Solicitors:
Banton Group (Plaintiffs)
Minter Ellison (First Defendant)
Jackson McDonald (Second and Fourth Defendants)
Quinn Emanuel Urquhart & Sullivan (Third, Tenth and Eleventh Defendants)
Clifford Chance (Sixth Defendant)
Clyde & Co (Seventh and Eighth Defendants)
Wotton + Kearney (Ninth Defendant)
File Number(s): 2017/237882
[2]
Judgment
The plaintiffs, Forge Group Limited (in Liquidation) (Receivers and Managers Appointed) and Forge Group Power Pty Ltd (in Liquidation) (Receivers and Managers Appointed) (together, "Forge") were placed into liquidation in March 2014.
Forge was [1] engaged in the business of providing engineering, procurement, construction, project management and maintenance services.
Forge brings these proceedings against ten former directors ("the Director Defendants"), and against its former auditors, Grant Thornton.
Forge claims: [2]
"In January 2012, Forge acquired all the shares in CTEC, an engineering, procurement and construction management firm providing operations and maintenance services in the energy and utilities sectors in Australia.
As part of the CTEC acquisition, Forge took over two major contracts for the construction of power stations - being the Diamantina Power Station in Mount Isa, Queensland (the DPS Project) and the West Angelas Power Station in the Pilbara region of Western Australia (the WAPS Project).
Forge alleges that at all material times from January 2012, the DPS Project and the WAPS Project were uneconomic, or there was a risk that they were uneconomic, on account of various commercial, scope estimates, design and planning deficiencies.
Forge further alleges that at all material times, the Director Defendants knew or ought to have known, inter alia, that the DPS Project and the WAPS Project were uneconomic, as a result of various commercial, scope estimates, design and planning deficiencies."
As against the ten Director Defendants, Forge alleges that:
1. seven of the Director Defendants, who were in office at the time Forge acquired CTEC, breached their duties by conducting inadequate due diligence and allowing the acquisition to proceed ("the Due Diligence Claim"); and
2. eight of the Director Defendants, who were in office from September 2012 to May 2013, breached their duties by eroding Forge's "ring-fencing" from the liabilities of its duly acquired subsidiary, CTEC ("the Ring-Fencing Claim").
Forge also makes discrete claims against two of the Director Defendants, who were successive managing directors of Forge, concerning aspects of their management of Forge [3] .
As against Grant Thornton, Forge alleges that it failed its duties as auditor by signing off on Forge's and CTEC's accounts in August and September 2012 when those accounts did not recognise significant losses and liabilities affecting CTEC's ability to continue to trade as a going concern.
Forge claims many hundreds of millions of dollars of damages.
The proceedings are complex. They have been set down for hearing over 50 days, commencing 26 July 2021.
In July 2018, Forge agreed to provide the Director Defendants with security for costs in the sum of $2.45 million in relation to identified tranches of work. The parties referred to this as the "First Security Agreement". I return to this below.
By notice of motion filed on 4 September 2020, the Director Defendants seek further security from Forge in the sum of some $17.4 million. [4]
The relevant principles were recently and succinctly summarised by Macaulay J in Andrianakis v Uber Technologies Inc as follows: [5]
"In determining the quantum of security, the Court is to apply the following principles:
(a) The Court is to order an amount which it thinks is 'just and reasonable' having regard to all of the circumstances of the case.
(b) The purpose of security for costs is not to provide a defendant with full protection for the estimated costs of the party seeking security.
(c) The Court is to adopt a 'broad brush' approach to the determination of the amount of security to be ordered. The task of the Court is not to undertake precise mathematical calculations.
(d) That said, the broad brush approach does not involve an abstract process; it must have an evidentiary basis.
(e) The Court is not bound to give security in the amount sought and is not bound by the estimates of the parties.
(f) In making its assessment of the appropriate quantum, the Court may scrutinise individual items but not to the extent of minute examination, akin to a taxation.
(g) The amount ultimately fixed by the Court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide security.
(h) Insufficiency in the evidence substantiating a claim for security may be reason for the Court to look critically at the estimate provided and may be reason for the Court to apply a heavier percentage discount to the amount sought."
Forge accepts that it must provide further security but disputes the quantum of security sought.
A litigation funder, International Litigation Partners No 16 Pte Ltd, stands behind the liquidators. There is no suggestion that Forge cannot provide such security as may be ordered, and thus no suggestion that the provision of security will stultify the proceedings.
On the other hand, there is no suggestion that Forge has any capacity to meet an adverse costs order, beyond such sum as is provided by way of security for costs. As Ms Gomez said on behalf of the Director Defendants, "this is it".
[3]
The evidence on the application
The necessity to adopt a broad-brush approach, albeit on an evidentiary basis, but not to conduct a minute examination as if on a taxation, assumes particular significance in this case for a number of reasons.
The first is the very large amount of security sought.
The second is the nature of the evidence deployed by the Director Defendants and Forge on the application.
The ten Director Defendants are represented by six separate law firms as follows:
1. The first defendant, Mr Peter Hutchinson, by Minter Ellison;
2. The second and fourth defendants, Mr Andrew Ellison and Mr Gregory McRostie, by Jackson McDonald;
3. The third, tenth and eleventh defendants, Mr Marcello Cardaci, Mr Gregory Kempton and Mr John O'Connor, by Quinn Emanuel Urquhart & Sullivan ("Quinn Emanuel");
4. The sixth defendant, Mr David Craig, by Clifford Chance;
5. The seventh and eighth defendants, Mr Neil Siford and Mr Kevin Gallagher, by Clyde & Co; and
6. The ninth defendant, Mr David Simpson, by Wotton + Kearney. [6]
Mr Benjamin Luscombe, a partner of Clifford Chance, which firm acts for the sixth defendant, Mr Craig, has made an affidavit setting out his estimate of the costs Mr Craig will incur "following [Forge's] service of its evidence in chief" in relation to 13 identified stages in the proceedings.
Mr Luscombe has annexed to his affidavit schedules he has received from the other five law firms setting out their cost estimates, including for counsel's fees, for the same 13 stages. No representative of those other five law firms has made an affidavit on this application.
The total of the costs so estimated is some $15.1 million, to which disbursements including expert fees must be added.
The Director Defendants have served reports from an expert costs assessor, Mr Michael Dudman. Mr Dudman estimates reasonable recoverable party-party costs including counsel's fees to be some $12.8 million, plus disbursements including expert fees of some $4.6 million.
Forge's solicitor, Ms Amanda Banton, has made a detailed affidavit critiquing her colleagues' estimates and Mr Dudman's opinions and opining that reasonable costs including counsel's fees would be some $5.3 million, plus disbursements, including expert fees of some $2.5 million.
Forge has also served a report from another costs assessor, Ms Kerrie-Ann Rosati, who makes detailed criticisms of Mr Dudman's reasoning (to which Mr Dudman has replied in a responsive affidavit). Ms Rosati concluded that, taking Ms Banton's estimates "as the appropriate starting point for likely incurred costs on a solicitor/client basis", a range of recoverable party-party costs is between some $5.7 million and $6.5 million.
Between them, these reports and affidavits comprise some 160 pages of text and, with their attachments, occupy most of the two volume Court Book.
None of these witnesses was cross examined and I am in no position to conclude on many of the criticisms offered during submissions concerning their evidence. In particular, I am not in a position to resolve many of the criticisms made by Ms Rosati of Mr Dudman's opinions, nor Mr Dudman's response to those criticisms.
[4]
How the $17.4 million sought is calculated
The six law firms have estimated that their professional costs and counsel's fees (not including other disbursements) will be $15,129,265.79, calculated as follows:
Firm Defendant/s Law Firm Estimates
Minter Ellison 1st Defendant $2,368,877.00
Jackson McDonald 2nd and 4th Defendants $2,435,432.00
Quinn Emanuel 3rd, 10th and 11th Defendants $2,329,630.00
Clifford Chance 6th Defendant $3,170,300.00
Clyde & Co 7th and 8th Defendants $1,973,746.79
Wotton + Kearney 9th Defendant $2,851,280.00
Total $15,129,265.79
[5]
Mr Dudman has conducted a review of those estimates and has concluded that the total reasonable amount that would be recoverable on a party-party basis for the six firms, including counsel's fees, is $12,830,762.14, calculated as follows:
Firm Defendant/s Law Firm Estimates
Minter Ellison 1st Defendant $2,021,092.86
Jackson McDonald 2nd and 4th Defendants $1,827,560.00
Quinn Emanuel 3rd, 10th and 11th Defendants $1,970,900.00
Clifford Chance 6th Defendant $2,956,850.00
Clyde & Co 7th and 8th Defendants $1,885,799.29
Wotton + Kearney 9th Defendant $2,168,560.00
Total $12,830,762.15
[6]
On that basis, Mr Dudman has estimated that, were the Director Defendants to be successful, the professional costs and disbursements that they would recover on an ordinary party-party basis from Forge "in relation to costs anticipated to be incurred from June 2020" [7] would be $17,433,210.64, calculated as follows:
Item Amount
Professional fees (Firms and Counsel) $12,830,762.14
Disbursements:
Expert Fees $2,939,147.50
Document hosting $928,116.00
External photocopying $397,800.00
E-Trial $233,385.00
Mediation $35,000.00
Travel and accommodation $69,000.00
Total $17,433,210.64
[7]
Mr Dudman has made his estimate in relation to 13 stages in the proceedings to which I referred at [20] and [21] above.
The 13 stages, and Mr Dudman's corresponding estimate, are set out in the following table: 13 Stages MFI-3 (76850, pdf)
[8]
The issues
Mr Edwards, for Forge, raised three issues.
The first was the duplication of legal representation arising from the fact that six law firms, and sets of counsel, are retained by the ten Director Defendants.
The second was the extent to which the Director Defendants are, by this application, seeking to revisit the scope of the First Security Agreement.
The third was the allegedly unreasonable nature of the assumptions underlying Mr Dudman's calculations.
I shall deal with each of these matters in turn.
[9]
Duplication of representation
Mr Edwards accepted that it was reasonable that the first defendant, Mr Hutchinson, and the ninth defendant, Mr Simpson, be separately represented.
That is because, in addition to the allegations made against all of the Director Defendants concerning the Due Diligence Claim and the Ring-Fencing Claim, specific allegations are made against Mr Hutchinson and Mr Simpson arising from their roles as successive managing directors of Forge. [8]
The debate before me was as to what justification there could be for four separate law firms (and counsel) being engaged for the remaining eight Director Defendants. [9]
Mr Dudman accepted that:
"Where there are multiple defendants, to order the plaintiffs to give security for the costs of each defendant the Court usually needs to be convinced, inter alia, that it is reasonable for each to be separately represented."
Mr Dudman referred to the observations of King CJ in Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd. [10] In that case, the Chief Justice [11] said: [12]
"In considering security for costs the court ought to try to do justice as between the parties. The court should protect a defendant against the loss which may result from inability to recover costs by reason of the impecuniosity of the plaintiff but should not go further than is reasonably necessary for that purpose. The provision of security for costs, which it may never be liable to pay, may place an unreasonable burden upon a plaintiff or those for whose benefit the plaintiff is suing. It seems to me to be a material consideration that a defendant, so far as can be seen, has no need of separate representation. In some cases it will not be possible to assess that need satisfactorily before trial and the hardship imposed by the additional security sought may be justified to protect the defendant. In other cases it will be tolerably clear that separate representation is unnecessary and it will be unreasonable and unfair to place an unnecessary burden upon the plaintiff or those who are providing its costs."
Mr Lockhart SC, who appeared with Ms Gomez for the Director Defendants, drew attention to the following observations of Einstein J in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [13] that:
"The Court will not normally allow more than one set of costs to successful litigants where there was no possible conflict of interest between them in the presentation of their cases. [14] The matter was put as follows at 246, per Woodward J:
'The principle which I deduce from these authorities, and which I believe I should follow in spite of the two cases earlier cited, is that the court will not normally allow two sets of costs to defendants where there is no possible conflict of interest between them in the presentation of their cases. I would add to this basic proposition three provisos. In the first place, if a conflict of interest appears possible but unlikely, the defendants should make any necessary inquiries from the plaintiff as to the way in which his case is to be put if this would resolve the possibility of conflict between defendants. [15]
Secondly, there could be circumstances in which, although the defendants were united in their opposition to the plaintiff, their relationship to each other might be such that they would be acting reasonably in remaining at arm's length during the general course of litigation.
Thirdly, even if defendants are acting reasonably in maintaining separate representation for some time or for some purposes, they may still be deprived of part of their costs if they act unreasonably by duplicating costs on any particular matter or at any particular time'."
The observations of Einstein J and Woodward J referred to in the preceding paragraph were made in the context of the making of an appropriate costs order at the conclusion of proceedings. However, it was common ground that their Honours' observations were apposite to the task before me.
Mr Lockhart submitted that, in this case, the multiplicity of representation was justified by the potential conflict of interest that would arise were one firm to act for all of the remaining eight Director Defendants.
Mr Lockhart pointed to the fact that these Director Defendants held the positions as directors for varying periods as illustrated by the "Timeline" Director Timeline MFI-1 (107963, pdf) .
Mr Lockhart also pointed to the fact that the eight Director Defendants had differing roles while they were directors and, in particular, that:
1. Mr McRostie and Mr Ellison (for whom Jackson McDonald act) were executive directors of Forge and also executive directors of two relevant subsidiaries;
2. Mr Cardaci and Mr O'Connor (for whom Quinn Emanuel act) were on Forge's Risk and Audit Committee (although Mr Kempton, for whom Quinn Emanuel also act, was not);
3. Mr Craig (for whom Clifford Chance act) was a non-executive director and Chairman of the Board for much of the time during which he was director; and
4. Mr Siford and Mr Gallagher (for whom Clyde & Co act) were directors and chief financial officer and chief executive officer, respectively, of Clough Limited; a company that provided Forge with a due diligence study concerning the acquisition of CTEC.
Mr Lockhart submitted that each director is likely have a different "knowledge bank" concerning the impugned transactions and that a "director by director" enquiry would be called upon to determine the individual culpability of the eight Director Defendants and the causal potency of such acts or omissions as are established against them.
Mr Lockhart also pointed to the fact that Grant Thornton has foreshadowed bringing a cross claim against all of the Director Defendants for equitable compensation and submitted that this highlighted the extent to which individual attention will be directed, at the hearing, to the role played by each individual Director Defendant.
However, Grant Thornton does not yet have leave to bring such a cross claim and the evidence before me has been prepared, and the application must be determined, on the basis of the case as presently constituted.
The case made by Forge against the eight Director Defendants, is substantially the same. This is illustrated by an aide memoire prepared by Mr Edwards that I attach to these reasons Comparison of Claims MFI-2 (119251, pdf) . That document shows that the allegations made against all ten Director Defendants concerning the Due Diligence Claim and the Ring-Fencing Claim are virtually the same.
In particular, the allegations made against Mr Siford and Mr Gallagher concerning the Due Diligence Claim make no reference to their role at Clough Limited.
Further, as Mr Edwards submitted, Quinn Emanuel evidently see no difficulty acting for each of Mr Cardaci, Mr Kempton and Mr O'Connor, notwithstanding the fact that:
1. Mr Cardaci was a director for much longer than either Mr Kempton or Mr O'Connor;
2. Mr Cardaci and Mr O'Connor, but not Mr Kempton, were on Forge's Risk and Audit Committee; and
3. Mr Cardaci is subject to both the Due Diligence Claims and Ring Fencing Claims, whereas Mr Kempton and Mr O'Connor are subject only to the Ring Fencing Claims.
Further, Quinn Emanuel, Jackson McDonald and Clyde & Co evidently see no difficulty in pleading on behalf of each of their Director Defendant clients that if that Director Defendant is found liable to Forge, then each other Director Defendant, including those other Director Defendants for whom the firm acts, is a concurrent wrongdoer for the purposes of s 34 of the Civil Liability Act 2002 (NSW).
Thus, although there are no cross claims between the Director Defendants, each has pleaded that:
1. Forge's claim against him is an apportionable claim within the meaning of s 34;
2. "each other Director Defendant", [16] including any other Director Defendant represented by the same firm, is a concurrent wrongdoer for the purposes of that section; and
3. any liability he has to Forge "is limited to an amount reflecting that proportion of the damage or loss claimed that the Court considers just having regard to the extent of [his] responsibility for the damage or loss". [17]
Thus:
1. Messrs Ellison and McRostie, represented by Jackson McDonald, each allege that if Forge establishes his liability and if acts or omissions of "any of the other Director Defendants" caused Forge's loss "then each such other Director Defendant is a concurrent wrongdoer" and that his liability should be limited accordingly; [18]
2. Messrs Cardaci, Kempton and O'Connor, represented by Quinn Emanuel, each allege that "in the event that he is held liable … each of the Director Defendants is a concurrent wrongdoer … to the extent that they were a director at the time of the contravention" and that his liability should be limited accordingly; [19] and
3. Messrs Siford and Gallagher, represented by Clyde & Co, each allege that "if … found liable" to Forge "each of the remaining Director Defendants" is a concurrent wrongdoer and that his liability should be limited accordingly. [20]
Messrs Hutchinson, Simpson and Craig, each of whom is separately represented, make a corresponding allegation. [21]
I offer no criticism of Jackson McDonald, Quinn Emanuel or Clyde and Co in this regard. I have no reason to think they are acting otherwise than with perfect propriety. But the fact that they see themselves able to act for their client Director Defendants suggests that, at least to this extent, they do not see any conflict of interest or any tension between their duties to those clients.
In those circumstances, and as Mr Edwards submitted, it is significant that not one of the solicitors acting for the non-managing Director Defendants [22] has deposed to the conflicts of interest that were the subject of Mr Lockhart's submissions or otherwise explained why he or she is acting for some, but not all, of the remaining Director Defendants.
On this application, only Mr Luscombe from Clifford Chance has sworn an affidavit. However, Mr Luscombe's affidavit is not directed to the question of any conflict of interest and does not explain why his firm acts only for Mr Craig. Nor is there evidence from any partner of Jackson McDonald, Quinn Emanuel or Clyde & Co explaining why those firms are acting for the particular Director Defendants who are their clients, nor of any perceived conflict of interest that might prevent them from acting for any of the other eight Director Defendants.
Although I am informed that Forge did not raise this point during negotiations leading to the First Security Agreement, and indeed conducted those negotiations on the basis of the separate representations, I find this to be a significant omission, particularly bearing in mind the quantum of the costs that each of the four firms expect to incur in this litigation and the very large amount of money sought by way of security for costs.
The explanation offered in reply submissions by Ms Gomez, who presented this part of the argument for the Director Defendants, was that:
"The Director Defendants have not put on any affidavit evidence of potential conflict considerations because it would waive privilege and reveal trial strategy in an interlocutory application, as opposed to a costs application after the matter is determined".
But there is no evidence that this is the reason why none of the six solicitors has put on evidence on this question, despite the matter being clearly raised in Mr Edwards outline of submissions (served in early February), and emphasised orally before me. And I cannot see why each solicitor could not have explained why he or she decided to act for only one or some of the Director Defendants without waiving privilege or revealing matters of strategy.
Ms Gomez suggested that I might infer that any insurer of the Director Defendants would not have acceded to multiple representation without good reason. But that is a matter of speculation. For all I know, the decisions were taken by the Director Defendants by reason of their preference to use a particular firm, or because of some unexplained reason associated with the Director Defendants' insurance position.
I find this to be a matter relevant to how I should exercise my discretion on this application, particularly in light of the very large amount of security sought.
[10]
The First Security Agreement
On 20 June 2018, Forge's solicitor offered "a further and final global offer of security of $2,450,000 to the director defendants".
A schedule to that letter referred to three "Tranche Milestones".
1. "Informal disclosure and filing and service of Commercial List Responses, to be paid within a reasonable period of time once orders for security for this tranche are agreed (First Tranche)".
2. "Service of lay evidence [by the Director Defendants] - to be paid when our client serves its lay evidence (Second Tranche)".
3. "Service of expert evidence [by the Director Defendants] - to be paid when our client serves its expert evidence (Third Tranche)".
I have added the words in square brackets (thus "[ ]") to emphasise that although the proposal was, relevantly, that the Second and Third Tranches were to be paid when Forge served its lay/expert evidence, the security was for service by the Director Defendants of their lay and expert evidence.
On 21 June 2018, Jackson McDonald replied on behalf of all the Director Defendants:
"The letter makes an offer in the sum of $2.45 million (Counter-Offer).
The Counter-Offer is that security will be paid across 3 tranches linked to 'milestone tasks' as follows:
• Tranche 1 be paid on completion of informal disclosure and filing and service of defences in the sum of $987,274.01;
• Tranche 2 be paid on the service of lay evidence by the liquidator in the sum of $764,991.96; and
• Tranche 3 be paid on the service of expert evidence by the liquidator in the sum of $697,733.12 (or Tranche 2 and 3 may be payable together if lay and expert evidence is served at the same time by the liquidator).
…
The defendants agree to accept the Counter-Offer on the basis that:
• the defendants expressly reserve their right to bring an application seeking further security for costs after the plaintiff files its expert evidence (ie after payment of Tranche 3); and
• that the defendants may seek security for costs until the end of trial in any such application."
On 21 June 2018, Forge by its then solicitor accepted that Counter-Offer and stated:
"In respect of your clients' intentions to seek further security, your reservation of your clients' rights to seek further security for those tasks beyond expert evidence that have not been negotiated and agreed is accepted (that is, principally the costs of preparing for and appearing at the trial). For the avoidance of doubt however, we do not accept that your clients are entitled to seek further security in respect of those tasks that have now been subject to extensive negotiation and agreement."
Jackson McDonald replied on the same day and confirmed that the Director Defendants:
"…expressly reserve the right to seek further security for costs in respect of the expert evidence once the plaintiffs' expert evidence is filed. Indeed, we do not accept your client's assumption that only one expert will be required [to be served by the Director Defendants] (on liability as the director defendants are not all the same). For this reason we reserve the right to apply for further security in the event that it becomes clear after your client's expert evidence is served that more than one expert is required [to be retained by the Director Defendants]."
The words I have added in square brackets (thus "[ ]") to this passage reflect the nature of the reservation of rights Jackson McDonald here sought to make; namely, to seek further security if more than one of the Director Defendants considered they should adduce expert evidence in response to that served by Forge. The parenthetical reference "(on liability as the director defendants are not all the same)" makes clear that the references to "one expert" being "required" were to the Director Defendants' evidence, not Forge's evidence.
In reply submissions, Ms Gomez, who presented this part of the argument for the Director Defendants put:
"While the terms of that email appear limited to the costs of expert evidence, it should not be read to mean that the reservation of rights was only in relation to the Director Defendants' expert evidence".
I do not see how it can be read otherwise.
According to the terms of the email, the Director Defendants' reservation of the right to seek further security was confined to any further costs associated with the Director Defendants having to call more than one expert report "on liability" "because the Director Defendants are not all the same". That was evidently because of an apprehension that individual Director Defendants may wish to adduce their own expert evidence "on liability".
Forge's solicitor expressed the matter more loosely in her letter of 12 December 2018, where she recorded an understanding that the Director Defendants reserved the right to apply for further security "in relation to the preparation of their evidence (particularly expert evidence)".
But the First Security Agreement was recorded in the exchange between the solicitors on 21 June 2018, rather than in Forge's solicitor's later letter of 12 December 2018.
It is true, as Robb J observed in TTM Investment Corporation Pty Limited v Hua Chang Pty Ltd [23] that the making of an earlier agreement about security, although capable of relevance to an application for additional security, cannot be "conclusive against the making of an order for the provision of additional security". [24]
But the Director Defendants' submissions have emphasised the terms of the First Security Agreement and have put that the Director Defendants now want "further security for the work covered by Tranches 2 [lay evidence] and 3 [expert evidence]":
1. not because any of the Director Defendants wish separately to adduce expert evidence; but
2. because the amount provided for under the First Security Agreement for the Director Defendants' evidence is said to be "wholly inadequate taking into account the many material changes to the proceedings since Tranches 1 - 3 were agreed".
And in their reply submissions the Director Defendants put that:
"It was plainly within the contemplation of the parties that the scope of the evidence required might change significantly from that which was estimated, i.e. from what the parties had in mind in June 2018. The parties must have contemplated that the nature of the case might change amongst other matters. It is unlikely that it was intended that the reservation of rights to seek further security would be limited just to expert evidence. In all the circumstances, the proper interpretation is consistent with the Director Defendants reservation of their rights to seek further security, including by reason of material changes to the case."
Thus, the Director Defendants embraced the First Security Agreement and argued that its proper construction warranted the further security sought. In my opinion it does not.
Nonetheless, I will consider the "material changes" for which the Director Defendants contend.
[11]
Increased breadth of Forge's case
In October 2018, Forge filed an Amended Commercial List Statement and in October 2019, a Further Amended Consolidated Commercial List Statement.
Mr Lockhart submitted that the amendments made were "substantial" and included new allegations.
On the other hand, Mr Edwards submitted that the effect of the amendments was narrow, the claims brought by Forge against the Director Defendants.
Neither Mr Lockhart nor Mr Edwards sought to develop those submissions, nor to explain what further work relevant to Tranches 2 and 3 thereby resulted.
[12]
Increased discovery
Mr Lockhart submitted that Tranches 1 - 3 were agreed based on an estimate that 5,000 - 10,000 documents would be discovered; whereas from 2018, Forge and Grant Thornton have produced on discovery over 1.3 million documents and have indicated that they propose to rely upon some 22,000 "core" documents at trial.
Mr Lockhart's submissions did not reveal upon what basis figures for Tranches 1 - 3 were so agreed, nor how the increased volume of documents has led to the asserted inadequacy of the security already provided by Forge in respect of Tranches 2 and 3.
On the other hand, Mr Edwards submitted that "the volume of documents produced has been largely of the Directors' own making" and drew attention to the remarks made by Ball J on 8 October 2019:
"All I'm saying is that if I'm being told that this is more efficient, I'm not going to listen to an argument that additional time is required because suddenly some defendant or another is stuck with two and a half million documents. And, similarly I'm not going to accept an argument that if it's more efficient to do it this way somehow or another greater security should be ordered than would otherwise be ordered."
[13]
Evidence served by Forge
Mr Lockhart submitted that Forge had served "more evidence than their estimate which formed the basis of Tranches 2 - 3" in the First Security Agreement (said to be "one affidavit and two expert reports") and has served eight outlines of anticipated lay evidence and, relevantly to the case against the Director Defendants, five reports from experts in three disciplines.
The Defendant Directors have served statements from each of them and, on their joint behalves, four expert reports in separate disciplines.
This may be more evidence than those advising the Director Defendants anticipated, but it is not separate expert evidence from individual Director Defendants, as was contemplated by the reservation in Jackson McDonald's 21 July 2018 email.
[14]
Further observations
Several of the categories of work identified by Mr Dudman in the table set out at [32] above, relate to work the subject of Tranches 2 and 3 of the First Security Agreement.
These include:
1. Category 3: "Reviewing [Forge's] lay and expert evidence", for which Mr Dudman allowed $627,480; and
2. Category 5: "Preparing defendant's lay and expert evidence", for which Mr Dudman allowed $1,458,915 for costs and $2,939,147.50 for expert fees.
These amounts total some $4.4 million and represent the Director Defendants' claim for further security for work the subject of the First Security Agreement.
That is not itself a reason to deny further security in these amounts, but a matter relevant to the overall task of setting a fair figure.
[15]
The assumptions underlying Mr Dudman's assessment
Mr Edwards directed particular criticisms to matters underlying Mr Dudman's assessment, including the costs estimated for preparation for trial (some $2.4 million) and attending the trial (some $5.65 million).
I do not think it productive for me to engage in an item by item analysis of these criticisms, or of the responses made to them on behalf of the Director Defendants, save to make the obvious point that the overall quantum of costs is markedly increased by reason of the multiplicity of representation.
However, I do see substance in the criticism offered by Mr Edwards that although Mr Dudman was instructed that the Director Defendants' experts estimated that their fees would be some $2.3 million, Mr Dudman has increased that figure by some $600,000 to accommodate his opinion that the experts had underestimated their likely fees. This is hardly the function of a costs assessor, whose role in the current context was to assess how much of the estimated costs and disbursements would be recoverable; rather than make his own assessment of what should have been estimated.
[16]
Conclusion
Overall, I must make an evaluative assessment, not susceptible to scientific or arithmetical analysis, of a reasonable figure that should be allowed for further security.
There are many factors at play.
The first is the diversity of the opinions expressed by Ms Banton and Mr Dudman, which range from Ms Banton's estimated total of some $7.8 million for costs and disbursements on a solicitor-client basis (including some $5.2 million for costs) to Mr Dudman's estimate of some $17.4 million (including some $12.8 million for costs) recoverable on a party-party basis.
Then there are Ms Rosati's criticisms of Mr Dudman's assessment, and her estimate that, assuming the correctness of Ms Banton's analysis, the range of recoverable party-party costs and disbursements is between some $5.7 million and $6.5 million.
None of these assessments has been tested in cross examination before me and, as I have said, I do not consider myself in a position to form concluded views about them.
Next is the fact that the Director Defendants are, by this application, seeking to obtain further security of some $4.4 million for work that was the subject of the First Security Agreement.
Finally is the fact that the amount of security sought reflects the multiplicity of legal representation of the Director Defendants that I find to be inadequately explained and which, on the evidence, is not explained at all. I find this itself a reason to discount considerably Mr Dudman's solicitor/counsel cost estimate of some $12.8 million.
Taking all these matters into consideration, my conclusion is that the amount of further security Forge should provide is $10 million. This allows some $4 million for expert fees and other disbursements (being Mr Dudman's figure [25] less his $600,000 uplift) plus approximately half of Mr Dudman's estimate for solicitor and counsel fees. The latter reflects, in the broad brush fashion necessary to be adopted in applications like this, the multiplicity of representation and the re-visiting of the matters the subject of the First Security Agreement.
The parties should bring in short minutes to reflect these reasons.
If there is to be a dispute as to the manner in which the security is to be provided, the parties should confer and agree on a timetable in short written submissions. I will deal with any dispute on the papers.
[17]
Endnotes
I will adopt the singular for convenience.
As set out in the "Nature of Dispute" in Forge's Further Amended Consolidated List Statement.
See [38] and [39] below
A corresponding application, for a smaller amount, by Grant Thornton was settled.
[2019] VSC 850 at [214] (omitting citations).
The fifth defendant, Mr John Smith, has died.
Affidavit of Michael John Dudman, 3 September 2020 at [36].
See [6] above.
See [19] above.
(1992) 57 SASR 180.
With whom Bollen and Prior JJ agreed.
At [189].
[2006] NSWSC 583 at [13].
Statham v Shephard (No 2) (1974) 23 FLR 244.
In re Lyell [1941] VLR 207.
And Grant Thornton.
For the purposes of s 35(1) of the Civil Liability Act 2002 (NSW).
At [367] and [368] of their List Responses.
At [310[ of their List Responses.
At [371] - [374] of their joint List Response.
At [369], [415] and [226] respectively of their List Responses.
That is, those other than Mr Hutchinson and Mr Simpson.
[2020] NSWSC 294.
At [85] and [86].
See [30] above.
[18]
Amendments
03 June 2021 - Case title corrected
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Decision last updated: 03 June 2021
Parties
Applicant/Plaintiff:
Forge Group Ltd (In Liq) (Receivers and Managers Appointed)