Construction Kings Pty Ltd v Cashflow Finance Australia Pty Ltd

Background 1 Initially there were four applications before the Court: an application for security of costs filed by the respondent on 23 July 2020; an application for discovery filed by the respondent on 20 August 2020; an application for further and better particulars filed by the applicant on 20 August 2020; and an application for discovery filed by the applicant on 1 September 2020. Ultimately, only the application for security of costs remained in contention, the latter three applications having been resolved by the agreement of the parties.

The application for security of costs 2 There was no dispute between the parties that it was appropriate to make an order for security for costs in the circumstances of the case under either r 19.01 of the Federal Court Rules 2011 (Cth) (the Rules) or s 1335 of the Corporations Act 2001 (Cth).

The quantum of security to be provided 3 Each of the parties adduced competing evidence on the quantum of the security to be provided. By its application filed on 23 July 2020, the respondent sought an order for security of costs in the sum of $147,400.69. This figure was calculated in the affidavit of Ms Amanda Heard, the solicitor with carriage of the matter for the respondent. In response, the applicant engaged Mr Lawrence Hallam, an independent Legal Cost Assessor, who identified in his affidavit of 31 August 2020 that the reasonable party/party costs for the trial was $71,785.83. 4 During the hearing of the application, Mr de Waard of Counsel, for the respondent, indicated that his client would accept a rounded figure of $72,000 as an appropriate amount of security. That concession was very properly made, and obviated the need for any further consideration of the question of quantum. It might be added that where there is a choice between the evidence of an independent expert who has complied with the Court's Harmonised Expert Witness Code of Conduct and that of a solicitor for one of the parties who owes duties of loyalty to their client, the former will almost invariably be preferred: Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2020] FCA 1018 [106] - [109].

The form of security to be provided 5 The only question which remained in dispute was the form of the security which ought to be given. 6 Mr Dietz, Counsel for the applicant, submitted that the sole director and shareholder of the applicant, Mr Mitchell Tocki, is willing to "stand out from behind the company" and meet any adverse cost order made against the applicant company. To this end, Mr Tocki has indicated that he is willing to offer a personal guarantee up to the amount of $72,000, and an undertaking that he will not deal with his assets or encumber them in any way, presumably until the end of the proceedings. 7 Mr de Waard for the respondent submitted that the appropriate form of undertaking would be the provision of a bank guarantee in the amount of $72,000. To this end, he submitted that under r 19.01 of the Rules, the fact that the person standing behind a corporate party "comes out from behind the skirts of the company" is not necessarily sufficient, and that the Rules may require the provision of an actual amount of security to appropriately protect the respondent. He cited some support for that position in the decision of Markovic J in Neptune Hospitality Pty Ltd v Ozmen Entertainment Pty Ltd [2019] FCA 1734, although that case was dealing primarily with an application for security of costs of appeal. 8 Mr de Waard further submitted that Mr Toki appears to be of limited financial means. There was much force in this submission. In his affidavit of 4 September 2020, Mr Tocki deposed to owning a unit (jointly with his wife), and a portfolio of shares. However, it appears that the unit is subject to a substantial mortgage, and the nature, number and value of his shares are not disclosed. Consequently, the precise value of Mr Tocki's assets is not clear. 9 In determining whether a bank guarantee is a more appropriate form of security in this case, I have also considered several other factors, including: (a) The provision of a bank guarantee will involve the outlay of further funds, as the bank will need to obtain valuations of any assets to which it might have recourse, including the unit owned by Mr Tocki and his wife; (b) The unit owned by Mr Tocki is jointly owned with his wife, and she may be impacted by the undertaking given by Mr Tocki; and (c) The relative strengths of the parties' cases is difficult to determine, as the matter has not progressed further than the filing of pleadings. 10 None of these factors is of significant weight. Ultimately, the matter is one on which reasonable minds may disagree. Although Mr Tocki has identified his willingness to offer an undertaking in relation to those costs to an amount of $72,000, from the material before the Court I apprehend it is not sufficient because its value is unknown. I accept the submission by Mr de Waard that, in the absence of any evidence of Mr Tocki's worth, the undertaking affords the respondent no protection at all.

Conclusion 11 In all the circumstances the order ought to be that the security for costs be provided by or in the form of a bank guarantee, or other similar guarantee satisfactory to the respondent. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington.