Cody v Live Board Holdings Pty Ltd

Making of invalid share issue

1. LBH alleges that the invalid share issue was a breach of LBH's shareholder agreement and constitution, and caused it to incur a debt of $1,045,310, the loss of valid capital of that amount, and the loss of opportunity in promoting the company's business: pars 22 to 25.
2. Further, it was a breach of directors' duties by the cross defendants, who were directors of LBH, for them to cause the invalid share issue: pars 26 to 38. The duties breached included those created by ss 180, 181 and 182 of the Corporations Act. The shares were issued for the improper purpose of diluting Pier Blue's shareholding, thwarting Pier Blue's attempts to remove Mr Cody and appoint new directors, and to remove Mr Koulis as an executive. The directors did not have a reasonable belief that the share issue was appropriate, because they received notice that the share issue required shareholder approval. The directors did not rationally believe the issue was in the best interests of the corporation as they were aware that Pier Blue had retained lawyers to prevent the share issue.
3. The directors did not, according to LBH, act in good faith and in the best interests of LBH and for a proper purpose, because they knew that the issue of shares would likely lead to litigation and there was a real possibility of a conflict of interest. The directors used their position to gain an advantage for themselves, because each of them received shares for no consideration, Mr Cody was not removed as a director, and they were able to maintain control of LBH.
4. The reference to the directors gaining shares for no consideration arose out of the terms of the contracts whereby the directors had first become engaged in the affairs of LBH, under which they or an associated company were issued shares in LBH on terms that, if LBH subsequently issued additional shares, the directors would also be entitled to be issued further shares at no cost to maintain their proportional shareholdings in the company.
5. This claim is one of serious commercial impropriety against the cross defendants who were directors of LBH at the time.
6. Its resolution will involve an examination of the reasons why the directors caused the share issue to occur, in the light of the existing evidence that LBH needed to raise money in order to fund the development of its business, and the exploitation of its patents.
7. This claim is cast in terms of assertions by LBH concerning the purposes and beliefs of the directors. There are no facts identified in the pleading, nor in the evidence tendered on the application, to directly support findings that the beliefs and purposes that LBH has alleged were held by the directors were in fact held.

Change in LBH's brand name

1. LBH alleges that the director cross defendants breached their duties under sections 180, 181 and 182 of the Corporations Act in the manner in which they changed LBH's brand name from "Live Board" to "Cody Live": pars 36 to 49.
2. This claim raises a case that it was a breach by the directors of the duties referred to, to cause the brand name under which the company offered its services from the name established when the company was controlled by Mr Koulis to a name associated with Mr Cody. The name change occurred on 4 October 2013. This claim raises a case that depends upon whether it was a breach of duty by the directors to depart from the history of the company's trading under the name "Live Board", and to adopt a new brand name that incorporated Mr Cody's name (in circumstances where the evidence establishes that Mr Cody had long and successful experience, and indeed some renown, in the outdoor advertising industry).
3. The resolution of this claim will require an examination in some depth of the reasons why the directors decided to change the brand name under which LBH operated, and in particular whether there were proper grounds for the directors to believe that the prospects of the business would improve if the company became associated in the marketplace with Mr Cody. That would probably be a wide-ranging investigation.
4. Again, this claim involves an allegation of serious commercial impropriety.
5. Apart from the fact of the change in brand name being alleged, the pleading does not allege specific facts that would, if proved, be capable of establishing the breaches alleged.
6. This claim has no direct connection to the share issue that occurred on 3 September 2013. It cannot seriously be suggested that this conduct, if it occurred, contributed to the impecuniosity of LBH.

Spending part of subscription monies

1. LBH alleges that the director cross defendants breached their duties under ss 180, 181 and 182 of the Corporations Act by spending $725,000 of the subscription monies between 3 September 2013 and 28 February 2014: pars 51 to 81.
2. By this claim LBH alleges that the director cross defendants were responsible for making LBH insolvent, taking into consideration the fact that Brereton J declined to rule that the shareholder agreement and the constitution authorised the directors to cause the company to issue the shares.
3. This part of LBH's claim goes further than the allegation (in par 67) that, on 3 March 2014, Brereton J validated the appointment of the administrators, as the spending of the subscription monies had made the company insolvent.
4. It alleges that the incorporation of Cody Live on 4 March 2014, the establishment of a consortium between the director cross defendants and the eight creditors who had subscribed for the shares on 3 September 2013 (for the purpose of promoting the deed of company arrangement) and the purchase of the assets of LBH for the price of $305,000 offered by Cody Live on 19 March 2014, constituted breaches of duty by the director cross defendants.
5. LBH alleges the terms of the consortium agreement in par 71, that Cody Live would issue shares to the subscription creditors, the subscription creditors would assign their debts owed by LBH to Cody Live, LBH was valued at $4,544,826, and Cody Live would receive cash back from the administrators in relation to the subscription debt.
6. There are issues about the manner in which the terms of the consortium agreement were pleaded, but for present purposes it need only be noted that LBH alleges that the director cross defendants entered into what it called the "consortium agreement" with the subscriber creditors. As a result of the consortium agreement, it is alleged, LBH sold its assets to Cody Live at a cash loss of $740,310, and there was no open market sale of LBH's assets, because Mr Cody failed to disclose the market value of $4,544,826 to the other potential purchaser, and failed to disclose the other terms of the consortium agreement to the market. LBH alleges that it follows that Mr Cody exerted control over both the creditors meetings and the sale process, and that he manipulated the outcome in relation to the administrators' agreement to sell the assets of LBH to Cody Live, and the creditors' approval of the terms of the deed of company arrangement.
7. This claim therefore goes far beyond an allegation that the directors imprudently spent a large part of the subscription money, knowing that it would all have to be repaid, if the share issue was invalid; thus causing the insolvency of the LBH and the ultimate sale of its assets.
8. The claim raises an issue as to whether what LBH calls the "market value" of $4,544,826 was the true value of the company.
9. It also involves allegations of commercial misconduct on the part of Mr Cody, and its resolution would involve an extensive analysis of the circumstances of the administration, and the open market sale process, to determine whether - notwithstanding the involvement of the administrators - Mr Cody's conduct involved some impermissible interference with the sale process and the conduct of the creditors' meeting.
10. As with the other claims already considered, this claim is pleaded in a way that rises no higher than a series of broad assertions of delinquent conduct on the part of the director cross defendants, and in particular Mr Cody. The pleading is devoid of allegations of specific facts capable, if proved, of making out the serious allegations made.

Entry into consortium agreement

1. LBH alleges that the director cross defendants breached their duties under ss 180, 181 and 182 of the Corporations Act by entering into the consortium agreement: pars 82 to 91. The allegation is that they acted for the improper purpose of gaining an advantage for themselves, by obtaining ownership and control of the digital signboard technology; they acted to injure LBH to ensure that Cody Live could exploit the technology; and the sale of LBH's assets made it unable to raise funds, and insolvent and in debt for the amount of the subscription moneys. LBH specifically alleges in par 82(a)(iii) that the director cross defendants acted to injure LBH to ensure that Cody Live could exploit the digital sign board technology.
2. Paragraph 82(a)(v) contains a specific allegation that the director cross defendants did not enter into the consortium agreement in good faith and that they did so to obtain LBH's assets for the lowest price possible for their personal gain by dishonest means.
3. LBH alleges that the consortium agreement was designed to be in the worst interests of LBH as it stripped it of its assets and left it with a subscription debt no ability to trade and with the director cross defendants back in control of the empty shell they had created: par 82(c)(i).
4. Further, the consortium agreement was designed to cause these proceedings to be stayed by seeking an order that LBH pay security for costs: paragraphs 82(c)(iii). (The cross claim therefore goes so far as to allege, without reference to any specific facts, that the director cross defendants were so far‑sighted as to act in the alleged way with a specific intent of causing these proceedings to be stayed).
5. There is an allegation in par 83 that the price paid for LBH's assets should not have been $305,000, but at least $10 million (which is alleged to be the value of Cody Live as at 12 February 2014).
6. It is self-evident that this aspect of LBH's claim is extremely wide-ranging. It alleges substantial commercial impropriety against the director cross defendants - including dishonesty - and its resolution would involve a complex factual inquiry.
7. Once again, the claim is formulated in terms of a series of high level assertions, which are not supported by allegations of the precise facts that would need to be established to make out the claim.
8. There is a suppressed assumption in the way the claim is pleaded, concerning the obligations of directors towards companies which have been placed into administration because they are insolvent. If, for example, it was a breach of the directors' duty to LBH for them to have caused the company to spend most of the subscription money in the manner described above, then all that followed, including the circumstances surrounding the making and performance of the consortium agreement, may have simply been consequences of the original breach. However, that is not the way LBH has pleaded the cross claim. The claim based upon the consortium agreement, as well as the other claims, is alleged to be a separate breach of duty, irrespective of the success or failure of the other claims. Moreover, the way the allegations are framed makes clear the truth of the observation made by LBH's senior counsel, that it alleges that all of the conduct involved the implementation of a plan made by the director cross defendants at the outset. However, if the claim based upon the consortium agreement is considered in isolation, as it is pleaded, it raises deep questions about the limitations on how the directors of a company can respond to the administration, and deal with the administrators, in relation to the assets of the company in their own interests.

Propounding the deed of company arrangement

1. The propounding of the deed of company arrangement by the director cross defendants was, LBH alleges, a breach of the duties created by ss 181 and 182 of the Corporations Act: pars 92 to 100.
2. LBH alleges that the director cross defendants acted for an improper purpose, being to take ownership and control of LBH's assets away from its majority shareholder, Pier Blue, to make LBH unable to raise funds by stripping it of its assets, to ensure that the subscription creditors were to receive valid shares over LBH's assets through Cody Live, to make Pier Blue and Mr Koulis unable to raise funds, and to ensure that LBH remained indebted in the amount of $1,045,310 to Cody Live.
3. It is sufficient to note that most of the comments that I have made above concerning the other claims will apply to this claim.

Failure to prevent insolvent trading

1. LBH alleges that the director cross defendants acted dishonestly in creating the subscription debt and paying out part of the subscription price, in breach of section 588G of the Corporations Act: pars 101 to 106.
2. Dishonesty is specifically alleged in par 104(c) and particular (iv) to that paragraph.
3. The basis of the alleged dishonesty is that the director cross defendants knew or ought to have known that the debt they created could not be paid back and that Mr Cody would be able to use the subscription money for his own benefit.

Causing LBH to be unable to fund this litigation

1. LBH alleges that the director cross defendants engaged in misconduct, being breaches of contract and directors duties, by depriving LBH of its assets and leaving it indebted to the subscribers: pars 107 to 109.
2. The operative pleading is in paragraph 108: It was throughout the course of these proceedings that the third to fifth cross-defendants dissipated $725,000 of the subscription monies instead of retaining the funds against the risk that the monies would have to be repaid.
3. This allegation assumes that the directors of LBH were free to retain the money, and that the company did not have ongoing obligations which required some or all of the money to be spent.
4. This is a convenient place to note that in relation to some of the claims considered above LBH relies upon the general law duties of directors as well as their statutory duties. I have not thought it necessary, in the interests of brevity, to be precise in each case with the identification of all duties specifically alleged by LBH.

Claims against Cody Live and Cody Investments

1. LBH pleads claims of knowing assistance and knowing receipt against Cody Live and Cody Investments: pars 110 to 114.

Breach of contracts by director cross defendants

1. LBH pleads that there was a total failure of consideration in relation to each of the contracts (entered into on 25 August 2008, 16 May 2012, and 24 January 2013) under which each of the three director cross defendants agreed to provide their services to LBH, and under which they were issued shares in LBH (being 2.5%, 30%, and 3%): pars 115 to 131.
2. In the case of each of the director cross defendants, the cause of the total failure of consideration is alleged to be resolving to issue shares without authority, causing LBH to proceed with the invalid share issue, causing the brand name change from "Live Board" to "Cody Live", and spending the subscription monies raised by the invalid share issue to promote Cody Live.
3. It is hardly conceivable that the basis of the claim alleged by LBH, even if proved, could justify a conclusion that the contracts became void for total failure of consideration, given that each of the directors had provided his or her services for a significant period before the date of the share issue. In any event, the making of this claim invites an investigation of the services provided by each of the directors to LBH over the period of their respective contracts.
4. No particulars are given of the allegation that the subscription monies were spent in order to promote Cody Live.

Quantum of damages

1. LBH pleads a number of amounts, as the value of its assets based upon "market assessments" at various times; being $4,181,237 on 3 September 2013 and, on 12 February 2014, "$8,362,474 (pre-money) to $10,453,094 (post-money)". These appear to be values adopted by the board of directors of LBH at various times, for the purpose of determining the appropriate price at which to issue new shares to subscribers.
2. LBH states that it is not yet in a position to give particulars of its quantum of damages for loss of opportunity to exploit the assets.
3. LBH did not in its submissions respond to the observations that I made at [132] and [133] of the previous judgment about the potentially large size of the claim for damages that it might ultimately seek to make.

Estoppel binding cross defendants

1. An issue arose between the parties as to whether or not the cross defendants were bound by estoppels that would prevent them from contesting various issues, with the result being that the proper estimate of the amount of preparation required and the length of the hearing should be reduced.
2. As I understand it, LBH's assertion that the cross defendants are bound by estoppels is based upon: (1) the decision of Brereton J made on 17 February 2014 in Cody v Live Board Holdings Ltd [2014] NSWSC 78, in which his Honour declined to make an order that the director cross defendants were authorised by the constitution and the shareholders agreement to cause the company to make the 3 September 2013 share issue; (2) the cancellation of the issued shares by LBH; and (3) the decision of Brereton J made on 18 June 2014 in Pierce Patrick Cody v Live Board Holdings Limited ACN 117801242 [2014] NSWSC 820, in which his Honour declined Mr Koulis and Pier Blue leave under s 237 of the Corporations Act to bring proceedings on behalf of LBH against the director cross defendants on the ground that either: (a) the effect of the first decision was that the share issue was invalid; or (b) even if not, the director cross defendants conceded in correspondence that the share issue was invalid, and they would return control of the board to Mr Koulis, so that Mr Koulis and Pier Blue would not need the court's leave to commence derivative proceedings on behalf of LBH.
3. LBH has not pleaded any estoppels against the cross defendants in the amended cross claim. The cross defendants challenged the claim that they were bound by estoppels on the technical ground that estoppels could not arise unless the court had made a formal judgment, order or decree, relying upon Blair v Curran (1939) 62 CLR 464 and Withyman v Withyman [2013] NSWCA 10.
4. It is not appropriate that the court attempt to resolve, on an application for security for costs, the question whether or not LBH is entitled to assert estoppels against the cross defendants.
5. The only material question is how the subject matter of the estoppel claim may affect the time necessary for the proper preparation and hearing of the proceedings.
6. If a contested issue arises in the proceedings as to whether the cross defendants are bound by estoppels, that issue will require determination, and may increase the amount of necessary preparation and the length of the hearing. The validity of the estoppel claim must be determined at the hearing, and not on an application for security for costs, so the amount of security to be provided cannot be reduced by a present decision that the estoppel claim is valid. Ordinarily, the existence of an estoppel claim would have the effect of increasing the amount of the security that should be provided, at least in cases where resistance to the estoppel claim is reasonable.
7. The appropriate way to deal with this issue on the present application is to note that the court has previously decided that the constitution and the shareholders agreement did not authorise the 3 September 2013 share issue, and the director shareholders caused LBH to cancel the shares, and took the benefit of Brereton J's 18 June 2014 judgment, on the basis of their concession that the share issue was invalid. The cross defendants may be entitled to litigate those issues at the final hearing, or to contest their consequences, because of technical reasons which deny those matters formal effect as estoppels. But it would not be reasonable for the court to require LBH in the circumstances to provide to the cross defendants security for their costs of litigating those matters.
8. The relevant question at present is whether the necessary preparation and the length of the hearing will be significantly reduced if the cross defendants were to accept that the share issue was not authorised and was invalid.
9. In his 18 July 2016 affidavit, LBH's solicitor, Mr El Daghl, claimed that Brereton J determined that the share issue was invalid, and that the issue was undertaken by the director cross defendants in breach of the shareholders agreement (pars 20 to 22). He also claimed in par 32 that it was determined in the earlier proceedings that the spending of the subscription money caused LBH's insolvency.
10. Mr Watt, the cross defendants' solicitor, in par 6 of his 30 August 2016 affidavit, responded to the claim that Brereton J had determined that the share issue was undertaken in breach of the shareholders agreement, by saying that Brereton J declined to make the declaration sought on the construction of two documents, and the issue of whether any breach of the shareholders agreement occurred, including by Mr Koulis, as a result of the totality of all parties' conduct, is still live. He also said in par 7, in response to the assertion that the invalidity of the share issue had been determined, that the rights of all parties in respect of the share issue, including the ability of LBH to complain of what has occurred given Mr Koulis' conduct and his duties to LBH, is still a live issue. Finally, Mr Watt responded at par 20 to the claim that it has already been determined that the spending of the subscription money caused LBH's insolvency, by saying that LBH's financial position leading up to the share issue, and following the share issue, has not been determined, and the causal nexus asserted between the conduct of the cross defendants and the nature of debts owed to third parties affecting its solvency are still in issue.
11. As I read Mr Watt's evidence, he does not suggest that the cross defendants assert that they can contest the fact that the constitution and the shareholders agreement did not authorise the share issue. Nor will they assert that the share issue was valid. They claim that they are entitled to rely upon events related to the share issue to make a case that LBH cannot complain about their conduct. Further, they wish to assert that, for the purpose of determining their own liability, it is not simply a matter of whether the spending of the subscription money was the immediate cause of the insolvency of LBH, but that they are entitled to rely upon additional evidence concerning the financial affairs of LBH, including the circumstances in which money was paid to creditors, to support their claim that the spending of part of the subscription money did not involve a breach of duty.
12. In my view the attempt by LBH to rely upon the alleged estoppels has created a false issue, in that the cross defendants do not intend to contest the issues identified by LBH; rather, they intend to rely upon evidence of additional surrounding circumstances to support a case that their conduct did not involve breaches of duty to LBH. I do not accept that the amount of preparation required, and the length of the hearing, will be reduced in the major way claimed by LBH, because the cross defendants will not be able to contest the validity of the share issue, or that the issue was not authorised by the constitution and the shareholders agreement.

Quantification of amount of security

1. I have provided the analysis of the cross claim that is set out above because of my view that, in a number of important respects, the analysis speaks for itself in relation to the claim for an order that LBH provide security for the cross defendants' costs.
2. First, it is inescapable, with respect, that the estimate made by Mr El Daghl that the case could be conducted properly in 3 to 4 days if contested, is extremely optimistic, and in truth entirely unrealistic.
3. Mr Watt originally estimated, on a conservative basis, that if the matter proceeded on all issues, the hearing would take 10 days. He then reassessed his estimate of the length of the hearing on the assumption that the court would agree to make an order that liability be determined separately and before the issue of relief. He reduced his estimate of the length of the hearing to 8 days, again on a conservative basis.
4. The cross claim in the present case is pleaded so generally, and without particularity, that it is not possible to make a realistic estimate, before the evidence has been served, about the likely length of the hearing.
5. It is proper for the court to accept the estimate made by Mr Watt of 8 days for a hearing on liability. If all issues raised by the cross claim are fully litigated, I have little doubt that 8 days will be an underestimate.
6. I am also satisfied that Mr Watt's allowances for work required to prepare the cross defendants' case for hearing are more realistic than the estimates made by Mr El Daghl, assuming that the cross defendants conduct their defence in a way that responds comprehensively to all the issues raised by the cross claim. Mr El Daghl's approach to the forensic steps that will be required in dealing with the issues raised by the cross claim is too simplistic.
7. Mr Watt estimated that the cross defendants' legal costs, on a solicitor-client basis, up to and including a final hearing, only on liability issues, would be $543,700. On the basis that his clients would be likely to recover approximately 70% of their legal costs on the ordinary basis, if they are successful in defending the cross claim on liability issues, he estimated the costs recovery as being $380,590.
8. In his 18 July 2016 affidavit, Mr El Daghl estimated that the cross defendants' costs of the matter would be approximately $420,000 on all issues, and would be unlikely to exceed $200,000 in respect of a separate trial on liability. Mr El Daghl apparently based his estimate on the length of the hearing being between 3 and 4 days on the issue of liability only, on the basis that the primary facts alleged in the pleading are to be proved through documents, and that the case will be made out or not primarily on written submissions. He said that an amount of $8000-$10,000 per day should be allowed for senior counsel, rather than the $13,000 allowed for in Mr Watt's estimate. He allowed substantially less time for preparation than did Mr Watt (including an amount of only 2-3 days preparation for hearing). Mr El Daghl did not provide a schedule to explain how he arrived at his estimates. It is likely that the amounts estimated have not been reduced to arrive at figures for party-party costs on the ordinary basis.
9. As Black J has recently said in Re Felan's Fisheries Pty Ltd [2016] NSWSC 1351 at [40]: … 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) [2012] NSWSC 410 at [66].
10. In Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336 at 345-346, Heerey J made the following observations concerning how the court should approach the quantification of the amount of security to be provided, when there is evidence before the court as to what the likely party-party costs of the applicant for security might be: I would respectfully agree that a conventional'' reduction of two-thirds of an amount already established as a reasonable estimate of party and party costs has no justification in law or logic. But the decision remains a discretionary one and the cases have indicated some other factors which bear on the exercise of the discretion. Such a list is of course not exhaustive, but the following factors can be usefully considered. First, the court should take into account the chance of the case collapsing without coming to trial, with the consequence that the security ordered turns out to be an overprovision: Dominion Brewery Ltd v Foster (1897) 77 LT 507 at 508 . This factor may be important if the application for security is made relatively early in the course of the litigation: Procon, supra, at 376b, 379f . In the present case the proceeding was instituted a little over 2 years ago and there is no hint in any of the material before me that settlement is likely. Pharmaceutical patents can be extremely valuable commercial property and litigation over them hard fought, extensive and expensive. The present case shows every indication of being true to its genre. Secondly, the apparent prospects of success are relevant, insofar as they are discernible: Bruce Pie, supra, at 404. Thus the weaker the applicant's case appears on the merits, the stronger the case of the respondent for security becomes and the less inclined the court should be to give any discount. However the present case is obviously a complex one involving technical evidence and I am quite unable to make any rational prediction as to its ultimate outcome. Thirdly, the order for security should not be the means of effectively denying the applicant the right to pursue the claim: Bruce Pie, supra, at 404. This factor would also bear on the anterior question whether an order for security ought to be made at all: see Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52 at 58 , Bryan E Fencott Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 512 . However such an argument was not raised in the present case by Farmitalia. Fourthly, if very little information is put before the court on which it can estimate the amount of costs, then again it might be reasonable to make a large discount, particularly since if security proves inadequate as the litigation progresses, a further application may be made for more security: Procon (GB) v Provincial Building Co [1984] 2 All ER 368 at 379h. In the present case Delta West has, through the evidence of Ms Gourlay, given reasonably detailed evidence to base its estimate. The court is certainly not bound'' by this estimate (to use the words of Chitty LJ in Dominion Brewery, supra, at 508) but by the same token I do not think in all fairness that this case warrants the comment of Lindley MR in Dominion Brewery that ``it would be absurd, of course, to take the estimate of the managing clerk of the defendant's solicitors and give him just what is asked for''…
11. In Allstate Life Insurance Co v Australian & New Zealand Banking Group Ltd (No 19) (1995) 134 ALR 187, Lindgren J stated at 187 that "The amount is in the discretion of the court and should be such sum as the court thinks just, having regard to all of the circumstances of the case", and that "the estimation of that amount involves many factors, some of them imponderable". His Honour then, at 198, cited the principles from the Farmitalia case set out above with approval.
12. In this case, while the estimate given by Mr Watt is in my view more reliable and objective than that made by Mr El Daghl, it is nonetheless an estimate made at an early stage of the proceedings, before the close of pleadings, when the issues in the proceedings have not been identified, and made by the cross defendants' solicitor, rather than an independent costs consultant. There is an inherent and inescapable uncertainty about the reliability of Mr Watt's estimate of party-party costs.
13. While, in relation to Heerey J's first consideration, it would be unsafe at this stage of the proceedings to make any prediction about the likelihood of this case collapsing without going to trial, there is in my view a real possibility that, when LBH has served its evidence, the cross defendants will take the tactical course of adopting a relatively minimalist approach, if they believe that LBH has not established a prima facie case on the many claims that it has alleged. It is not improbable that the cross defendants could decide not to go into evidence, or at least not to go fully into evidence. I would be unwilling at this stage to assess the amount of security for costs to be provided on the basis of an assumption that the cross defendants will necessarily respond to LBH's case comprehensively.
14. Heerey J's second consideration, that the apparent prospects of success are relevant, causes me to distinguish between LBH's narrow case based upon the consequences of its directors having paid out a large part of the subscription money before the validity of the share issue could be determined, and the balance of LBH's case, which at present appears to be pleaded on the basis of mere assertion. I have discounted the amount that I consider is appropriate because, even though LBH is apparently unable to give particulars of why the director cross claimants should not have caused LBH to spend most of the subscription money (because LBH did not have access to its own documents), and even though LBH should perhaps have taken steps to obtain access to those documents before it pleaded its cross claim, I recognise that there is a real likelihood that LBH is entitled to succeed in its claim that the directors ought not to have expended the money in the face of a challenge to the validity of the share issue. I recognise that LBH has some reasonable prospects of establishing that the expenditure of the money was a breach of duty by the director cross defendants, which caused LBH to become insolvent, and caused it to lose its assets following the appointment of the administrators.
15. In the exercise of my discretion, I find that consideration to be a ground for making a reduction in the amount of the security for costs to be provided, even though it is quite impossible to calculate the appropriate amount of the reduction on any arithmetical basis.
16. I consider Heerey J's third consideration to have significance in the present case. While I have not accepted that this is an appropriate case to decline the application for security for costs because the making of such an order will stultify LBH's claim, it is proper for the court to have regard to LBH's financial difficulties, to adopt a balance between the disparate interests of the parties. I have also discounted the estimate of the likely recovery of party-party costs on the ordinary basis made by Mr Watt in a broad way by assuming a recovery of two thirds rather than 70% (see Re Felan's Fisheries Pty Ltd at [53]); and I have discounted the allowance for senior counsel's fees from $13,000 per day to a figure more in line with the amount suggested by Mr El Daghl.
17. On the basis that Mr Watt estimated the party-party costs of the proceedings at $380,590, and Mr El Daghl gave an estimate of $200,000 (likely to be on a solicitor-client basis), I propose to make an order that LBH provide security for the cross defendants' costs for the whole of the proceedings of $250,000 at this stage.
18. The amount of $250,000 that I have determined as the appropriate amount of security for costs to be provided by LBH is not a figure that I have arrived at by any arithmetical process, but is the result of a 'broad brush' response to the considerations that I have discussed above. The size of the amount has primarily been caused by the number, complexity, and seriousness, of the many claims that LBH has chosen to make in the third amended cross claim. I have broadly accepted Mr Watt's estimates which, although conservative, were made on the assumption that the cross defendants will respond comprehensively in the preparation of their evidence to all of the issues raised by the cross claim. Given that I have preferred the evidence of Mr Watt over that given by Mr El Daghl in relation to the proper basis to assess the costs that the cross defendants are likely to incur in defending LBH's claim, Mr El Daghl's own estimate of $200,000, even if it was made on a solicitor-client basis, supports the selection of $250,000 as the just amount of security to be provided.
19. It has been necessary for the court to determine a just amount to be provided as security for the cross defendants' costs before the pleadings have closed, and the true extent of the evidence to be relied upon by the parties can be known. It remains possible, if LBH runs the documentary case suggested by Mr El Daghl, that the compass of the whole of the evidence will be significantly less than Mr Watt has assumed. It is also possible that the grounds upon which I have thought it appropriate to discount Mr Watts' estimates will not be realised. While there are reasons why it is not desirable, in a matter such as the present, to leave the parties free to make an application that the court vary an existing order for the provision of security for costs, in my view it will be just to permit the parties to do so in the present case.
20. However, the parties should not be free to make such an application until after the evidence has been served, and the proceedings are ready to be set down for hearing. If an application is made by LBH to reduce the amount of security for costs to be provided, or by the cross defendants to increase the amount, the court at that stage should have the benefit of evidence as to the actual amount of costs expended, so that it may be in a position to make a more educated assessment than I am presently able to make as to the just amount of security for costs that should be provided by LBH.
21. If LBH had sought an order that the security for costs be paid in separate tranches at different stages of the proceedings, this would be an appropriate case to make an order to that effect. I assume that LBH did not make that request because of its position that it will not be able to pay any amount of security. The order for security for costs that is made should contain a grant of leave to LBH to make an application that the security be provided in stages.
22. In the absence of such an application being made by LBH, the orders should provide for the security to be provided within 60 days as sought by the cross defendants and the proceedings should be stayed until the security is provided.
23. While I have sympathy for the exasperation expressed by the cross defendants concerning the costs that they have incurred in defending the proceedings to date, and in prosecuting their application for security for costs, I do not propose to make a self-executing order for the dismissal of the third amended cross claim, if provision of the security for costs is not made in accordance with the orders. In that event, it should not be too expensive an exercise for the cross defendants, at an appropriate time, to re-list the proceedings before me to apply for an order that the third amended cross claim be dismissed. Any such application will be considered on its merits. It is appropriate for the court to keep control of the fate of these proceedings.

Significance of the merits of LBH's claims

1. In-so-far as LBH claims that the merits of its case against the cross defendants are sufficiently strong that it would be an injustice for the court to order that it provide security for costs, with the result that its claim will be dismissed, the "strength" of LBH's case is no better than the "neutral factor in the exercise of the discretion" referred to by McClellan CJ at CL in Jazabas Pty Ltd v Haddad (above) at [84]. I discern from the way the cross claim is pleaded no apparent strength in LBH's case that would be a sufficient reason to justify the court in declining to make an order that it provide security for costs, without regard to the other factors that the court is permitted to take into account.
2. In expressing this view, I am not saying that LBH has failed to satisfy me that it has established any real likelihood that it will ultimately be successful; nor am I saying anything about the absence of any positive strength in LBH's case.
3. It is not necessary for me to go further in dealing with this application than to say that the strength of LBH's case is no better than a neutral factor, as I would order LBH to provide security for costs in any event. However, it is to be noted that McClellan CJ at CL stated at [83] that the consideration that the strength of the claimant's case was a neutral factor applied where "the claimants' case is bona fide and raises real issues to be tried". There is a question as to what is meant by this requirement. I am prepared to accept that LBH's claim is subjectively bona fide, in that Mr Koulis has a genuine belief in its merits. The more serious question is as to what is required for a claim to raise real issues to be tried.
4. That is probably a question that requires a holistic response from the court, and may depend upon the evaluation of many factors. One can readily imagine factual circumstances that are relatively apparent, and where the claimant has suffered some injury in circumstances where, even in the face of uncertain principles of law, and even an ineptly drawn statement of claim, the court would be satisfied that the claim is bona fide and raises real issues to be tried. However, the manner in which a claimant pleads its claim is important, as it is the traditional means of informing the court and the opponent of the nature and basis of the claimant's claim. In response to some underlying set of facts, a claimant may choose to put its claim on a relatively extreme basis, and support its claim by a series of bare assertions, unsupported by allegations of the detailed facts necessary to establish the liability that is asserted. Depending upon the precise circumstances of the particular case, such a statement of claim, which is not sufficiently grounded in allegations of fact, may not satisfy the court that the claim genuinely raises real issues to be tried. In such a case, it will not be a matter of the court not being sufficiently satisfied of the likelihood that the claim will succeed; but it will rather be that when the court, with the aid of its experience, examines the pleading, the reality of the issues is not sufficiently apparent.
5. LBH's third amended cross claim suffers from this vice in the present case. There are not even facts alleged that would be sufficient, if proved, to establish an arguable case that the directors breached their duty by spending part of the subscription money. There are no facts alleged that would support a claim that the directors made any of the plans alleged by LBH, and a fortiori that the subscribers were party to those plans. No facts are alleged to support the claim that it was a breach of duty by the directors to change the trade name used by the company. In circumstances where innocent explanations are available for the director cross defendants - for example, that they acted to protect the subscribers, that LBH is under the control of professional administrators, that the administrators conducted a public sale process, that Mr Koulis did not bid, and that Cody Live succeeded after competition with another party - there is no reason for the court to treat a welter of claims of dishonesty, commercial impropriety, and what is in effect conspiracy, as genuinely raising real issues to be tried, in the absence of allegations of specific facts capable of making good those claims.
6. This conclusion is not undermined by the fact that the cross defendants did not resist leave being granted to LBH to file the third amended cross claim. The court was advised by counsel for the cross defendants that the point had been reached where it was not worthwhile resisting the amendment being made any longer: see Northam v Favelle Favco Holdings Pty Ltd, unreported, Supreme Court of NSW, 7 March 1995, BC9504276, per Bryson J at 4. The mere fact that a pleading is permitted to be filed does not give it any substance that it inherently does not have.
7. Ultimately, the discretion as to whether or not the court should make an order for the provision of security for costs is to be unfettered and exercised in accordance with what the circumstances of the particular case require: see Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at [23] per Winneke P and Phillips JA; and see Jazabas Pty Ltd v Haddad (above) at [2] and [79].
8. In my view, were it necessary to do so, it would have been legitimate for the court to take into account, as one of the factors tending to justify the making of an order for security for costs, that the manner in which the third amended cross claim has been pleaded creates a substantial doubt about the reality of the issues to be tried, or at least a substantial proportion of them. That doubt gives rise to an enhanced risk of waste and delay in the preparation of the case and its hearing. It also gives rise to a risk that the cross defendants will incur costs where those costs will not only not be recovered if the cross claim fails, but will be wasted because of the underlying unreality of the claim.

Application to vary order 3

1. Order 3 is an interlocutory order of a substantive nature that has already been made in these proceedings, after a hearing and submissions.
2. I gave my reasons for making the order, including the requirement that the costs be payable forthwith, after agreement or assessment, in my first judgment at [150] to [159]. In that part of the judgment, I considered the submission put by LBH that the proceedings would be stultified if I ordered that the costs be payable forthwith. In outline, I held that it was appropriate in the circumstances of this case for the court to depart from the normal effect of UCPR r 42.7, because LBH had acted unreasonably in not abandoning the earlier versions of its cross claim, and obliging the cross defendants on two occasions, over four days, to prosecute a claim that the cross claim be struck out, only for LBH to abandon the pleading during the hearing. I also held that it was likely to be such a long time before these proceedings concluded, that it was appropriate to order LBH to pay the costs forthwith, after the amount of the costs had been assessed or agreed. As to this last point, I note that it is now some 14 months after I made the 1 December 2015 orders and the cross claim is little more advanced than it was then.
3. In Ballard v Brookfield Australia Investments Ltd [2013] NSWCA 82 at [11], Ward JA made the following statement as to the relevant principle, with which I respectfully agree: [11] Mr Murr accepts that an application to set aside, vary or discharge an interlocutory order of a substantive nature (which has been made in contemplation that it will operate until the final disposition of the proceedings) must be based on a material change of circumstances since the original application was heard or on the discovery of new material which could not reasonably have been put before the court on the hearing of the original application (referring to Brimaud v Honeyset Instant Print Pty Ltd (1988) 217 ALR 44, at p 46 per McLelland CJ in Eq). [12] This principle was confirmed more recently in Levy v Bablis [2012] NSWCA 77, where Young JA referred by way of example to Republic of Kazahstan v Istil Group Inc [2006] 1 WLR 596 at 604 and noted the rationale for this as being that reviews of interlocutory orders should be limited as a matter of judicial policy (citing Programmed Solutions Pty Ltd v Dectar Pty Ltd [2007] QCA 385).
4. In its submissions on this issue, LBH has not relied upon any material change of circumstances, or upon the discovery of new material which could not reasonably have been put before the court at the hearing that led the court to make order 3. LBH has relied upon submissions to the effect that there was a miscommunication between its counsel and the court (submissions par 107), the court was misled by the failure of the cross defendants to draw certain matters to the attention of the court (submissions par 115), the inability of LBH to pay the costs was caused by the conduct of the cross defendants (submissions par 117), and the court should reconsider its "view that the investments in the cross claimant were "speculative" and not proper evidence of what its assets were worth" (submissions par 121).
5. These submissions in essence invite the court to vary an effective interlocutory judgment on a substantive issue by changing its mind as to the reasons why the order should have been made in the first place. Such submissions, in the absence of a material change of circumstances or the discovery of new material, are submissions that can only be raised on appeal against the order already made by the court. It would not be proper for the court to entertain them on an application to vary the order.
6. For the avoidance of misunderstanding, I do not agree that order 3 was made on the basis of a miscommunication between counsel for LBH and the court. I understood full well that LBH, when it abandoned its cross claim as a pleading, did not intend to abandon all of the causes of action that were pleaded in it. I expected that any new draft cross claim would contain some at least of the causes of action in the one that was abandoned. I acted upon the basis that, viewed as a whole, the existing cross claim was so defective that it ought to have been abandoned, and leave sought to file an amended cross claim, without the cross defendants being put to the expense of four days of hearing.
7. Accordingly, the court will not make the order sought by LBH in order 4 of its notice of motion.

LBH's application for interlocutory relief

1. LBH sought the following relief in par 1 of its notice of motion filed on 19 July 2016: That pursuant to s 66(4) of the Supreme Court Act 1970 the first and third cross-defendants be restrained from making any representation that: (a) the third cross-defendant was the inventor of the digital real estate signboard now known as "Cody Live" but previously known as "Live Board" (digital sign board); (b) the third cross-defendant conceived of the digital signboard as a result of his genius; (c) the third cross-defendant was the pioneer behind the digital signboard; (d) the third cross-defendant was the brainchild of the product now known as "Cody Live"; (e) the first live on-site digital real estate signboard was "Cody Live"; (f) "Cody Live" was founded by the third cross-defendant; (g) the first cross-defendant and/or the third cross-defendant secured the patent for the invention of the digital signboard.
2. This claim for relief is not formulated in the conventional terms used for an interlocutory injunction, although the reference to s 66(4) of the Supreme Court Act 1970 (NSW) makes it clear that the relief sought is an interlocutory injunction. Ordinarily, the restraint would be expressed in the terms "until the hearing of the action or further order": see Australian Broadcasting Corporation v Lenah Game Meets Pty Ltd (2001) 208 CLR 199; [2001] HCA 63 per Gleeson CJ at [16].
3. As Gummow and Hayne JJ said in that case at [105] (Gleeson CJ agreeing at [10]), the court only has power to grant interlocutory injunctions "in protection of some legal or equitable right of [the claimant] which the Court might enforce by final judgment".
4. The interlocutory injunction sought by LBH in the present case was not in support of a final injunction in the same terms to be sought at the final hearing. The reason is that part of the final relief sought by LBH is a declaration that the asset sale of LBH's assets and business by the administrators to Cody Live was void (order 12), and a declaration that Cody Live holds all of those assets on a constructive trust for LBH. If LBH succeeds in obtaining that relief, then there will be no occasion for it to be concerned about the need to prohibit Cody Live and Mr Cody from continuing to make the alleged representations. On the other hand, if the court declines to make the declaration sought, the business and assets of LBH will remain in the hands of Cody Live, and there will be no reason to prevent it and Mr Cody from making the representations.
5. The legal or equitable right that the interlocutory injunction sought is intended to protect is the value of the business and assets that were transferred by the administrators to Cody Live, assuming that LBH obtains the result, by the making of the declarations sought, that LBH regains title to the business and assets. At the heart of LBH's claim is the proposition that the alleged representations are damaging the ability of LBH to successfully restore its effective operation of the business and assets assuming that it regains control of them.
6. I accept that the proposition enunciated by Gummow and Hayne JJ does not mean that an interlocutory injunction can only be granted in support of a final injunction in the same terms. It will be sufficient if the interlocutory injunction will protect some other legal or equitable right which the plaintiff seeks to enforce in the proceedings. For example, if the plaintiff seeks an order that the defendant holds a particular business on trust for the plaintiff, the court would have power to grant an interlocutory injunction to prevent the defendant damaging the business pending the determination of the proceedings. That might include preventing the defendant from siphoning off the subject matter of the business to some other company. In that way the interlocutory injunction would protect the legal or equitable right of the plaintiff to operate the business.
7. That is not, however, the basis of LBH's claim in the present case. The alleged representations, by and large, are likely to enhance the business while it is in the hands of Cody Live. There is an issue about how significant the alleged representations are in reality, but, as will be seen, the statements complained of have generally been made in contexts which advertise the business in the hands of Cody Live in a favourable way. They will either have a neutral effect, or will enhance the value of the business.
8. The thrust of all of the alleged representations, taken as a whole, is that Mr Cody and Cody Live were the inventors of the inventions the subject of the patents, the Cody Live digital signboard was the brainchild of Mr Cody, and that Cody Live had pioneered the business of digital signboards.
9. In this context, LBH seeks the interlocutory injunction to protect its ability to re-establish the business in its own hands, after it succeeds in obtaining the relief from the court which would have the effect that LBH would regain title to the business and the assets.
10. This claim depends upon the validity of the proposition that the making of representations by Mr Cody and Cody Live that they were the originators of the digital signboards will have a serious impact on LBH's ability to re-establish the business in its own name, if it obtains the relief that it seeks. The truth of this proposition is debatable, and will be considered further below.
11. I am prepared to accept for the purposes of the present application that, in a case where the plaintiff seeks declarations and orders that will have the effect that the defendant is required to re-transfer a business to the plaintiff, the court has power to grant an interlocutory injunction to prevent the defendant from engaging in conduct calculated to enhance the value of the business in the defendant's hands, if the effect of that conduct will be to reduce the value of the business in the plaintiff's hands, if the plaintiff succeeds in obtaining the final relief sought. The interlocutory injunction would, in that case, be in aid of the protection of a legal or equitable right of the plaintiff, being all of the rights associated with owning and operating the business.
12. However, the nature of LBH's case is likely to have significance when the time comes for the court to consider the balance of convenience, in deciding whether the interlocutory injunction sought should be granted. If the likely effect of the conduct of Mr Cody and Cody Live sought to be restrained was to damage the business and the assets, whether in the hands of Cody Live or LBH, then the court might more readily grant the interlocutory injunction. The reason would be because the conduct would be to diminish the value of the subject matter of the dispute whoever was successful at the final hearing.
13. In the present case, LBH seeks to prevent Mr Cody and Cody Live engaging in conduct that will enhance the value of the business and the assets, if they remain in the hands of Cody Live after judgment at the final hearing. If the court grants the interlocutory injunction sought by LBH, but LBH fails at the final hearing, the effect of the interlocutory injunction will have been to deprive Cody Live of an increase in the value of the business to which it was entitled. It will only be if LBH succeeds that the granting of the interlocutory injunction will protect the party entitled to own and operate the business.
14. In principle, the court should look more carefully in the present case at the strength of LBH's case, and the balance of convenience, than would be necessary if the effect of the making of the alleged representations was to diminish the value of the business and the assets, whoever was entitled to them.
15. A number of features of the interlocutory injunction claimed in this case should be noted, as they are relevant to a proper understanding of the meaning of the publications upon which LBH relies in making its submission that Cody Live and Mr Cody have made representations in the terms set out in par 1 of the notice of motion.
16. First, par 1 describes the digital real estate signboard as being known as "Cody Live", when the words "Cody Live" are actually part of the name of the corporate first cross defendant, not the name of a digital real estate signboard. Of course, the name of the company which includes the words "Cody Live" could readily become associated with the name of the product, in the sense of Cody Live's signboard.
17. The scope for confusion caused by this description may be seen in the fact that par 1(d) refers to "the product now known as 'Cody Live'", while par 1(f) refers to a representation that "Cody Live" was founded by Mr Cody. That must be a reference to the corporate first cross defendant, as it is meaningful to speak of founding a corporation or its business, and not meaningful to talk about founding a digital signboard.
18. The representation referred to in par 1(g) of the notice of motion uses the word "secured" in the context "secured the patents for the invention of the digital signboard". The word "secured" does not have a precise legal meaning in this context. Having regard to the facts, "secured" must be taken to mean "purchased", or perhaps more generally "acquired". It would not be reasonable to interpret the word "secured" as meaning "invented".
19. There has plainly been a drafting error in par 1(d) of the notice of motion, which, if read literally, has the effect of a representation that Mr Cody was the brainchild of the digital signboard. The representation must be interpreted as having the meaning that the digital signboard was the brainchild of Mr Cody.
20. The analysis of the publications relied upon by LBH must be undertaken having regard to a number of established facts: 1. Mr Koulis was the inventor in respect of the patents upon which the digital signboard technology relevant to these proceedings was based. 2. Mr Koulis, through his company Pier Blue, incorporated LBH to develop and exploit commercially the digital signboard technology the subject of the patents. 3. There was an issue about the extent to which LBH, as opposed to Cody Live, commenced the commercial exploitation of the digital signboards. LBH alleged in par 7(a) of the cross claim that the digital signboard technology was marketed under the trade mark "Live Board ®" from 2006 to October 2013. The cross claim does not elaborate upon what was meant by the term "marketed". Paragraph 9 of the cross claim refers to LBH having released a video of the production prototype in February 2012, in order to promote the raising of capital. Paragraph 14(a) of the cross claim makes a somewhat elliptical reference to an agreement, at an 8 April 2013 board meeting of LBH, that the value of LBH "would significantly increase after the production version of [perhaps meaning "and"] the street launch" of LBH's digital signboard. It is reasonable for the purposes of this interlocutory application to interpret these aspects of the cross claim as having the following meaning. LBH had achieved a production prototype of the digital signboard. It needed to raise capital in order to complete the creation of the production version of the digital signboard, and thereafter to launch the digital signboard commercially. The intention of LBH was to use the $1,045,310 raised by the share issue on 3 September 2013 for the purpose of developing the production version of the digital signboard. Whatever was done using part of that money for that purpose, the production version had not been completed by the time the administrators of LBH sold the company's business, including the patents, to Cody Live in association with the deed of company arrangement on 25 March 2014. This conclusion is reinforced by the fact that the particulars of the valuable assets the subject of the sale that are included in par 107 of the cross claim referred to a "Live Board production prototype", but not to any commercial digital signboards. The point of all of these observations is that I am satisfied for the purposes of this interlocutory application that it was Cody Live that commenced and carried out the commercial exploitation of the digital signboards (or at least was substantially responsible for that exploitation). 4. Mr Cody was the moving party in the incorporation of Cody Live and the establishment of its business, including the acquisition of the business and assets of LBH from its administrators.
21. LBH maintained its claim for the issue of an interlocutory injunction against Cody Live and Mr Cody by reference to six forms of communication, which are found in Annexures RED-1 to RED-6 to the affidavit of Mr El Daghl sworn on 18 July 2016. A legible copy of the last of these annexures was made Exhibit 4.
22. It will be necessary to analyse each of these communications in turn.

First publication

1. The first arises out of an interview of Mr Cody by Mr Switzer, which was broadcast on Sky Business on 11 April 2016. The court was shown a video of the interview. That video was not tendered, but Mr El Daghl gave an Internet reference to the video in his affidavit. Annexure RED-1 is a transcript of the interview.
2. From the submissions made by senior counsel for LBH, I understand that LBH complains of the following extract from the transcript: Switzer: Welcome back to Switzer. In case you didn't know, the world's first onsite digital real estate marketing business is here. So what does this mean? And what does it mean for the property industry? We have serial entrepreneur Pierce Cody, CEO of Cody Live with me in the studio with me in the studio. How are you Pierce? … Switzer: And the latest invasion (meaning invention) is an interesting one. Explain to us what you're doing with property signboards. … Cody: Of course, you'll always have it there. So I'll come back to the pool. So I thought well this whole thing about if you've got a signage ability there and we've got planning approval to do it, that we can put something instead of showing one-shot or one benefit of the house and, for example, your swimming pool, if it's a really hot sunny day we can tell the board just to play more out the pool shots, the tennis court or whatever it is. … Switzer: Okay. So is this being done anywhere else in the world? Cody: Nowhere else in the world which is, you know… Switzer: So it's a ground breaker. Cody: It's a ground breaker yeah. Nobody is doing it anywhere which is either a really good thing and I'm a genius or it's a really bad thing and I'm a loser…
3. These parts of the interview have been extracted from five pages of transcript.
4. There was no evidence before the court as to the likely effect of the interview on the business prospects of the exploitation of the digital signboard technology by Cody Live. Nonetheless, it will be reasonably safe for the court to hold, having listened to the interview, that Mr Cody's interview by Mr Switzer on Sky Business will have generally given good publicity and advertising to the business.
5. It was Mr Switzer who opened the interview by saying "the world's first on-site digital real estate marketing business is here". That is, so far as the evidence goes, a true statement. The question was not dealt with at length in the evidence, but the case was conducted by all parties consistently with the proposition that the digital signboard invented by Mr Koulis is a world first. Mr Switzer's observation does not contain any implication about who was the inventor of the inventions the subject of the patents and who established the business.
6. Mr Switzer later referred to "the latest invention", and asked Mr Cody to explain what he was doing with property signboards. Apart from that being a statement by Mr Switzer, rather than Mr Cody, there is only a tenuous implication that it was Mr Cody who was the inventor, rather than that he was simply conducting a business using the "latest invention". Earlier in the interview, Mr Switzer had discussed with Mr Cody an earlier business that Mr Cody had "bought" and grown, before he sold it to Woolworths. The implication is available that Mr Cody could have done the same thing with the sign board invention.
7. I accept that there is a strongly arguable implication in the use by Mr Cody of the words "So I thought well this whole thing about if you've got a signage ability there and we've got planning approval to do it, that we can put something etc" that the digital sign board was Mr Cody's conception.
8. I also accept that there is a reasonable argument that Mr Cody's statement that it "is either a really good thing and I'm a genius or it's a really bad thing and I'm a loser" implies that he was the creator of the digital sign board concept. The balance of the extract from the interview of which this statement forms part, being to the effect that the digital sign board was a ground breaker that was not being done anywhere else in the world is true, and does not convey by itself that Mr Cody conceived of the technology.
9. I accept, therefore, that there is a reasonable argument that a couple of statements by Mr Cody during the course of the interview constituted representations in the terms alleged in order 1(c) and (d) of the notice of motion. It is not necessary to split hairs as to whether the statements might also have made others of the representations alleged.
10. It is important, however, to focus on the meaning and effect of the interview as a whole, and not look too closely at the written transcription, which is likely to give a false impression of the effect of the interview that was broadcast. In my view the interview clearly creates a strong impression that the digital sign board technology is new and that Mr Cody is the entrepreneur who is pioneering the commercial exploitation of that technology. In my view, a listener to the broadcast interview would not gain a strong message that Mr Cody was the actual inventor of the technology. The interview conveys a strong message that Mr Cody got his hands on the technology, so to speak, close to its inception, and that it was Mr Cody who was commercialising the technology. Mr Cody is strongly portrayed as a businessman and entrepreneur, and not as an inventor. There is either no message, or at least only a very tenuous message, that Mr Cody was the first person who had done anything at all to commercialise the technology. The interview simply was not focused on that question.

Second publication

1. The second publication is an article that was published on www.anthillonline.com on 22 April 2016. There is no evidence concerning the significance of that web address, although the court may infer from the text of the article that it was written for the attention of persons interested in the real estate market.
2. The article is four pages plus a few lines long. Significantly, it was apparently written on 22 April 2016 by a person called Gerald Ainomugisha.
3. At the top of each page appear the words: "Cody Live world first live on-site digital real estate marketing". The title of the article is: "Will this innovation usher real estate marketing into the digital age? [VIDEO]".
4. The article starts with text apparently written by the author. The parts of the article of which LBH complains are included in this text, which appears on the first page. The parts complained of are: Innovative new outdoor advertising solution, Cody Live, has launched the first live digital StoryBoards for the real estate market, and is set to shake up the real estate industry and shift the way Australians sell their properties. Cody Live was founded by sign Guru Pierce Cody, who has more than 33 years' experience in the advertising and media industry having founded Cody Outdoor (now APN Outdoor), Australia's largest outdoor advertising business. Cody Live StoryBoards are the first signage for real estate that operate with cutting-edge wireless technology, meaning that displays can be updated any time, and anywhere externally.
5. The article, beginning on the second page, introduced a series of statements in quotation marks, preceded by the words "Pierce remarked that the Story Boards are a huge step…" Seven statements are attributed to Mr Cody. All of the statements contain a message intended to promote the business of Cody Live. LBH does not complain of any of the statements that are actually attributed to Mr Cody.
6. The extract from the article that is set out above starts by referring to an innovative new outdoor advertising solution. That is a true statement. The article then says "Cody Live, has launched the first live digital Story Boards…" (emphasis added). In this context, the word "launched" does not convey the meaning "invented". Rather, it refers to the inception of the commercialisation of the technology into the real estate market.
7. The use of the word "launched" is also significant, because of the evidence that it is true that Cody Live developed the production version of the digital sign board technology. Accordingly, Cody Live could accurately assert that it had launched the digital sign boards, without necessarily conveying by implication that it alone was the inventor of the technology and the initial developer of the production prototypes.
8. The reference to Cody Live as being "founded" by Mr Cody is true. One does not found an invention or technology. One founds a company or a business. "Cody Live" in this extract is clearly a reference to the company and not the sign board technology. This statement is true. The statement "Cody Live Story Boards are the first signage for real estate etc" is a statement that the digital sign boards now marketed by Cody Live are the first digital sign boards to be marketed. That is a true statement, as the digital sign boards originally intended to be marketed under the trade mark "Live Board" were rebranded to be marketed under the trade mark "Cody Live". The words in the third paragraph of the extract do not convey a meaning which excludes the sign boards being intended at some earlier time to be marketed under the trade mark "Live Board".
9. I do not accept that this article contains any of the representations alleged in order 1 of the notice of motion, or that there is a reasonably strong argument that it does so.
10. Moreover, I infer that the words complained of were written by the author, and do not necessarily convey statements directly made by Mr Cody. In argument, senior counsel for LBH responded by submitting that Cody Live and Mr Cody must have endorsed or adopted the statements by allowing them to remain on the website. I do not agree. In my view, given the introductory context of the statements, the literal truth of the statements, and the fact that on a proper analysis they are directed to the commercial launching of the sign board technology by Cody Live, they do not make the representations alleged by LBH.

Third publication

1. The third publication is an article published on www.eliteagent.com.au on 12 March 2016. This website also appears to be one that publishes articles for persons interested in the real estate market. The text describes the publisher as "Elite Agent Magazine".
2. The article is attributed to the "News Room". In the text, only one statement is specifically attributed to Mr Cody by the use of quotation marks. LBH does not complain about that statement.
3. The following extract from the article is the part of which LBH complains: Innovative new outdoor advertising solution, Cody Live, has launched the first live digital StoryBoards for the real estate market, and are looking to shift the way Australians sell their properties. Cody Live was founded by sign guru Pierce Cody, formerly CODY Outdoor, now APN Outdoor. Cody Live Story Boards are the first signage for real estate that operate with cutting-edge wireless technology, meaning that displays can be updated any time, and anywhere externally…
4. It is sufficient to observe that the comments that I have made above concerning the second publication apply equally to the third. In particular, the article focuses on Cody Live as having launched the first live digital story boards.

Fourth publication

1. The fourth publication is an article which was published on www.compaigntrack.com on an unknown date.
2. It appears from the text that the website is operated by an organisation called "Campaigntrack". The article includes the sentence: "In an industry first, Campaigntrack and Cody Live are connecting residential properties to the digital world". The next paragraph begins: "At Campaigntrack we are dedicated to bringing you the latest real estate marketing products…" It is therefore clear from the text that not only is the article written by some unknown persons at Campaigntrack, but it is written on behalf of that organisation to convey its own position.
3. The article contains a reference to Cody Live as being "industry leaders", and "the next evolution in real estate marketing". There is a reference to the "unrivalled industry knowledge to deliver a new generation of signboard" of Campaigntrack and Cody Live.
4. I do not accept that any part of this article even arguably makes any of the representations alleged in order 1 of the notice of motion. The article is not only written by Campaigntrack, but it speaks in the voice of that organisation, and not Cody Live.

Fifth publication

1. The fifth publication is an article published on www.domain.com.au on an unknown date. This website is a well-known real property advertising website.
2. The article was written by a person called Caroline James. The article contains text apparently written by the author, as well as statements attributed to Mr Cody by the use of quotation marks. LBH does not complain of any of the statements specifically attributed to Mr Cody, but complains of the following statement: Cody Live, the brainchild of marketing guru Pierce Cody, founder of Macro Wholefoods Market, has secured the patents for its StoryBoards digital marketing invention, giving it the exclusive right to install its cutting-edge 4G signage on Australia's residential and commercial property exteriors.
3. Apart from the fact that I would attribute this statement to Ms James, I do not accept that it conveys any of the representations alleged in order 1 of the notice of motion, except for the representation in order 1(g), which it does convey.
4. The article does state that Cody Live, obviously referring to the company, is the brainchild of Mr Cody. The article distinguishes between Cody Live and what it describes as the "StoryBoards". The article does not say that the StoryBoards were the brainchild of Mr Cody.
5. The article does say that Cody Live "has secured the patents". For the reasons that I have given above, I do not accept that in this context "secured" has the same meaning as "invented". On the contrary, it means that Cody Live has acquired the patents. That is exactly what Cody Live did by means of the assignment made by the administrators of LBH.

Sixth publication

1. The final publication is an article that was published in the Daily Telegraph on Saturday, 23 April 2016.
2. The author of the article is Mr Aidan Devine. A number of statements are attributed to Mr Cody by the use of quotation marks. LBH does not complain of those statements.
3. LBH complains of the following statement: Businessmen Pearce Cody has pioneered the concept in NSW through Cody Live, which offers a range of freestanding and wall-mounted display units equipped with 4G capabilities.
4. The use of the words "pioneered the concept" does not convey the meaning that Mr Cody was technically the inventor of the technology, but it does convey that he has instigated the commercialisation of the technology. Although it is likely that Mr Cody provided the information to Mr Devine that he used to write the article, it would be unsafe to attribute to Mr Cody the authorship of the words "pioneered the concept". In any event, I do not accept that the expression conveys a sufficiently strong meaning that would exclude Mr Koulis or LBH from having any involvement in the development of the digital sign board technology. It is true that the word "pioneered" would best apply to Mr Koulis, but I do not accept that the words used by Mr Devine can be accepted as constituting a representation made by Mr Cody or Cody Live that Mr Cody was the pioneer of the concept or the invention, as opposed to the pioneer of the commercial exploitation of the digital sign board technology.

Consideration

1. The result of this analysis is that, apart from the relatively weak implications in the interview that Mr Switzer conducted with Mr Cody that may be founded on statements actually made by Mr Cody that he conceived of the digital sign board technology, and that it was a product of his genius, I do not accept the basal submission by LBH that there is a serious case to be tried that Mr Cody and Cody Live have made the representations alleged in order 1 of the notice of motion.
2. Although, as I have said, an analysis of the transcript of Mr Switzer's interview with Mr Cody would justify an argument that Mr Cody made two of the alleged representations, in my view those representations are almost inconsequential when they are considered in the context of the whole of the interview as broadcast. In my view, a listener would simply not attribute any great significance to the statements in relation to who conceived of the digital signboards, especially as the tone of the interview was more one of banter than serious discussion.
3. This conclusion is enough to cause the court to reject LBH's application for an interlocutory injunction. Either there is no serious case to be tried that the representations were made, or there is no serious case to be tried that any representations arguably made will have any serious consequences.
4. I should also record that there are other reasons why I would decline to grant the interlocutory injunction sought by LBH, even if there had been a serious case to be tried that Mr Cody and Cody Live had made the alleged representations.
5. First, LBH did not make any submissions to support an argument that there was any real likelihood that the court on a final hearing would make the declarations sought, to the effect that the assignment of LBH's business and assets by the administrators to Cody Live was invalid, or that Cody Live holds the business and assets on a constructive trust for LBH.
6. As I have observed above, when senior counsel for LBH was asked to explain why the involvement of Cody Live and the other defendants in the purchase of the assets from LBH and the consortium agreement could have the result that the sale was invalid and Cody Live holds the business and the assets on a constructive trust for LBH, his response was to re-enliven the conspiracy case by saying that the outcome was all part of a plan that was implemented over the whole period from the 3 September 2013 date of the share issue.
7. I do not positively find that there is no way that a proper case could be pleaded that would give rise to a serious likelihood that the court would on a final hearing find that the assignment was invalid, and that the business and assets are held on a constructive trust. It is just that I am not satisfied that LBH has yet articulated an orthodox legal basis upon which that outcome could be considered to be a serious possibility.
8. Further, LBH did not in its submissions explain why the relatively innocuous statements made in the publications, which may have suggested in some general way that Mr Cody may have conceived of the idea of the digital sign board technology, would be likely to cause any substantial impediment to LBH's ability to re-establish the business in its own hands, if it succeeded in obtaining from the court the declarations that it seeks at a final hearing.
9. It is almost certain that both Mr Cody and Cody Live publish their connection with the digital sign board business now undertaken under the trade mark Cody Live on a continuing day-to-day basis in a very substantial number of connections. Support for that conclusion can be found in the six publications that have formed the basis of LBH's case. It is likely that the connection between Mr Cody and Cody Live and the digital sign board technology has been firmly established as a result of the ordinary conduct of the business.
10. It is not at all difficult to imagine that LBH may face all sorts of difficulties in re-establishing the business under the trade mark Live Board, if it succeeds in these proceedings.
11. However, LBH has not to my satisfaction established that the alleged representations, even if made, will make any significant difference at all, when compared to the totality of the connections between Mr Cody and Cody Live and the business of exploiting the digital sign board technology that has occurred, and will continue to occur until the hearing, over a very broad range of activities, which the application for the interlocutory injunction will not prevent.
12. In short, I am not satisfied that the balance of convenience would favour granting the interlocutory injunction, to the extent that it would inhibit Mr Cody and Cody Live from advertising its business in a way that would involve statements of this sort that have been extracted above from the publications upon which LBH has relied.
13. Finally, when I first asked senior counsel for LBH whether his client was in a position to offer the usual undertaking as to damages, he replied that it was not, because it did not have any assets that would support such an undertaking and make it worthwhile.
14. When I responded that, in that event, it might be prudent for LBH to consider carefully whether it should pursue the application for an interlocutory injunction, as the application might be doomed to failure, with a costs order against LBH, senior counsel said that LBH would rely upon a principle that in exceptional cases the court would grant an interlocutory injunction, even though the plaintiff was not in a position to give a worthwhile undertaking as to damages. This is a serious issue, given that it is part of LBH's overall case that any costs order made against it by the court is likely to stultify the litigation.
15. Later, in submissions, senior counsel informed the court that first, LBH, and later that both LBH and Mr Koulis, were prepared to give the usual undertaking as to damages to support any interlocutory injunction that the court might grant. Senior counsel very properly informed the court that neither LBH nor Mr Koulis had any significant assets to support the undertaking as to damages, and they were not in a position to give adequate security for the undertaking.
16. While I do not rule out the possibility that there may be instances of an exceptional character when the court may be prepared to grant an interlocutory injunction in a case where the plaintiff is unable to give a worthwhile undertaking as to damages, I do not regard the present case as being exceptional.
17. I will therefore make an order that the claim made by LBH in order 1 of its notice of motion be dismissed.
18. LBH should be ordered to pay the costs of Mr Cody and Cody Live of the application for an interlocutory injunction.
19. LBH has also failed in its resistance to the cross defendants' application for security for costs, on its application for leave to rely upon the three additional affidavits, and on its application for a variation of order 3 made on 1 December 2015. It should be ordered to pay the cross defendants' costs of those applications.
20. I do not propose to make any order that LBH be required to pay the costs referred to in the preceding two paragraphs before the end of these proceedings.

Orders

1. I make the following orders in respect of the two notices of motion that are before the court (remembering that I have already made an order giving LBH leave to file in court the third amended cross claim): 1. Order the cross claimant to pay the costs of the cross defendants occasioned by, and thrown away, by reason of the filing of the third amended cross claim. 2. Order that the claim by the cross claimant for interlocutory relief in par 1 of the cross claimant's notice of motion filed on 19 July 2016 be dismissed. 3. Order by consent pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 28.2 that the question of the cross defendants' liability be decided separately from and prior to the question of the relief to which the cross claimant is entitled. 4. Order that the claim by the cross claimant for a grant of leave to adduce further evidence in the form of the affidavits referred to in par 3 of the cross claimant's notice of motion filed on 19 July 2016 be dismissed. 5. Order that the claim by the cross claimant in par 4 of the cross claimant's notice of motion filed on 19 July 2016 for a stay of order 3 made by the court on 1 December 2015 until the determination of the notices of motion currently before the court or further order be dismissed. 6. Order that the cross claimant pay the cross defendants' costs of the cross claimant's notice of motion filed on 19 July 2016, save for the costs of dealing with the cross claimant's claim for relief in par 2 of that notice of motion, as to which the costs of that claim will be costs in the cause. 7. Order that the cross claimant provide security for the cross defendants' costs of the proceedings in the sum of $250,000 in such form as may be agreed between the parties, or determined by a registrar. 8. Subject to order 11, order that the security for costs required to be provided by order 7 be provided within 60 days of the date of the making of these orders. 9. Order that these proceedings be stayed pending the provision by the cross claimant of the security for costs required to be provided by order 7. 10. Order that the cross defendants may apply to the court for an order that the third amended cross claim be dismissed if the security for costs required to be provided by order 7 is not provided within the time specified in order 8. 11. Notwithstanding order 9, grant leave to the cross claimant to apply to the court by notice of motion filed within 14 days of the date of the making of these orders for an order varying order 8 to require the provision of the security for costs required to be provided by order 7 in accordance with such timetable as the court may determine to be appropriate. 12. Grant leave to the parties to apply for an order varying the amount of the security for costs required to be provided by order 7, whether by increasing or decreasing the amount of the security for costs to be provided, but such application may only be made after the completion of the service of the evidence of the parties in accordance with any timetable for the service of evidence ordered by the court, and before the proceedings are fixed for hearing. 13. Order the cross claimant to pay the cross defendants' costs of the application made in par 4 of the cross defendants' notice of motion filed on 15 September 2014 for an order that the cross claimant provide security for their costs.
2. I have determined the orders that should be made to implement the conclusions reached in these reasons for judgment, in order to bring this aspect of the dispute between the parties to an end. However, I will grant the parties leave to advise the court by communication with my associate within 14 days as to whether any variation should be made to the orders in the preceding paragraph to properly implement these reasons for judgment, or to deal with all matters raised by the two notices of motion with which these reasons have been concerned.

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 March 2017