1 generally. The previous responsible entity of SOF1 was OneVue RE Services Limited. OneVue was acquired by Equity Trustees in or about April 2018.
10. Apex Fund Services Pty Ltd is the custodian and administrator of SOF1. Apex holds the investments comprising the fund and is responsible for administrative tasks concerning the day-to-day management of the fund. Apex was previously called Mainstream Fund Services Pty Ltd. Riviera is the investment manager of SOF1. Riviera is responsible for investment decisions concerning SOF1.
11. Mr Jones then set out the structure of the trusts he had earlier described. Apex holds units in a trust called the BizPay Secured Debt Fund. An unexecuted copy of the trust deed for the BP Fund dated 7 April 2021 is exhibited to his affidavit. BP Fund's trustee is iPlatform Nominees Pty Ltd and holds all the units in the BizPay Secured Debt Sub Fund. BP Fiduciary is the trustee of the BP Sub Fund. A copy of the trust deed for the BP Sub Fund dated 7 March 2021 is also exhibited to Mr Jones' affidavit.

Principles

1. The applicable principles are well settled and not presently in dispute.
2. The threshold question under UCPR 42.21(1)(d) and s 1335 of the Corporations Act 2001 is whether there is "reason to believe' that BizPay and BP Fiduciary will be unable to pay the defendants' costs of the proceedings. The test is "undemanding" and requires only a rational basis for the belief: Treloar Constructions Pty Ltd v McMillan [2016] NSWCA 302 at [11]. A plaintiff may be "unable to pay the costs of the defendant" in the relevant sense if it is only capable of paying those costs if given an extended time to realise assets that may be difficult to realise: Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205; Direct Flow Pty Ltd t/a Arthur Rubber v Andrew Peterson t/a Maxx Rubber [2023] NSWSC 318 at [83]. Other factors relevant to the Court's discretion include the prospects of success or merits of the proceedings, whether an order for security for costs would stifle the proceedings and the timing of the application for security.

Mr Maalouf's submissions

1. Mr Maalouf made the following detailed submissions.
2. First, the Riviera undertaking is expressed as being limited to $405,301.28. That figure derives from the estimates of costs provided by the defendants in these applications. While an order for security is not intended to be a complete indemnity, Mr Maalouf submitted that it is not appropriate for the undertaking to be constrained in that manner. I take that submission to be that even though the amount of the security sought has been quantified for the purposes of the present application, the undertaking should not be limited to that predicted amount but should extend to the as yet unknown and unknowable quantum of any adverse costs order that the plaintiffs may in due course be required to meet.
3. Secondly, despite Mr Maalouf's motion being filed over four months ago, Mr Jones' affidavit, including the proffered undertaking, was provided less than a day before the hearing of the defendants' applications. Indeed, on 17 October 2024, the plaintiffs agreed to a notation on the court file they had served all their evidence on the applications.
4. Mr Maalouf submitted that the defendants have suffered serious prejudice by that delay. For example, they have had no adequate opportunity to investigate the corporate relationship between Riviera, Equity Trustees, Apex, the Fund and the various sub-funds or Riviera's ability to access the assets of the Fund in the event of an adverse costs order against the plaintiffs.
5. Thirdly, and in a related sense, Riviera has resisted the defendants' attempts better to understand its financial capacity. For example, on 2 December 2024, Mr Maalouf's solicitor wrote to Riviera's solicitor (in relation to a previous undertaking given by Riviera on 28 November 2024) requesting documents regarding Riviera's financial position and proposing an adjournment of the applications until this material had been provided. A similar letter was issued by Bio Tec and Mr Larry the next day. On 4 December 2024, Riviera's solicitor wrote to the defendants rejecting their request for documents and refusing to adjourn the applications.
6. Mr Maalouf submitted that as a result of Riviera's conduct, the defendants have been left to try to decipher a complex corporate structure less than one day before the hearing of their applications, and in the face of the direct refusal by Riviera to shed light on its financial circumstances.
7. Fourthly, while the undertaking is said to be given exclusively in Riviera's capacity as investment manager for the SOF1, Riviera has failed to adduce evidence to demonstrate that it would be entitled to access the SOF1 in satisfaction of the undertaking. In this regard, Mr Maalouf drew attention to the following matters. 1. Mr Jones fails to say in his evidence in terms that Riviera would be entitled to access monies held in the SOF1 to satisfy any cost orders made against the plaintiffs. Nor does he say that Riviera actually has the capacity to meet any adverse costs order that might be made against it. 2. The assets of the Fund presumably relate to other beneficiaries and investors and include other sub-funds. It is unknown which assets of the SOF1 (if any) would be available to satisfy a costs order made against the plaintiffs. 3. Moreover, Mr Jones suggests in his evidence there is a "BizPay secured Debt Fund" (BP Fund) which seems to concern the subject matter of the proceedings. If Riviera holds the power to access monies in the fund to satisfy a costs order made against the plaintiffs, one would expect that the relevant repository for such funds would be the BP Fund (that is, the fund relating to the proceedings) rather than the SOF1 generally (which presumably includes other sub-trusts). Significantly, there is no evidence whatsoever as to the assets held in the BP Fund or whether they are sufficient to satisfy an adverse costs order. 4. More generally, the relationship between the terms of the investment management agreement and Riviera's ability to use monies held in the SOF1 to satisfy a costs order made against the plaintiffs is not explained by Mr Jones. No clear inferences are available on the face of the documents.
8. Fifthly, even if Riviera has the ability to access the assets of the SOF1 to satisfy a costs order against the plaintiffs, there is no evidence explaining or predicting how long this process might take or what it would involve. Mr Maalouf submitted that it is safe to assume that the defendants would face a difficult road to enforce the undertaking against the assets of the SOF1. In the analogous context of a trust relationship, it has been held that: 1. When considering an undertaking given by a third-party company in response to a security for costs application, the court should have "regard to the practical difficulties which the defendants would face in enforcing an order for costs against [the third party] where [the third party's] assets are held on trust": ACN 105 921 962 Pty Ltd v Wiggett [2012] NSWSC 1526 at [10]. 2. Where a defendant is faced with a situation in which the plaintiff's assets are held on trust, then "unless some step has been taken to alleviate those difficulties it is reasonable and just to treat the [plaintiff] as if it were without assets to meet such a liability": Chief Disruption Officer Pty Ltd v Michel [2022] FCA 148 at [47]. 3. It is "not generally a sufficient answer to an application for security for costs for a trustee plaintiff to merely point to its right of indemnity out of trust assets": Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd [2019] SASC 39 at [63].
9. Finally, while it is the case that undertakings given by natural persons on behalf of corporate plaintiffs are typically afforded weight, no attempt has been made by any officeholders of BizPay, BPF, Apex, Equity Trustees, Riviera or their investors "to come out from behind" their respective companies to put their own assets into play: see, for example, Suchand Pty Ltd v Jonathon Kingsley Colbran and Richard Stone as Receivers and Managers of Suchand Pty Ltd [2024] NSWCA 250 at [62]-[66].

Bio Tec and Mr Larry's submissions

1. The first and second defendants adopted the submissions of the third defendant.

The plaintiffs' submissions

1. The plaintiffs' position emphasised that the relationship between Riviera and the SOF1, although apparently complicated, in fact provided a bright line or connection between Riviera as manager and the managed funds. The plaintiffs submitted that a proper reading of the documents showed that Riviera could call upon the managed funds to meet any costs order against the plaintiffs in the proceedings and that it could be required by the defendants to do so quickly and effectively.
2. The plaintiffs emphasised in particular the importance of an undertaking when given by a director of an impecunious company and Brereton JA's description of such an undertaking as "a very powerful consideration which may, in a particular case, be determinative, and that is so whether or not the undertaking or guarantee is supported by any assets": see Vintage Marine Art Pty Ltd v Henderson & Cremer (No 2) (2019) 101 NSWLR 77; [2019] NSWCA 252 at [28], cited in Suchand at [65]. I have had regard to that submission as well as to the detailed and helpful matters referred to in oral submissions by Mr Parish of counsel for the plaintiffs.

Consideration

1. It is not in dispute that BP Fiduciary does not have the capacity by itself to satisfy an adverse costs order against it. There is also no suggestion that an order for security for costs would stifle the proceedings or that the financial predicament of BizPay is the result of, or has been caused by, the conduct on the part of the defendants which is the subject of the proceedings.
2. The issues that inform the exercise of my discretion in the present case are the effect of delay in the case of Bio Tec and Mr Larry in seeking security for costs and the adequacy of the Riviera undertaking as a response to these applications.
3. The delay in filing the application for security on behalf of Bio Tec and Mr Larry needs to be considered in the light of any prejudice or change of position that may have been occasioned to the plaintiffs as a result. Delay without any consequence adversely affecting the plaintiffs may obviously be considered as a discretionary factor even in the absence of some demonstrated prejudice or change of position. However, neutral delay does not realistically or persuasively support a conclusion that a late application for security should fail because of it. Moreover, Mr Maalouf's application was filed in a timely way and the plaintiffs were in those circumstances always confronted with the prospect of having to deal with the spectre of providing security for him at least.
4. In the present case, there could not be a suggestion that the plaintiffs would have taken a different course if confronted with the current applications at a very early stage of the proceedings. Certainly there is nothing in the extensive correspondence between or among the solicitors for the parties to suggest this. Nor do I get the impression from the way in which the litigation has proceeded that the plaintiffs have been taken by surprise by what has occurred.
5. The more significant issue is whether the proffered undertaking has value. This is not a case of an undertaking being given by an impecunious director of an impecunious company. The particular and tortuous journey from Riviera to the location of the funds that are the (supposed) subject of the undertaking does not necessarily mean that the funds are not, or would not be, accessible by Riviera at some time. As was observed by the majority in Suchand at [74], "one factor of relevance to the weight to be given to an undertaking by a person standing behind a corporate plaintiff is whether that undertaking will provide effective security". "Effective" must in my view be taken to contemplate not just the actual payment of an adverse costs order but an expectation that payment will be made in a timely way without the need for any, let alone difficult or protracted, undue effort or associated delay to enforce it. So much is contemplated by the word "security". The undertaking by Riviera does not give me particular comfort that enforcement of an adverse costs order that it supposedly secured would be easily or quickly enforceable. The practical difficulties likely to be associated with an attempt to enforce the undertaking seem to me to be significant. There does not appear to be any obvious path to alleviate those difficulties. It is reasonable and just in the circumstances to treat Riviera as if it were without assets to meet any costs liability.
6. As Mr Maalouf's submissions also note, the undertaking is given "exclusively" in Riviera's capacity as the investment manager of the SOF1 and in no other capacity. He maintained that that meant that none of Riviera's assets was available for satisfaction of an adverse costs order. That uncontroversial proposition, however, directs attention to the ability of Riviera to gain access to or source the funds in SOF1 that it manages. In my view, that means of access is fraught and uncertain and does not provide any guarantee that the defendants are assured of protection.
7. The plaintiffs draw attention to some of the terms of the Investment Management Agreement. Clause 5 is headed INDEMNITIES. Clause 5.1 is as follows: "5.1 Manager Subject to clauses 5.4 and 26, the Responsible Entity indemnifies the Manager against any direct loss or liabilities reasonably incurred by the Manager arising out of, or in connection with, and any direct costs, charges and expenses incurred in connection with, the Manager or any of its officers or agents properly acting under this Agreement or on account of any bona fide investment decision made by the manager or its officers or agents except insofar as any loss, liability, cost, charge or expense is caused by the negligence, fraud or dishonesty of the Manager or its officers or Supervised Agents. This obligation continues after the termination of this Agreement. The indemnity given in this clause 5.1 does not extend to any consequential, incidental, punitive or special damages or indirect costs, charges, expenses or damages and the Responsible Entity is not otherwise liable to the Manager under this Agreement for any other loss or liability."
8. The plaintiffs maintain that this clause means that the manager can expect to be indemnified by Equity Trustee Limited, the Responsible Entity, in respect of any costs liability to which the undertaking given by Riviera in its capacity as manager responds. In my opinion, that proposition cannot be said to be free from doubt. The meaning and effect of clause 5.1 and its application to the present circumstances is not unambiguous and the defendants should not be required to shoulder the risk that their ability to enforce a costs order depends upon the ultimate resolution of that uncertainty in their favour.
9. Nothing in the Investment Management Agreement permits or provides any explanation of the relationship between funds managed for the beneficiaries of the SOF1 and the amenability of any of those funds to Riviera's power to use them to satisfy the undertaking. The pathway is dense, opaque and obscure. As Mr Maalouf contends, it is simply unknown which assets of the fund (if any) would be available to satisfy a costs order made against the plaintiffs.
10. Taking all of these matters into account, I consider that in the exercise of my discretion, the undertaking proffered by Riviera is not a suitable or adequate substitute for the provision of security in the way sought by the defendants.

Conclusion

1. By letter dated 28 November 2024, Mr Watson on behalf of the plaintiffs wrote to the solicitors for the defendants in which he referred to "[t]he amount of $405,301.28" as "the cumulative total of the amount sought by the defendants' notices of motion". As already noted, that is the total amount referred to in the Riviera undertaking on which the plaintiffs rely. In that context, the plaintiffs take no issue with the fact that some of the estimated costs include past costs, although that matter did receive some attention in the correspondence between the parties as well as in the submissions before me.
2. However, in my opinion, having regard to the terms of the undertaking, these matters are effectively de minimus. I consider that the plaintiffs should be required to provide security, in a manner suitable to the defendants, in the total amount of $405,301.28 in the proportions reflected in the defendant's respective estimates. Having regard to the several possibilities which the form of this security might take, I will direct that the parties provide me with short minutes of orders giving effect to my reasons within seven 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: 11 December 2024