In the matter of GAP Constructions Pty Ltd [2013] NSWSC 822

EX TEMPORE Judgment 1REIN J: In these proceedings, GAP Constructions Pty Ltd ("GAP") claims that Mr Bosganas, who is the third defendant, without authority arranged for the transfer of: (1) $594,553 ("the $594K") from GAP's account to Vigar Pty Ltd ("Vigar"), the first defendant, a company controlled by him. (2)$290,028 ("the $290K")to Bugong Pty Ltd ("Bugong"), the fourth defendant (a company which has subsequently been deregistered) which GAP claims was transferred, without authority, from GAP to the Bega Group Pty Ltd ("the Bega Group"), the second defendant, and then from that company to Mr Bosganas, or a company controlled by him, and (3)has failed to repay a loan of $150K made by GAP to him. 2Mr Bosganas does not dispute that he arranged payment the $594K from GAP but asserts that this was made with the authority of Peter Bega, the managing director of the plaintiff, as part payment of a million dollar fee for services which he says were to be rendered by him to GAP. Mr Bega was the second plaintiff in the proceedings but he has subsequently been made bankrupt. 3Mr Bosganas does not dispute that he received the $290K but says that that was from the Bega Group. GAP claims that it was money transferred by GAP to the Bega Group at the behest of Mr Bosganas and then transferred to him or his company without authority. 4In relation to the loan, Mr Bosganas says that it was not lent by GAP and he asserts that it was made by Mr Peter Bega personally or some other person or entity other than GAP. 5At the time the plaintiff commenced the proceedings it obtained a freezing order. GAP claims that the freezing order was disobeyed and that a fund of approximately $600K has been dissipated down to an amount of now approximately $120K. That balance was subsequently paid into Court by order of the Court. 6Mr Bosganas and the Bega Group seek security for costs to be provided by GAP. There are estimates of the costs of the proceedings to date and an estimate of a further $200K to be spent. No evidence has been put on behalf of GAP putting forward a different quantification of costs but, as Mr Hourigan, counsel for the plaintiff, made clear the estimate of future costs is challenged by GAP on the basis of the number of witnesses and steps which Mr Bilinsky, the current solicitor for the defendants seeking security, has indicated will need to be undertaken. 7There are two complicating factors in relation to the application for security which I should mention at the outset and they are that the $594K was an amount which was apparently received by GAP by reason of an error on the part of Westpac Banking Corporation. Indeed, Westpac at one stage issued a statutory demand for the return of the $594K which was resisted by GAP on the basis of a claim by GAP that other monies in excess of $594K are owing to it by Westpac. Westpac withdrew its statutory demand. 8Secondly, costs orders have already been made by the Court against GAP in relation to what have been described as "the first contempt proceedings" and "the second contempt proceedings" and an appeal from orders made in the first contempt proceedings. Some of those costs have been ordered to be paid on an indemnity basis. 9Mr Bilinksy, solicitor for Mr Bosganas and the Bega Group Pty Ltd, in his affidavit of 28 May 2013 gives a breakdown of the costs of Mr Bosganas (and the Bega Group Pty Ltd) relating to the second contempt proceedings and the appeal of $64, 711.35. He deposes to having obtained an estimate from Mr Bosganas' previous solicitor, Mr Van Dimitri, for the costs and disbursements for the first contempt proceedings, when Mr Van Dimitri was acting, of $90K out of $188K. The total of these amounts for the first and second contempt proceedings and the appeal is $154, 711. 10The defendants accept that there are some costs orders that have been made in favour of the plaintiff against the defendants. Those are dealt with in paragraph 10 of Mr Bilinsky's affidavit and are said to total approximately $8K. 11Accordingly on the basis Mr Bilinsky's affidavit there is an estimate of solicitor/client costs of $146K already incurred by the plaintiff which are, subject to assessment, due to the defendants. It is accepted that the costs have not been assessed or been the subject of detailed bills at this stage. 12There is no doubt that the plaintiff does not have the funds to meet the future costs order which is likely be made against it in these proceedings if it fails. As things presently stand, the company is in financial difficulty. Mr Hourigan, however, asserts that at least part of that financial position of impecuniosity is a result of the removal of $880K to which I have earlier referred. Mr Hourigan says that GAP's impecuniosity has been brought about at least in part by the defendants' conduct and that fact, is one of the reasons why security should not be ordered. 13There are other matters to which he draws attention, namely the delay in bringing in this application for security. It is well accepted that applications for security should be made promptly before the plaintiff has incurred significant costs in the litigation. However, there are two reasons in this case the application is said not to have been brought earlier than it was. 14First, Mr Bega was the second plaintiff in the case until he became a bankrupt in June last year so from the defendants' point of view there was, on the face of it, little point in making an application for security when an individual was available to meet any costs order that might be made in favour of the defendants at the end of the case. 15Secondly an application was made by the defendants to have the proceedings stayed until criminal proceedings, which have been commenced against Mr Bosganas by reason of the removal of the $594Kwere determined. That application was unsuccessful but that is a second reason for delay. 16In the circumstances having regard to both of these matters, I am not satisfied that delay is a reason why the defendants should be denied security for costs. 17Mr Hourigan asserted that to make an order for security would stultify the proceedings. There is, however, no evidence that the principle shareholder of GAP Pty Ltd, that is Map Pty Ltd or its shareholders, are not in a position to provide funds for the conduct of the litigation. I am not satisfied that the proceedings would be stultified nor, even if that were the case, would I necessarily accept that that was an appropriate reason to deny security in the case of a corporate plaintiff. In any event, I am not satisfied that stultification has been made out. 18 A further matter which the plaintiff seeks to rely on is the strength of its case against Mr Bosganas. The plaintiff submits that Mr Bosganas at least accepts that the $594K was withdrawn from GAP by him and he does not seem to dispute that the $290K was received by him. Mr Hourigan points to the absence of any documentary evidence in support of the claim that he was retained for a fee of $1M and all there is at the moment is a reciting by Mr Bilinsky of the instructions which he has from Mr Bosganas. I think there is force in the plaintiff's assertion that it has a strong case against Mr Bosganas at least for $880K. 19GAP also relies on the dissipation of the fund of $600K available in Mr Bosganas' hands to an amount of now only $120K as a reason why security should not be ordered to be provided. I am inclined to think that is a matter relevant to discretion of the Court and I say that even though it is true that should Mr Bosganas be successful in the proceedings, the funds to which he has had access would be established to be his or at least not the plaintiff's. I think it is relevant that the parties who seek security for costs have reduced the amount that was available without giving notice to the plaintiff of the reduction of the fund to an amount below $600K, as they were required to do. 20In so far as impecuniosity is concerned, the circumstances in which the $594K came to be received by the plaintiff does create a difficulty in one sense. The defendants contend that since the $594K was received in error, it ought not to be regarded as money, the absence of which has put the plaintiff in a position of impecuniosity. When it is considered that the plaintiff claims that Westpac owes more money to it than the $594K I think that the fact that the monies were, or may have been, received by mistake means that GAP is not prevented from asserting that the removal of the $594K has materially contributed to the impecuniosity of the plaintiff, particularly when it is coupled with the further amount of the $290Kmaking a total of $880K. If the plaintiff had $880K, a rather large amount, it may have no difficulty in meeting a costs order made against it. A complicating matter in all this is there is no evidence at all about whether or not GAP was impecunious without the $880K being removed from its account. 21As I indicated to counsel this morning, it seems to me that leaving aside the question of whether security should be provided for the future there is at least a requirement for the plaintiff to be able to meet the costs which it has already been ordered it must pay. There is a real doubt, from what I have heard in relation to the plaintiff's position, that it can provide security for those costs. Mr Hourigan submitted in response that the Court should still take into account the question of delay and the question of the dissipation of funds to which I have earlier referred. 22Whilst I accept that these matters are relevant to discretion and could well lead me to conclude that security should not be ordered absent the costs orders that have already been made, I think it is significant that costs orders involving a substantial amount of money have already been made against GAP which amounts when assessed will be payable whether or not GAP is successful. If Gap is successful and obtains a costs order in its favour it will be entitled to offset the costs order against it with the costs order in its favour but if it is unsuccessful the existing costs orders will be payable in addition to any general costs order made against in the proceedings. I do no think that GAP should be permitted to continue with the proceedings without, at a minimum, providing reasonable security for the costs orders already ordered against it arising out of the contempt of Court which has been found by the Court to have occurred. 23The question remains what is the appropriate amount to order for security to cover the costs orders already made against GAP . The Court is encouraged to take a broad brush approach to the quantification of the amount to be provided without descending into too much detail. 24The estimate of Mr Van Dimitri involves an attempt to calculate what amount is attributable to the first contempt proceedings. Mr Hourigan submitted that considerable caution should be exercised in relying on the $146K differential figure I accept that some caution should be adopted in relation to Mr Van Dimitri's estimate. Mr Hourigan submitted that a safe figure would be $60K in comparison to $146K. That figure seems to involve an excessively severe shaving of the amount estimated by Mr Bilinksy (i.e. $64, 711) and the former solicitor (i.e. $90K) or alternatively allows almost nothing for the first contempt proceedings. Mr Bilinsky is an experienced solicitor of more than 40 years standing in the profession and I think it is appropriate to treat the figure he gave as indicative of the actual solicitor/client basis. 25In all the circumstances I have come to the view, with the imperfections of the broad brush approach, that the appropriate amount for security to be provided in a form acceptable to the Registrar of the Equity Division is $100K. 26I note that should there be any further application for security, the question of any costs of that should take into account the costs order made on this occasion.