BARRETT AJA: These proceedings were commenced by an originating process filed 25 May 2016. The plaintiff, a California corporation, seeks an order under s 503 of the Corporations Act 2001 (Cth) removing the defendants as liquidators of ACN 151 726 224 Pty Ltd (formerly Ridley Capital Holdings Pty Ltd) and an order appointing other liquidators in their place.
By interlocutory process filed promptly after commencement of the proceedings (on 15 June 2016), the defendants seek an order that the plaintiff give security for costs. That application is brought by reference to r 42.21(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW). For the purposes of the application, it is not in dispute that the plaintiff is ordinarily resident outside Australia or that the proceedings raise real issues to be tried. In this way, the discretion to order security for costs is enlivened and the question is whether it should be exercised.
As to that, the evidential onus passes to the plaintiff to establish a reason why security should not be granted. In saying this, I have regard to what was said by Beazley JA in Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30] as elucidated in Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; 98 ACSR 301 at [19].
As explained by Meagher JA in Mothership Music Pty Ltd v Flo Rida [2012] NSWCA 344 at [12], the fact that the plaintiff is resident out of Australia and is not shown to have assets in Australia is given significant weight when considering whether to order security but may be overcome by countervailing factors such as whether the plaintiff has assets in another country against which cost orders might be enforced, the complexity and cost of any such enforcement process and the susceptibility of the assets to being moved to avoid effective enforcement. Another countervailing factor may be that the making of an order would stifle an arguable proceeding.
On the present application, the Court does not have any information about the circumstances of the plaintiff except an admission that it is a California corporation ordinarily resident outside Australia and the statement of its counsel that it has or claims to have an asset in Australia in the form of the debt owed by the company in liquidation or, I suppose, the right to participate in the winding up in respect of that debt. However, there is no indication of the amount or value of that asset. Its availability to meet any adverse costs order must be rated as at least problematic. Significantly, there is no evidence of the nature or extent of the plaintiff's assets in California or elsewhere outside Australia.
As to the enforcement of a costs order in California, I have before me only the general evidence of the defendants' solicitor that enquiries made by him suggest that there may be difficulty, delay and cost in such a course. There is no evidence suggesting that an order for security will stifle the proceedings.
Counsel for the plaintiff emphasised that there is a public interest in the prompt determination of the proceedings because the due progress of the winding up needs to be assured and will continue to be delayed while the challenge to the continuing tenure of the liquidators is undetermined. That is put forward as a factor militating against an order for security but I do not see it in that way. The security application has been heard.
I am not persuaded that the plaintiff has demonstrated that any relevant countervailing factor exists so as to overcome the significant weight to be afforded to the plaintiff's absence from Australia and apparent lack of readily accessible assets in Australia, coupled with likely difficulty with enforcement of orders in California, even if there are assets there which would make attempts at enforcement realistic. That being so, the defendants have established a basis for the exercise of the Court's discretion in their favour.
That leads to the question of quantum. As is usual in such matters, solicitors on both sides have given affidavit evidence of opinions and estimates of possible or likely outgoings for fees of both solicitors and counsel to the conclusion of the trial. As is also usual, the estimates vary widely. In saying that, I intend no criticism. Mr Frawley, the defendants' solicitor, and Mr Doble, the plaintiff's solicitor, are both experienced practitioners and each has obviously approached the matter responsibly, conscientiously and with diligence.
It is necessary to refer to the main differences of approach.
Mr Frawley estimates a total of $79,780 for costs of solicitors and counsel on the practitioner and client basis; $51,400 for solicitors and $28,380 for counsel. Mr Doble's estimate is $30,000, being $17,802 for solicitors and $12,250 for counsel, the $30,000 being a rounded figure.
Counsel on both sides referred to factors that might require revision of the respective estimates. First, there is the question of the likely duration of the final hearing. Mr Doble allowed for half a day, Mr Frawley for a full day.
Second, Mr Frawley's estimate includes what is effectively a buffer of 20% for unforeseen contingencies that is absent from Mr Doble's calculation. Mr Frawley makes the point that matters such as settlement discussion and consideration of evidence as it emerges may mean that additional time has to be spent.
Third, Mr Frawley's total includes, but Mr Doble's does not, costs of the present security for costs application - some $10,000 on Mr Frawley's figures.
Fourth, Mr Doble has used a blended rate of solicitors' charging rate for both partner and employed solicitor, while Mr Frawley has applied the actual rate for each category of practitioner to the time estimated for each.
It is not necessary or appropriate that I descent into the detail of the competing calculations. Three general observations are sufficient. First, I think Mr Frawley's approach is on a basis that errs on the conservative side, particularly in the area of the 20% buffer for contingencies but not only in that area. Second, the general impression I obtained on the hearing of the application is that the substantive matter is likely to be hard fought, which calls into question Mr Doble's half day estimate. There must be a real possibility of more than formal and cursory cross-examination, I would think. Third, Mr Frawley's estimate correctly includes an element for the costs of this present application which Mr Doble's does not.
On the whole, therefore I would adopt a gross figure of $35,000 for solicitors and $25,000 for counsel. Mr Frawley and Mr Doble are agreed that the solicitors' costs recoverable on assessment will be less than the gross figures I have mentioned. Mr Frawley's opinion is that there will likely be a discount of between 25 per cent and 40 per cent. Mr Doble nominates a discount of 30 per cent and I am content to adopt that figure.
As to counsel's fees, the defendants say that no discount should be expected on assessment, while the plaintiff's counsel said that that is not necessarily so, although Mr Doble in his affidavit applies no discount.
In those circumstances I will apply no discount in relation to counsel's fees.
Overall therefore an appropriately discounted round figure is $45,000 being $15,000 less than the sum sought by the defendants in the interlocutory process.
[Submissions on form of orders and costs.]
I make orders as follows:
Order that the plaintiff provide security for the defendants' costs of the proceedings in the sum of $45,000 by way of payment into court or by way of bank guarantee in favour of the registrar and in a form and from an institution approved by the registrar.
Order that if such security is not provided within 28 days, the proceedings be stayed until further order.
Order that the plaintiff pay the defendants' costs of the interlocutory process determined today.
Grant liberty to apply for re-listing after the provision of security in accordance with order 1.
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Decision last updated: 03 August 2016