Solicitors:
Yates Beaggi (Plaintiff)
Price Law (Defendants)
File Number(s): 2018/319830
[2]
Judgment
By notice of motion filed on 23 November 2020 the defendants, Mr Alexander Kay and Mr Ryan Kay, who are father and son, seek security for their costs of these proceedings in the sum of $68,535.
The plaintiff, formerly known as Playup Australia Pty Ltd, sues Messrs Kay in relation to "Share Sale and Purchase Agreements" they executed on 23 March 2018 for the sale to Playup of their shares in two companies involved in the internet gambling industry.
Playup claims damages from each of Messrs Kay for breaches of warranty under those agreements and for indemnity in relation to Playup's liability to a third party, KRM (Vic) Pty Ltd.
It is not necessary for the purposes of this application to set out the detail of the claims made by Playup. The claims made against each of Messrs Kay are essentially the same.
Although the notice of motion of 23 November 2020 seeks security for the costs of both of Messrs Kay, at the hearing of this motion on 11 December 2020, Mr Kabilafkas, who appears for them, informed me that the claim for security was now only made by Mr Alexander Kay. This is because two sets of costs orders have been made against Mr Ryan Kay in favour of Playup in related proceedings, the quantum of which is likely to exceed, by a considerable margin, the amount of the security sought in these proceedings.
Mr Alexander Kay brings a cross claim in the proceedings, currently for some $1.4 million, for the unpaid purchase price of the shares he sold Playup under the 23 March 2018 agreement to which he was a party. Mr Ryan Kay brings no such cross claim because, I was informed, he has been paid all that is due to him under the agreement to which he was a party.
The parties exchanged evidence during 2019. They then agreed to an informal "standstill agreement" pending the outcome of appeals in two related proceedings, being an appeal from my decision of 25 June 2019 [1] which was resolved by a decision of the Court of Appeal made on 4 March 2020 [2] and from a decision by Rein J of 29 November 2019 [3] which was resolved by a decision of the Court of Appeal published on 12 May 2020. [4]
Then, on 31 July 2020, directions were made for Playup to serve an amended Summons and Commercial List Statement and to serve any additional evidence.
Mr Walker, who appeared before me for Playup, informed me that that additional evidence is, for the most part, expert evidence as to quantum. Despite several orders extending the time for Playup to serve that evidence, it is still not to hand. Mr Walker said that, subject to the outcome of this application, that evidence should be available by 24 December 2020.
Mr Walker accepted that the jurisdictional threshold for ordering payment of security for costs is met. Indeed, on 2 February 2020, Mr Daniel Simic, a director of Playup, swore an affidavit saying that Playup has no assets and is unable to pay the judgment and costs ordered by Rein J, and confirmed by the Court of Appeal in the related proceedings to which I have referred.
Mr Walker did not submit that a reason to refuse security would be that such an order would stifle the proceedings. I infer from that that those behind Playup can and will provide security if so ordered.
However, Mr Walker submitted that there were two reasons why security should not be ordered.
The first reason advanced by Mr Walker related to Mr Alexander Kay's cross claim. Mr Walker's point was that it would be unjust if Playup's proceedings were stayed by reason of not being able to provide security, but Mr Alexander Kay's cross claim were permitted to proceed. [5]
Mr Kabilafkas recognised the force of this submission and, on behalf of Mr Alexander Kay, offered to the Court an undertaking that in the event that these proceedings were stayed by reason of Playup's inability to provide security for costs, Mr Kay would take no further steps on his cross claim whilst the proceedings were so stayed.
Mr Walker accepted that this was an appropriate response to this aspect of his case.
Second, Mr Walker complained of delay and pointed to the fact that these proceedings are now two years old and have been before the Court, for directions or otherwise, on 19 occasions before now.
Mr Walker also submitted that the proceedings had advanced by September 2019 to the point that a court book and submissions were prepared in readiness for the possibility that these proceedings would be heard concurrently with related proceedings. [6]
On the other hand, Mr Kabilafkas submitted that it was not until Mr Simic served his 2 February 2020 affidavit that the Kays were aware that Playup was a shell corporation with no assets.
Mr Price, who swore the affidavit in support of this application on behalf of the Kays, did not say, in terms, that Mr Simic's affidavit was the first revelation to the Kays of Playup's parlous financial position. However, I accept that that is the implication of Mr Price's evidence. It was not contradicted by Mr Walker's instructing solicitor, Mr Amirbeaggi, in his affidavit in reply made on 30 November 2020.
Mr Kabilafkas also made the point that the reason delay is a factor in relation to security for costs applications is that it may be unfair to order security late in the day in circumstances where a plaintiff continues to incur costs that might be wasted if security were ordered and not be able to be paid. [7]
Mr Kabilafkas submitted that, in substance, Playup has not incurred any significant costs since its parlous financial position was revealed as, despite the orders made on and after 31 July 2020, it has not yet served the further evidence it has foreshadowed.
I see substance in this submission and, overall, am not persuaded that the fact that security for costs is only being made at this relatively late stage in the proceedings is a reason to decline to order security.
There are, however, difficulties with the quantum of security sought.
The amount of security claimed in the notice of motion, $68,535, is based upon the estimate made by Mr Price in his affidavit of "the Defendants' costs to the Defendants in these proceedings". Mr Price's estimate was made assuming a two-day hearing and that costs assessed on a party-party basis would be between 80% and 90% of Mr Price's estimate of the Kays' actual costs.
Before me it was common ground that the hearing is likely to take three rather than two days which, according to Mr Price, would increase the costs incurred by the Kays by some $12,000. [8]
As the application for security has been brought belatedly, although for reasons that have been explained, I would not be prepared to order security for past costs. In particular, I would not be prepared to order security for costs prior to 31 July 2020 when parties' informal "standstill agreement" came to an end.
Although Mr Price's costs analysis is, as Mr Kabilafkas accepted, far from perfectly clear, it does appear that a part of his estimate relates to past costs.
More significantly, Mr Price's estimate is of the costs that will be incurred by both Mr Ryan and Mr Alexander Kay.
Both are using the same legal team and both are no doubt jointly and separately liable for the costs to be incurred.
Were I to order that Playup give Mr Alexander Kay security for all the costs he will incur it would, in effect, give Mr Ryan Kay security for his costs when he has, in terms, eschewed himself seeking security.
Further, Mr Price's costs estimate includes the costs that have and will be incurred by Mr Alexander Kay on his cross-claim.
It is true, as Mr Kabilafkas pointed out, that Mr Price does not, in terms, refer to Mr Alexander Kay's cross claim. But he describes his estimate as being that of the Kays "in these proceedings" which I read to include Mr Alexander Kay's costs of his cross claim.
Obviously, Mr Alexander Kay cannot have security for the costs of his cross claim.
Further, Mr Price's estimate of a discount of only between 10% and 20% of actual costs to reflect recovery of party-party costs appears to me to be optimistic.
A discount, and in my view a significant discount, is for these reasons required to be made to the amount of security sought.
A broad brush, evaluative approach is required which cannot be susceptible to scientific analysis and must be very much one of impression.
Mr Walker submitted that I should discount Mr Price's figure by 50% on account of Mr Alexander Kay being only one defendant, a further 50% on account of Mr Alexander's cross claim and a further amount on account of Mr Price's optimistic discount for party-party costs.
I think this goes too far and that a fairer discount in all of these circumstances is an overall discount of two thirds.
The security I propose to order is in the sum of $25,000.
I invite the parties to confer and agree on the precise orders that should be made to give effect to these reasons. The orders should note the undertaking referred to at [14] above.
I will hear any argument as to the costs of the motion. My preliminary view is that the appropriate order is that the costs of the defendants' notice of motion of 23 November 2020 should be the second defendant's costs in the cause.
If the parties can agree on the directions that should be made once the security is in place, I will make those orders in chambers.
See for example Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd [1999] NSWCA 16 at [24] (Sheppard AJA, with whom Mason P and Handley JA agreed).
This did not, as events happened, eventuate.
Eg Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at 308 (Street CJ); and Southern Cross Exploration NL v Fire and or Risks Insurance Co Pty Ltd (1985) 1 NSWLR 114 at 124 (Waddell J).
Mr Price estimated an extra $24,000 for a four-day hearing.
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Decision last updated: 15 December 2020