In the matter of Colorado Products Pty Limited (in prov liq) [2013] NSWSC 611

Judgment The applications in issue 1These proceedings arise from the acquisition of 80% of the shares in Colorado Products Pty Limited ("Colorado") by the Plaintiffs, HY International (Aust) Pty Limited ("HY International") and Phoenix Explorer Pty Limited ("Phoenix") from the First Defendant, Ms Clare Huang. Disputes subsequently arose between the parties. Ms Huang brought proceedings to restrain Colorado from borrowing monies other than in accordance with a Shareholders Agreement between the parties and Ms Huang and CH Design Solutions Pty Limited ("CH Design") then brought proceedings to wind up Colorado in insolvency. A provisional liquidator was appointed to Colorado by Barrett J on their application on 14 October 2011. The Plaintiffs thereafter brought proceedings against Ms Huang by a Cross-Claim (with Points of Claim) in the winding up proceedings. Hammerschlag J subsequently ordered that those proceedings be brought by a Statement of Claim, rather than by Points of Claim in the winding up proceedings, which was filed on 18 May 2012. The proceedings involve allegations that Ms Huang had engaged in misleading and deceptive conduct inducing the Plaintiffs to buy shares in Colorado, which they would not have bought had they known its true financial position, and that Ms Huang had breached statutory and fiduciary duties in relation to Colorado, including by misappropriation of monies and diversion of business opportunities. 2Several interlocutory applications brought by each of the Plaintiffs and the Defendants are now listed for determination. These raise issues as to the scope of existing undertakings given by the Defendants, whether monies paid into Court by the Defendants should be released from Court, amendments to the pleadings, security for costs and the extent of discovery and subpoenas. These matters have all been listed together with a view to resolving the range of interlocutory disputes which have arisen in the proceedings, so that directions may then be made to bring the proceedings to an early hearing, consistent with the requirement of a just, quick and cheap resolution of the matters in dispute under s 56 of the Civil Procedure Act 2005 (NSW). There is also to be determined a further Interlocutory Process dated 11 April 2013, brought by the Plaintiffs, seeking orders restraining Ms Huang and CH Design from disposing of, dealing with or diminishing their assets in Australia up to a specified value. I granted leave for that application to be heard at the same time as the other applications for the reasons set out in my judgment dated 17 April 2013. Plaintiffs' application for freezing order 3By Interlocutory Process dated 11 April 2013, the Plaintiffs seek orders ("freezing orders") under s 1324 of the Corporations Act 2001 (Cth) and Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 25.11 restraining the Defendants from disposing of, dealing with or diminishing their assets in Australia up to a specified value. 4The balance of authority indicates that the Court may make a freezing order if it could have made an order appointing a receiver of property of a relevant person, although such an order is usually be made under s 1323 rather than under s 1324 of the Corporations Act: Re Richstar Enterprises Pty Ltd; Australian Securities and Investments Commission v Carey (No 3) [2006] FCA 433; (2006) 232 ALR 577; (2006) 57 ACSR 307; Australian Securities and Investments Commission v Krecichwost [2007] NSWSC 948; (2007) 213 FLR 314; (2007) 64 ACSR 411; Australian Securities and Investments Commission v Sigalla [2009] NSWSC 1205; (2009) 74 ACSR 710 at [15]. UCPR r 25.11 also allows a freezing order to be made where the Plaintiffs have a good arguable case and, having regard to all the circumstances, there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied, for example, because the assets of the judgment debtor, prospective judgment debtor or another person are disposed of, dealt with or diminished in value. In Patterson v BTR Engineering Australia Ltd (1989) 18 NSWLR 319 at 321-322 Gleeson CJ observed that: "The remedy [of a freezing order] is discretionary but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied." 5An earlier application by the Plaintiffs for a similar, but less restrictive, freezing order was listed before me in late 2012, and resolved when the Defendants voluntarily provided undertakings restricting dealings with their assets, which nonetheless permitted them to incur specified legal, living and other expenses, and which remain in place. The Plaintiffs now seek a freezing order in a different form to those undertakings, so as to prevent the Defendants expending funds on living and legal expenses and ordinary course business expenses. That application raises an issue that has been in dispute between the parties for some time, as to the extent to which the Defendants should be permitted to incur legal and other expenses. 6The Defendants accepted, for the purposes of argument before me, that the Court could proceed on the basis that the Plaintiffs had a good arguable case for the purposes of determining whether to make a freezing order, but contended that the conditions required to make such an order were not satisfied. In particular, the Defendants contended that the Plaintiffs had not established that there was a danger that a judgment would be wholly or partly satisfied because, relevantly, the Defendants' assets would be improperly diminished. 7I turn now to the evidence as to the Defendants' assets and the risk of dissipation of them, which is relevant both to whether a freezing order should be made and the extent of any exceptions from it. Ms Huang's evidence is that she does not have funds available for her living expenses or legal fees, apart from those realised on the sale of her residential property and paid into Court, some funds in her bank accounts and amounts due from a third party, Osman's Home Improvements Pty Limited ("Osman's") in respect of the sale of the business of Foshan Shunde District Sorrento Kitchen and Bath Industry Co Limited ("Sorrento China"), (Huang 27.3.2013 [48]). The monies in Ms Huang's bank accounts and the balance of the amount due from Osman's, even if paid when due - which has apparently not occurred - are substantially less than legal fees already incurred or likely to be incurred by the Defendants (Huang 27.3.2013 [39]). 8Ms Huang has an interest in another company, Gold Label Products Pty Limited ("Gold Label"). It appears that Gold Label was originally incorporated under the name Black Label Wholesale Kitchens Pty Limited and 10 ordinary shares with a value of $1.00 each were issued to, and its original director was, Ms Huang's son, Mr David Xie. Black Label Wholesale Kitchens Pty Limited changed its name to Gold Label on 22 November 2011; a further 90 ordinary shares with a value of $1.00 each were issued to Ms Huang on 6 June 2012 and a Share Sale Deed in respect of those 90 shares was entered into between Ms Huang and Mr Xie on the same date. The intent of that Deed was apparently to bring about the sale of the business by Mr Xie to Ms Huang. Ms Huang is currently the director of Gold Label. 9Ms Huang's evidence is she does not have access to funds from Gold Label because it is suffering difficulties from lack of cashflow, inability to order new stock, and the need for an injection of funds which she has been unable to provide by reason of the existing orders made by the Court (Huang 27.3.2013 [58]). I am conscious that, as the Plaintiffs point out, this evidence is not corroborated by, for example, management accounts or other contemporaneous financial information, including financial records maintained under s 286 of the Corporations Act. The Plaintiffs submit that, in the absence of that evidence, the Court cannot be satisfied that Ms Huang does not have other financial resources available to her. I accept Ms Huang's evidence as to the position of this entity, in circumstances that her ability to assemble supporting documentary evidence was necessarily constrained by the lateness of the Plaintiff's application for a freezing order. The Defendants also draw attention to the fact that Gold Label has given an undertaking, inter partes, that it will not cause its products to be removed from Australia or dispose of or deal with, or diminish the value or encumber any of its assets in Australia, other than in the ordinary and proper course of its business, including paying business expenses bona fide and properly incurred, without 7 days notice to the Plaintiffs. An issue also arose, at one point in the proceedings, concerning monies held in the trust account of Ms Huang's former solicitors, but that issue was ultimately not pressed by the Plaintiffs. 10The Plaintiffs submit the Court should not accept Ms Huang's evidence that the Defendants do not have enough money to pay their legal and living expenses other than with monies presently held in Court. The Plaintiffs identified matters indicative of other funds from which the Defendants could pay their living, legal and business expenses as including the history of the sale of properties owned by Ms Huang and CH Design. The Plaintiffs particularly refer to the sale by CH Design, as trustee of a trust of which Ms Huang is a beneficiary, of a commercial property at Rydalmere for the amount of $1.325 million. These transactions were in turn the subject of detailed evidence and submissions by Ms Huang and CH Design. The properties owned by Ms Huang and CH Design in October 2007 were mortgaged to secure a facility with ANZ Bank taken out at about that time, and payments were made against CH Design's business loan account or against debit balances on CH Design's cheque account and overdraft accounts and against a commercial bill facility in favour of CH Design at the time those properties were sold. In particular, the substantial proportion of the proceeds of the sale of the Rydalmere property owned by CH Design was paid to ANZ Bank. I am satisfied that the Defendants have established that the bulk of the proceeds of the sales have in fact been reinvested in further property and, ultimately, in discharging debts owed, principally to ANZ Bank, in respect of the properties, so that the proceeds of sale of those properties are now reflected in the value of Ms Huang's residential property which was unencumbered prior to its recent sale, and the proceeds of which have been paid into Court. 11The Plaintiffs contend that Ms Huang has inexplicably sold her residential property and that the Defendants have embarked upon a deliberate and calculated strategy to reduce the net proceeds of sale of that property. I do not consider it necessary to explore the motive for sale of that property (although I note that submissions were made to the Court by Ms Huang's former Counsel, prior to the sale, that it reflected a previous intention by Ms Huang to "downsize") since the relevant monies have not been disposed of but are presently held in Court. Ms Huang has since made several applications to the Court to access the funds realised from the sale of her residential property for payment of legal costs, but I would not regard that as constituting an improper attempt to dissipate the net proceeds of sale of that property where such payments have only been permitted with the Court's approval. The application now made by Ms Huang contemplates that further legal costs will be incurred in the defence of the proceedings, but that seems to me to be a necessary consequence of the existence of the proceedings and the parties' vigorous attempts to advance their respective interests in them, and cannot properly be characterised as a strategy on Ms Huang's part to reduce her overall asset position. 12The Plaintiffs also refer to the financial statements for the CH Family Trust for the year ended 30 June 2010. However, the net profit for that family trust was not substantial and its assets were primarily the Rydalmere property, which was subsequently sold and the large part of the proceeds paid to ANZ Bank as noted above. 13The Plaintiffs point to evidence that the Defendants regularly enter financial transactions between themselves and with Sorrento Kitchens, an entity apparently associated with Ms Huang's son. While those transactions are numerous and undocumented by formal loan agreements, they do not disclose any pattern of a systematic transfer of monies from the Defendants to Sorrento Kitchens, since there are also numerous transactions by which Sorrento Kitchens has lent money to the Defendants. The net amounts involved (after money transferred back and forth between those entities) do not appear to involve a substantial dissipation of the Defendants' assets. I do not regard these transfers as indicating that Ms Huang or any of those parties have substantial undisclosed assets; indeed, they are more readily explicable as transfers between the various entities as they are required to meet particular expenditures, consistent with Ms Huang's evidence to that effect. The Plaintiffs also contend that, between September 2012 and December 2012, Ms Huang received substantial transfers of funds; however, this analysis takes no account of the fact that monies were not only received by Ms Huang from CH Design and Gold Label but also lent by Ms Huang to CH Design and Gold Label. Ms Huang was cross-examined at some length on 19 February 2013 as to the inter-company transfers and that cross-examination did not establish that those transactions evidenced any substantial funds available to the Defendants. The Plaintiffs also rely on evidence that Ms Huang has expended monies on personal expenses by credit card; however, that also does not establish that Ms Huang is able to pay her living expenses from undisclosed resources, as distinct from the fact that Ms Huang is presently incurring living expenses which are at least initially billed to credit cards. 14The Plaintiffs refer to the fact that, in about June 2009, Ms Huang received $1.2 million from the Plaintiffs for the purchase of 80% of the shares in Colorado; in August 2009, received $480,000 from the Plaintiffs as monies used to purchase stock from her; outstanding cheques and outstanding deposits were disclosed by CH Design's reconciliation report dated August 2010 and, the Plaintiffs contend, Ms Huang has acknowledged that she owes $67,719.67 to Colorado in respect of funds "misappropriated" from it. There is evidence that the amounts received for the sale of the shares in Colorado and for the purchase of stock were applied to reduction of Colorado's overdraft account, to reduction (of $450,000) of amounts then owing on Ms Huang's residential property and a payment of $500,000 into an ANZ term deposit account, and Ms Huang's evidence also addresses the disbursements from that account. It is not apparent to me that anything emerging from the reconciliation report supports a freezing order; one entry that was at one point controversial, relating to an amount payable to Porsche Centre Willoughby, appears to contain an incorrect figure and the Plaintiffs ultimately did not rely on the figure contained in that entry. The question of misappropriation of funds from Colorado is a matter in issue in the substantive proceedings and not a matter that should be decided in this application. Ms Huang's defence to that claim is that there was an agreement that that amount was to be set off against an amount of $130,000 that Colorado owed her. In any event, the evidence does not suggest that that amount is presently available to Ms Huang. 15The Plaintiffs also submit that Ms Huang has not been frank with the Court and has a history of giving false evidence to the Court. The Plaintiffs refer to inconsistency between Ms Huang's affidavits of 30 October 2012 and 22 November 2012. The first of those affidavits, drafted with the assistance of her former solicitors, was less fulsome than would have been desirable. As a result of the issues as to adequacy of that affidavit, I permitted the Plaintiffs to cross-examine Ms Huang. The Plaintiffs also contend that Ms Huang was evasive and gave inconsistent answers during cross-examination by Senior Counsel for the Plaintiff on 19 February 2013. I do not accept that submission, particularly when put in that generalised fashion. The Plaintiffs also contend that Ms Huang's further affidavit dated 27 March 2013 is contradictory and refer to the fact that Ms Huang says she is "not employed" and at the same time she is involved in Gold Label's business. I do not regard those matters as a contradiction, since the plain intent of the affidavit is to indicate that Ms Huang is not in a position of employment and does not receive a salary and that appears to be the case. 16The Defendants emphasise that Ms Huang was not further cross-examined in respect of her earlier affidavits relied on in this application to put the allegations of lack of candour to her, notwithstanding that timetable provided by the Defendants for the conduct of the application contemplated her cross-examination, and that she was available for cross-examination. A failure to cross-examine Ms Huang as to these matters has lesser weight where the issues in context between the Plaintiffs and Ms Huang have been apparent for a considerable time, and there has been no doubt that the Plaintiffs have contended throughout that Ms Huang has not made proper disclosure of her assets. In any event, I do not consider it necessary, in order to determine this application, to reach a view as to whether it is open to the Plaintiffs to put the submission of lack of candour without cross-examining Ms Huang, where they may well not have been granted leave to do so in an interlocutory application, since I would not draw the inferences for which the Plaintiffs contend in any event. For completeness, I note that it was agreed between the parties that the Plaintiffs would not cross-examine Ms Huang in respect of her further affidavit dated 22 April 2013 and that no point would be taken against them for not doing so. 17I turn now to the issue arising as to the form of freezing order sought by the Plaintiffs, which would not include exceptions to expenditures by the Defendants of their funds for living expenses, legal costs and dealings and dispositions in the ordinary and proper course of their business. The usual practice of including such exceptions in freezing orders is recognised in New South Wales Supreme Court Practice Note General 14, paragraph [12]. In Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612, Gaudron J referred to the practice that, where freezing orders were made, the defendant would be allowed "sufficient funds to meet reasonable living expenses". In Clark Equipment Credit of Aust Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552 at 569, Powell J similarly observed that: "It has become common, if not customary ... to provide, either at the time of the grant of the 'Mareva' injunction - my practice - or by later variation, for the defendant to have access to his assets in order to provide for his living expenses." 18Exceptions were made in the form of orders approved by the plurality of the High Court in Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 for payment of reasonable legal expenses of defending the proceedings and any appeal from them and for payment of ordinary and proper business expenses bona fide incurred by the defendants and for payment of their ordinary living expenses. Similarly, in Deputy Commissioner of Taxation v Bollands [2012] FCA 1050 at [22], McKerracher J observed that: "I would regard the general default position as being that a freezing order should expressly make provision for the paying of reasonable legal expenses. Clearly the rationale behind this is that any person the subject of a freezing order should not be deprived of reasonable legal advice to contest the merits of the substantive claim against which the order is based." 19The Plaintiffs contend that the onus is on Ms Huang to establish the need for any exception from any freezing orders that may be granted for payment of living and legal expenses and refer to the decisions in A v C (No 2) [1981] 1 QB 961; [1981] 2 All ER 126 and Clout (as trustee in bankruptcy of the estate of Dexter) v Anscor Pty Ltd [2001] FCA 174 in support of that proposition. Those authorities address the position where a freezing order is imposed only on part of a respondent's assets and recognise that in that situation a respondent who seeks a relaxation of the restraint has an evidentiary onus, if not a full persuasive onus, to show that it has no other assets beyond those covered by the injunction to which it can resort to meet the relevant expenses. 20In Goumas v McIntosh [2002] NSWSC 713, which addressed somewhat similar issues to the present application, Barrett J considered an application to permit monies held in an account under the control of a defendant's solicitors subject to an undertaking by that defendant, to be applied to costs and disbursements in connection with the proceedings, payment of living expenses and other expenditures, and a converse application by the plaintiffs for an order that those funds not be dealt with in any way. His Honour there pointed to the difference between an application for a new or further Mareva relief on the one hand or an application to vary existing Mareva restraints on the other and observed (at [22]) that: " ... there is a preliminary question as to the correct approach in this case - whether it should be treated as an application for new or further Mareva relief or an application to vary existing Mareva restraints. In the latter kind of case, it may well be that the party seeking release of assets from the orders so that those assets may be applied for particular purposes bear the burden of showing not only the legitimacy of those purposes but also that they have no other assets (that is, assets not caught by the orders) from which the legitimate expenditure may be met: A v C (No 2) [1981] 1 QB 961, Szentessy v Woo Ran (Australia) Pty Ltd (1985) 64 ACTR 105, Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174. Where a Mareva order is being imposed in relation to the whole of a person's property, the approach must be to impose it in terms that create an exception for necessities, particularly reasonable living expenses and reasonable expenses of the litigation itself: see, for example, the views expressed by Powell J (as his Honour then was) in Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552." His Honour there held that, where the application of the funds in the hands of the solicitors was covered only by the undertaking and application of those funds was not restricted by any order of the Court, the correct approach was that applicable to the grant of Mareva relief rather than the variation of existing orders affecting specific property. In the present case, so far as the Plaintiffs seek a freezing order without any applicable exceptions, it seems to me that they bear the onus of establishing that the usual exception for necessities should not be included. 21Barrett J also observed (at [23]) that the sole concern with Mareva relief is: "with reasonable measures to ensure that the processes of the Court are not frustrated by removal from the jurisdiction, dissipation or misapplication of assets which will be available to meet any eventual judgment. The aim is not to stop people spending their money. It is to stop them spending it in ways which are not legitimate, having regard to the interest of the claimant in ensuring that there is no untoward removal of assets from the ownership of the person against whom a judgment may in due course be entered." His Honour further observed at [27] that: "It has been said repeatedly by the courts that a Mareva order must not operate as a form of de facto security for the applicants' claims and that the sole purpose is to prevent illegitimate dissipation of assets that will otherwise be available to meet any judgment. I say "illegitimate" dissipation to emphasise that to deny access to funds needed for ordinary living purposes or to fund the conduct of the very litigation the integrity of which the order is designed to protect goes beyond the proper protective province of the jurisdiction and causes the order sought to be a means of exerting pressure foreign to the underlying purpose." His Honour also noted that undertakings in a similar form to those already given by Ms Huang will require a defendant to consider, before making a payment, whether it is a proper payment, and there is no scope for the defendant to take the view that monies may be spent to the requisite limits with impunity if they fall outside that category. 22I address a discretionary factor tending against the making of a freezing order without an exception for payment of Ms Huang's reasonable legal costs, namely an issue as to the adequacy of the Plaintiffs' undertaking as to damages and the difficulty of quantifying any security for that undertaking, in paragraphs 51-54 below. The Defendants also point to a further matter which, in my view, provides a strong reason why a freezing order that did not permit the payment of Ms Huang's reasonable legal costs should not now be made, at least in a manner which would have retrospective effect, namely that the Defendants' present solicitors accepted their retainer on the basis of the undertakings that permitted payment of reasonable legal expenses up to the specified monetary limit. 23The evidence of Ms Huang's solicitor, Mr Frawley, is that his firm agreed to act on behalf of the Defendants having reviewed the undertakings given to the Court on 15 October 2012, and his uncontested evidence is that the firm was prepared to act for the Defendants because he considered that the exceptions contained in the undertakings allowed the Defendants to expend up to $300,000 on their legal fees. In my view, he was correct in reading the undertaking in that manner (Frawley 27.3.2013 [33]-[34]; Huang 27.3.2013 [65]-[73])). Mr Frawley's evidence is also that his firm did not intend to continue to extend credit to the Defendants, in respect of the conduct of the proceedings, after the sale of her property at North Ryde; and his evidence is that the firm will not continue to act for the Defendants in the proceedings if they are not paid in the near future and if further funds are not paid into trust to cover ongoing fees and disbursements (Frawley 27.3.2013 [40]-[41]). Significant fees have been incurred by the Defendants, necessarily on the basis that they could be met under that exception (Frawley 27.3.2013 [48]). I do not consider that the Court could properly remove the exception for legal expenses, with retrospective effect, in these circumstances. 24I do not consider that the Court could now impose a freezing order without exceptions for reasonable living and legal expenses and ordinary course business expenses. I am satisfied that the Defendants have discharged that onus of establishing the need for the relevant exceptions from the undertakings, having regard to Ms Huang's evidence, the documentary records of dealings with Ms Huang's assets and properties over a considerable period and the opportunity which the Plaintiffs have had to test Ms Huang's evidence over an extended period in respect of her disclosure affidavits. I think it likely, based on the evidence to which I have referred above, that the Defendants do not have other assets from which such living and legal expenses and business expenses could be paid if such an order was now imposed. 25There is no utility in making a freezing order that continues the exceptions for the payment of those expenses, which would provide no greater degree of protection to the Plaintiffs than the existing undertakings given by Ms Huang to the Court. A breach of those undertakings would give rise to liability in contempt, as would a breach of a freezing order: OD Transport Pty Ltd v Western Australian Government Railways Commission (1987) 13 FCR 500. A further discretionary factor tending against the imposition of a freezing order, with or without such exceptions, is that the Plaintiffs' earlier application for such an order was resolved on the basis of the giving of undertakings by the Defendants, and there is no evidence of any substantial change in the Defendants' position since those undertakings were given. 26The Defendants proffered an alternative form of freezing order, if the Court was satisfied that such an order were appropriate, which retained exceptions for the payment of living expenses and increased the permitted level of legal expenses. It is not necessary for me to address the form of that order, where I am not satisfied that freezing orders should be made in place of the existing undertakings. Payment of funds out of Court 27By their Interlocutory Application filed on 27 March 2013, the Defendants seek orders under UCPR 41.3 or 41.11 for payment out of the amount presently held in Court referable to the proceeds of sale of Ms Huang's home to the trust account maintained by the Defendants' solicitors, Macpherson & Kelley. Those monies were previously paid into Court under a consensual arrangement reached in order to resolve a dispute arising from the proposed sale of that property. I accept Ms Huang's evidence that she agreed payment of the monies into Court in circumstances that it was urgent and essential that she obtain leave to permit her to settle the contract for sale of that property (Huang 27.3.2013 [12]) and it was reasonable for her to take that approach. 28The Defendants submit that Ms Huang is entitled to deal with her money, subject to the undertakings that she has given to the Court restricting the range of expenditures that she may make. They contend that, even if freezing orders as distinct from undertakings offered by Ms Huang to the Court were in place, the usual terms of such orders operate in personam and are directed to preventing dissipation of relevant property rather than possession of it by its owner, and such orders do not deprive the parties subject to the orders of the assets to which they extend. The Defendants submit that, notwithstanding the undertakings that are in place and even if freezing orders were to be granted, there is no basis to require that Ms Huang's funds continue to be held in Court pending the outcome of the proceedings, which would in effect require her to give security for any judgment against her. The Defendants also point out practical difficulties that have arisen from the payment of funds into Court, which have resulted in the need for several applications by the Defendants, opposed by the Plaintiffs, for orders permitting payment out of Court for payment of the Defendants' legal expenses. The Plaintiffs point out that the order for payment of the monies into Court was made by agreement of the parties, but do not contend that it is not open to the Defendants to seek a variation of the arrangements by which monies had been paid into Court, and appropriately recognised that those arrangements had been put in place in circumstances of considerable urgency in order to permit the sale of the property to proceed. 29In Cardile v LED Builders Pty Ltd above at CLR 403-404, the plurality of the High Court (Gaudron, McHugh, Gummow and Callinan JJ) observed that: "It has been truly said that a Mareva order does not deprive the party subject to its restraint either of title to or possession of the assets to which the order relates. Nor does the order improve the position of claimants in an insolvency of the judgment debtor. It operates in personam and not as an attachment." Their Honours also referred with approval to the judgment of the Court of Appeal of the Supreme Court of New South Wales in Frigo v Culhaci (unreported, 17 July 1998) where the Court of Appeal had observed that the function of such an order is to preserve the status quo, rather than to change it in favour of a plaintiff. There may, in rare cases, be exceptions to that principle; thus, in Jackson v Sterling Industries Limited above at CLR 626, Deane J observed that: "It may be appropriate in a rare case that such an [freezing] order requires the defendant actually to deliver assets to a named person or even to the Court itself. ... Even in such cases, however, the order must be confined to preserving assets until after judgment or, arguably, until there has been an opportunity to seek execution. ... Any order requiring the delivery of assets should make clear that the assets will be held on behalf of the defendant until after judgment or further order and will then be re-delivered to the defendant unless they are made the subject of some other claim." 30In Clout (as trustee in bankruptcy of the Estate of Dexter) v Anscor Pty Limited above at [19], Drummond J noted that a freezing order: "...cannot be used to give the applicant security in respect of an as yet unliquidated claim, ... its sole legitimate object is to prevent a respondent, pending final adjudication, from disposing of assets where the respondent's object in doing that is to abuse the process of the Court by ensuring that, if the applicant is successful in the litigation, its judgment will be an empty one." His Honour also observed that: "Even in a case in which a Mareva restraint is justified it can never extend to prevent a respondent from having access to its own assets to the extent necessary to meet legitimate expenses such as ordinary living and business and legal expenses". 31In Electric Mobility Company Pty Ltd v Whiz Enterprises Pty Ltd [2006] NSWSC 580 at [7], Hamilton J similarly emphasised that: "The appellate courts have reminded primary judges that they must always be vigilant to ensure that parties' assets are not frozen and their business lives impeded lightly and that Mareva relief is not to be used to give plaintiffs security for the satisfaction of their judgments". 32The Plaintiffs contend that the from of order they seek is supported by UCPR r 25.12 which provides for the Court to make an order ancillary to a freezing order. The Plaintiffs refer to the commentary to that rule in Ritchie's Uniform Civil Procedure NSW [25.12.5] that gives examples including orders for the delivery up of specified assets or the appointment of a receiver to assets. Ms Pritchard, who appears for the Defendants, also fairly drew my attention to the discussion in P Biscoe, Freezing and Search Orders: Mareva and Anton Pillar Orders, 2nd ed, 2008 [3.43] of the possibility that the Court may make orders in its ancillary jurisdiction for payment of monies into Court or into a trust account or controlled monies account. 33For example, in Millennium Federation Pty Ltd v Bigjig Pty Ltd [2000] 1 Qd R 275, the Queensland Court of Appeal upheld an order in the alternative form now raised by the Plaintiffs, requiring that the Defendants pay a sum of money to the trust account of a firm of solicitors to be held pending an order of the Court or other payment in accordance with the solicitors' joint direction in writing. Thomas JA there expressed the view that the Court had jurisdiction to require the defendants to retain an action or fund pending the outcome of an action where an interest or entitlement to such proceedings is asserted by an adverse party and, if the Court has such jurisdiction, it has the power to order that it be kept in an account pending trial. The order made in Millennium Federation v Bigjig Pty Ltd above appears to have related to a fund set aside out of monies which, on the plaintiffs' case, were obtained by breach of duty by the defendants. I do not consider that the proceeds of the sale of Ms Huang's residential property can be characterised in that manner, since there is no suggestion that that property was itself purchased from a fund created by the dealings between the Plaintiffs and the Defendants as distinct from Ms Huang's accumulation of property assets over a considerable period. An order for payment into Court was also made, in conjunction with a freezing order, in Sleiman v Afeich [2005] NSWSC 1063, where the Court was satisfied that there was a strong case that money was being dealt with fraudulently and was likely to be permanently unavailable to satisfy the Plaintiffs' judgment unless such an order was made. 34I proceed on the basis that, by reason of the ancillary power, the Court has jurisdiction to make an order of the kind sought. I am not satisfied that it should exercise it to require the monies to be retained in Court, on the basis of the evidence presently before me. Mr Harper, who appeared for the Plaintiffs, somewhat qualified their position in oral submissions by contending that they "do not insist that the money remains in Court" but seek that it be subject to a different regime for payment into a controlled monies account to which both solicitors were signatories. I would not order such an arrangement, because I am not satisfied that this is one of those rare cases which would justify depriving the defendants of the possession of their property once undertakings have been given to prevent its dissipation. It is also entirely predictable that agreement would not then be reached between the respective solicitors as to any payment from that account to the Defendants, and such an arrangement would likely result in further interlocutory disputes between the parties and further distraction from the preparation of the proceedings for hearing. 35In the course of submissions, I also drew the parties' attention to the decision of the Court of Appeal in Myers v Design Inc (International) Ltd [2003] EWHC 103 (Ch); [2003] 1 WLR 1642, where Lightman J held that, although a freezing order could have been made in proceedings against a defendant claiming repayment of a loan, those circumstances could not justify a payment into Court under the English rule broadly corresponding to UCPR r 25.3(3). That decision was approved by the Court of Appeal in Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249, where Spigelman CJ (with whom Bell JA and Handley AJA agreed) observed that the Court's power under UCPR 25.3(3) for a specified fund to be paid into Court or otherwise secured, where there is a dispute over a party's right to the fund, required that there previously exist a proprietary right or interest in the fund, which is not established in the present case. The Plaintiffs made clear that they do not rely upon UCPR r 25.3(3) to support a continuing order requiring the monies to be retained in Court. 36Orders should therefore be made for the payment of the monies presently held in Court out of Court, in the form sought by the Defendants, and subject to the continuance of their undertakings, or any varied undertakings that are accepted by the Court. Payment of funds out of Yau & Wang trust account 37The Defendants seek an order for payment out of monies held in the trust account of Yau & Wang, the solicitors who attended to sale of the Ms Huang's residential property. The deposit paid by the purchaser of that property was paid into that account in accordance with orders made by Bergin CJ in Eq on 5 December 2012. Ms Huang seeks to have the amount of $29,034 paid out to the real estate agent, being the commission payable to the agent who acted on the sale and to have an amount paid to a stylist involved in preparing the property for sale. Ms Huang seeks to pay $68,246.92 to Yau & Wang for fees relating to the proceedings (Huang 27.3.2013 [65]). Ms Huang seeks to pay the balance of $58,519.08 to her present solicitor's trust account on the same basis as the payment to that account of the monies currently held in Court. 38The Defendants submit, and I accept, that the question of payment of those monies out of Yau & Wang's trust account is to be determined on the same basis as the question of payment out of Court. Orders should therefore be made for the payment of the monies presently held in the trust account of Yau & Wang, in the form sought by the Defendants. The content of the Defendants' undertakings 39The Defendants seek an order granting leave to them to vary their undertakings given to the Court on 15 October 2012 in the form contained in Annexure A to their interlocutory application filed on 27 March 2013, so as to increase the limit for the amount that they may expend on reasonable legal expenses of the proceedings from $300,000 to $700,000. 40The Plaintiffs submit that the Defendants' application to "vary" the undertakings is in improper form, because such an application should be for release from the undertaking, on the terms that a new undertaking would be given: Cutler v Wandsworth Stadium Ltd [1945] 1 All ER 103. I do not accept, as the Plaintiffs contend, that that application may be refused solely on that basis, which would seem to me to be inconsistent with the just, quick and cheap resolution of the matters in dispute for the purposes of s 56 of the Civil Procedure Act. I will proceed on the basis that, in substance, the Defendants seek to withdraw their present undertakings and give substitute undertakings, with the only difference between them being that they are permitted to incur reasonable legal expenses up to the amount of $700,000. 41The Court has power to release a party from an undertaking where new facts come into existence which would render its enforcement unjust: Adam P Brown Male Fashion Pty Ltd v Phillip Morris Inc [1981] HCA 39; (1981) 148 CLR 170; Re AT Air Group Pty Ltd (in liq) (2012) NSWSC 1508 at [25]. So far as the Defendants seek to vary the existing undertakings so as to release assets from them, they bear the burden of showing not only the legitimacy of the purposes to which those assets are to be applied, but also that they have no other assets caught by the orders from which the legitimate expenditures may be met: A v C (No 2) above; Szentessy v Woo Ran (Australia) Pty Ltd (1985) 64 ACTR 105; Clout (trustee) v Anscor Pty Ltd above; Goumas v McIntosh above. 42The variation that the Defendants seek to paragraph 1 of the undertaking to delete a reference to Ms Huang's former residential property is plainly justified where that property has been sold. The deletion of paragraphs 2(d)-(f) and 3 fall into the same category where those paragraphs are now superfluous following the sale of that property. 43The more controversial aspect of that variation is the Defendants' application now to be permitted to expend up to $700,000 for their reasonable legal expenses of the proceedings. The Defendants' undertakings originally provided to the Court on 25 September 2012 permitted them to spend up to $100,000 on their reasonable legal expenses in respect of the proceedings. Further undertakings were given on 15 October 2012 that permitted the expenditure of up to $300,000 on the Defendants' reasonable legal expenses of the proceedings. The Defendants point out, by reference to the evidence of their solicitor, Mr Frawley, that their legal expenses have now exceeded $300,000 and are likely to be approximately $700,000 if the matter proceeds to a contested hearing. The Defendants contend that new facts have come into existence which render the enforcement of the undertaking in its existing terms unjust and submit that those "new facts" are the way in which the proceedings have developed and, in particular, the extensive interlocutory disputes that have arisen (Frawley 27.3.2013 [63]). 44The Plaintiffs contend that the increased cap of $700,000 sought by the Defendants should not be permitted, first, because they should not be permitted to expend any part of their assets on legal expenses. I have not accepted that submission above. Second, the Plaintiffs contend that the $700,000 cap now sought by the Defendants is unreasonable, because the Defendants have acted unreasonably in prosecuting the proceedings, including making unnecessary interlocutory applications and failing to comply with disclosure obligations. I have expressed reservations in earlier interlocutory judgments about the number of interlocutory applications by both parties in these proceedings, but any issue in that regard cannot be attributed solely to the Defendants. The interlocutory applications relating to payment of monies out of Court appear to be a necessary, although unfortunate, result of the fact that monies were paid into Court. So far as there were disputes as to Notices to Produce and discovery, the results were evenly balanced and it does not seem to me that the Defendants can be singled out for criticism in that regard. In any event, the only costs that the Defendants are permitted to expend, under the terms of the exception to the undertakings, are "reasonable" legal costs. I am satisfied that the Defendants have discharged that onus of establishing the need for release of the existing undertaking and acceptance of an undertaking with a higher limit for legal expenses, having regard to the matters I set above in respect of the justifications for those exceptions generally and Mr Frawley's evidence as to the likely costs of the proceedings. 45I am reinforced in that view by the fact that the maximum figure for legal expenditures is ultimately a less significant constraint on those expenditures that the fact that those expenditures must be reasonable and that Ms Huang and her advisers must be satisfied of that matter before such expenditures are made. That approach is supported by the reasoning in Anglo-Eastern Trust Ltd v Kermanshahchi [2002] EWHC 3152, where Neuberger J observed that the normal course, where a freezing order of a non-proprietary nature had been obtained in favour of a claimant, was to permit the defendant, without express limitation, to spend a reasonable sum on legal costs and at least, in relation to the litigation which has given rise to the freezing order, without any "substantial strings", other than for what his Lordship described as a self-certification requirement. His Lordship observed that: "... It is important, as a matter of principle, to bear in mind that a freezing order in a non-proprietary case is merely to prevent the dissipation of assets. It is not intended to give the claimants the special and privileged status of a secured creditor. They can only achieve that status after judgment, if they obtain a charging order absolute. It is certainly not normally even the indirect purpose of a freezing order to prevent a defendant from defending himself in the very proceedings to which the freezing order is made." His Lordship also noted that the solicitor is an officer of the Court, and would know that the defendant can only be required to pay reasonable costs. 46The Plaintiffs also contend that the exception permitting Ms Huang to expend up to $4,000 per week for living expenses should not continue. However, that is a maximum figure that, as Ms Pritchard points out in submissions, must accommodate unusual or irregular expenses and the fact that living expenses are not necessarily incurred at the same rate in each month. The ultimate constraint upon incurring of such expenses by Ms Huang is also not the $4,000 limit, but the fact that such expenses as are incurred must be "reasonable" in character. 47A further issue as to the application for variation of the undertakings - and specifically the exception in the undertakings permitting payment of "business expenses bona fide and properly incurred" - arose from a further application brought by the Defendants, in the alternative to their application for the proceeds of sale of Ms Huang's residential property to be paid out of Court. By that application, the Defendants sought orders that the amount of $814,000 (or alternatively, such other amount as the Court deems appropriate) be paid out of Court to Macpherson & Kelley's trust account to be dealt with, inter alia, by making payments of:

• $4,000 to Ms Huang's son, Mr David Xie, in repayment of funds that he is said to have advanced to Ms Huang for day-to-day living expenses;
• $20,000 to Liu Lim and Shirley Liang;
• $100,000 to Ms Huang to be applied toward the proper expenses of her business, conducted through Gold Label; and
• $270,000 to David Xie. 48Ms Huang seeks to justify those payments in paragraphs 23, 35-37, 59-76 of her affidavit dated 27 March 2013. There is no documentary evidence of the $4000 loan from Mr Xie or the $20,000 due to Mr Lin and Ms Liang to which she refers. The amount of $270,000 is said to be due to Mr Xie for the purchase of shares in Gold Label, arising from the transaction to which I referred in paragraph 8 above, and there is no substantive evidence as to the commercial basis of that transaction or that the business was worth what was paid for it. Those payments would, in my view, prefer Mr Xie, Mr Lin and Ms Liang as creditors of Ms Huang to the Plaintiffs and I would not find, on the evidence presently before the Court, that those payments would be ordinary course business expenses so as to be permitted under the exceptions to the Defendants' undertakings. 49Ms Huang also contended that it was necessary to invest $100,000 in Gold Label to allow it to continue as a going concern. It appears that that amount is to be applied partly to the purchase of goods worth $40,000. However, the evidence is insufficient to establish that a proposed purchase of $40,000 worth of goods for Gold Label is necessary or desirable or that those goods would be purchased on arm's length terms. That amount would also be applied to pay USD$51,221.41 to another entity, Capri International Trading Limited, which is said to be a supplier in Hong Kong and is owned by Ms Huang's nephew. I am not presently satisfied that the proposed payment to Gold Label would be an ordinary course business expense so as to be permitted within the exceptions to the Defendants' undertakings. 50The matters to which I have referred above, and particularly the proposed payments by Ms Huang to companies associated with her family members, seem to me to raise a real risk of misunderstanding or dispute as to the proper scope of the exception for payment of ordinary course business expenses in the Defendants' undertakings. It seems to me preferable that any such dispute is determined before a payment is made in reliance on that exception, rather than in a subsequent action for contempt. My preliminary view, subject to hearing any further submissions which the Defendants wish to make - since only some aspects of these matters were explored in submissions before me - is that any release of the Defendants from the existing undertakings or acceptance of varied undertakings should require the Defendants to address this risk. One way of doing so might, for example, be to include an additional undertaking that the Defendants will give 7 days notice to the Plaintiffs prior to making any payment exceeding a specified amount in reliance on the exception for ordinary business expenses. I will hear the parties further in that regard. Security for Plaintiffs' undertaking as to damages 51The Defendants seek an order that the Plaintiffs give security for their undertaking as to damages given to the Court on 15 October 2012, in respect of the undertakings restraining the Defendants' disposal of assets, in an amount to be determined by the Court. The Defendants' undertakings to the Court on 15 October 2012 were given on the Plaintiffs' undertaking as to damages, and the Court's orders included a notation that the Defendants had not waived the right to argue that the Plaintiffs had insufficient assets to support their undertakings as to damages. On 25 February 2013, the Defendants served notices to produce on the Plaintiffs seeking production of documents going to their financial position; the Plaintiffs applied to set aside those notices to produce on the basis that they were prepared to give security for the undertaking as to damages, subject to determination of the appropriate quantum and form of security, and orders were made by consent setting aside those notices to produce on that basis. 52The Defendants accept the quantification of that security is uncertain but seek security in the amount of $3 million so far as an undertaking that prevents their incurring legal or living expenses may frustrate their defence of the proceedings and expose them to the damages claimed by the Plaintiffs in the proceedings, without an opportunity to fund a defence of the proceedings. The Plaintiffs accept that security should be given for the undertaking as to damages but contend that the Defendants have not established the amount of security that should be given, and they make no attempt to quantify the amount of security that should properly be given. The Plaintiffs submit that there is no evidence that the Defendants are or will likely suffer loss and damage in the amount of $3 million as a result of providing the undertakings to the Court. They point out that a defendant who seeks to enforce an undertaking must establish that the giving of that undertaking was a cause of the relevant damage being suffered: Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249 at 268 per Aickin J, at 313 per Gibbs J. The Plaintiffs contend that the Defendants could not suffer loss by reason of the present undertakings because CH Design does not currently carry on business and has no assets apart from its Cross-Claim against Colorado, and Ms Huang's only activity is running Gold Label's business. I do not accept that submission, not least because the undertakings, if they did not include the exception permitting the payment of legal expenses to which I have referred above, would at least expose the Defendants to the risk of inability to defend the proceedings and to judgment arising from that inability. 53The evidence before me does not allow me to determine the amount of security that should be given to support an undertaking or freezing order in a form that prevented the Defendants incurring legal, living and ordinary business expenses. However, the evidence before me does establish a substantial risk that an order in that form would prevent the Defendants from defending the proceedings. As I have noted above, Ms Huang's evidence is that she has no substantial assets other than the proceeds of the sale of her home that were paid into Court with which to defend the proceedings; her solicitors' evidence is, not surprisingly, that they will not conduct a defence of the proceedings, unless they are paid the costs of doing so; and, if Ms Huang's evidence is true, then an order in that form could well result in the Defendants being unable to defend the proceedings, and judgment for the Plaintiffs in default. In Cardile v LED Builders Pty Ltd above at [404], the plurality of the High Court emphasised that the difficulties associated with the quantification and recovery of damages pursuant to an undertaking, if it should turn out that an order should not have been granted, are a further reason for care in exercising the power to grant such an order. It seems to me that the absence of any such security, when it is common ground that it should be provided although the amount has not been (and perhaps cannot be) quantified, is a strong discretionary consideration tending against making a freezing order in a form that would not permit the Defendants to incur living and legal expenses consistent with the current exceptions. 54The Defendants accepted, in submissions, that the likelihood of potential loss under the undertaking only arose if the Plaintiffs were successful in preventing the Defendants' expenditure on living, legal and business expenses as permitted by the existing exceptions to the undertaking. The Plaintiffs have not succeeded in their application for a freezing order in a from that excluded those exceptions, and in these circumstances I do not consider it necessary to order security for the undertaking as to damages at this point. The Defendants may, of course, renew their application for such security if a real risk of such damage arises in the future and they are then in a position to quantify the amount of security which should properly be provided. Amendments to the pleadings 55The Plaintiffs seek leave to file a Further Amended Statement of Claim in the form annexed to their Interlocutory Process dated 27 March 2013. The proposed amendments introduce additional claims for relief and seek to join additional parties, Gold Label and ACN 141 843 370 Pty Limited, as defendants to the proceedings. The Defendants previously consented, on 4 February 2013, to the filing of a Further Amended Statement of Claim containing some of the amendments now sought and, on 4 February 2013, Brereton J granted leave for the earlier version of the Further Amended Statement of Claim to be filed by 8 February 2013, although the Plaintiffs did not then act in accordance with that leave. There was no controversy before me as to the additional relief claimed or the joinder of the further defendants in the proceedings, on the basis that the usual order is made that the Plaintiffs pay the costs thrown away by the amendments. 56The Plaintiffs also now seek to remove Colorado as a plaintiff, on the basis that Colorado has assigned its cause of action to the First Plaintiff, HY International, and to join it as a defendant so that it is party to the proceedings. The Further Amended Statement of Claim also introduces a new pleading that, by a Deed of Assignment, Colorado Products' provisional liquidator in the exercise of powers conferred by s 477(2) of the Corporations Act assigned all causes of action available to Colorado in these proceedings, including the pleaded cause of actions, to HY International and that, by reason of that Deed of Assignment, HY International is entitled to prosecute those causes of action and is entitled to any relief that the Court would otherwise have granted to Colorado if it were a plaintiff in the proceedings. It appears that assignment was effected on 8 April 2013 (Siddle 10.4.2013 [12]). 57The Defendants raised concerns as to the inclusion of paragraphs 11(a)-11(b) in the Further Amended Statement of Claim concerning the assignment by Colorado's provisional liquidator of all causes of action available to Colorado to HY International. In particular, the Defendants contended that the deed by which that assignment was made required the Court's approval under s 477(2B) of the Corporations Act because obligations on HY International to distribute any proceeds of the proceedings in a particular way and to provide six monthly reports concerning the status of the proceedings would not be discharged by performance within three months after the date of the Deed. That section prohibits a liquidator entering into an agreement on a company's behalf, without one of the specified approvals, if the term of the agreement may end or obligations of a party to it may, according to the terms of the agreement, be discharged by performance, more than three months after the entry into the agreement. It appears there is a dispute between the parties as to whether the assignment falls within the scope of that requirement. 58The Defendants contend that there is a "powerful argument" that an Agreement entered into without approval under s 477(2B) is invalid unless and until that approval is obtained. The provisional liquidator of Colorado apparently takes the position that approval is not required for the assignment under s 477(2B) of the Corporations Act and HY International in turn contends that it is entitled to apply for such approval, if it is required, although it has not done so. The Plaintiffs also refer to Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167, where Warren J observed (at [12]) that the absence of the required approval under s 477(2B) of the Corporations Act affects only the relationship between the liquidator and the company or its creditors and cannot be made the subject of objection by a third party, and contend that the absence of such approval cannot affect their claim against the Defendants relying upon the assignment. 59Ultimately, the Defendants did not contend before me that the Plaintiffs did not have a serious case to be tried that the assignment was valid without the Court's approval under s 477(2B) of the Corporations Act, and they accepted that their objection to the validity of the assignment was properly raised as a defence to the Further Amended Statement of Claim rather than as a basis for refusing leave to make the relevant amendment. This approach also disposes of the Defendants' stay application on that basis. In proceeding on this basis, the Plaintiffs will assume the risk of the relevant amendment in that, where the Plaintiffs have relied on the assignment in order to seek the removal of Colorado Products as plaintiff, it may be unlikely that the Court would permit them to reverse that course if it later emerges that the assignment is not effective. 60The Defendants noted that, so far as Colorado sought leave to discontinue the proceedings, an order for costs would usually be made against it. The Defendants ultimately accepted that this position was addressed by the usual order that the Plaintiffs should pay the costs thrown away by reason of the amendment. There was no suggestion before me that those costs would not include any wasted costs to which the Defendants had been exposed by reason of Colorado's previous role as plaintiff and the amendment so that it will now be a defendant to the proceedings. 61Since it was not contended before me that it was not seriously arguable that the assignment could take effect notwithstanding any failure to obtain approval under s 477(2B) of the Corporations Act, and the amendments to the Further Amended Statement were otherwise not opposed, the preferable course is to grant leave to the Plaintiffs to file the Further Amended Statement of Claim on the basis that they must pay the Defendants' costs thrown away by the amendments. Any question as to the validity of the assignment can be raised by the Defendants by way of defence. 62The Defendants originally sought an order that they have leave to file and serve an amended defence in a form annexed to the Interlocutory Process. It was ultimately common ground between the parties that that question did not arise, since the Defendants would be entitled to file a Defence to the Further Amended Statement of Claim. 63The Defendants sought an order that the Plaintiffs file a properly executed certificate under s 347 of the Legal Profession Act 2004 (NSW) in respect of the Amended Statement of Claim filed on 15 August 2012. That application has been superseded by the fact that the Plaintiffs will now be entitled to file a Further Amended Statement of Claim. It has not been suggested that a certificate under s 347 of the Legal Profession Act is not required, or will not be given, in respect of that Further Amended Statement of Claim. 64The Plaintiffs must pay the Defendants' costs thrown away by reason of the filing of the Further Amended Statement of Claim. Defendants' application for security for costs 65Barrett J previously made orders requiring the Plaintiffs to pay $70,000 by way of security for the Defendants' costs on 14 November 2011. The Defendants filed an Interlocutory Process seeking, inter alia, further security for costs on 31 August 2012 and amended that application on 14 September 2012 and again on 18 October 2012. The Defendants now seek orders for the Plaintiffs to pay security for costs in the amount of $500,000 or such other amount as the Court may determine. The Defendants rely on an affidavit of their solicitor, Mr Frawley, dated 27 March 2013 in respect of the application for security for costs. In support of the application for security for costs, the Plaintiffs seek an order under UCPR r 42.21 or alternatively s 13.35 of the Corporations Act that the proceedings be stayed until the security which the Plaintiffs have been ordered to give is provided. HY International and Phoenix have agreed, without admission, to provide security for costs so the issue before the Court is the quantum and form of the security. The Defendants have indicated that they would accept security for costs by way of payment into a controlled monies account in the name of both parties' solicitors; payment into Court; or provision of an appropriately worded bank guarantee. 66The Court should take "broad brush" approach to the quantum of an order for security for costs: Allstate Life Insurance Co v ANZ Banking Group Ltd (1995) 134 ALR 187 at 199-201; Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [17]-[18]. The evidence of the Defendants' solicitor, Mr Frawley, is that he expects their total costs of the proceedings, on a solicitor and client basis, including fees to date, would be approximately $700,000. A large part of that amount comprises past costs of the proceedings to 17 April 2013. The Defendants have incurred costs and disbursements since the retainer of their new solicitors, Macpherson & Kelley, on 7 November 2012 of $223,813 and, as at 27 March 2013, Macpherson & Kelley had unbilled work in progress of approximately $62,000. 67Mr Frawley has also set out his calculation of the costs likely to be incurred going forward in the proceedings. Not unreasonably, he has had regard to the history of the proceedings, including the numerous interlocutory applications that have been filed and the very large number of subpoenas that have been issued by the Plaintiffs, and the fact that the Plaintiffs have sought discovery of some 60 categories of documents. His affidavit identifies the range of issues raised by the pleadings, and he provides a detailed breakdown of the costs likely to be incurred in defending the proceedings, including solicitors' professional fees, Counsels' fees and disbursements. He estimates that costs from 17 April 2013 until the completion of evidence will be $140,916 and that costs from the completion of evidence up to and including the hearing will be $199,560, for a total amount of approximately $340,000 (Frawley 27.3.2013, Ex D7 139-144). The Plaintiffs have not contested the detail of that calculation. 68Mr Frawley gives an estimate of the costs of the future conduct of the proceedings. He has assumed that 60-75% of solicitor and own client costs would be recoverable in an assessment, and up to 100% of Counsels' fees and other disbursements would be recoverable. While it would have been preferable if that estimate were supported by evidence of a costs assessor, no objection was taken to it and it appears to be reasonably conservative. Mr Frawley has sufficient experience in order to make that estimate, and the estimate is not out of line with figures that have been adopted by the Court in other matters Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961; Liberty Industrial Pty Ltd v Donald Mcarthy Trading Australia Pty Ltd [2013] NSWSC 279 at [17]. 69It is well established that an application for security for costs should be brought promptly and, where that is done, an order for security for costs may extend not only to future costs but also to costs already incurred: Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311; (1984) 8 ACLR 818 at 820; Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 514; Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 at [35]ff; Szanto v Bainton [2011] NSWSC 985. Conversely, the Court is less likely to order security for past costs where there has been significant delay in bringing the relevant application: Karl Suleman Enterprises Pty Ltd (in liq) v Pham [2010] NSWSC 886 at [50]. There has been significant delay in this matter in progressing the Defendants' application for further security for costs, filed over 7 months ago, and substantial costs have been incurred during the period of delay. The Defendants submit that the Plaintiffs have been on notice of the Defendants' intention to apply for further security for costs since the further security for costs application was made on 31 August 2012. While that is correct, it is not an answer to the proposition that that application should have been, and was not, pursued promptly. That delay tends strongly against an order in respect of past costs and I do not consider that security should extend to past costs in the matter: 70The Plaintiffs contend that various past costs incurred by the Defendants are not properly recoverable as costs of the proceedings including, for example, costs relating to variation of the undertakings and to release of funds from Court for the payment of living and legal expenses. The Plaintiffs also submit that security should not be ordered for costs occasioned by Ms Huang's decision to change her representation from her previous firm of solicitors to Macpherson & Kelley. There is considerable force in that submission. It is not necessary for me further to address these matters when I do not propose to order security for past costs of the proceedings. 71The Defendants accepted that an appropriate quantum of security in this case would be $350,000, which exceeds (by a relatively small margin) the amount of the recoverable future costs of the proceedings. I will therefore order that security be provided in that amount. I would be inclined to order that security for costs is provided by way of tranches so that the Defendants are initially secured for steps to be taken prior to the hearing and subsequently secured for the costs of the hearing before it takes place, if the Plaintiffs seek to have the order made in that form. Cross-Defendants' application for security for costs of the Cross-Claim 72By Interlocutory Process dated 23 October 2012, the Cross-Defendants, relevantly Wen Kai (Kenneth) Tan and Helen Lao Ning Huang, seek security for costs in the amount of $80,000 against the Cross-Claimant, CH Designs. 73There is a substantial overlap between the issues raised by the Plaintiffs in the Statement of Claim and the Cross-Claim. In the Amended Statement of Claim filed on 15 August 2012, the Plaintiffs contend that that a lease between CH Design and Colorado in respect of premises at Rydalmere is not enforceable and that Mr Tan and Ms Huang are not liable under a rental guarantee in respect of the lease. By its Cross-Claim, CH Design in turn seeks rent which it claims was payable by Colorado in respect of the premises and damages in respect of breaches of the lease by Colorado and claims under the guarantee. The Cross-Defendants deny that they are liable under that guarantee. 74CH Design submits that the claim in respect of the Cross-Claim involves substantially the same issues as the Plaintiffs' claim in the Amended Statement of Claim, namely, whether Colorado executed the lease; whether Mr Tan and Ms Huang guaranteed its obligations under the lease; whether Colorado is bound by the lease and whether Mr Tan and Ms Huang are bound by the guarantee; and whether Colorado owes unpaid rent to CH Design and Mr Tan and Ms Huang are liable in that regard under the guarantee. I accept that submission. 75I am conscious that two of the three Cross-Defendants, Mr Tan and Ms Huang are not Plaintiffs in the proceedings. However, CH Design points out that there is no evidence that they personally are paying costs of defending the Cross-Claim, as distinct from Colorado doing so, and the Plaintiffs' solicitor's original affidavit in support of the application for security for costs identified the costs of defending the Cross-Claim as being incurred by the Plaintiffs (Lalic 23.10.2012 [16]). That evidence is, perhaps, not surprising since it would be unlikely that Colorado, its controllers and their common solicitor would issue separate bills for the defence of a Cross-Claim to Mr Tan and Ms Huang where that defence raised common issues with Colorado's Statement of Claim. I am not satisfied, on the evidence before me that Mr Tan or Ms Huang will incur any additional costs in respect of the Cross-Claim beyond those that will be incurred by Colorado in prosecuting the Statement of Claim. 76In these circumstances, I am not satisfied that any order for security for costs should be made in respect of the costs of the Cross-Claim. It is therefore not necessary to address a further difficulty with the application for security for costs of the Cross-Claim, namely that the Plaintiffs' solicitor's evidence of the estimated costs of the defence of the Cross-Claim was calculated on a solicitor/client basis and made no attempt to establish the costs likely to be recoverable on a party/party basis which could properly be the subject of an order for security for costs. Review of Registrar's decision as to discovery and other discovery categories 77The Plaintiffs filed an Interlocutory Process seeking orders for further discovery on 31 August 2012; orders were made for the service of revised categories of discovery on 24 September 2012; the Plaintiffs served revised categories seeking discovery on 28 September 2012; and Assistant Registrar Musgrave determined an application challenging the discovery categories on 25 October 2012. The Defendants sought review of Assistant Registrar Musgrave's decision of 25 October 2012 so as to set aside categories 37-40 and 45-46 of the Plaintiffs' categories of discovery and set aside subpoenas to Gold Label, Sorrento Kitchens and Crane Distribution in full and several other subpoenas in part. The issue in respect of the subpoenas has now been resolved between the parties and orders for access have been made in respect of the documents produced on subpoena. 78The Defendants pursue the application for review of Assistant Registrar Musgrave's decision in respect of the specified discovery categories under UCPR r 49.19 which provides that, if a Registrar makes an order or decision, the Court may, on application by any party, review that decision and make such order, by way of confirmation, variation, discharge or otherwise as it thinks fit. A review under this provision is not an appeal and is not subject to the restrictions that apply to an appeal, although something less than a complete hearing de novo is involved; nonetheless, the Court may intervene where a decision finally determines a party's rights or where error in the decision under review is demonstrated: Tomko v Palasty (No 2) [2007] NSWCA 369; (2007) 71 NSWLR 61 at [6], [10], [50]-[52]. The Defendants also seek to set aside several other paragraphs of the Plaintiffs' discovery categories. 79The Defendants object to category 12 of the Plaintiffs' categories of Discovery which requires production of all documents referring or relating to all debts owed by Colorado as at June 2009. The Plaintiffs press for that category on the basis that it is relevant to the value of shares in Colorado, which is in turn relevant to the misleading and deceptive conduct claim in paragraph 67ff of the Further Amended Statement of Claim. The Defendants also contend that category 12 should be limited to debts owed by Colorado as at 30 June 2009, being the date of the Share Sale Deed. I do not accept the submission that this category should be set aside or limited in the manner that the Defendants contend, so as to exclude, for example, any transaction by which the level of the company's debts had been affected immediately prior to the date of the Share Sale Deed on 30 June 2009. There is no suggestion that the production of documents relating to the level of debts as at June 2009 is significantly more difficult than the production of documents relating to the level of debts as at 30 June 2009. 80The Defendants object to category 25 of the Plaintiffs' categories for discovery, which requires production of documents relating to the preparation of the Share Sale Agreement. The Defendants contend that documents relating to the preparation of that Agreement are not relevant to its agreed terms or whether that Agreement has been breached. The Plaintiffs seek to support that category on the basis that it is relevant to the misleading and deceptive conduct claim and to pre-contractual representations inducing the Plaintiffs to purchase the shares in the Third Plaintiff. It is not apparent to me that the documents sought relating to the drafting of the Shareholders Agreement are relevant to the existence or non-existence of such representations. I do not consider this category is supportable in its present form and it should be set aside. 81The Defendants object to categories 28, 31-34 and 39 of the Plaintiffs' categories for discovery which require production of documents in respect of the business of Sorrento China, on the basis that its business has now been sold to Osman's and the Plaintiffs have issued a subpoena to Osman's. Category 28 seeks documents referring or relating to the Supply and Buy Agreement between Colorado and Sorrento China dated 28 July 2009, and the Plaintiffs support this category as relevant to their allegations of breach of duty against Ms Huang. I was not asked to set aside this category by reason of any issue as to its clarity or otherwise. Category 31 seeks all documents referring or relating to the delivery of goods purchased by Colorado from Sorrento China during the period July 2009 - December 2010, and is again supported by reference to allegations of breach of duty against Ms Huang. I was not asked to set aside this category on the basis of its width, although it seems to require discovery of every invoice and packing note for every delivery of every item purchased by Colorado from Sorrento China. 82Categories 32-34 require production of documents referring or relating to several decisions of Sorrento China to change payment terms and/or increase prices in its dealings with Colorado. The Plaintiffs support these categories by reference to allegations of breach of duty against Ms Huang. Categories 32-34 appear to relate to a matter in issue and it is not suggested that they are oppressive so far as the volume of documents caught within them. Category 39 requires production of all documents referring or relating to any dealings or communication between Sorrento China and specified former customers of Colorado between August 2009 and September 2009. The Plaintiffs support that category by reference to allegations of diversion of business opportunity by Ms Huang. I was not asked to set aside that category by reason that its breadth seems to extend well beyond the allegation, so as to require production of any document relating to any dealing or communication, irrespective of whether it has any nexus with the alleged diversion of business opportunity. 83The Defendants' only basis of objection to categories 28, 31-34 and 39 was that it would be inconsistent with s 56 of the Civil Procedure Act for them to be required to discover material in relation to Sorrento China where they no longer control that entity. I do not accept that submission. It is not suggested that this material is not relevant to matters in issue in the proceedings; there is no reason to assume that any documents held by Osman's and any documents held by the Defendants are identical; and the Defendants are only required to discover such documents to the extent that they are in their possession. 84Categories 37 and 38 of the Plaintiffs' categories for discovery seek production, for the period August 2009 to September 2012, of all documents referring or relating to dealings or communications between Ms Huang, CH Design and specified former customers of Colorado. Category 40 seeks production of all documents referring or relating to any dealings or communications between Capri International and specified former customers of Colorado between August 2009 and September 2012. The Plaintiffs support the claim for production of documents in these categories on the basis of the allegation in the Further Amended Statement of Claim that Ms Huang has diverted valuable business opportunities from Colorado and has acted in competition with Colorado and contend that the documents are relevant to those claims. The Defendants object to categories 37-38 and 40 on the basis that those categories are unduly broad. These categories make no attempt to identify, for example, limited categories of documents that would advance the Plaintiffs' case, for example documents relating to the entry of a business relationship between those entities and those customers or records of trading between those entities and those customers. These categories should be set aside on that basis. I would not have set aside category 40 by reason on the Defendants' further submission that they have no involvement with the business of Capri, which does not exclude an order for discovery where the Defendants are only required to produce documents to the extent that they are in their possession. 85Categories 45 and 46 seek production of all bank statements of Ms Huang and CH Design for the period July 2009 to date and the Plaintiffs refer to their misappropriation and tracing claim against Ms Huang and CH Design. The Defendants object to these categories on the basis that they should be limited to the accounts pleaded in paragraphs 63 and 109 of the Further Amended Statement of Claim and that the Defendants' other bank statements are not relevant, other than in relation to their assets as to which they have already been required to produce documents and Ms Huang has been cross-examined. The Plaintiffs' allegations may support narrow, targeted, discovery but it does not seem to me that they support discovery of the width that is presently sought, which extends well beyond the pleaded allegations. These categories should be set aside. 86Finally, the Defendants seek an order that they be excused from giving discovery of documents identified in categories 1-2, 5, 12-13, 17, 23-24, 28 and 31-34 which concern Colorado's books and records, on the basis that these documents are in the hands of the provisional liquidator and access to 20 boxes of documents has already been given to the Plaintiffs by the provisional liquidator. The Defendants accept that they have some of those documents but contend that they should not be required to produce documents that the Plaintiffs may obtain from the provisional liquidator. The Defendants also contend that Ms Lao Ning Huang is a director of HY and a director of Colorado. The Defendants contend that it is unduly onerous for the Defendants to be required to discover material which would be extremely extensive (a matter which was not established), would fall within material already inspected by the Plaintiffs' solicitors and could be obtained independently by Ms Lao Ning Huang. I do not accept the Defendants' submissions in this regard. It cannot be assumed that the documents held by Ms Huang are simply duplicative of the documents held by the provisional liquidator. Where the substantive relevance of the categories has not been challenged, there is no reason that Ms Huang should not give discovery of them, at least to the extent that those documents have not already been produced by the provisional liquidator. Orders and costs 87I set out below the orders which would follow from this judgment, noting that the issue to which I refer in paragraph 50 above would need to be made prior to making order 6 below: 1 The monies held in Court in relation to the proceedings be paid out to the trust account maintained by the solicitors for the First Defendant, Macpherson & Kelley Lawyers. 2 An order that the amount of $161,300 held in the trust account of Yau & Wang solicitors on behalf of the First Defendant pursuant to orders of Bergin J be paid out to the trust account maintained by the solicitors for the First Defendant, Macpherson & Kelley Lawyers. 3 The First Defendant be released from her undertakings given on 5 December 2012 to the extent necessary to pay amounts properly due to Town and Country Real Estate up to the amount of $29,034, Levesons Hired Interiors up to the amount of $5,500, Yau & Wang solicitors up to the amount of $68,246.92 and MacPherson & Kelley Lawyers up to the amount of $58,519.08. 4 The Plaintiffs give security for the Defendants' future costs of the proceedings in the amount of $350,000, such security to be provided by way of funds paid into Court or by bank guarantee in a form agreed between the parties or, absent any agreement, determined by the registrar. 5 The proceedings be stayed if security is not provided in accordance with order 4 within 21 days of these orders. 6 The Defendants be released from their undertakings given to the Court on 15 October 2012 on giving further undertakings in a form to be annexed to these orders. 7 The orders made by Assistant Registrar Musgrave on 25 October 2012 be set aside to the extent that paragraphs 37-38, 40 and 45-46 of the Plaintiffs' categories for discovery be set aside. 8 The First and Second Plaintiffs be granted leave to file a Further Amended Statement of Claim in the form annexed to their Interlocutory Process filed 27 March 2013, as further amended to name Colorado Products Pty Ltd (in prov liq) as a defendant to proceedings. 9 The First and Second Plaintiffs pay the costs thrown away by the amendment permitted by order 8, including but not limited to any wasted costs relating to the removal of Colorado Products Pty Ltd (in prov liq) as a plaintiff in the proceedings. 88My preliminary view is that each party has had a measure of success and there should be no order as to costs. The parties should bring in agreed short minutes of order to give effect to this judgment within 7 days, or, if no agreement is reached, their respective drafts of short minutes and short submissions in respect of the differences between them. I will list the proceedings to make those orders and further directions as to their conduct.

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