Idoport Pty Limited & Anor v National Australia Bank Limited & 8 Ors; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited - [2001] NSWSC 744 - NSWSC 2001 case summary — Zoe

NSWNSWSC

Idoport Pty Limited & Anor v National Australia Bank Limited & 8 Ors; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited

[2001] NSWSC 744

Supreme Court of NSW|2001-09-13|Before: Einstein J, Mr J

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Source facts

Court

Supreme Court of NSW

Decision date

2001-09-13

Before

Einstein J, Mr J

Source

Original judgment source is linked above.

Judgment (116 paragraphs)

[1]

Background facts relevant 26 The plaintiffs' submissions were to the effect that although all of the facts, matters and circumstances required to be carefully examined, a number of suggested particular background facts should be seen as of central relevance to the application. I set out hereunder the particular facts to which the plaintiffs draw the Court's attention: "(a) the main proceedings were commenced by Idoport and Market Holdings by way of Statement of Claim on 24 September 1998. The trial of the main proceedings and matter no. 50026 of 1999 commenced before Justice Einstein on 24 July 2000 and are currently continuing to be heard (Mr Hetherington's affidavit sworn 3 August 2001 paragraph 2); (b) at all relevant times from the commencement of the main proceedings on 24 September 1998 to date, Freehills have acted as the solicitors for the Defendants in both the main proceedings and the MLC proceedings. At all relevant times Mr G E Healy, a partner of Freehills, has been the solicitor on the record for the Defendants (Mr Hetherington's affidavit sworn 3 August 2001 paragraph 3). Accordingly, no delay can be explained by a change in solicitors for the Defendants; (c) between the commencement of the main proceedings on 24 September 1998 to the commencement of the final hearing of the proceedings on 24 July 2000, there were numerous directions hearings and interlocutory applications heard by judges including Justices Hunter, Rolfe and Einstein (Mr Hetherington's affidavit sworn 3 August 2001 paragraph 4); (d) the financial standing of the Plaintiffs was discussed before Einstein J in the context of an undertaking as to damages being given by the Plaintiffs in the interlocutory hearing which took place in July and August 1999 and is referred to at paragraphs 332-342 of Einstein J's judgment dated 19 August 1999 ([1999] NSWSC 828). As can be seen from paragraph 333 of the reasons for decision of Einstein J, tax returns and balance sheets for 1998 for the Plaintiffs had been tendered by the Defendants at that time (affidavit of Mr Hetherington sworn 3 August 2001 paragraph 8); (e) it was not until 3 October 2000, over two years after the commencement of the main proceedings and over two months after the commencement of the final trial, that the solicitors for the Plaintiffs first received notice of an application by Freehills seeking security for costs in relation to the main proceedings and foreshadowing a similar application for security for costs in the MLC proceedings (affidavit of Mr Hetherington sworn 3 August 2001 paragraph 5); (f) it appears that the letter from Freehills dated 3 October 2000 was the first time that security for costs had been raised with the solicitors for the Plaintiffs in either the main proceedings or the MLC proceedings. Further, it appears that the question of a claim for security for costs had never been raised in the hearing before Justice Einstein which commenced on 24 July 2000 by the Defendants prior to the receipt by Mr Hetherington of the letter from Freehills dated 3 October 2000 (Mr Hetherington's affidavit sworn 3 August 2001 paragraph 6); (g) prior to the commencement of the trial on 24 July 2000 and thereafter the Plaintiffs have sought and been granted leave to amend their Statement of Claim on a number of occasions. At no stage have the Defendants sought as a condition of leave to amend that the Plaintiffs or either of them provide security for the costs of the Defendants occasioned by the work needed to deal with the amendments the subject of the leave. Further, it appears that at no stage have the Defendants indicated at the time that leave was sought or granted to the Plaintiffs that an application would be made by the Defendants for security for costs in relation to the costs occasioned by the Defendants in performing work to deal with such amendments (affidavit of Mr Hetherington sworn 3 August 2001 paragraph 7); (h) issues relating to the financial capacity of the Plaintiffs have arisen between the parties on a number of occasions prior to 3 October 2000 without the Defendants raising the issue of or claiming security for costs. In the period May to July 2000 the Defendants, through various procedural means, sought access to documents disclosing any funding of the Plaintiffs by parties external to the Plaintiffs. See the documents at pages 1-81 of Exhibit "SWH1" to the affidavit of Mr Hetherington sworn 3 August 2001 and the documents referred to at paragraph 9(a) to (e) of that same affidavit. Further, Mr Maconochie, a director of the Plaintiffs, was cross-examined in relation to funding of this litigation on 28 July 1999 by Mr T E F Hughes QC, senior counsel then appearing for the Defendants. See pages 54-56 of Exhibit "SWH1" to the affidavit of Mr Hetherington sworn 3 August 2001. Despite this issue of funding of the proceedings and the Plaintiffs' financial position being squarely before the Defendants, at no stage prior to 3 October 2000 did the Defendants raise the issue of security for costs" 27 It is apparent that each of the plaintiffs strongly submits that a most important discretionary consideration in relation to the claim for security concerns the defendants delay in pursuing security.

[5]

The defendants' submissions 33 The defendants written submissions included the following: "Significance of the funders 29. Such persons, being legally removed from the plaintiffs, are thus, prima facie and subject to limited exceptions, immune from the burden of an adverse costs order in the event that the defendants succeed in the Main Proceedings. Such an order is, of course, the ordinary price to be paid for bringing civil litigation in our courts. As has been said in relation to the statutory power to order security for costs…( Harpur v Ariadne Australia Ltd [1984] 2 Qd.R 523 at 532 was then referred to) 30. The point being made by Connolly J. in the above passage is that, in circumstances where the plaintiff is a proprietary limited company and/or there is or are other persons behind the plaintiff who stand to benefit from the plaintiff's proceedings, if successful, absent an order for security for costs, such persons may readily outflank the burden a plaintiff necessarily assumes when it commences litigation, viz. a potential adverse liability for the other side's costs. 31. That this is something which should be avoided by the courts can be discerned when regard is had for the rationale underpinning the ordinary rule that costs follow the event which is a characteristic of our legal system that distinguishes it from that of the courts of the United States, for example. That rationale was stated by McHugh J. in Latoudis v Casey (1990) 170 CLR 534 at 566-567: "An order for costs indemnifies the successful party in litigious proceedings in respect of liability for professional fees and out-of-pocket expenses reasonably incurred in connection with the litigation: Kelly v. Noumenon Pty Ltd (1988) 47 SASR 182, at p 184. The rationale of the order is that it is just and reasonable that the party who has caused the other party to incur the costs of litigation should reimburse that party for the liability incurred. The order is not made to punish the unsuccessful party. Its function is compensatory. Thus, in civil proceedings an order may, and usually will, be made even though the unsuccessful party has nearly succeeded or has acted reasonably in commencing the proceedings. It may, and usually will, be made even though the action has failed through no fault of the unsuccessful party. In Cilli v. Abbott (1981) 53 FLR 108, Keely, Toohey and Fisher JJ. pointed out (at p 111) that "the object of costs is not to penalize; it is to indemnify the successful party in regard to expense to which he has been put by reason of legal proceedings"; see also Anstee v. Jennings (1935) VLR 144, at p 148." 32. …(Reference was then made to Oshlack v Richmond River Council (1998) 193 CLR 72 at 97). 33. The jurisdiction to award security for costs should thus be seen as protecting the efficacy of the exercise of the jurisdiction to award costs. The discretion should be exercised with the same rationales in mind, namely that, to the extent it can be avoided, the court should not permit a situation to arise where a party's success is pyrrhic. 34. Where there are persons standing behind an impecunious plaintiff or plaintiffs, and who seek to take the benefit of our system of justice without the corresponding burden (in the form of a potential adverse costs order), the considerations in favour of an order for security for costs are even more powerful: see for example Chartspike Pty Ltd (in liq) v Chahoud [2001] NSWSC 585 (Young CJ in Eq). Indeed, it has been said that in this situation, it will be generally inappropriate to refuse to make an order for security: Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 545. As Giles J. said in Rosenfield Nominees Pty Limited v Bain & Co (1988) 14 ACLR 467 at 472-473: "I consider that those behind plaintiffs should be, and can be, required to undertake some of the risks of the proceedings if they wish to have its benefits: Tulloch v Walker (Yeldham J. 8 December 1987, unreported); National Bank of New Zealand Limited v Donald Export Trading Limited [1980] 1 NZLR 97; MA Productions Pty Limited v Austaram Television Pty Limited (1982) 7 ACLR 97; Memutu Pty Limited v Lissenden (1983) 8 ACLR 364; Bell Wholesale Co Pty Limited v Gates Export Corporation (No. 2) …" 35. Where some of those persons are or may be overseas (with no presence or assets in the jurisdiction), those considerations become still more powerful yet because of the practical inability to fix those persons with a personal costs order.

[8]

(b) such persons are, on the evidence, shareholders or perhaps lenders only. Thus the proceedings are brought for the benefit of Idoport. There is no evidence of any disposition or assignment of any benefit under the Consulting Agreement. Under the Statement of Claim Idoport, not an assignee, seeks to enforce or recover damages or compensation for, inter alia, breach of the Consulting Agreement. 86. Further, it is submitted that the two documents relied upon by the Defendants and referred to in paragraph 25(b) and (c) of their submissions are consistent with equity investors in Idoport. How those funds are then expended by Idoport is a matter for it although the Plaintiffs concede that amongst Idoport's business is the prosecution of these proceedings. However, Idoport's activities include the preparation of Business Plans, the provision of those plans to NMG and attendance at Management Committee meetings. 87. In relation to paragraph 27 of the Defendants' written submissions, the Plaintiffs submit that the Court is unable on the basis of the matters referred to to make the very serious conclusion that the companies referred to "had been used as investment vehicles to hide the identity of the true investors and to make the pursuit of costs orders against such investors difficult". Highly cogent evidence would be needed to establish this assertion. 88. In relation to the matters in paragraph 26 of the Defendants' written submissions, the comments of Justice Young are no substitute, it is submitted with respect, for admissible evidence from the Defendants. Further, in relation to paragraph 26(e) of the written submissions, it appears unclear show substantial rights to control the litigation can be granted with two votes out of four "on the LOC". 89. In relation to paragraphs 31-35 of the Defendants' written submissions and the cases there cited, the Plaintiffs say that to award a security for costs order against the Plaintiffs in the present case would be to defeat the rationale of security for costs by amounting to an order constituting a punishment as opposed to an order with the aim of compensation. The Plaintiffs have brought these proceedings against extremely powerful and well-funded Defendants with "massive" legal resources at their disposal. The First Defendant is one of the largest corporations in this country with, in practical terms, unlimited financial resources to fund legal action. Even if the Court finds itself able to make the inference that certain third persons may possibly and indirectly benefit from the present proceedings, the Court should not make such an order unless it is satisfied that those who originally were behind Idoport, being Negubo Pty Limited and Mr Maconochie, do not receive any benefit from these proceedings. On that the onus should rest on the Defendants. Mr Maconochie was the primary person behind Idoport and Market Holdings from the date of the Consulting Agreement, 13 September 1996, right up to the present through the filing of numerous statements in support of the Plaintiffs in these proceedings. It is submitted that it would simply be unfair and contrary to the true rationale of security for costs, if the weapon of security for costs could be used to prevent the Plaintiffs obtaining just compensation for their various legal rights including breach of the Consulting Agreement in circumstances where the Defendants have conceded the Plaintiffs have a serious case to be tried for the purposes of these motions." Stultification of litigation 35 The defendant's written submissions included the following: "38. ………………there is authority, both of the Full Court of the Federal Court of Australia ( Bell Wholesale Co Pty Limited v Gates Export Corporation (1994) 2 FCR 1) and of the New South Wales Court of Appeal ( Hession v Century Twenty-one South Pacific Limited (In Liq ) (1992) 28 NSWLR 120) to the effect that the onus of demonstrating that those who stand to benefit from the litigation are equally impecunious lies on the party asserting that an order for security for costs would stultify the litigation. In the former case, the Full Court stated that: "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts ." (emphasis supplied) 39. It is apparent from this passage that not only does the burden, in this context, lie on the plaintiffs but that any submission on this matter must be supported by evidence. Without any proper evidentiary foundation, inferences to support such a conclusion may not be drawn ( Seltsam Pty Limited v McGuiness (2000) 49 NSWLR 262 at 276; Carr v Baker (1936) 36 SR (NSW) 301 at 306; Caswell v Powell Duffryn Associated Collieries Limited [1940] AC 152 at 169-170; Jones v Great Western Railway Co (1930) 144 LT 194 at 202). 40. If Idoport is to contend that an order for security for costs would stultify the litigation, it is incumbent upon it to establish at least the following matters: (a) who Idoport's current funders are (including where interposed company or trust structures are used, the identity of the ultimate funders/likely beneficiaries of the action); (b) the residence of each such funder; (c) the terms of all current funding agreements; (c) the overall net asset and financial position of the current funders; (d) if the extent of funding is limited, evidence of unsuccessful requests for increased funding from the current funders; (e) what other attempts have been made to obtain funding; (f) what requests have been made to the funders to provide security for costs; (g) the funders' ability to meet such requests; (h) the funders' responses to those requests; and (i) the general availability or otherwise of funding in the market for actions of this type. 41. A party seeking to make such an argument must show not only that it would be unable to meet an order for security for costs and could not fund the litigation from its own resources, if such an order were made, but also that it and all funders/potential beneficiaries of the action standing behind it could not meet such burden. 42. The conclusion to draw from the paragraphs immediately above is that the plaintiffs have not discharged the onus of proof referred to in paragraphs 38 to 40 above. In these circumstances the Court should not conclude that a security for costs order would stifle the Main Proceedings. Rather, the Court should conclude that this possible discretionary factor does not weigh in the equation when determining whether an order for security for costs should be made."

[9]

Strength of the plaintiffs' case 36 The defendants written submissions included the following: "43. It is only where a plaintiff puts to the court, in answer to an application for security for costs, that the effect of such an order would be to shut it out of the litigation that an occasion may arise for a consideration of the plaintiff's prospects of success in the particular claim: see Rosenfield Nominees Pty Limited v Bain & Co (1988) 14 ACLR 467 at 470; J & M O'Brien Enterprises Pty Limited v The Shell Co of Australia Limited (1983) 7 ACLR 790. In this context, the fact that Idoport has not led any evidence in support of a contention that an order for security would stultify the litigation, a contention upon which it, for the reasons stated in paragraph 37 to 40 above, necessarily bears the onus is fatal to it and, as a matter of principle, should preclude any inquiry into the strength of Idoport's case in these proceedings. 44. In any event, there is no material before the Court by reference to which it could make such an assessment, bearing in mind the limited manner in which security has been sought. No evidence has been led in respect of the amendments to the Fourth Further Amended Statement of Claim. The discrete case brought by Market Holdings is in a similar position; the Court has not heard any of the evidence in relation to it yet. 45. In circumstances where there is no such material before the Court, if the question of the strength of the plaintiffs' case arises for consideration (and the defendants contend that this could only be so where an argument that a security order would stultify the litigation is made and credible evidence is led in support), the Court should proceed on the basis that the plaintiffs' claim is genuine and arguable. To go further would not only be inappropriate for obvious reasons (see Interwest Ltd v Tricontinental Corp Ltd (1991) 5 ACSR 621 at 624 and the statements of his Honour made in the context of considering the defendants' arguments relating to certain of the amendments sought to be propounded in the Fourth Further Amended Statement of Claim: see [2001] NSWSC 142 at paragraph 15, Lovell 10 August 2001 paragraph 19) but would also invite the Court to engage in illegitimate speculation and conjecture (see the cases cited at paragraph 39 above). The defendants have already made a concession, for the purposes only of this motion, to this effect. 46. In MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97 at 100, Needham J concluded: "Whether that claim is a strong claim will depend of course upon the evidence as it comes out and as it may be that I will have to try the matter, I do not think I should say more than that I am not convinced that the plaintiff has an overwhelmingly strong case." 47. In J & M O'Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd (1983) 7 ACLR 790 at 793, Bowen CJ concluded: "I do not consider it is necessary for me to express any view about the prospects of success in the appeal. It is sufficient to state my opinion that O'Brien Enterprises has a bona fide and genuine interest in having the question determined and the question of law involved is substantial." 48. In Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972 at 50-636, Hill J stated: "It would I think be quite improper for me to embark upon a view of the evidence as it presently stands to determine whether the applicant does nor does not have a good case. It suffices to say that the case is one where it must clearly be said that the applicant has an arguable or triable case..." 49. Any attempts by the plaintiffs to rely on the judgment of Justice Einstein dated 19 August 1999 ([1999] NSWSC 828) as a factor highlighting the strength of the plaintiffs' case should be rejected by the Court. The manner in which the Main Proceedings have changed since the date of that judgment are set out in the affidavit of Lovell sworn 10 August 2001." 37 The plaintiffs' submissions included the following:

[14]

Proceedings for the benefit of other persons - The facts 40 The defendants' written submissions were substantially supplemented by the evidence adduced on the hearing of the motions. The written submissions included the following: "24. Whilst it is plain in the present case that neither of Idoport and Market Holdings would be capable of meeting an adverse order for costs (cf.s.1335 of the Corporations Act and Part 53, rule 2 of the NSW Supreme Court Rules), it is equally plain that Idoport and Market Holdings have standing behind them persons with a vital interest in the outcome of the litigation. These persons include directors, shareholders and funders: 'Original Beneficiaries Idoport: Negubo Pty Ltd ("Negubo") as parent company of Idoport; Mr Maconochie as director of Idoport. Market Holdings: Negubo as shareholder; Mr Maconochie as director and shareholder. [see company searches; letter from Withnell Hetherington to Freehills of 5 June 2001]. First Tranche Beneficiaries Idoport: The original beneficiaries together with Australian International Insurances Limited ("AIIL") (a subsidiary of an Australian public company, OAMPS Limited) which purchased a share in Idoport in September 1998 pursuant to a Shareholders Agreement for a total subscription price of $1.55 million. [see Lovell, 23 January 2001, DGL1, pages 24-34] Market Holdings: As for Original Beneficiaries. 2nd Tranche Beneficiaries Idoport: The Original Beneficiaries and the First Tranche Beneficiaries together with North & South Group SA ("North & South") which is a shareholder in Idoport through a trustee company, NW Nominees Ltd ("Nominees") which purchased a share in Idoport in May 2000 pursuant to a Shareholders Agreement for a total subscription price of up to $5 million (see MFI D129). Market Holdings: As for the Original Beneficiaries. 3rd Tranche Beneficiaries Idoport: As for the 2nd Tranche Beneficiaries together with Efficiency Investments BV ("Efficiency"), a funder. Market Holdings: The Original Beneficiaries together with Efficiency, a funder. [see Judgment of Young J [para 243]]. 25. That there are funders in place who stand to benefit from a successful outcome of the litigation and, it may be inferred, who are treating the litigation as a commercial investment is established from the following factors: (a) the matters about funders recorded in the judgment of Young J. (set out more fully below);

[20]

(f) The funder receives a large share of the proceeds [par 227, 228] 27. What emerges from the two Shareholders Agreements is that: (a) one of the shareholders AIIL, is a subsidiary of a public Australian company, OAMPS Limited and has "invested" $1.5 million to purchase a share in Idoport, after the commencement of the proceedings; (b) another of the shareholders, Nominees, is a trustee company resident in Jersey, United Kingdom, holding a share in Idoport on trust for North & South, a company resident in the British Virgin Islands. This share was issued at a subscription price of up to $5 million, after the commencement of the proceedings. It may be inferred from: (1) the fact that Idoport's only asset is the proceedings; (2) that Nominees and North & South are domiciled in overseas tax havens; (3) that the share was subscribed for after the commencement of the proceedings; and (4) from the lack of any explanation from the plaintiffs, that these companies have been used as investment vehicles to hide the identity of the true investors and to make the pursuit of costs orders against such investors difficult." 41 The written submissions of the plaintiffs which were also supplemented during the hearing of the notices of motion included the following: "75. In relation to the analysis in paragraph 24 of the Defendants' written submissions, the Plaintiffs make the following submissions. The evidence shows that the so-called "first tranche beneficiaries", Australian International Insurances Limited, has invested a sum of $1.5 million in exchange for equity in Idoport. The Plaintiffs submit that from the evidence relied upon by the Defendants (pages 24-34 of Exhibit "DGL1" to the affidavit of Mr Lovell sworn 23 January 2001) the inference should be drawn that the amount of $1.5 million has been fully subscribed and, because Idoport has the financial position alleged by the Defendants, that sum has already been expended. In those circumstances, as additional shareholders have emerged, it cannot be inferred that the so-called "first tranche beneficiaries" are available to invest any further moneys in Idoport. Indeed the existence of so called "second" and "third tranche beneficiaries" enables and supports an inference to the contrary. 76. As to the so-called "second tranche beneficiaries" being North & South Group SA, that company subscribed for shares in Idoport in the sum of $5 million. From Idoport's financial position it should be inferred that the total amount referred to of $5 million has been subscribed and expended. It should be inferred from this and the involvement of so called "third tranche beneficiaries" there are no further funds to be subscribed for by the so-called "second tranche beneficiaries". 77. In relation to the so called "third tranche beneficiaries", the Defendants refer to Efficiency Investments BV, a suggested funder as referred to in paragraph 243 of the judgment of Young J at (2001) 37 ACSR 629." 42 By the end of the oral submissions, the question of outside funders had been clarified to a considerable extent and the Court during the in camera sessions had been taken to substantial detail in this regard aided by charts prepared by the defendants. 43 As a consequence of the confidentiality regime imposed in relation to particularly confidential documents, it is not possible as part of the version of this judgment which is for public release, to outline in detail the facts and figures in particular clauses of the funding arrangements or the Court's reasons and findings in relation to these arrangements. Accordingly, the private unabridged version of this judgment will include an appendix "A" which is to be regarded as part of these reasons.

[22]

Security for costs 47 It is clear that the discretion to award security for costs requires to take into account all of the relevant facts matters and circumstances and is a judicial discretion to be exercised following the adducing of all evidence by each party to an application seeking to have such an award made. As Giles J (as His Honour then was) made plain in Rosenfield Nominees Pty Ltd v Bain and Co (1988) 14 ACLR 467 at 470, in exercising the discretion as to whether or not to make an order for costs, the Court must have a concern to achieve a balance between ensuring that adequate and fair protection is provided to the defendant, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings [cf Street CJ in Buckley v Bennell (1974) 1 ACLR 301 at 304]. Giles J referred to the debate over whether the discretion should be exercised with some predisposition in favour of the defendant and expressed the view with which I agree, that the debate is largely semantic. The principle which his Honour identified at 470 was that: "the discretion must be exercised having regard to all the circumstances of the case, but the inability of the plaintiff to meet the costs of the successful defendant, being the occasion for invoking the exercise of the discretion, is likely to play an important if not decisive role". 48 Because the discretion to be exercised by the Court is a wide one which should remain unfettered, the circumstances in which the discretion should be exercised in favour of making the order cannot and should not be stated exhaustively: Spiel v Commodity Brokers Australia Pty Ltd at 415. In Gentry Bros Pty Ltd v Wilson Brown and Associates Pty Ltd (1992) 8 ACSR 405, Cooper J stated: "(i)t is not possible or appropriate to list all of the matters relevant to the exercise of the discretion. The factors will vary from case to case. The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: PS Chellaram and Mr Courtney v Chine Ocean Shipping Co (1991) 65 ALJR 642 at 643." (at 415) 49 Notwithstanding the unfettered nature of the discretion, Beazley J in KP Cable Investments set out 7 guidelines which the Court is said to typically take into account when determining such an application: "1. That such applications should be brought promptly. This is a principle of longstanding: see Grant v The Banque Franco-Egyptienne Egyptienne (1876) 1 CPD 143; see also Smail v Burton (1975) VR 776 per Gillard J at 777; Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 8 ACLR 818 at 820; Bryan E. Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514…

[25]

Whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate: see M A Productions v Austarama Television at 100; Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 per Clarke J at 545; Bryan E. Fencott at 513. In Yandil Holdings at 545 Clarke J stated the principle in these terms: '(t)he fact that the ordering of security will frustrate the plaintiff's rights to litigate its claim because of its financial condition does not automatically lead to the refusal of an order. Nonetheless it will usually operate as a powerful factor in favour of exercising the court's discretion in the plaintiff's favour.' This factor is related to the next, namely: 5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security: see Memetu v Lissenden (1983) 8 ACLR 364; Sent v Jet Corporation (1984) 2 FCR 201; Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1; Hession v Century 21 South Pacific Ltd (1992) 28 NSWLR 120 at 123; Bryan E. Fencott at 513; Yandil Holdings at 545. The combined effect of these two principles was summarised by Meagher JA in Hession at 123 as follows: '...a company in liquidation against whom an order for security for costs is sought cannot successfully resist such an order merely by proving that it cannot fund the litigation from its own resources if an order for security is made; it must prove that it cannot do so even if it relies on the other resources available to it (the company's shareholders or creditors)...Finally, whilst it is both true and important that poverty must be no bar to litigation, what that means is that the courts must be astute to see that no person pursuing a claim which is not frivolous is precluded from doing so by the erection of obstacles which poverty is unable to surmount; it does not mean that proof of insolvency automatically confers an immunity from statutory provisions which deal with insolvent plaintiffs.' 6. An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking: see Cameron's Unit Services Pty Ltd v Kevin R Whelpton and Associates (Aust) Pty Ltd (1986) 13 FCR 46 at 53; Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304; Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325.

[26]

Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate: see Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 at 626; Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) ACLC 32,446; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480; Weily's Quarries v Devine Shipping Pty Ltd (1994) 14 ACSR 186 where Zeeman J stated at 189: '(t)he general proposition that security ought not to be ordered where the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt self-help procedures is no more than that, a general proposition. It ought not to be elevated to being a rule of law. In many cases of that nature it could be considered oppressive to require security and that in itself may be sufficient to refuse to make an order...(see) Sydmar Pty Ltd v Statewise Developments (supra) and Interwest Ltd v Tricontinental (supra)." (at para 39) 50 Clearly as Beazley J recognised, the possibility of stultification is a "powerful" factor to be taken into account by the Court in exercising its discretion as to whether an order is appropriate: Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542. However, Clarke J in Yandil observed that the fact that a plaintiff is financially unable to provide security does not lead to the inevitable conclusion that the making of the order will stultify the plaintiff's claim nor does it lead to the automatic refusal of an order. He went on to cite a line of authorities (see Tulloch v Walker, Yeldham J, 8 December 1976, unreported; Bell Wholesale Co Pty Ltd v Gates Export Corp & Ors (No 2) (1984) 8 ACLR 588) in support of the view that it is generally inappropriate to refuse an order for security where: "the personnel behind the corporate plaintiff, or other parties who will benefit if the plaintiff succeeds, are financially able to provide adequate security." (at 545)

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Plaintiffs: natural persons vs corporations 53 In relation to natural person plaintiffs, the mere fact that the plaintiff is impecunious does not provide a gateway into security for costs. However with respect to a corporation it has long been established in terms of the Corporations Act and its predecessors, and the rules of court as well as the inherent jurisdiction, that if there is good reason to believe that the corporation may be unable to pay costs at the end of the day, this provides a gateway by which an application for security for costs may be made. 54 Giles CJ in Rugby Union Players Association [30/7/1997, SCNSW, 50225/96, unreported] described the rationale behind the exceptions to the general rule that the impecuniosity of a plaintiff should not be a ground for making an order for security for costs (this principle having been well established by the authorities in relation to plaintiffs who are natural persons: Cowell v Taylor (1885) 31 Ch D 34), in the following terms: "In both cases the rationale is that those who will benefit from success in the proceedings, as shareholders in or creditors of a corporation or as third parties for whose benefit the plaintiff (whether a natural person or a corporation) sues, should not be able to litigate and expose the defendant to the risk of irrecoverable costs while themselves shielded, by reason of the interposition of the impecunious plaintiff, from the burden of an adverse order for costs." (at 11) 55 The Court in Harpur v Ariadne [1984] 2 Qd.R 523 at 532 described the rationale behind this principle in the following terms: "The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play." 56 The inability of a plaintiff company to pay the costs of the defendant not only opens the jurisdiction for the giving of security, but also provides a substantial factor in the decision whether to exercise it: Pearson v Naydler [1977] 1 WLR 899 at 906; cited with approval in Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201 at 215. 57 Where a winding-up order has been made in relation to the plaintiff company on account of its insolvency, the company will not prima facie be in a position to pay any costs ordered against it. The Court will generally treat this circumstance as a special factor justifying the making of an order for security for costs: Tricorp Pty Ltd (in liq) v Deputy Commissioner of Taxation (WA) 10 ACLC 474 at 475. 58 In considering an application under s1335, the Court is required to form an opinion about what the financial position of the plaintiff will be at the time of judgment and immediately after. An important consideration will be the financial position of the plaintiff at the time of the application, however this is not the sole consideration. Other factors may include the outcome of the trial, the costs associated with the trial and the success or otherwise of its business and investments in the meantime. When the Court is required to make a judgment involving the anticipation of future events, it must consider the degree of probability that a particular event might occur: Beach Petroleum NL & Anor v Johnson & Ors; Jingellic Minerals NL & Anor v King & Ors (1992) 10 ACLC 525 at 526-527. 59 With specific regard to security for costs against corporations, the Court in Pearson v Naydler recognised that the basic notion of security for costs empowers the Court to order the plaintiff to do something that it will likely find difficult to do, ie. to provide security for the costs which ex hypothesi it is likely to be unable to pay. Despite this, the Court noted that this discretionary power should not be used as an instrument of oppression "by shutting out a small company from making a genuine claim against a large company" (see also Equity Access Limited v Westpac Banking Corporation (1989) 11 ATPR 40-972 at 50,635). The Court must thereby strike a balance between this consideration and the notion that: "…the court must not show such a reluctance to order security for costs that this becomes a weapon whereby the impecunious company can use its inability to pay costs as a means of putting unfair pressure on a more prosperous company. Litigation in which the defendant will be seriously out-of-pocket even if the action fails is not to be encouraged. While I accept that there is no burden of proof one way or the other, I think that the court ought not to be unduly reluctant to exercise its power to order security for costs in cases that fall squarely within the section." Pearson v Naydler at 906-907.

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The principles 69 Plainly, an application for security must be made promptly: Foss Export Agency Pty Ltd v Trotman (1949) 67 WN (NSW) 1; Buckley v Bennell (1974) 1 ACLR 301 at 308; Southern Cross Exploration v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114 at 123. The authorities have recognised that it would be patently unjust to permit a defendant who stood by and allowed the plaintiff to work on their case to ask for security after expenses had been incurred: Smail v Burton; Re Insurance Associates Pty Ltd (in liq) (1975) 1 ACLR 74 at 75. 70 On the other hand, evidence of delay does not necessarily render the application fatal on its own. The passage of time is merely one factor to be taken into account during the balancing exercise undertaken by the Court: Commonwealth of Australia and Another v Cable Water Skiing (Australia) Ltd (1994) 14 ACSR 760 at 762. For example, security for future costs was awarded to the defendant in Commonwealth v Cable where there had been a delay of 4 years after the proceedings had commenced. 71 Lehane J in Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at 71 recognised that the issue of delay will weigh more significantly in some cases than others. He went on to note however, that the cases in which orders for security were made despite delay have usually involved one or both of two factors, those being: a) "…that the hearing or resumed hearing was not immediately imminent…"; and b) "…that there has been some forewarning: usually correspondence concerning the financial standing of those who might benefit from the success of an applicant or plaintiff, and often detailed correspondence foreshadowing an application for security for costs." (71). 72 French J put the matter as follows in Bryan E v Fencott v Eretta Pty Ltd (1987) 16 FCR 497 at 514: " The further a plaintiff has proceeded in an action and the greater the costs it has been allowed to incur without steps being taken to apply for an order for costs, the more difficult it will be to persuade the court that such an order is not, in the circumstances, unfair or oppressive." [emphasis added] 73 In Buckley v Bennell (1974) 1 ACLR 301 at 309 Moffitt P put the matter as follows: "The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset , and before it embarks to any real extent on its litigation, and certainly before it is allowed to or permits substantial sums of money towards litigating its claim " [emphasis added]. 74 In Southern Cross Exploration NL v Fire and all Risks Insurance Co Ltd, Waddell J, in explaining the proper approach to delay, emphasised the following passage in Lindsay Petroleum v Hurd (1874) LR 5 PC 221 at 240: "… Two circumstances, always important in such cases (that is, where a defendant relies on the doctrine of laches) are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy".

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[See also Deane J in Orr v Ford (1989) 167 CLR 316 at 341: "… whether the plaintiff has, by his inaction and standing by, placed the defendant or a third party in a situation in which it would be inequitable and unreasonable to 'place him if the remedy were afterwards to be asserted" ] [emphasis added] 75 Southern Cross involved proceedings commenced in early August 1983 for injunctive relief and a trial fixed for 12 March 1984 on the basis of an estimated hearing time of three to four weeks. The hearing in fact continued until the end of May 1984 when there was a lengthy adjournment while the parties negotiated for a settlement of the several associated proceedings. Those negotiations proved unsuccessful. The further hearing was then fixed for 5 November 1984. At that time both parties expressed the view that the hearing was likely to be concluded before the end of the year. This did not occur. By 12 February 1985 the trial had occupied 65 days. As at that time, an estimate was given that the completion of the trial would take yet another six to eight weeks. The judgment deals with an application for security for costs filed on 17 December 1984. 76 The defendants had clearly delayed in making an application for security for costs, and Waddell J (as his Honour then was) saw delay as a "most important" factor to be taken into account in the exercise of the Courts discretion. The defendants submitted however that it could not reasonably have been foreseen that the trial of the proceedings would take as long as they had in fact taken and were still estimated to take and that a late application was therefore justified. The Court took into account as substantially contributing to the length of the proceedings, the time which had been taken up in legal argument concerning the production of documents on subpoena and questions of admissibility of evidence, many of which apparently related to the particulars furnished by the plaintiffs. Although the plaintiffs submitted that their senior counsel had made the likely length of the hearing plain early in the hearing in April 1984, the holding was that the statement could not be regarded as putting the defendants on notice that the hearing would take as long as it had and would. Waddell J held that in all the circumstances, it seemed clear that the defendants were entitled, at all relevant times, not to anticipate that the hearing as at 12 February 1985 would still take a further eight weeks. Certainly this could not on his Honour's holding have reasonably been anticipated when the trial commenced, nor when the resumed hearing was fixed for early November 1984. On his Honour's holding, the prospect started to become apparent during the further cross-examination of certain witnesses. His Honour then held that the unexpected length of the hearing was an important factor affecting the exercise of the Court's discretion. 77 Submissions were addressed to the Court on behalf of the plaintiffs to the effect that the general financial position of each of them had been apparent from their published accounts at all material times. The submission was that the defendants had had available to them for a substantial time, the material upon which they based the application for security for costs. It was also submitted that the defendants were on inquiry as to the financial position of the plaintiffs in terms of the substantial amount of litigation between the defendants or associated companies and the plaintiffs' associated companies. As against this, the defendants apparently submitted that they had delayed making the application in order not to interrupt the trial until a stage had been reached when it would be commercially irresponsible not to make it. The defendants submitted that the financial position of the plaintiffs had been declining and His Honour held that the submission was substantiated on the evidence. There was however no evidence that the defendants were aware of this. 78 His Honour's judgment then continued as follows: 'It is submitted for the plaintiffs that the defendants' delay has been such that they should be regarded as having waived their right to security. Reliance was placed on the general equitable doctrine of waiver and upon Jennings Ltd (In Holding) v Cole [1934] NZ Gaz LR 165, a decision of the Supreme Court, in which it was held that a defendant had, by gross delay, waived his right to ask for security. However, although expressed in these terms, it seems to me to be clear from the judgment that the basis of the decision was that the defendant had permitted the plaintiff to prepare for trial and incur the liabilities associated with so doing on the basis that it would not have to give security. Although relating to a different context it seems to me that the approach to be made in cases such as the present should reflect what was said in the well-known passage in Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 240: "…..Two circumstances, always important in such cases (that is where a defendant relies upon the doctrine of laches) are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy." Such a principle is reflected in the passage quoted above from Buckley Bennell Design and Constructions Pty Ltd and in the decision of Needham in Loreva Pty Ltd v CEFA Associated Agencies Pty Ltd (1982) 7 ACLR 164. In the present case it seems to me that the circumstances mentioned are such as to make it quite impossible, without severe and unexpected prejudice to the plaintiffs, to make an order for security in respect of costs which have already been incurred by the defendants. The plaintiffs have incurred very substantial costs in relation to the proceedings to date and have been allowed to do so by the defendants in the absence of any intimation of any application for security for costs. It would clearly be highly unjust to make such an order in respect of costs already incurred. Should such an order be made in respect of future costs? The question is, I think, whether the unanticipated length of the hearing is a factor which outweighs the prejudice to the plaintiff which would be caused by changing the basis on which they have incurred the expenditures necessary for the presentation of their case. I have not found it easy to balance these two factors and the others associated with them but I have come firmly to the conclusion that, having regard to the matters so far discussed, the unexpected length of the trial is such that it would not be unjust to the plaintiffs to require them to give some security for the future costs of the defendants provided, however, that compliance with the order will not unduly affect their capacity to continue the proceedings to the conclusion of the trial.' [emphasis added] 79 Whilst clearly exercise of the Court's discretion must always take account of the facts matters and circumstances of the particular case, Southern Cross is at least one authority where an important matter taken into account involved (1) the unanticipated length of the hearing, and (2) whether or not that factor outweighed the prejudice to the plaintiffs which would be caused by a change to the basis upon which they had incurred the expenditures necessary for the presentation of the case. 80 Clearly there are circumstances where the defendant's delay may result in security being ordered for prospective costs only. The Court in Southern Cross recognised the distinction between past and future costs, and considered the following factors to be important in relation to the former: the substantial costs already incurred by the plaintiffs; the unexpected length of the hearing; the length of the delay and the nature of the acts done during the interval (at 125). 81 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. [cf French J in Bryan E Fencott supra at 515] 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.

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Time estimates for the final hearing 83 The nature of the proceedings and the approach taken by each of the parties to the proceedings from their commencement has always made it crystal clear that the duration of the final hearing would be very extended indeed. Whilst the precise ambit of the plaintiffs' claims to damages may be said to have moved over time arguably from $20 billion to in excess of $50 billion, there was never any shadow of a doubt but that the defendants would defend the claim to the hilt and would do so in a careful and considered way using every resource available in that regard. It is not surprising that the defendants have retained one of Australia's largest law firms and built up a considerable legal team made up of many counsel and solicitors, no doubt backed by the National Australia Bank in every way possible. Previous judgments have described the defendants as mobilising massive legal resources in relation to the litigation. It is not surprising that the defendants would have carefully investigated any possible cross-claims and in due course determined to pursue the first cross-claim. It is not surprising that the defendants would have gone about investigation of the factual issues in the most meticulous fashion and would then have filed statements from their many witnesses. Mr Lovell's evidence was that in round terms the defendants had paid between $20 million and $30 million to legal advisers between September 1998 and 3 October 2000 and a further $10 million to $15 million since 3 October 2000. Costs were running at between $1 million and $1½ million per month possibly excluding GST. In each case the defendants' stance by way of defending the proceedings was a logical and reasonable approach when one takes into account the nature of the plaintiffs' case and the way in which the case was pleaded, particularised and then sought to be proved by very extensive statements. I refer below to how it came about that the statements continued to be filed and served up to and after commencement of the final hearing, there being a number of reasons for this having taken place. 84 In the result, although there is no doubt but that the plaintiffs' sundry amendments to the statement of claim granted during the final hearing have added, and possibly in some real measure, to the amount of time which the final hearing will now take, the simple fact is that even without these amendments it would not have been reasonable to expect the parties to give any precise estimate of the final hearing time. The plaintiffs could not have given any such precise estimate because the amount of time which the defendants would take in cross-examining was unknown. The defendants could not have given any such precise estimate for many reasons including the uncertainty as to amount of time which the plaintiffs would take in cross-examining. Importantly, the rollout of statements which continued on and after the commencement of the final hearing meant that each party was being met with an unknown factor each time the opposing party produced a new statement. As is referred to below, the reason for uncertainty as to the extent and likely duration of the final hearing also include: (1) the defendants' late patent case amendment; and

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The circumstances in which leave to amend was granted 89 A central focus is concentrated upon the circumstances in which the Court granted leave to further amend the Third Further Amended Statement of Claim and upon the consequences of that leave being granted. The short position is that with the exception of the 'modifications' amendments, the amendments so allowed, although expanding the causes of action and leading to the need for the defendants to address additional evidentiary areas, cannot upon examination be suggested as so far removed from the vortex or central arena already being litigated as to warrant a special regime being imposed in terms of security for costs qua the costs of and occasioned by or arising by reason of such amendments. I deal with the modifications amendments below. 90 Leaving to the side questions as to the modifications amendments, the position is somewhat complicated by the fact that the plaintiffs and the defendants, with few exceptions, took diametrically opposite positions in relation to the question of whether or not the pleadings anterior to the Fourth Further Amended Statement of Claim read together with the particulars which had been furnished, did or did not permit many of the same factual and/or legal issues as were explicitly raised by the amendments, to be litigated [cf Judgment 12 March 2001 [2001] NSWSC 142 paragraphs 59, 64; Judgment 2 May 2001 [2001] NSWSC 328 paragraphs 81-85; Judgment 20 June 2001 [2001] NSWSC 509 paragraph 8]. Again leaving aside questions as to the modifications amendments, in a real sense the leave which was granted to amend stripped away layers of ambiguity or arguable ambiguity in terms of matters which were arguably entitled to be litigated on the pleadings, and permitted the continued hearing to proceed with a minimum of further argument in this regard. What I have said suffices in terms of an overarching explanation as to what occurred. In terms of the specifics, the position is probably for obvious reasons, best expressed in the judgments which on each occasion led to the grant of leave to amend. 91 The position is further complicated by another important factor. This concerns the very substantial debate which occurred both before the final hearing commenced as well as during the openings and which related to whether and if so when and for what reasons, either party had gone outside its legitimate entitlement to file evidence by statement, after directions had been given in that regard. The defendants complained that the plaintiffs under cover of leave granted to file evidence in reply had in fact filed extensive evidence which, on examination, was seen to be additional evidence in chief. Following this form of complaint, the defendants, having been given an opportunity to respond to such materials, the position which obtained was that the plaintiffs complained that the defendants themselves had now gone outside of responding to the plaintiffs further evidence, it now being suggested that the plaintiffs were in consequence entitled to file further evidence. The matter was referred to in the judgment [2000] NSWSC 1141 at paragraphs 10 and 11. In truth, the complexity of the issues and the number of statements filed by each party made a commission of inquiry into which of the plaintiffs or the defendants had been to blame, simply impossible to conduct and this, by dint of the sheer complexity, as well as the volume, of the legal, factual and particularly expert issues and evidence. In the result, a fairly pragmatic approach was taken in a very unusual case involving proceedings of the highest significance to both parties to ensure that neither party could complain at being prevented from mobilising the evidence which, within reason, it was entitled to mobilise in the proceedings. It cannot be said that the grant of leave to amend the pleadings was completely unrelated to this roll out of evidence by the two parties. 92 The statistics with respect to the statements were nothing short of staggering. On the defendants' side of the record, there are currently 177 statements [see the table Appendix "B" to this judgment]. 93 There appear to be a number of ways to view the defendants' roll-out of statements. On analysis, the table Appendix "B" reveals that the defendants' statements fall into the following categories: · served or filed in 1999 - 16 statements; · served or filed in 2000 - 141 statements [of which 83 were March 2000 and 36 post-dated the late July commencement of the hearing]; and · served or filed in 2001 - 19 statements. 94 Another analysis is that between 16 December 1999 and 7 July 2000, the defendants served 107 lay statements and 12 expert statements. Between 7 July 2000 and the date 23 January 2001, the defendants had served a further 22 expert statements and 12 lay statements [transcript 12524]. 95 In relation to the plaintiffs' statements, the evidence was that the plaintiffs have filed and/or served 104 statements from 39 witnesses namely: · between 20 November 1998 and 14 July 1999 - 13 statements and one affidavit; · between 8 March 2000 and 12 September 2000 - 57 statements; and · from 12 September 2000 up to 10 August 2001 - 34 statements. 96 Nor can it be suggested that it was only the plaintiffs' leave to amend which led to a considerable blow-out in the factual and legal issues being litigated. As I have said, the grant of leave to the defendants to plead the United States patent issues (see the patent judgment [2000] NSWSC 1141) records simply one occasion when in the very complex litigation and for the reasons given in the judgment in that regard, issues of importance were permitted to be raised although they had not earlier been pleaded. 97 I have referred above to the modifications amendments. This is intended as a reference to the matters dealt with in the judgment of 20 June 2001 [2001] NSWSC 509. A convenient summary of the relevant 'modification' amendments is set out in paragraph 5 of Mr Lovell's affidavit of 24 July 2001 as follows: Paragraph Summary of Paragraph 18.8 Implied term that NMG would, and the National would procure that NMG would, take all reasonable steps after 6 November 1996 to enhance, modify and add to the Ausmaq Service as it existed as at 6 November 1996. 30(2) Gateway Service is and will be a service within the definition of the Ausmaq Service (as defined in the Consulting Agreement) being a service with equivalent or similar functionality to the service of providing an automated securities trading system and related services being the Ausmaq Service (by any name anywhere) as it was in fact at the relevant date (6 November 1996) and as it is or should be or should have been enhanced or modified or added to (for the duration of the Consulting Agreement). 35(2) Remote Wealth Service was and if developed and implemented would have been a service within the definition of the Ausmaq Service (as defined in the Consulting Agreement) being a service with equivalent or similar functionality to the service of providing an automated securities trading system and related services being the Ausmaq Service (by any name anywhere) as it was in fact at the relevant date (6 November 1996) and as it is or should be or should have been enhanced or modified or added to (for the duration of the Consulting Agreement). 40(2) Margin Lending Service is and will be a service within the definition of the Ausmaq Service (as defined in the Consulting Agreement) being a service with equivalent or similar functionality to the service of providing an automated securities trading system and related services being the Ausmaq Service (by any name anywhere) as it was in fact at the relevant date (6 November 1996) and as it is or should be or should have been enhanced or modified or added to (for the duration of the Consulting Agreement). 46(2) FX Auto-Dealing service is and will be a service within the definition of the Service (as defined in the Consulting Agreement) being a Service with equivalent or similar functionality to the service of providing an automated securities trading system and related services being the Ausmaq Service (by any name anywhere) as it was in fact at the relevant date (6 November 1996) and as it is or should be or should have been enhanced or modified or added to (for the duration of the Consulting Agreement). 49B(2) Independence One Service was and if developed and implemented would have been a service within the definition of the Ausmaq Service (as defined in the Consulting Agreement) being a service with equivalent or similar functionality to the service of providing an automated securities trading system and related services being the Ausmaq Service (by any name anywhere) as it was in fact at the relevant date (6 November 1996) and as it is or should be or should have been enhanced or modified or added to (for the duration of the Consulting Agreement). 49I(2) Project Maple Leaf/Operation First Choice and each service or each of the services required to implement it is and will be a service within the definition of the Ausmaq Service (as defined in the Consulting Agreement) being a service with equivalent or similar functionality to the service of providing an automated securities trading system and related services being the Ausmaq Service (by any name anywhere) as it was in fact at the relevant date (6 November 1996) and as it is or should be or should have been enhanced or modified or added to (for the duration of the Consulting Agreement). 52.19 The National has breached or induced and procured NMG to breach the terms of the Consulting Agreement alleged in paragraph 18.8.

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The proper construction of Part 53 Rule 2 (1) (b) of the Supreme Court Rules 100 Dr Bell of counsel in reply addressed some submissions in support of the proposition that the proper construction of Part 53 Rule 2 (1) (b) of the Supreme Court rules was that this sub-rule applied only to natural plaintiffs. It seems to me that there is some substance in the submission for the simple reason that where a plaintiff, being a body corporate unable to pay the costs of the defendant if ordered to do so is concerned, it would be entirely unnecessary for a defendant to even consider adopting the burden of additionally showing that the body corporate was suing, not for its own benefit, but for the benefit of some other person. 101 The rationale behind the distinction between natural persons and corporations as plaintiffs is based on the general rule (subject to certain exceptions) that a natural person should not be ordered to give security for costs, however poor he is: Pearson v Naydler at 904. This is premised on the basic rule that "poverty is no bar to a litigant": Cowell v Taylor (supra) at 38. The same protection is not however conferred on a plaintiff company. In fact, as already noted, the basic rule in that regard is formulated in the opposite terms (ie Rule 2(1)(e) and s1335). The reasoning behind this distinction was articulated by Moffitt J in Pacific Acceptance Corporation Ltd v Forsyth (No 2) [1967] 2 NSWR 402 at 407: "…the very basis of the exercise of jurisdiction to order security of costs against a company as distinct from an individual is that the company is impoverished. It recognises that if a company wins it will get the benefit of its verdict and an order for costs against the defendant to the advantage of those who have an interest in the assets of the company but that the defendant sued will, if successful, be at a disadvantage in being unable to recover his costs if the company is financially insecure, and that it is fair that he be placed in an equal position with the company by the company providing or having provided by those concerned in the fruits of the litigation a means of the defendant sued recovering his costs, if he wins." [emphasis added] 102 As Burchett J said in Cunningham v Olliver (Federal Court of Australia, unreported 21 November 1994, NG 14/93) at page 4: "It is an important principle…That an impecunious natural person is entitled to rely on the general rule that property is no bar to a litigant. The applicants impecuniosity should not close the door of the court against his claim. However, to the extent that the claim is put forward on behalf of others, it is appropriate to regard this principle as qualified". 103 In the circumstances it is possibly unnecessary for the Court to presently treat with the authorities which deal with whether or not the sub-rule only applies in a situation where the plaintiff is, using the words of the Federal Court in Andrews v Caltex Pty Ltd (1982) 60 FLR 261 at 265: "nothing but a puppet for some third party, a mere shadow, in the sense that he has parted with any right he may have had in the subject matter and become a mere the nominal plaintiff". 104 Andrews was a case in which the Federal Court considered the meaning of "benefit" within the corresponding Federal Court Rule which is substantially similar to sub-rule 2 (1) (b) of the Supreme Court Rules. The Federal Court rejected the argument that "benefit" should be construed narrowly in the sense of "financial benefit" only. It was also considered unnecessary to contribute any fixed meaning to the word, the Court preferring to glean its meaning from the character of the particular case in question. The Court noted that the sub-rule involved two distinct aspects relating to the notion of benefit. The holding was that first, it must be shown that the proceedings were not brought for the benefit of the plaintiff, and second, that the proceedings were brought for the benefit of some other person. Proof of the former would not necessarily establish the latter. 105 The plaintiffs on the present security for costs applications submitted that the converse was equally true: in other words, the fact that someone other than the plaintiffs stood to benefit from the success of the litigation did not necessarily mean that the plaintiff was not suing for his or her own benefit: Rugby Union Players Association v Byron Shire Council [30/7/1997, SCNSW, 50225/96, unreported]. 106 Generally it has been held that a plaintiff who is suing partly for his own benefit and partly for the benefit of some other person, cannot fall within the terms of such a provision: Ramsey v Hartley (1977) 2 All ER 673 at 682; Cunningham v Olliver supra (but see Woodhouse v McPhee (1997) 80 FCR 529 for a wider consideration taking into account public policy issues).

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The claim for security in respect of the MLC proceedings 108 Leaving aside for the moment the complex questions of the appropriate amount in respect of which security for costs ought be ordered, I have come to the clear conclusion that the proper exercise of the Court's discretion should be in favour of an order that security be furnished in respect of the entirety of the defendants' past and estimated future costs of the MLC proceedings. 109 The defendants have established the threshold requirement that there is reason to believe on the evidence that Idoport will be unable to pay the costs of the defendants if ordered to do so. 110 Idoport has eschewed any attempt to prove stultification in the sense that an order for security will frustrate the litigation. Idoport has not endeavoured to provide a proper evidentiary foundation to establish that those who stand behind it and who will benefit from the litigation if it is successful, are also without means. The evidence albeit somewhat inchoate, supports an inference to the contrary. 111 In relation to the MLC proceedings, I do not regard Idoport as having any entitlement to rely upon any form of delay as a form of shield or defence or relevant factor to be given real weight in relation to this claim for security. The application was foreshadowed within two weeks of the commencement of the MLC proceedings. I reject as of no substance whatever Idoport's attempt to gain assistance from the submission that it was forced to commence the MLC proceedings by the stand taken by the defendants in terms of the Anshun question. The MLC proceedings were new proceedings. It was possible for Idoport to either commence the proceedings as new proceedings or alternatively to seek to make the same claims by an application to join additional defendants and to amend the pleadings in the main proceedings. There would be no difference in substance between the two approaches. There should be no material difference in an application for security for costs regardless of which of the two approaches had been adopted. The defendants' stance in relation to Anshun is simply irrelevant on the security for costs question. The fact that the MLC proceedings raise certain similar or identical issues to those already raised in the main proceedings is not to the point. Very much to the point is the fact that the MLC proceedings raise new and difficult issues in terms of the appropriate comparison between any MLC services and the Ausmaq Service. Very much to the point is the fact that the MLC proceedings will significantly expand the defendants' costs of preparing to meet the proceedings. 112 In my view the proper approach to the defendants' application for security for costs in respect of the MLC proceedings is to order that appropriate security be paid by Idoport in respect of any of the issues to be litigated in those proceedings. The fact that the defendants in the main proceedings do not seek security for costs in respect of the issues in the main proceedings (excluding issues thrown up by the amendments), is neither here nor there. Prima facie the defendants stand in respect of the MLC proceedings as would any defendant to any new proceedings commenced against it.

[48]

The claim for security pursued against Idoport in relation to the amendments 113 Once again leaving aside for the moment the complex questions of the appropriate amount in respect of which security for costs ought be ordered, it seems to me that the defendants have made good an entitlement to security for costs insofar as the costs of the defendants arise in relation to the additional issues raised by the enhancement amendments. 114 Here again the plaintiffs have eschewed any attempt to discharge the burden of establishing that to order security will frustrate the litigation in the sense of seeking to establish that those who stand behind Idoport and who will benefit from the litigation if it is successful, are without the necessary means to both fund security and to fund the continued litigation. 115 The substantive issue for consideration appears to be that of delay. 116 It seems to me important to bear in mind that the defendants having, in early October 2000, served notice of motion 19 and having foreshadowed a similar notice of motion which ultimately became notice of motion 22 for security for costs in the MLC proceedings, the plaintiffs' applications for leave to amend were brought against a background in which the defendants' general approach seeking security in an all-encompassing sense, had been flagged and was proposed to be pressed at an appropriate point in time. Mr D'Emilio was cross-examined in relation to the communication on 3 October 2000 of the as yet unfiled security for costs application and appears generally to have been aware that counsel for the plaintiffs had indicated that no point would be taken concerning delay after 3 October 2000 with respect to that motion. Mr D'Emilio was taken to paragraph 7 of his affidavit of 22 August 2001 in which he had referred to the application to amend the statement of claim which was dealt with in March and June 2001. He was asked and answered as follows: "Q. At all times while that application was being dealt with, you were aware that there was, on foot, a motion seeking security in respect to the Idoport claim? A. Yes.

[51]

Q. Yes. And in having that understanding, you realised that the whole included the part? A. Yes. Q. The greater included the lesser ? A. Yes . Q. And that if leave were granted to make this amendment, then one of the matters in respect to which security would ultimately be awarded or not would be the amendments themselves ? A. That would be taken into consideration." [Transcript 12407-12408] [emphasis added] 117 I take into consideration also the fact that there is no evidence from the plaintiffs side of the bar table to the effect that any different approach would have been taken to the application for leave to amend had, for example, the defendants accelerated their security for costs application. Neither of the plaintiffs gave evidence that they would have abandoned the application for leave to amend had the security for costs implications in terms of the pending motion for security been explicitly made a parameter of the argument on the application for leave to amend. Nor was there any evidence that any funder would have acted differently had the security for costs implications been raised in that way. Indeed on the evidence, Idoport had, prior to the defendants' application being foreshadowed, entered into funding arrangements which provided that security for costs be given; namely the Idoport Loan Agreement which expressly contemplated and made provision for amounts to be provided to Idoport by Efficiency for the purpose of posting security for costs. 118 I have given careful consideration to what at first blush appeared to me to be a strong contention available to the plaintiffs in this regard. This contention would be generally to the following effect: 'The litigation achieves a particular momentum over a number of years as the hearing approaches and both prior to and during the continued hearing involves an enormous expense to both sets of parties. Whilst the court clearly has a discretion to make an order obliging the plaintiffs to provide security for costs, that discretion has to be exercised judicially and an important and permissible factor to be taken into account concerns the obvious unfairness to the plaintiffs in the defendants having held their hand for literally years in terms of pursuing an application for security for costs, whilst the plaintiffs (effectively Idoport) have, by whatever means and arrangements, expended enormous sums in pursuing the litigation to a point in time 13 months after the commencement of the hearing of probably one of the most expensive piece of litigation ever conducted in an Australian court.' 119 On giving the matter further consideration it seems to me that while the above reasoning could arguably have been pervasive in terms of a consideration had the defendants elected to seek security for costs from Idoport apropos costs of and relating to the main proceedings (by definition excluding costs of the modification amendments) up to the point in time when the motions for security were foreshadowed, the salient fact here is that the defendants have not elected to seek security for those costs. Rather the defendants have carefully elected to pursue only security in relation to costs associated with the amendments introduced by the proposed Fourth Further Amended Statement of Claim. In that regard, Mr Lovell's evidence seems to me to substantiate the proposition that he has carried out his best efforts to exclude any overlap with matters the subject of issues in the main proceedings in any event. 120 In my view, the claim to this form of security under the present head should not be acceded to save insofar as the modification amendments are concerned. Outside of the modification amendments, the other amendments raise issues which are simply too close to the vortex of the issues which were already being litigated to now warrant an order for security for costs being made. 121 It seems to me very important that the Court on this issue focus upon what prejudice to Idoport has been proved insofar as the claim for security for costs qua the modifications amendments is pursued by the defendants. Reference has already been made to Orr v Ford and to Lindsay Petroleum v Hurd. Whilst I certainly accept that a plaintiff company with financial problems or facing obvious difficulty in funding a particular piece of litigation to its conclusion, is entitled to know its position in relation to security at the outset and before it embarks to any real extent on its litigation and before it is allowed to or outlays substantial sums of money towards litigating its claim, it cannot be correct that any application for leave to amend to add a substantial set of new issues can never be visited with an appropriate order for security for costs in respect of costs to be incurred relating to those issues. Furthermore and indeed to the contrary of any suggestion of prejudice to Idoport which would be occasioned by the making of an order for security, the evidence positively establishes that the funding arrangements specifically contemplated a payment of security. Hence the Court is able to infer the converse of the proposition that Idoport as well as its funders, conducted itself upon the assumption that Idoport would not have to pay some real amount by way of security for costs. 122 Idoport having failed, as it seems to me, to make good the proposition that delay should be weighed in balance to an extent as to warrant a rejection of the defendants' application for security for costs relating to the modifications amendments, it seems to me that, taking into account all of the facts matters and circumstances, such an order for security should properly be made.

[52]

The Claim for security pursued against Market Holdings 123 Once again leaving aside for the moment, the complex questions of the appropriate amount in respect of which security for costs ought be ordered, it seems to me important in relation to the claim for security pursued against Market Holdings, to bear in mind the simple fact that Market Holdings, on the evidence has enjoyed an extremely beneficial position in the sense that it has been Idoport which has funded the litigation pursued both by itself, as well as by Market Holdings. The evidence is summarised at transcript 12490.37-12491.07. Market Holdings has never been billed for any costs of the proceedings. It has never paid any of the legal fees charged by the plaintiffs' solicitors or counsel. It has been the beneficiary of Idoport's arrangements for the funding of the litigation. No evidence has been adduced on it's behalf and no submission put to the effect that it is liable to Idoport in respect of the past funding of the litigation. Hence it has been unable to show any prejudice suffered by it should an order for security for costs of the proceedings now be made against it. 124 A factor taken into account is that Market Holdings had, prior to the defendants' application being foreshadowed, entered into funding arrangements which provided that security for costs be given; namely a Partnership Agreement which expressly contemplated and made provision for amounts to be provided to Market Holdings by Efficiency for the purpose of posting security for costs. 125 Submissions have been addressed on behalf of Market Holdings making the point that its net asset position has never materially changed and that the liquidation of Market Holdings did not per se alter its earlier parlous financial position. However, bearing in mind its peculiar position in terms of never having expended any moneys at all in terms of preparation for or the running of the final hearing on its cases, it does not seem to me that even at the present time, the defendants should be denied the entitlement to have an order for security for costs with respect to the period after July 2001 made against Market Holdings in respect of issues which necessarily relate to it's cases and this notwithstanding [see transcript 12464.44], that, whilst clearly there are a number of issues which relate to Market Holding's cases and do not have any or any real overlap with Idoport's cases, it remains patently clear that to a very considerable extent, many, many issues common to both Idoport's as well as Market Holdings's cases will be litigated.

[53]

Extrapolating back to Southern Cross 126 It will be apparent from the above reasons that the specific approach taken by Waddell J in Southern Cross in terms of first considering what had there been an unanticipated length of the hearing and second, considering whether or not that factor outweighed the prejudice to the plaintiffs which would be caused by what was there held to be a change to the basis upon which they had incurred the expenditure necessary for the presentation of the case, has no vital part to play in relation to the present applications for security. Certainly the length of the hearing is now to be very extended indeed and albeit always having been likely to be of real length, the precise dimensions as now apparent are unlikely to have been anticipated at the commencement of the hearing. The reasons for the more extensive hearing which will now take place cannot be sheeted home solely to one party or the other. Both have played real parts in contributing to the now situation. However, in relation to the time to be taken qua the issues concerning the modification amendments, the plaintiffs have been the cause for the taking of that time and for the hearing being extended in so far as those issues now require to be litigated. Importantly, the way in which the defendants have elected to pursue the particular applications for security for costs either removes entirely, or certainly vastly minimises, any prejudice to the plaintiffs in being required to provide security for costs. Hence the balancing factor in terms of prejudice to the plaintiffs which was taken into account in Southern Cross, ultimately has little, if any, relevance to the approach taken in these reasons. This is not to say however that where there is a change in circumstances such as an unforeseen expansion in the length of a final hearing this may not be taken into consideration as a factor to be weighed in the light of all the other relevant factors in the proper exercise of the Court's discretion. That factor is taken into account in the above reasons for the exercise of the Courts discretion in favour of ordering security for costs.

[54]

Dealing with the plaintiffs' 'scale/imbalance' submissions 127 Reference has already been made to the plaintiffs' submissions to the effect that the Court should take into account as a factor to be weighed in the balance, the scale of litigation and the suggested huge imbalance in resources being deployed by the defendants, as opposed to the resources said to be available to the plaintiffs. The plaintiffs in this regard referred to the evidence concerning the expenditure of the defendants (approximately $30 million up to $45 million plus GST and $10 million plus for experts) and what is said to be the relativities or ratio of expenditure as between the defendants' expenditure (said to be between four and six times that of the plaintiffs) and that of the plaintiffs, as material and significant and relevant to the exercise of the Court's discretion in a number of ways. 128 The submission is that: "the evidence demonstrates that the defendants (especially NAB , the principal defendant and Australia's largest financial institution) have adopted a 'blank cheque' approach to this litigation, spending on every issue whatever it takes for as long as it takes to attempt to defeat the plaintiffs. The large number of interlocutory applications brought or contested at length by the defendants, in the vast majority without substantial success, and largely irrelevant to the plaintiffs central breach of contract case, …..also demonstrates this ". [Plaintiffs written submissions 3 September 2001] 129 The plaintiffs' submissions referred to the defendants 'blank cheque ' approach as making it clear: "that the plaintiffs will require every sum they can obtain to be able to finish this trial, whether from their own resources or otherwise". 130 The plaintiffs further submit that: "The very magnitude of, and the disproportionate amount of, the defendants expenditure: · of itself shows that, as a measure for party/party costs, the defendants claims are unreasonable · of itself demonstrates that if any order for security is made, it would unduly stultify the plaintiffs ability to pursue the proceedings; · of itself demonstrates that the defendants' application is oppressive, seeking as security sums which are insignificant in the light of the defendants expenditure, but which may well shut the plaintiffs (a small company) out from pursuing a genuine claim against NAB (a large company); · of itself demonstrates support for the defendants concession that the plaintiffs case (both as to liability and the damages), that there is (at the lowest) a serious question to be tried, and further demonstrates that the plaintiffs case is a substantial, strong and well based one apparently with substantial prospects of success, which justify the defendants extraordinary expenditure · of itself demonstrates and is consistent with the plaintiffs case that, Idoport being a single purpose company with the Consulting Agreement and rights to Performance Bonus and the Buy-Out provisions as its main asset, the defendants have caused any impecuniosity of the plaintiffs, and are prepared to incur any expenditure in relation to the proceedings to maintain the situation and to keep the plaintiffs under pressure; and · makes it inconceivable that, with solicitors of the size and sophistication in commercial matters as Freehill's, security for costs applications were not carefully considered before or at the time of commencement of the proceedings and a deliberate decision made not to pursue it · of itself shows matter concerning the respective positions of the opposing parties which is directly relevant to the public interest in the administration of justice, inter alia , which should dispose the court to give little, if any, weight to any suggestions of champerty or maintenance (which are disputed) in relation to the [funding] agreements as a factor relevant to [or] regarding prejudice and the exercise of discretion." 131 The plaintiffs' submission is that: "The very magnitude of, and the disproportionate amount of the defendants expenditure shows that the plaintiffs have been compelled by the defendants to part with interests (in relation to the [funding agreements] ) which may diminish the effective benefit of any verdict to them as the only reasonable way of protecting and enforcing their main asset, the Consulting Agreement and the rights under it. In the light of, the very magnitude of, and the disproportionate amount of, the defendants expenditure, the plaintiffs could not reasonably have had any other choice " [emphasis added] 132 Importantly, the plaintiffs have expressly disclaimed any reliance upon abuse of process as an issue on the motions. 133 Next, a number of the matters referred to in these submissions were simply not proved. In particular, the allegation that the defendants have adopted an approach to the litigation by way of spending on every issue whatever it takes for as long as it takes "to attempt to defeat the plaintiffs" is a serious allegation which, had there been an abuse of process allegation pursued on the applications, could have been put to Mr Lovell . 134 Ultimately and accepting for the purpose of the argument that the Court is entitled to infer the tremendous imbalance in resources on the two sides of the bar table, the imbalance submissions, in the way in which the security for costs applications were argued, add little to the considerations of central significance outlined in the reasons for judgment and set out above.

[55]

Maintenance and champerty 135 The defendants submitted that if prejudice was found to have been suffered by the funders, then because of what was asserted to be the champertous nature of the funding agreements, the Court should not take this prejudice into account, being prejudice arising out of contracts which it would not, as a matter of public policy, enforce. In this regard, the defendants relied upon a number of authorities and the Court was taken to section 6 of the Maintenance, Champerty and Barratry Abolition Act 1993 (NSW). The defendants put the matter as follows in their written submissions of 10 September 2001: "The Defendants say that because of the funding arrangements, no prejudice has been suffered by the plaintiffs, and accordingly the question of delay as a factor is irrelevant to the present application. The Defendants further say that no evidence of prejudice has been led by the Plaintiffs either as to any prejudice they have suffered or any prejudice that any funder claims to have suffered. Further, even if prejudice to the funders had been established (which it has not), as a matter of public policy the Court ought not take into account any prejudice, arising as it necessarily would from a champertous contract (as explained in Appendix B of the Defendants' Confidential Submissions in Reply). The Defendants' short point is that it would be contrary to both policy and logic for the Court to attribute any significance to such prejudice in circumstances where it would not, for reasons of public policy, enforce the contract pursuant to which moneys had been advanced. What is not permitted directly should not be permitted indirectly." 136 The plaintiffs opposed any course whereby the Court would proceed to determine this issue for a number of procedural reasons, including the submission that the security for costs application was simply an inappropriate vehicle for such a significant matter to be determined, and that if the defendants wished to maintain this stance and to have the issue formally determined, they should seek a declaration or an injunction or some other appropriate relief. The plaintiffs also advanced submissions traversing the proposition that any of the funding arrangements were void or illegal as contrary to public policy as being contracts of, or savouring of, maintenance or champerty. 137 In the manner in which the Court has dealt with the applications for security it is unnecessary for these questions to be determined.

[56]

Amount of security 138 Considerable debate concerned the appropriate amount of security to be ordered in the event that the Court should determine that it was appropriate to order security. 139 The evidence adduced in this regard from the defendants was the evidence of Mr Lovell, a partner at Freehills. His experience is outlined in his affidavit of 29 August 2001 which is appended to this judgment as Appendix "C". 140 The evidence adduced in this regard from the plaintiffs was the evidence of Ms Vine-Hall, a very experienced legal costs consultant whose experience is outlined in her CV which is appended to this judgment as Appendix "D". She gave further evidence that as to the total number of matters in the Supreme Court and Federal Court under the assessment system going to final assessment, large or small, she had been involved with many thousands of matters. 141 Subject to one or two particular matters referred to below, in my view it is appropriate to accept Ms Vine-Hall's evidence where it departed from Mr Lovell's evidence in relation to the matters referred to below, as reliable and accurate, even though for the reasons which she herself accepted, she had never been involved in the costs assessment process in any litigation of the scale of the current litigation. That is no doubt for the reason that this litigation in terms of scale may well represent a class of one and may be described as "complex in the extreme". She has the considerable advantage over Mr Lovell of having had very extensive 'hands on' experience in relation to dealing with costs assessors and assessments. Her evidence is given on the basis of 15 years of legal costing experience. She regularly prepares notices of objection and other documents necessary for the assessment of costs pursuant to the provisions of the Legal Profession Act 1987 (NSW) and advises in relation to security for costs applications. She regularly attends before taxing officers in the Federal jurisdiction. She also lectures on all aspects of costing including the principles and procedures of costing in the various jurisdictions. 142 The background against which the evidence was given which requires to be closely borne in mind includes the following portions of sections of the Legal Profession Act 1987 (NSW):

[60]

143 The short position in relation to the areas in respect of which the evidence of Ms Vine-Hall differed from that of Mr Lovell related to the fair and reasonable [the cross-examination generally used the word "reasonable" as shorthand for the words "fair and reasonable" and I shall follow the same practice hereafter], costs to be allowed in respect of: · senior counsel [her view was that the reasonable costs were $3000 per day; his view was that the reasonable costs were $6000 per day]; · a partner [her view was that the reasonable costs were a $275 per hour; his view was that the reasonable costs were $450 per hour]; and · a paralegal [her view was that the reasonable costs were $50 per hour; his view was that the reasonable costs were $80 per hour]. 144 The other area (confined to the defendants claims to security made against Market Holdings and made in respect of the MLC proceedings), in respect of which the evidence of Ms Vine-Hall departed from that of Mr Lovell, related to the extent to which it was reasonable to make an allowance for the attendance of a partner at nominated hearing sessions. Generally Ms Vine-Hall halved the time which, albeit at $450 per hour, Mr Lovell had estimated was reasonable for a partner to assist by way of being required to be in court behind counsel to assist and to observe. 145 Ms Vine-Hall accepted that the instant sets of proceedings were effectively in a class of their own so that I would infer that it is very difficult indeed even for a person of her vast experience in the area, to be entirely certain of what a costs assessor may accept as reasonable. 146 Based upon the evidence it seems to me reasonable for the Court to infer that a costs assessor may accept $3,500 -$5,000 per day in respect of a reasonable fee charged by senior counsel in relation to the instant proceedings. To adopt a conservative approach the figures require to be recalculated at $3,500 per day for senior counsel. 147 Based upon the evidence, it seems to me reasonable for the Court to infer that a costs assessor may accept $300 - $450 per hour in respect of a reasonable fee charged by a partner. To adopt a conservative approach the figures require to be recalculated at $300 per hour for a partner. 148 Based upon the evidence, it seems to me reasonable for the Court to infer that a costs assessor may accept in terms of the number of hours permitted for a partner to be in court on the occasions referred to above, not half of the number of hours which Mr Lovell saw as reasonable, but rather three-quarters of that number of hours. 149 It seems to me that Ms Vine-Hall's evidence as to the appropriate rate to be allowed for a paralegal should be accepted as reliable as opposed to the rate in that regard contended for as reasonable by Mr Lovell. 150 Notwithstanding the plaintiffs' detailed submissions challenging many aspects of Mr Lovell's affidavits it seems to me that those affidavits disclosed a careful and considered approach to the task which he set himself of identifying issues and tasks and categorizing these. However, whether all of the suggested tasks will survive the close examination necessary by way of a formal costs assessment must await the test of time. 151 In the result, subject only to the particular matters already mentioned, the evidence given by Ms Vine-Hall as to the reasonable amounts in respect of the likely party/party rates which in her view would be allowed on an assessment, is accepted as reliable. 152 One of the matters of particular difficulty concerns the fact that Ms Vine-Hall generally gave her evidence upon the assumption that whatever Mr Lovell had stated in his affidavits as necessary to be done in terms of actual work (she having, however, taken exception to his evidence as to what was reasonable in terms of a partner's involvement in court), was indeed necessary. Mr Dicker for the plaintiffs strongly submitted that there should be a reduction for uncertainties such as the proceedings concluding earlier than presently estimated, or for changes in approach. It seems to me that there is substance in that submission and I would add as an important relevant uncertainty, the question of the extent to which, on assessment, an assessor would ultimately accept that whatever Mr Lovell had stated in his affidavits was necessary to be done in terms of actual work, was in fact fair and reasonable and would be allowed. In the result, the amount which applying the above reasons would be appropriate to be ordered by way of security, should be reduced to cope with uncertainties by a figure of 15%. 153 In relation to each of the above findings I have taken into account as of very special importance and weight, the complexity, novelty and difficulty of the several sets of proceedings, the skill, labour and responsibility required on the part of counsel and partner and whether the level of expertise seems appropriate to the nature of the work posited. I also taken into account my own knowledge of the pleadings, statements and issues to the extent gleaned through the numerous interlocutory hearings and particularly through the extended openings as well as through the occasions when the pleading amendments were argued. A particularly important factor concerns the importance to each legal team of being able to follow the complex and often quite subtle inter-relationships between evidence or argument going to the multiple issues thrown up by the pleadings and by the damages cases. I certainly accept the importance of having demarcation zones in terms of legal practitioners with special responsibility for particular areas. It is very difficult to suggest that it is inappropriate in these proceedings for a partner to be present during the hearings. Possibly a good case could be mounted in support of the proposition that on occasion more than one partner may be required to be present during the hearings. The fact is that the proceedings of the complexity and scale of the subject proceedings, communication between different legal advisers with responsibility for all or part of a number of particular areas is critical to being in a position to efficiently carry out one's work. 154 Clearly enough this judgment is not being handed down by an experienced costs assessor charged with the task of determining an application for assessment. The procedures taken in terms of material before the Court for the purpose of determining the appropriate amount for security for costs fall very far short of the materials which would be before an experienced costs assessor carrying out the task of determining an application for assessment. These reasons cannot fetter the unfettered discretion of a costs assessor who may ultimately become charged with the task of determining an application for assessment. The views expressed above as to what may be reasonable may very well understate or may very well overstate what in fact, following the usual procedures applicable in carrying out the determination of an application for assessment, a costs assessor may ultimately determine to have been 'reasonable' (I continue to use this word as shorthand for "fair and reasonable"). The above holding simply represents the Court's best attempt to identify an approach to quantum of costs to be provided by way of security for costs, which would seem on the evidence and at this point in time to be fair to both parties. And in a further attempt to ensure that there can be no injustice or unfairness should, for example, the amounts to be paid by way of security for costs ultimately turn out to have been an overestimate, the Court will require the payment of security to be made by way of a payment into court.

[103]

Possible swap from debt to equity 49 A condition precedent to this Agreement is that the conditions precedent to the initial Agreements are not satisfied. The Agreement becomes operative once Efficiency gives notice in writing to the other parties that the conditions precedent have not been satisfied: clause 3. 50 Once the Agreement becomes effective, Negubo is released from all liability to Efficiency under the Negubo Loan Agreement in exchange for Negubo issuing one partly paid share in Negubo to Efficiency: clause 4. In this way, Efficiency can choose to swap from debt to equity, and may do so by giving notice under clause 3 if and when the conditions precedent are not satisfied. 51 Upon issue of the partly paid share, it will have been partly paid to an amount equalling the Negubo Loan Amount. Efficiency is then to pay further calls on the share as made by Negubo from time to time. 52 The parties agree that the terms of a Notice to Produce issued by the defendants dated 29 May 2001 (DX2, pp 884-889) called for documents which covered any notice that might have been given by Efficiency under clause 3. In circumstances where no such document was produced, it might be thought that the Court would infer that no such notice was ever given. 53 Mr Gleeson's primary submission was to the effect that the Court should infer that the notice had been given. Mr Dicker advanced a submission to the contrary. Mr Gleeson's alternative and secondary submission was one to which, as I understood him, Mr Dicker acceded, namely that the Court should infer that the notice had not been given but that, regardless of this fact, the Court should infer that the Agreement is operative. [The "agreement operative/notice still to be given" submission]. 54 Ultimately, it seems to me that the significant matter is simply that at the least, Efficiency may be inferred as holding the power to give the necessary notice in writing so that the Agreement would then become effective. 55 Another way of looking at the matter is that if one considers the Agreements on the basis that the Shareholders Agreement is ineffective, one has Efficiency as a funder who has agreed to provide an unlimited amount so that security could never be a burden. Alternatively, if Efficiency were to convert its debt to equity, having issued the notice, it would become a funder who has a series of exit points and would take a substantial share of any proceeds of the litigation.

[108]

Significance of the funding arrangements to the issue of delay 63 The defendants submit that there are 2 ways in which evidence of third party funding arrangements is relevant to the issue of delay: a) the question of whether there has been delay; and b) the question of what weight is to be given to any delay. 64 The defendants say that in relation to (a), delay is only a factor where the plaintiffs can show that they have suffered prejudice as a result. They say that there has been no evidence of prejudice to OAMPS, NSG or Efficiency. Furthermore, they say that the fact that the funding arrangements provide for the further advance of funds to meet an order for security for costs, means that there is no prejudice suffered by the plaintiffs, at least up to the maximum amount allowed in these provisions. 65 The defendants also refer to a number of initial Agreements apparently negotiated between the parties in July 2000 and signed in September 2000. The defendants submit that these Agreements demonstrate recognition on the part of Efficiency that security for costs might be ordered and a commitment by them to meet such an order. They submit that this was relevant because one, it is evidence of Efficiency's ability and willingness to pay, and two, because it is evidence on the part of Idoport, Market Holdings, the Maconochies and Efficiency, that when these agreements came to light, an application for security was likely. 66 The defendants further point to a letter of 26 October 2000 from Efficiency to Mr Maconochie recognising that the conditions precedent to the initial Agreements had not been met and asking for its money back. Sometime in November 2000, Efficiency apparently decided to allow the money to flow again. The defendants submit that this decision was made at a time after the application for security for costs had been flagged by the defendants on 3 October 2000 and that the Court should infer that Efficiency knew of this application by reason of clauses 6.5 of the versions of the Idoport Loan Agreement and Negubo Loan Agreement then in force. These clauses required Idoport to notify Negubo, and Negubo to notify Efficiency of any prospective order for costs respectively. 67 In relation to (b), the defendants say that if the Court were to find there was delay, this prejudice must be weighed against the changes in circumstances that have taken place during the case. The defendants submit that their discovery of NSG as a second funder was an event giving the defendants a fresh start in relation to their decision as to whether or not to seek security for costs. They submit that this constituted a relevant change in the dynamic of the case, as the plaintiffs were now suing for the benefit of a new party. They further submit that the entry of Efficiency into the equation (which apparently occurred in secret in June 2000, only to become public in September 2000) constituted a further change in the structure of the arrangements and a further fresh start for the defendants. 68 In reply to this, the plaintiffs submit that the defendants would have been aware of Idoport's financial position as at June 1999 and June 2000 and would have seen a different position as at those two dates. The plaintiffs submit that the defendants would have realised that this change in circumstances must have been a result of new funding arrangements, and yet, despite this, the defendants only made the application in October 2000. 69 In all of the circumstances, where the plaintiffs elected not to call any evidence of substance in terms of disclosing the real world position in relation to the funding agreements (outside of the evidence given by Mr D'Emilio, who had virtually no knowledge of any detail of the funding agreements) it does not seem to me to lie in the mouths of the plaintiffs to advance the submission that the Court should strain to reach inferences which might favour the plaintiffs in this regard. The submission that the defendants would have realised that the above suggested change in circumstances must have been a result of new funding arrangements requires the Court to speculate in a fashion that is entirely inappropriate in the present circumstances. 70 To the contrary of the plaintiffs' submissions, the appropriate inference from all of the evidence is that there are in place funding arrangements and agreements to give very substantial backing to Idoport in terms of the necessary resources to fund the ongoing proceedings.

[114]

The defendants' submissions 75 The defendants suggested a number of fallacies in relation to the plaintiffs' predictions and calculations. 76 The defendants' first point was in relation to the plaintiffs' estimate of costs. They point out that the figure of $11m was an inappropriate assumption, as it reflects the plaintiffs' costs to date rather than their costs to the end of the hearing. Assuming the hearing runs until 2003, the defendants say the costs are more like: $500,000/month x 24 months = $12m $12m (future costs) + $11m (past costs) = $23m (Total costs) 77 The defendants say this is significant because: a) It changes the NTA as a whole; and b) The additional costs will presumably come from one of the funders, which will change the total share for each party. There are two possibilities under this head: i) The additional funding comes from Efficiency: If the funding were to come from Efficiency, the amount advanced from it would increase from $7.5m to over $10m. If Efficiency chose to permanently maintain this funding, its percentage of the NTA would increase from 30% to 50%, bringing its total share up significantly. Once Efficiency raises its contributions over the $10m mark, Negubo (and Efficiency) can reassess their situation each quarter and decide whether to continue funding. The defendants submit that at this point, Efficiency is in a position to renegotiate and has strong bargaining power on the basis that it can choose to cease funding. Under these circumstances, if Efficiency did decide to contribute further, it would be likely to attempt to increase its share and thereby reduce the amount left for the plaintiffs. ii) The additional funding comes from NSG: Part of the additional funding could also come from NSG, which has only partly paid its share and has an entitlement to subscribe up to $5m. If NSG contribute another $3.15m towards these costs, its staggered option price increases from 37% of the 40%, 30% and 10% of the NTA to a full 100% of each of these percentages. In this way, its share effectively triples, and thereby reduces the amount left for the plaintiffs. 78 The defendants' second criticism is aimed at the unclear use of the word "plaintiffs" within MFI P224, which provides a misleading view as to what the true plaintiffs (being Mr and Mrs Maconochie) will get. They say that if either of the two plaintiffs win, Negubo will receive most of the proceeds for the following reasons: a) If Market Holdings wins: Its 99% shareholder is Negubo (with one share to Mr Maconochie); b) If Idoport wins: Its majority shareholder is Negubo (with 17 shares to AIIL and NSG); c) Because 1 share (out of 3) of Negubo may be owned by Efficiency, one third of both plaintiffs' share goes back to Efficiency in the event that they win. 79 The defendants say that both of these points lead to the conclusion that the plaintiffs' interest (being Mr and Mrs Maconochie) are far less than that predicted by the plaintiffs, and well below 50%. 80 The defendants produced a number of pie charts in MFI D174 in an attempt to illustrate their arguments, which have been attached to the end of this appendix. The charts were explained by Dr Bell in the following way: Charts 1 - 5 are based on a verdict of $50m for Idoport: Chart 1: This explains the division of proceeds based on the assumption that NSG top up its subscription to the full $5m; Chart 2: This explains how Negubo's share (identified as the blue section in Chart 1) is to be divided up; Chart 3: This explains how Idoport's share (identified as the dark grey section in Chart 1) is to be divided up; Chart 4: This explains what Negubo's total share is, based on its own proceeds and that which it obtains from Idoport (identified as the blue section in Chart 1 and the blue section in Chart 2); Chart 5: This explains the ultimate division of proceeds (taking into account Charts 2, 3 and 4); Charts 6 and 7 are based on a verdict of $50m for Market Holdings: Chart 6: This explains the division of proceeds Chart 7: This explains the ultimate division of proceeds 81 The defendants submit that on either of these two scenarios (ie a verdict of $50m for Idoport or Market Holdings) the interests of Mr and Mrs Maconochie are only around 30%. Furthermore, they say that the charts are based on the assumption that Efficiency does not renegotiate its position. The defendants submit that regardless of the verdict assumed, a significant proportion of the proceeds go to third parties who stand to obtain the benefit without taking the risk.

Legislation Cited (4)

Legal Profession Act 1987(NSW)

Maintenance, Champerty and Barratry Abolition Act 1993(NSW)

Corporations Act 2001(Cth)

Supreme Court Rules 1970(NSW)

Cases Cited (30)

CITATION : Idoport Pty Limited & Anor v National Australia Bank Limited & 8 Ors; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus; Idoport Pty Limited "JMG" v National Australia Bank Limited [35] [2001] NSWSC 744 revised - 20/09/2001 FILE NUMBER(S) : SC 50113/98; 50026/99; 3991/00 HEARING DATE(S) : 29/08/01, 30/08/01, 31/08/01, 3/09/01, 4/09/01 JUDGMENT DATE : 13 September 2001

COUNSEL : Mr Garnsey QC, Mr M Dicker, Mr R Titterton (Plaintiffs) Mr J Gleeson SC, Dr AS Bell (Defendants) SOLICITORS : Withnell Hetherington (Plaintiffs) Freehills (Defendants) CATCHWORDS : Practice and procedure - Costs - Security for costs - General principles - Impecunious plaintiff - Bodies corporate - Litigation for benefit of third parties - Delay in pursuing claim for security for costs - Significance of prejudice - Final hearing to take extended period of years - Application for security as to - (1) defendants' future costs in respect of amendments to statement of claim allowed well after commencement of final hearing - (2) defendants' future costs in respect of claims made by Market Holdings (in liquidation) - (3) defendants' costs, past and future, in respect of MLC proceedings initiated following the commencement of the final hearing of the existing proceedings and ordered to be heard together with the existing proceedings - Primary purpose of an award of costs is to indemnify the successful party - A secondary purpose concerns the public interest objective in the sense of instilling in parties commencing litigation a realisation of the potential financial expenses involved - Large-scale disregard of the principle of the usual order as to costs would inevitably lead to an increase in litigation with an increased and often unnecessary burden on the scarce resources of the publicly funded system of justice - Purpose of a security for costs order is a protective jurisdiction to ensure that the primary purposes for having costs orders themselves can be achieved - A defendant is protected against the risk that a cost order obtained at the end of the proceedings may turn out to be of no value by reason of the impecuniosity of the plaintiff - The jurisdiction assists both the compensation purpose as well as the public interest objective Corporations Act 2001 (Cth) LEGISLATION CITED : Legal Profession Act 1987 (NSW) Supreme Court Rules 1970 (NSW) Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) Andrews v Caltex (1982) 40 ALR 305 Anstee v. Jennings (1935) VLR 144 Bankinvest AG v Seabrook (1988) 14 NSWLR 711 Beach Petroleum NL & Anor v Johnson & Ors Bell Wholesale Co Pty Limited v Gates Export Corporation (1994) 2 FCR 1 Bryan E. Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 Cameron's Unit Services Pty Ltd v Kevin R Whelpton and Associates (Aust) Pty Ltd (1986) 13 FCR 46 Carr v Baker (1936) 36 SR (NSW) 301 Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 8 ACLR 818 Caswell v Powell Duffryn Associated Collieries Limited [1940] AC 152 Chartspike Pty Ltd (in liq) v Chahoud [2001] NSWSC 585 Chellaram and Mr Courtney v Chine Ocean Shipping Co (1991) 65 ALJR 642 Cilli v. Abbott (1981) 53 FLR 108 Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325 Commonwealth of Australia and Another v Cable Water Skiing (Australia) Ltd (1994) 14 ACSR 760 Cunningham v Olliver Federal Court of Australia, unreported 21 November 1994, NG 14/93 Cowell v Taylor (1885) 31 Ch D 34 Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972 Fitzpatrick v Waterstreet (1995) 18 ACSR 694 Foss Export Agency Pty Ltd v Trotman (1949) 67 WN (NSW) 1 Gentry Bros Pty Ltd v Wilson Brown and Associates Pty Ltd (1992) 8 ACSR 405 Grant v The Banque Franco-Egyptienne Egyptienne (1876) 1 CPD 143 Harpur v Ariadne Australia Ltd [1984] 2 Qd.R 523 Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) ACLC 32,446 Hession v Century Twenty-one South Pacific Limited (In Liq) (1992) 28 NSWLR 120 Idoport Pty Ltd & Anor v National Australia Bank Limited & 8 Ors.[1999] NSWSC 828 Idoport Pty Ltd & Anor v National Australia Bank Limited & 8 Ors [2001] NSWSC 142 Idoport Pty Ltd & Anor v National Australia Bank Limited & 8 Ors [2001] NSWSC 509 Idoport Pty Ltd & Market Holdings Pty Ltd (in liq) v National Australia Bank Limited CA40825 of 2000 Interwest Ltd v Tricontinental Corp Ltd (1991) 5 ACSR 621 Jingellic Minerals NL & Anor v King & Ors (1992) 10 ACLC 525 J & M O'Brien Enterprises Pty Limited v The Shell Co of Australia Limited (1983) 7 ACLR 790 CASES CITED : Johnson v Lake Macquarie City Council (1995) 87 LGERA 22 Jones v Great Western Railway Co (1930) 144 LT 194 Kelly v. Noumenon Pty Ltd (1988) 47 SASR 182 KP Cable Investments Latoudis v Casey (1990) 170 CLR 534 Lindsay Petroleum v Hurd (1874) LR 5 PC 221 Mantaray Pty Ltd v Brookfield Breeding Co Pty Ltd (1990) 8 ACLC 304 MA Productions Pty Limited v Austaram Television Pty Limited (1982) 7 ACLR 97 Memutu Pty Limited v Lissenden (1983) 8 ACLR 364 Mummery v Irvings (1956) 96 CLR 99 National Bank of New Zealand Limited v Donald Export Trading Limited [1980] 1 NZLR 9 Orr v Ford (1989) 167 CLR 316 Oshlack v Richmond River Council (1998) 193 CLR 72 Pacific Acceptance Corporation Ltd v Forsyth (No 2) [1967] 2 NSWR 402 Pearson v Naydler [1977] 1 WLR 899 Rajski and Another v Computer Manufacture & Design Pty Ltd and Others [1982] 2 NSWLR 443 Ramsey v Hartley [1977] 2 All ER 673 Re Insurance Associates Pty Ltd (in liq) (1975) 1 ACLR 74 Riot Nominees Pty Limited v Suzuki Australia Pty Limited (1981) 34 ALR 653 Rosenfield Nominees Pty Limited v Bain & Co (1988) 14 ACLR 467 Rugby Union Players Association [30/7/1997, SCNSW, 50225/96, unreported] Scott Fell v Lloyd (Official Assignee) (1911) 13 CLR 230 Seltsam Pty Limited v McGuiness (2000) 49 NSWLR 262 Semler v Murphy [1968] Ch 183 Sent v Jet Corporation (1984) 2 FCR 201 Smail v Burton (1975) VR 776 Southern Cross Exploration v Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114 Spiel v Commodity Brokers Australia Pty Ltd at 415 Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 5 ACLC 480 Tricorp Pty Ltd (in liq) v Deputy Commissioner of Taxation (WA) 10 ACLC 474 Tulloch v Walker (Yeldham J. 8 December 1987, unreported) Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 12 ACSR 1 Weily's Quarries v Devine Shipping (1994) 14 ACSR 186 Woodhouse v McPhee (1997) 80 FCR 529 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 DECISION : Orders to be made for the provision by Idoport Pty Ltd and by Market Holdings Pty Ltd (in liquidation) of security for costs in respect of each of the defendants' claims in notices of motion 19 and 22. Parties to bring in short minutes of order to reflect the reasons for judgment. The liquidator of Market Holdings to be given an opportunity to address submissions in relation to Market Holding's position.

(1982) 40 ALR 305

(1988) 14 NSWLR 711

(1994) 2 FCR 1

(1987) 16 FCR 497

(1986) 13 FCR 46

(1991) 65 ALJR 642

(1981) 53 FLR 108

(1992) 28 NSWLR 120

(1995) 87 LGERA 22

(1988) 47 SASR 182

(1990) 170 CLR 534

(1956) 96 CLR 99