Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd

Supreme Court of NSW|2013-09-19|Before: Stevenson J, McDougall J

ns (on 17 September 2013) and F T Roughley (on 19 September 2013) (third to tenth defendants) Solicitors: Jones Day (plaintiff) Webb Henderson (second defendant) Corrs Chambers Westgarth (third to tenth defendants) File Number(s): SC 2012/295084 Publication restriction: Nil

Introduction 1The background to these proceedings has been set forth in a number of judgments of the Court: Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd [2012] NSWSC 1262 per McDougall J, and my judgments of [2012] NSWSC 1517 and [2013] NSWSC 86. 2These reasons are concerned with applications made by each of the defendants that the plaintiff provides security for costs. 3There are three notices of motion before the Court. The first is the second defendant's Notice of Motion of 24 June 2013. The second is the third to sixth and ninth defendants' Notice of Motion of the same date. The third is the seventh, eighth and tenth defendants' Notice of Motion of 1 August 2013.

Decision 4The conclusion to which I have come is that each Notice of Motion should be dismissed.

General principles 5The Court's power to award security for costs against a plaintiff arises in two ways. First under r 42.21 of the Uniform Civil Procedure Rules 2005 ("UCPR") and second under s 1335 of the Corporations Act 2001 (Cth). The power to award security for costs is discretionary, and must be exercised having regard to all the circumstances of the case. The recently enacted UCPR r 42.21(1A) reflects several judicially identified circumstances relevant to the exercise of the discretion. 6The Court's power to award security in respect of a corporation arises if "there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so" (UCPR r 42.21(1)(d)) or "if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence" (s 1335(1) of the Corporations Act (Cth)). I see no distinction between these provisions for the purposes of this application. 7In determining applications such as these, the Court generally engages in a three stage process (see, for example, KDL Building Pty Ltd v Mount [2006] NSWSC 474 at [6] per Brereton J): - (1)first, the Court determines whether there is reason to believe that, on the basis of credible evidence, the corporation will be unable to pay the costs of the defendants if they are successful in their defence. This is often referred to as the "threshold" question. The Court's jurisdiction to award security for costs is not enlivened unless the Court so determines. The evidentiary burden of demonstrating this rests on the applicant for security: Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [60] per Einstein J; (2)second, if the Court is satisfied that the "threshold" test has been met, the Court examines various other factors relevant to the exercise of its discretion; and (3)finally, if the Court determines that it should exercise its discretion to order security for costs, the Court must then consider what the relevant quantum of that security should be, and the appropriate form of provision of that security. 8The burden rests upon those seeking security "from first to last" to persuade the Court that an order for security should be made: Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 at [21] per Maxwell P and Buchanan JA. 9Satisfaction of the "threshold" test, if achieved, does not "predispose" the Court to exercise its discretion in favour of ordering security. If the "threshold" is satisfied, the question of whether, in the particular case, security should be ordered depends on all the circumstances (see, for example, Ariss v Express Interiors Pty Ltd (in Liq) [1996] 2 VR 507 at 511 - 513 per Phillips JA (with whom Ormiston and Charles JJA agreed)).

The threshold question 10The "reason to believe" threshold question is one that has been described as being "undemanding". Recently, Ward JA cited with approval the observations of Maxwell P and Buchanan JA in Livingspring at [15] as follows:- "The phrase 'reason to believe' is the touchstone of jurisdiction. It requires a rational basis for the belief - and no more. The wording adopted may be contrasted with other familiar formulations such as 'If the court is satisfied that ...' or 'If in the view of the court it is likely that ...'. The section requires the making of a judgment, a risk assessment: is there a risk that the corporation will be unable to pay? (It adds nothing, in our view, to say that it must be a "real risk".) A risk assessment is, of necessity, imprecise. The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs." See HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87 at [7]; see also generally [6] - [9]. 11I would respectfully disagree with their Honours' view that it "adds nothing" to say the risk must be a "real" (or "sensible") risk. The matter for consideration is whether there is "reason to believe" the plaintiff will be unable to meet an adverse costs order. There can only be "reason" to have such a belief if the risk facing the applicants for security is more than merely fanciful, or theoretically possible. There must be a sensible basis upon which to conclude the risk exists. There cannot be "reason to believe" merely because there is "a" risk, no matter how slight, that the plaintiff will not be able to meet an adverse costs order. 12Mr Durack SC, who appeared with Mr Keizer for the plaintiff, also drew attention to the observations of Redlich JA in Australia and New Zealand Banking Group Ltd v Oswal [2013] VSCA 156 at [11] and [12] as follows:- "Costs are usually assessed and payable some considerable time after the Court hands down its decision, giving an unsuccessful party time to liquidate such of its non-current assets as may be required to satisfy an adverse costs order. There is no authority that the respondent to a motion for security for costs must have liquid funds available at the time of the hearing of the motion. Its ability to liquidate it assets by the time any costs may become payable should be taken into account (citing Forster J in Putney Group Pty Ltd v Royal Rehabilitation Centre Sydney [2009] NSWSC 44 at [94]). Although a respondent may not be entitled to 'extended time' to realise assets in order to pay a costs order (citing Brereton J in Street v Luna Park Sydney [2006] NSWSC 1317 at [16]), the discretion must be broad enough to permit a reasonable time in which to do so. As a matter of principle the discretion to grant or refuse security should not be circumscribed by a requirement that an asset within the jurisdiction be necessarily immediately available and accessible when there is no imminent likelihood that the applicant will obtain a costs order which it will seek to enforce. What is required is that the applicant have ready and certain access to the amount secured if and when entitlement to claim it arises (citing Nicholas J in Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [41])." 13The total amount of security sought by the defendants is in the order of $2 million. The plaintiff disputes, on a number of bases, that the defendants would, together, be entitled to security in this amount. I will, however, approach the threshold question on the basis that, were security to be ordered, it would be in this order. 14The plaintiff is an established business. It has some 150 employees and trades in a field, nuclear medicine, which has high barriers to entry. It has been consistently profitable since 2010 with substantial revenues, sizeable trade debtors and significant net assets. 15The plaintiff's current financial position is set out in its management accounts for the six month period to 30 June 2013. 16The plaintiff's profit and loss statement for the six month period to 30 June 2013 shows gross sales revenue in the order of $13.8 million, costs of goods sold in the order of $9.8 million and gross profit in the order of $4 million. Total operating costs were in the order of $3.7 million, leaving an operating profit of $243,504.97. 17After taking account of "non-operating expenditure" (primarily over $1 million of legal fees arising from this litigation), the plaintiff recorded a loss, after financing expenses, taxation and extraordinary items of a little under $1 million. 18The plaintiff's financial performance is thus characterised by a high turnover, relatively low operating profit and an overall trading loss that is clearly caused by the burden of this litigation. 19However, the plaintiff's balance sheet, as at 30 June 2013, shows an excess of current assets over current liabilities in the order of $1.2 million. 20Certain current liabilities are represented by intercompany loans. In that regard, Mr Durack informed the Court that the ultimate owner of the plaintiff, Mr Bagerdjian, gave the Court the following undertaking: - "That he will procure that none of HSB Holdings Inc, Global Medical Solutions Limited or any of their subsidiaries require payment of any debt owing to them or which may become owing to them by the plaintiff before judgment in these proceedings or thereafter if a costs order is made in favour of any of the defendants as a part of or consequent upon such judgment without the consent of the defendants or leave of the Court." 21Overall, the plaintiff has an excess of assets over liabilities in the order of $4.4 million (compared to $4 million in 2010, $4.7 million in 2011 and $5.4 million in 2012). 22The plaintiff's principal current assets are debtors in the order of $5.4 million and stock in the order of $1.8 million. So far as debtors are concerned, the audited accounts for the plaintiff for the year ended 31 December 2012 suggest that it has a very low rate of doubtful debts (in the order of 2.2 per cent). So far as stock is concerned, it appears to comprise radiopharmaceuticals which Mr Durack submitted were "readily available to be realised". 23In addition to making submissions arising from the plaintiff's accounts, Mr Durack made submissions concerning what he described as the likely "enterprise value" of the plaintiff. 24Mr Durack pointed to the audited accounts of the plaintiff for the year ended 31 December 2012 that showed a profit of $623,382. Mr Durack submitted that if one added back to that figure depreciation ($899,719) and legal costs associated with these proceedings ($977,379), the resultant "normalised" EBITDA (earnings before interest tax, depreciation and amortisation) would be in the order of $2.5 million. 25Mr Durack submitted that to arrive at an "enterprise value" of the plaintiff, it is necessary to apply a multiple to that normalised EBITDA. Mr Durack submitted that a multiple of seven was appropriate (for reasons I will discuss) and that application of this multiple, and deduction thereafter of borrowings (recorded in the accounts as $3.1 million), resulted in a "very conservative" enterprise value in the order of $14 million. 26The seventh defendant, The Zuellig Group Incorporated ("ZGI"), is the ultimate holding company of the first defendant (Axiom Molecular Pty Ltd - now in liquidation). In 2011, before the events with which these proceedings are concerned, ZGI was contemplating acquiring the business conducted by the plaintiff's parent (Global Medical Services Ltd ("GMSL")) which business included that conducted by the plaintiff. The evidence reveals that ZGI adopted an "exit market multiple" of seven when performing some calculations referrable to its contemplated investment. Mr Durack submitted that the adoption by ZGI of that multiple in those circumstances demonstrated the reasonableness of his adoption of it in the calculations I set out at [25] above. 27Mr Durack submitted that these calculations showed how unlikely it was that those controlling the plaintiff, and its parent, would be prepared to, as it were, "cut the plaintiff adrift" in the event that it was unsuccessful in these proceedings and was ordered to pay the defendants' costs. 28Mr Brereton SC, who appeared with Ms Higgins and Ms Roughley for the third to tenth defendants, and Mr Bova, who appeared for the second defendant, submitted that no weight should be placed on these submissions because, first, the matter was one which ought properly to be the subject of expert opinion, and second, there was an absence of any evidence from the directors of the plaintiff, or its parent, on the subject. 29There is, I accept, weight in these criticisms. Further, Mr Durack's submission did not go directly to the question of whether the plaintiff would be able to pay the defendants' costs, if a costs order were made. Rather, the submission went to the question of whether those controlling the plaintiff would leave the plaintiff unsupported if it were otherwise unable to meet those costs; or, perhaps to the question of whether the plaintiff's enterprise could be sold to a third party in the event that any costs order could not otherwise be satisfied. 30However, overall, I find the submission to be of some assistance in resolving the question before me. It does appear to me to be at least arguable that the plaintiff has a significant "enterprise value" and that factor, when seen in the context of the plaintiff's overall financial position, points against the conclusion that there is reason to believe the plaintiff will not be able to meet an adverse costs order. 31A further factor pointing in the same direction, albeit I accept not decisively, is the current low gearing of the plaintiff. The plaintiff's external borrowings comprise something in the order of 5.4 per cent of its total assets and its long term liabilities comprise something in the order of 23.2 per cent of its total assets. This points to the conclusion that, were it necessary to do so, the plaintiff has ample assets to offer a prospective lender. Of course, one must also consider the plaintiff's capacity to service any increased borrowings. 32Mr Bova pointed to evidence given by the solicitor for the plaintiff in proceedings commenced by GMSL in California (to which I referred in my judgment in these proceedings of [2013] NSWSC 665 at [1]) that GMSL has paid some $639,686 of the plaintiff's fees in these proceedings. Mr Bova submitted that this suggested that the plaintiff was not able to pay its fees in these proceedings from its own resources. I am not prepared to draw any inference adverse to the plaintiff arising out of these circumstances. GMSL has its own interest in the successful prosecution by the plaintiff of these proceedings. It is likely that GMSL is contributing to the plaintiff's legal fees for this reason. 33The plaintiff has significant assets (debtors and stock) that the plaintiff is likely to be able to realise in sufficient time to meet any obligation it has to pay costs. Were an adverse costs order to be made, I see no reason to believe that the plaintiff would not be able to realise its assets in time to satisfy that order. 34It is true that, because of the costs of these proceedings, the plaintiff is trading at a loss. Historically, however, it has been profitable. It has a high turnover and healthy gross profit (albeit a relatively slender operating profit, leaving aside legal costs). 35In all of these circumstances, I see no reason to believe that the plaintiff could not meet an adverse costs order, even if it were to be in the order of $2 million (as the defendants contend). Adopting a "practical, commonsense approach to examination of" the plaintiff's financial position (see [10] above), I do not see that there is a real or sensible risk (see [11] above) that the plaintiff will be unable to meet an adverse costs order. 36Overall, I am not satisfied that the defendants have established the "threshold" question.

Discretion 37The authorities to which I have referred above make clear that, even if there is reason to believe the plaintiff will not be able to meet an adverse costs order, it does not follow that I should have any predisposition to order security. 38It is for the defendants to satisfy me that, as a matter of discretion, and taking into account all relevant considerations, security should be ordered. 39The conclusion to which I have come is that, even if there were reason to believe that the plaintiff would be unable to meet an adverse costs order, I would not exercise my discretion to order that the plaintiff provide security. 40Mr Durack, in oral submissions, relied upon four factors going to discretion. 41Before dealing with those, I should mention two factors upon which Mr Durack did not rely. First, he did not submit that the proceedings would be stultified were security to be ordered. Nor did he place any significant emphasis on the merits of the plaintiff's case, save to refer to the very preliminary views expressed by McDougall J when granting search orders on 21 September 2012 (see [2012] NSWSC 1262 at [27] and below at [59]). 42The matters upon which Mr Durack did place emphasis were as follows.

Voluntary assumption of burden by Axiom Molecular Australia Holdings Pty Ltd 43Hitherto, the five individual defendants (the second defendant, Mr Farag, the third defendant, Ms Cornelius, the fourth defendant, Mr Quinn, the fifth defendant, Mr Winthorpe and the sixth defendant, Mr O'Brien) had an indemnity from the first defendant for their legal costs and the amount of any judgment obtained against them by the plaintiff. 44The first defendant is now in liquidation. 45The individual defendants now have a corresponding indemnity from Axiom Molecular Australia Holdings Pty Ltd ("AMAH"), a company associated with ZGI. 46The second defendant has retained Webb Henderson solicitors. The third to sixth defendants have retained Corrs Chambers Westgarth solicitors. Each is primarily liable for his or her legal costs in the usual way; but with the comfort of the indemnity from AMAH. 47Mr Durack submitted that the voluntary assumption by AMAH of the ultimate burden of the individual defendants' legal costs is a factor weighing against the granting of security. 48Mr Durack submitted that a factor relevant to the exercise of discretion to grant or withhold security is the fact that, in the usual course, a defendant is involuntarily joined in the proceedings and thus, involuntarily, faces the prospect of incurring costs resisting a claim which may, ultimately, fail. 49Mr Durack submitted that AMAH is not in that position, having voluntarily assumed ultimate responsibility for the costs of the individual defendants. 50Mr Durack submitted that these circumstances differ from those where a defendant is insured. In that circumstance the defendant's insurer has a pre-existing obligation to indemnify the defendant, including as to costs, which arises automatically in prescribed circumstances. Otherwise, an insurer has no interest in the outcome of proceedings incurred (see, for example, Australia and New Zealand Banking Group Ltd v Oswal at [127]). 51In this case, AMAH had no pre-existing obligation to indemnify the individual defendants. Its involvement as a party giving an indemnity to those defendants is voluntary and, I would infer, motivated by its perception of alignment with the interests of the individual defendants. 52I accept Mr Durack's submission that the AMAH indemnity is a factor weighing against the ordering of security in favour of the defendants.

The "causation" and "little option but to sue" points 53Mr Durack submitted another factor relevant to the exercise of the Court's discretion arises where the lack of funds that triggered the Court's jurisdiction is caused or contributed to by the conduct of the defendants (see Jazabas Pty Ltd v Haddad [2007] NSWCA 291 at [93] - [95] per McClellan CJ at CL). 54Mr Durack did not submit that the plaintiff's current financial position was caused by the conduct of which it complains in the litigation. Rather, his point was that, to the extent that there is any concern about the plaintiff's ability to meet a costs order, it arises principally because of the costs the plaintiff is incurring in prosecuting this litigation. 55Thus, Mr Durack submitted: - "... to the extent that the Court finds that there is concern about the plaintiff's financial position, that concern arises wholly from the existence of the present proceedings." 56The evidence shows that, but for the costs of this litigation, the plaintiff would be trading at a profit, albeit a relatively small profit. However, when considered in light of its historical profitability, and its current asset position, it can be seen that there is substance in Mr Durack's submission. 57That is, in my opinion, a factor weighing against the granting of security. 58Mr Durack also referred to the observations of Ferguson J in Oswal v Carson (No 4) [2011] VSC 434 at [25]: - "In my opinion, whether the receivers could have begun proceedings themselves is not influential in determining whether they or Ms Oswal are in a practical sense "the plaintiff" in this proceeding. That a defendant might have brought a claim instead of the named plaintiff will often be the case. Rather, it seems to me, the real test is whether there was little practical alternative to the plaintiff taking action through court proceedings. If that is the position, then the plaintiff is properly characterised as the party attacked." (emphasis added) 59Mr Durack submitted that, here, the plaintiff had "little practical alternative" but to commence proceedings because it was faced with the circumstances described in the judgment of McDougall J of 21 September 2012 ([2012] NSWSC 1262 at [27]), namely that: - "... it is open to infer that the defendants [as former senior officers of the plaintiff] have acted privily and in concert to set up a business in competition with the plaintiff's business, and to divert to that new business information and business opportunities of the plaintiff's." 60The circumstance here is a little different from that considered by Ferguson J in Oswal v Carson (No 4). Here, there is no question of the defendants bringing proceedings against the plaintiff. There was no "race to the registry". The plaintiff here is in every sense the "real plaintiff". No doubt, from the plaintiff's perspective, it had "little option but to sue" in the sense that, in order to vindicate what it asserts to be its rights, it was necessary that it commence and prosecute these proceedings. However, in that sense, almost every plaintiff has "little option but to sue". Whether the plaintiff will be vindicated in the proceedings is a matter yet to be determined. 61As it was not submitted that I should take into account what prospects the plaintiff has of achieving vindication, I do not see the "little option but to sue" factor weighing heavily in the balance.

The undertaking of the parent company 62The plaintiff's parent, GMSL, is a company incorporated in the British Virgin Islands. 63At the commencement of the second day of these applications, GMSL proffered the following undertaking to the Court: - "That Global Medical Solutions Ltd (GMSL), the parent company of Global Medical Solutions Australia Pty Ltd (Plaintiff) the plaintiff in these proceedings, by counsel for the Plaintiff, being its counsel for this purpose, undertakes to the Court that it, GMSL will be jointly liable with the Plaintiff to pay any costs orders made after the date of this undertaking in these proceedings against the Plaintiff in favour of any of the Second to Tenth Defendants." 64The plaintiff's solicitors wrote to the solicitors for the defendants as follows:- "The undertaking will only be offered on the basis that his Honour does not order the provision of security for costs. The reasons for this are: (a) that the undertaking is seen by the Plaintiff and GMSL as providing your clients with an ample protection against the risks to which they claim to be subject; and (b) if GMSL is to make itself liable for any costs orders made hereafter in favour of your clients in these proceedings it is not prepared also to suffer its subsidiary, the Plaintiff, or itself or any other of its subsidiaries to have to provide further comfort to your clients by having to provide security. For the avoidance of any doubt, we consider, and have explained to our client and to GMSL, and they accept, that the giving by GMSL of such an undertaking amounts to a submission by it to the jurisdiction of the Supreme Court of New South Wales so far as necessary to enable enforcement against GMSL of its undertaking, or of the costs orders (if any) the subject thereof (but no further). Implicit in your clients' complaint - that GMSL has been afraid to come out 'from behind the skirts of' the Plaintiff - is a recognition that GMSL is good for the money (otherwise its coming out from behind the Plaintiff's skirts would be irrelevant). In those circumstances, and in the circumstances of extreme mistrust which exist between our clients and your respective clients, and between GMSL and Mr Simon who is being funded by Zuellig, our clients do not propose to provide information regarding the present financial position of GMSL or to provide any ongoing information concerning its financial position. Your clients are well aware of the general nature, extent and value of GMSL's business and assets (including its investments in subsidiaries) having spent some 18 months conducting due diligence and ultimately offering US$45 million to acquire same (and, in internal Zuellig documents, recognising that it was worth US$55 million). There is no reason to doubt that GMSL is easily able to meet any costs orders." 65So far as the first of these paragraphs is concerned, Mr Durack made clear that although the undertaking was only offered on the basis that no order for security was made, it would in that event subsist for the duration of the proceedings. 66So far as concerns GMSL's submission to jurisdiction, there was no suggestion made on behalf of the plaintiff or GMSL that GMSL has any assets in the jurisdiction. However, I understand GMSL to have submitted (conditionally on no order for security being made) to the jurisdiction of this Court to the extent necessary to enable the defendants to enter a judgment against GMSL for the amount of their costs, if a costs order was made against the plaintiff, and upon assessment of such costs. 67As emerges from the latter paragraphs of the plaintiff's solicitors' letter, GMSL is not prepared to make available to the defendants information concerning its financial position because of the "circumstances of extreme mistrust" which exists between the parties. I found this a little curious as a significant part of the evidence adduced to the Court on this, and on earlier occasions, has been admitted subject to orders confining access to the legal advisers of the parties. Information concerning the financial position of GMSL could have been proffered on the same basis. 68There was, however, some evidence before the Court as to the financial position of GSML. 69The last paragraph of the plaintiff's solicitors' letter at [64] above referred to the "due diligence" undertaken on behalf of the Zuellig group into GMSL. 70In support of a submission that the undertaking offered by GMSL was of value, Mr Durack tendered a "Confidential Information Memorandum" that was made available to members of the Zuellig group during that due diligence. 71The document was seized from the premises of the first defendant pursuant to the search orders made by McDougall J on 21 September 2012. The report is dated August 2011. It shows that the EBITDA of GMSL for the six month period to 30 June 2011 was then US$4.2 million and that the shareholders equity of GMSL was then in the order of US$22.1 million. Although that financial information is not current, it points to the probability of GMSL's undertaking having real value. 72Mr Durack submitted that the provision of this undertaking by GMSL was a "decisive" factor weighing against the provision of security. I do not accept that submission. The authorities make clear that the fact that those behind a plaintiff are prepared to put their assets into play is a factor to be taken into account, but that it is not a decisive, or necessarily a critical, factor: see, for example, the observations of Winneke P and Phillips JA in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; [1999] 2 VR 191 at [23] - [24]; cited with approval in Jazabas Pty Ltd v Haddad at [79] per McClellan CJ at CL and at [2] per Mason P. 73Overall, however, in my opinion, the proffering of the undertaking by GMSL is a factor weighing against the making of an order for security.

Delay 74I accept the following submissions made by Mr Brereton concerning the general principles that are applicable in cases of delay. 75An application for security for costs should be made promptly. However, delay is not an automatic bar to the making of an order for security: Commonwealth v Cable Water Skiing (Aust) Ltd (1994) 14 ACSR 760 (delay of over four years after proceedings had been commenced); Estates Property Investment Corporation Ltd v Pooley (1975) 3 ACLR 256 (delay of approximately two years). 76The Court is entitled to have regard to the length of the delay, the reasons for it, the nature of any acts done during the intervening period, and whether security is sought both for future costs and those which have already been incurred: Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114. 77In Idoport at [81], Einstein J said this in respect of delay: - "Ultimately it seems to me that in the context of the broad discretion and consistently with the approach referred to in the above authorities, delay is best regarded simply as a factor whose consequences are to be weighed in the balance in determining what is just between the parties... The Court, in approaching delay as a discretionary factor, looks at the length of the delay and the nature of the acts done during the interval. If a company has suffered no real relevant prejudice in the sense of expenditure of its own funds or the incurring of liabilities in relation to the litigation in the period until the application for security for costs, the significance of delay reduces or may substantially disappear." 78 Accordingly, the Court will have regard to: - (a)the length of, and any reason for, the delay, including a consideration of events that have occurred in the interim; and (b)whether the delay has caused any actual prejudice to the party against whom the order is sought. 79Delay is not a factor that can be weighed against the seventh, eighth, ninth or tenth defendants. Those defendants filed a motion for security contemporaneously with their joinder. 80No doubt the individual defendants could have moved for security earlier than 24 June 2013. The individual defendants have been parties since commencement of proceedings and yet did not make application for security until that date. As the Court record reveals, the parties have engaged in almost constant interlocutory skirmishes, often of significant moment, since the proceedings were commenced. There were many opportunities prior to 24 June 2013 at which the question of security could have been raised. 81However, Mr Durack does not suggest that the plaintiff has suffered prejudice by the delay. In particular, he did not suggest that the plaintiff has incurred costs, or taken any steps in the proceedings, that it would not have, but for the delay in bringing these applications. 82Mr Durack submitted that I should infer that the individual defendants have made a deliberate, tactical decision to delay bringing the application. I am not prepared to draw that inference. Indeed, as Mr Brereton submitted, it would have been forensically irrational for the individual defendants to have taken such a course. 83Overall, I do not find this factor to weigh heavily in the balance.

Conclusion as to discretion 84Taking into account all of these considerations, and giving them the weight to which I have referred, I am not persuaded, as a matter of discretion, that security should be awarded even if, contrary to my conclusion, there is reason to believe the plaintiff will be unable to meet an adverse costs order. 85The combination of the indemnity given by AMAH to the individual defendants, the fact that such concern as may now arise concerning the plaintiff's financial position is caused by the costs of these proceedings, and the indemnity offered by GMSL persuade me that, as a matter of discretion, security should not be ordered.

Quantum 86In those circumstances, it is not necessary for me to deal with the question of the quantum of security to be ordered. However, in deference to the expert evidence adduced, and the detailed submissions advanced on behalf of the parties, I will deal with quantum, albeit briefly. 87Each party adduced expert evidence on the question of quantum. None of the witnesses was cross-examined. 88Each expert witness gave an estimate of likely costs upon the assumption that the hearing of this matter will take 15 days. 89Two general issues arose in respect of quantum. 90The first was whether the fact that the second defendant has separate representation from the other defendants was a factor I should take into account. In that regard, I accept Mr Bova's submission that it is premature to determine whether the separate representation of the second defendant will affect or limit his entitlement to costs. 91To a considerable extent, the plaintiff's case focuses on the conduct of the second defendant. That may be a reason why he has sought separate representation from the other defendants. It may be that the manner in which the second defendant conducts his case will enable the plaintiff, at the end of the hearing, to make a submission that it ought not have to pay his costs, even if unsuccessful. But that is not a matter about which I can draw any conclusions now. I should be "slow to assume, particularly at the pre-trial stage, that there should be joint representation of all the defendants": G E Dal Pont, Law of Costs, 2nd ed (2009) at [11.51] citing Downs v Civil Aviation Authority (1992) 57 SASR 303 at 307 per Mullighan J. 92Next, Mr Durack submitted that it was likely that the costs of obtaining and executing the search orders, as well as the subsequent costs of obtaining access to the documents seized, would be borne by, at least, the individual defendants, in any event. Mr Durack pointed to the large number of documents seized from the first defendant's premises, the fact that many of those documents belonged to the plaintiff and that, to a significant extent, the plaintiff has recovered its confidential property and has, regardless of the outcome of the proceedings, vindicated its rights in that regard. 93I am not in a position to express any view about that submission at this stage. It may be that, even if the plaintiff is ultimately unsuccessful, it will obtain a special order concerning the costs associated with the search orders. However, for now, I must proceed upon the assumption that the costs of the search orders will be costs in the cause.

Second defendant 94The second defendant adduced evidence from his solicitor, Mr Andrew Christopher, a partner at Webb Henderson with over 22 years experience in litigation and dispute resolution. No suggestion was made that Mr Christopher was not competent to give an estimate as to the second defendant's likely costs. 95Mr Christopher gave evidence of his charge out rate, the charge out rate of his employees and the hourly and daily fees to be charged by counsel. He also gave an estimate as to the time that each of those lawyers would spend preparing for and conducting the trial. 96Mr Christopher applied those hourly rates to those estimated times and arrived at a total figure in the order of $1.2 million. He added to that figure a "15 per cent allowance for care and conduct, and disbursements" and arrived at a total in the order of $1.4 million. 97Mr Christopher said that, in his experience, between 60 to 75 per cent of "solicitor and client costs", and up to 100 per cent of counsel's fees and other disbursements, were normally recoverable. He assumed an overall rate of recovery of 70 to 75 per cent of the second defendant's total costs. That calculation resulted in a range between $982,083.90 and $1,052,232.35. Mr Christopher made an allowance of $200,000 for costs orders made to date in favour of the plaintiff against the defendant. He arrived at a range of recoverable costs of $782,083.90 and $852,232.75. He then came to a "reasonable figure" for security of $850,000. 98The plaintiff called evidence from Ms Valerie Higinbotham, a costs assessor. 99So far as hourly rates of solicitors and counsel were concerned, Ms Higinbotham expressed an opinion as to the particular hourly rates that a costs assessor was likely to find as being reasonable. Mr Bova accepted that those assessments were reasonable. 100Ms Higinbotham also expressed an opinion as to reductions that would be made by a costs assessor as to the time estimated by Mr Christopher as likely to be spent on particular tasks. Ms Higinbotham opined that a costs assessor was likely to reduce the time spent by the various solicitors by between 20 and 40 per cent. Mr Bova submitted that Ms Higinbotham had failed to reveal her reasoning process for coming to this conclusion. However, it appears to me that the primary matter upon which Ms Higinbotham relied was the likely duplication of attendances (by a partner, a senior associate and a lawyer) during the hearing. 101Ms Higinbotham also deducted from the resulting calculation the amount of $182,997 representing Mr Christopher's "15 per cent allowance for care and conduct, and disbursements". Ms Higinbotham understood Mr Christopher to be adding a "general care and conduct" component to costs. It appears to me that Ms Higinbotham has, to some extent, misunderstood the basis upon which Mr Christopher made his 15 per cent allowance. As I read his evidence, Mr Christopher was adding a somewhat arbitrary "allowance" to reflect what he saw as being the probability that each of solicitors, counsel and expert witnesses would likely do work not predicted, in terms, by the individual items of work which Mr Christopher had referred to in his calculations. 102Ms Higinbotham deducted the entirety of Mr Christopher's "15 per cent allowance" from her calculations and, overall, came to the conclusion that the second defendant's likely recoverable costs would be in the order of $550,000. 103Were it necessary for me to do so, I would adopt a figure midway between those the subject of Mr Christopher and Ms Higinbotham's opinions. Accepting that it is impossible to be precise about these matters, I would adopt a figure of $750,000 as the second defendant's likely recoverable costs.

Third to tenth defendants 104The third to tenth defendants called evidence from a costs assessor, Mr Roland Matters. 105In contrast to the second defendant, the third to tenth defendants did not call evidence from their solicitor as to the amount of work necessary to prepare the matter for hearing, and to conduct the hearing, or the likely costs associated with that work. 106Rather, Mr Matters took the charge out rates of partners, senior associates, solicitors and paralegals at Corrs Chambers Westgarth and multiplied them by "the time that a costs assessor would consider was reasonably expended on work that a costs assessor would consider was reasonably carried out by those personnel". 107Thus Mr Matters simply "declared" (to use Mr Durack's expression) what work he thought would be necessary on behalf of the third to tenth defendants. 108On that basis, Mr Matters opined that the likely party party recoverable costs would be: - (a)for each of the third, fourth, fifth and sixth defendants, $175,587.55 from 18 June 2013; (b)for each of the seventh, eighth and tenth defendants, $129,966.38 from 1 August 2013; and (c)for the ninth defendant, $159,625.04 from 18 June 2013. 109These calculations resulted in a total of $1,251,874.30. 110The plaintiff called evidence in response from Ms Higinbotham. Ms Higinbotham expressed the opinion that the total likely recoverable costs of the third to tenth defendants was $639,044. 111In his letter of instructions to Ms Higinbotham, the plaintiff's solicitor, Mr Hoser, expressed the view that a significant number of the estimates made by Mr Matters as to the work necessary to be done were excessive. In those cases, Mr Hoser directed Ms Higinbotham to accept lower estimates. This made a material difference to Ms Higinbotham's conclusions. I accept that, in view of the manner in which Mr Matters appraised his task, it was not unreasonable for Mr Hoser to direct Ms Higinbotham to proceed in this way. 112However, that confluence of events makes it difficult for me to come to any firm conclusion as to the likely recoverable costs of the third to tenth defendants. 113Mr Brereton suggested that I have regard to the following circumstance as a "reality check" concerning the matter. The plaintiff's solicitors gave evidence that the plaintiff's actual costs in relation to the application that I heard on 11 February 2012 ([2013] NSWSC 86), that lasted for one day, were $120,800. Ms Higinbotham gave evidence that the likely recoverable costs for that application were in the order of $85,000. If one party to this litigation incurs costs at that rate over a 15 day hearing, the likely recoverable costs would be in excess of $1.25 million. That does suggest that Ms Higinbotham's estimate is conservative. On the other hand, Mr Matters' estimate suffers from the difficulties to which I have referred. 114Overall, were it necessary for me to do so, the figure I would adopt for the third to tenth defendants' costs is somewhat in excess of the second defendant's costs but short of Mr Matters' estimate. I would adopt the figure of $950,000 as the third to tenth defendants' likely recoverable costs.

Conclusion 115I am not satisfied there is reason to believe that the plaintiff will be unable to meet a costs order, if it is unsuccessful. In any event, as a matter of discretion, I would not make an order for security. 116The result is that the defendants' applications must be dismissed with costs.

Notices to Produce 117In the course of hearing these applications a number of Notices to Produce were called on. I set aside those Notices to Produce and said I would give my reasons in this judgment. 118First, the third to tenth defendants called on a Notice to Produce, served on the Friday preceding the Tuesday on which the security for costs applications were listed for hearing, calling for: - "(1) All documents recording any estimate of the plaintiff's likely costs of this proceeding, including all documents reflecting the views expressed by Philip Hoser in the final sentence at paragraph 28 of [his affidavit of 9 September 2013]; and (2) In relation to paragraph 25 of the Hoser affidavit, all documents recording advice delivered to the plaintiff in respect of its prospects of success in this proceeding." 119So far as concerns the matter in (1), the final sentence of par 28 of Mr Hoser's affidavit read: - "Further very substantial costs will obviously be incurred by the plaintiff in taking this case to trial." 120Mr Durack did not read that sentence on these applications. Nonetheless, Mr Brereton submitted that as Mr Hoser had, elsewhere in his affidavit, given evidence as to the costs the plaintiff had incurred to date, estimates given to the plaintiff as to the costs likely to be incurred by it in the future may be relevant to the issues raised by the applications for security. 121Mr Hoser gave evidence that such estimates as have been given to the plaintiff as to its likely future costs of the proceedings are contained in documents which also contain other (often privileged) material and that the task of identifying, and to the extent necessary, redacting, such documents would be considerable in scope. 122In my opinion, the documents called for had but peripheral, if any, relevance to the issues raised by the security motions. For that reason, and because of the considerable effort that would be required by the plaintiff's legal team to identify the documents in question, I concluded that this aspect of the Notice to Produce was oppressive. 123So far as concerns the matter in (2), par 25 of Mr Hoser's affidavit was headed "The Strength of the Plaintiff's Case" and included a statement by Mr Hoser that: - "I believe that the plaintiff has an overwhelmingly strong case". 124Mr Hoser set out the reasons he had for holding that belief. 125As I have mentioned, Mr Durack did not rely on this factor when developing his submissions on the applications. He did not read par 25 of Mr Hoser's affidavit. 126Mr Brereton submitted that, by making the statement in par 25, Mr Hoser had waived privilege over documents recording advice given to the plaintiff in respect of its prospects of success in the proceedings. 127Mr Brereton submitted that there had been an imputed waiver of privilege and pointed to the observations of Allsop J (as his Honour then was) in DSE (Holdings) Pty Ltd v Intertan Inc [2003] FCA 384; (2003) 127 FCR 499 at [58] where his Honour said that there was an imputed waiver of privilege where: - "[T]he party entitled to the privilege makes an assertion (express or implied), or brings a case, which is either about the contents of the confidential communication or which necessarily lays open the confidential communication to scrutiny..." (emphasis in original) 128The conclusion to which I came was that, by expressing a belief as to the strength of the plaintiff's case, Mr Hoser was not taking a course which necessarily laid open to scrutiny documents recording advice given to the plaintiff as to its prospects of success (cf, for example, Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1996) 40 NSWLR 12). Matters would have been different had Mr Hoser deposed that he had given advice to the plaintiff that it had an overwhelmingly strong case. However, that was not the language used by Mr Hoser. 129For those reasons, I set aside the third to tenth defendants' Notice to Produce. 130Second, on 13 September 2013, the plaintiff served Notices to Produce on the second defendant and the third to tenth defendants seeking: - (a)tax invoices issued by those defendants' solicitors for legal costs; (b)correspondence with nominated parties concerning the defendants' liability to pay costs; and (c)documents showing by whom the defendants' costs have been paid. 131These documents were said to be relevant to the plaintiff's contention that certain of the defendants were not, in fact, liable to pay any costs of the proceedings. 132As I have mentioned, the evidence showed that although those defendants have an indemnity from AMAH in respect of their costs in the amount of any judgment obtained against them, their retainer with their respective solicitors made clear that they are primarily liable for costs. 133In those circumstances, the conclusion to which I came was that the service by the plaintiff of the Notices to Produce amounted to a fishing expedition, was oppressive and should be set aside.

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: 27 September 2013

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