Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Ltd & Ors

Ingot Capital Investments Pty Ltd (First Plaintiff/Respondent) AOIT Ltd (Second Plaintiff/Respondent) ASC Pty Ltd (Third Plaintiff/Respondent) Australian Opportunities Investment Trust PLC (Fourth Plaintiff/Respondent) Eastern Estates Securities Ltd (Fifth Plaintiff/Resopndent) PARTIES : Ingot Capital Management Ltd (Sixth Plaintiff/Respondent) Macquarie Equity Capital Markets Ltd (First Defendant/Applicant) Macquarie Equities Ltd (Second Defendant/Applicant) Macquarie Bank Ltd (Third Defendant/Applicant) Jonathan Paul Beach (Fifth Defendant/Applicant) John Trowbridge Consulting Pty Ltd (Twelfth Defendant/Applicant) Andrew Mutton and the Persons in New South Wales Listed in Schedule "A" to the Summons (Fourteenth Defendant/Applicant) JUDGMENT OF : Bergin J

S Epstein SC leading D R Sibtain (Plaintiffs/Respondents) Dr A Bell (First, Second and Third Defendants/Applicants) COUNSEL : K Andronos (Fifth Defendant/ Applicant) E A Collins (Twelfth Defendant/Applicant) R A Dick (Fourteenth Defendant/Applicant) Deacons (First to Sixth Plaintiffs/Respondent) Mallesons Stephen Jaques (First to Third Defendants/Applicants) SOLICITORS : Colin Biggers & Paisley (Fifth Defendant/ Applicant) Minter Ellison (Twelfth Defendant/Applicant) Freehills (Fourteenth Defendant/Applicant) CATCHWORDS : [SECURITY FOR COSTS] - Three of six plaintiffs resident outside the jurisdiction - One of six plaintiffs not impecunious - Whether jursidiction to make orders for security against other impecunious plaintiffs - Whether impecuniosity caused by the defendants - No claim that security would stultify litigation - Aim to provide adequate protection to defendants without unfairly prejudicing the plaintiffs. Australian Security and Investment Commission Act 1989 (Cth) Companies Act 1989 (UK) LEGISLATION CITED : Corporations Act 2001 (Cth) Supreme Court Rules 1970 (NSW) Trade Practices Act 1974 (Cth) ANZ Executors & Trustee Co Ltd v Qintex Australia Ltd (1990) 2 ACSR 676 BPM Pty Ltd v HPM Pty Ltd, WASC, unreported, Full Court, Anderson, Kennedy & Ipp JJ, 7 April 1996 Drake v Hunter Douglas Ltd (1983) 8 ACLR 39 Drumdurno Pty Ltd & Ors v Braham & Ors (1982) 42 ALR 563 Electrona Carbide Industries Pty Ltd v The Tasmanian Government Insurance Board (1985) 3 ACLC 702 George Stack & Anor v Brisbane City Council Ors [1996] 71 FCR 523 GPI Leisure Corporation Ltd v Yuill, NSWSC, unreported, Young J, 22 April 1998 Harpur v Ariadne Australia Ltd (1984) 8 ACLR 835 Idoport Pty Ltd & Anor v National Australia Bank Ltd; Idoport Pty Ltd & Market Holdings Pty Ltd v Donald Robert Argus; Idoport Pty Ltd "JMG" v National Australia Bank Ltd [2001] NSWSC 744 CASES CITED : Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 John Bishop (Caterers) Ltd & Anor v National Union Bank Ltd & Ors [1973] 1 All ER 707 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd, FCA 545, unreported, Branson J, 22 May 1998 Pearson and Anor v Naydler and Anor [1977] 3 All ER 531 Rajski v Computer Manufacture & Design Pty Ltd (1982) 2 NSWLR 443 Ravi Nominees Pty Ltd v Phillips Fox (1992) 10 ACLC 1313 Schmidt v Bank of New Zealand Ltd [1991] 2 NZLR 60 Slazengers Ltd & Ors v Seaspeed Ferries Ltd [1988] 1 WLR 221 Winthrop v Royal Exchange Assurance Co (1755) 1 Dick 282; 21 ER 277 DECISION : Security ordered; See para [103]

• 32 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION commercial LIST

50169/01 INGOT CAPITAL INVESTMENTS PTY LTD & ORS v MACQUARIE EQUITY CAPITAL MARKETS LTD & ORS JUDGMENT 1 These are Motions for security for costs brought by the first, second, third, fifth, twelfth and fourteenth defendants. There is no issue that the estimate of costs to which these defendants would be entitled, in the event that they succeed at trial, is at least in the order of $4.3 million.

2 The first, second and third defendants are respectively Macquarie Equity Capital Markets Ltd (MECM), Macquarie Equities Ltd (MEL) and Macquarie Bank Ltd (MBL), to which I shall refer collectively as "Macquarie". Macquarie seeks security in the amount of $1.5 million or such other amount as the Court deems fit. The fifth defendant, Jonathan Paul Beach (Beach) seeks security in the amount of $1 million or such other amount as the Court deems fit. The twelfth defendant, John Trowbridge Consulting Pty Ltd (Trowbridge) and the fourteenth defendant, Andrew Mutton and the Persons in New South Wales appearing in Schedule A to the Further Amended Summons (Phillips Fox) seek security for costs in an amount that the Court deems fit. 3 The Motions were heard by me on 23 May 2002 when Dr A Bell, of counsel, appeared for Macquarie, Mr K Andronos, of counsel, appeared for Beach, Ms E A Collins, of counsel, appeared for Trowbridge, and Mr R A Dick, of counsel, appeared for Phillips Fox. Mr S Epstein SC, leading Mr D R Sibtain, of counsel, appeared for the plaintiffs. I allowed supplementary written submissions, the last of which was filed on 18 June 2002. 4 There are six plaintiffs, Ingot Capital Investments Pty Ltd, AOIT Ltd, ASC Pty Ltd, Australian Opportunities Investment Trust plc, Eastern Estates Securities Ltd and Ingot Capital Management Pty Ltd. They are the first to sixth plaintiffs respectively. The second and fourth plaintiffs are companies incorporated in England, the fifth plaintiff is incorporated in Guernsey. The other plaintiffs are companies incorporated in Australia.

Further Amended Summons 5 The proceedings involve claims by the plaintiffs against eighteen defendants in respect of their involvement in and/or provision of services in relation to the raising of capital by New Cap Reinsurance Corporation Holdings Ltd (New Cap) through the issue of convertible notes in New Cap. 6 The New Cap Group carried on business as an international reinsurance underwriter until February or March 1999. New Cap issued a Prospectus on or about 18 November 1998 in which it offered to shareholders of New Cap the right to subscribe for convertible notes in New Cap. It is alleged that prior to the issue of the Prospectus, New Cap resolved to issue to institutional investors convertible notes in New Cap to occur simultaneously with the allotment of convertible notes offered under the Prospectus.

7 It is alleged that on or about 12 January 1999 New Cap allotted convertible notes pursuant to the Prospectus and that on 26 February 1999 an Inspector was appointed to New Cap by the Bermudian regulatory authorities. A provisional liquidator was appointed to New Cap by the Supreme Court of New South Wales on 19 May 1999. On 21 July 1999 the Supreme Court of Bermuda made orders that New Cap be wound up. On 9 November 1999 orders were made by the Supreme Court of New South Wales that New Cap be wound up and that Mr John Gibbons be appointed as liquidator. It is alleged that it is unlikely there will be any return to creditors or shareholders from the liquidation. Claims against Macquarie 8 The plaintiffs allege that MECM conducted business as a corporate advisor, lead manager and underwriter and was retained by New Cap to provide services as a corporate advisor in relation to the issue of convertible notes for the purpose of raising capital, and as lead manager and underwriter in relation to the issue of convertible notes. It is alleged that MEL conducted business as a broker of securities and was retained by New Cap in relation to the issue of convertible notes. It is also alleged that MBL conducted business as an investment bank and as the ultimate holding company of MELM and MEL, directed and controlled each of them in the conduct of their businesses, activities and affairs.

9 The plaintiffs allege that in October 1998 Macquarie made representations to the sixth plaintiff in a document entitled "Confidential New Cap Reinsurance Corporation Holdings Limited-Presentation to Macquarie Equity Ltd" and in statements made by either Jonathon Coultis or Tony Jackson. The representations were, in short, that New Cap was likely to be profitable in 1999, had a substantially unencumbered substantial investment portfolio, had a substantial claims reserve to meet its then outstanding claims liability, that the convertible notes would rank before shareholders and that, following the issue, New Cap would have little or no debt.

10 It is also alleged that in October 1998 Macquarie represented to the sixth plaintiff that the issue price of the convertible notes would be approximately A$1.30. It is further alleged that on 10 November 1998 Macquarie made further representations to the sixth plaintiff. Those representations were, in short, that the issue price for the convertible notes equated to a substantial discount to the net tangible asset backing per share, that New Cap had a high-grade investment portfolio that was substantially unencumbered, that New Cap had adequate claims reserves which had been independently audited, and that the convertible notes would rank ahead of shares in New Cap.

11 It is alleged that the representations were false or misleading and that the prospects and financial position for New Cap had significantly declined between 30 June 1998 and the time of the representations. It is also alleged that the holders of convertible notes were unsecured creditors, that the assets of the New Cap Group comprised mostly assets in its related companies and that a substantial part of those assets had been given as security to Chase Manhattan Bank (Chase) to support the contingent liabilities to Chase under a letter of credit and collateral agreements. It is alleged that at the time of the representations the contingent liability to Chase was USD$207 million. Further allegations are made which include that the price was not a significant discount, that there were several material claims which would impact significantly on New Cap's financial position and that there had been an acceleration in notified claims between 30 June 1998 and the time of the representations, rendering inadequate the provision for outstanding claims.

12 It is alleged that on 12 November 1998 Macquarie provided to the sixth plaintiff a draft Prospectus, a draft letter comprising details of a proposed offer to the sixth plaintiff to sub-underwrite the issue and acquire convertible notes, and a summary document provided to institutions in respect of the issue of convertible notes (the Investment Material). It is alleged that the Investment Material amounted to a series of representations which were false or misleading. They include allegations that net assets were stated to be USD $19.1 million more than they were, that the financial position of New Cap differed substantially from that stated in the Investment Material, that New Cap's financial position had deteriorated significantly since 30 June 1998 inconsistently with what was stated in the Investment Material, and that, inconsistently with what was stated in the Investment Material, the convertible notes were not secure and the risks of investment in them greatly exceeded the risks stated.

13 A series of omissions are then alleged against Macquarie relating to the alleged operating loss, the true financial position and the risks involved in the investment in the convertible notes. It is alleged that but for the representations, the sixth plaintiff would not have agreed to sub-underwrite the issue of convertible notes in New Cap. It is also alleged that on about 17 November 1998 the fourth plaintiff entered into an agreement with MECM to acquire convertible notes and sub-underwrite the issue of convertible notes. It is also alleged that but for the representations, the fourth plaintiff would not have agreed to acquire and sub-underwrite the issue of the convertible notes.

14 In paragraphs 65 to 76 of the Further Amended Summons it is alleged that the Prospectus contained a series of false or misleading material representations or omissions.

15 In paragraphs 77 to 108 of the Further Amended Summons the various dates upon which each of the plaintiffs acquired rights, notes and shares in alleged reliance upon the Macquarie representations and/or omissions are pleaded. Those dates seem to range between 30 November 1998 and 15 March 1999, although there is reference to 30 January 1998 in paragraph 108. The plaintiffs claim that they have each suffered loss or damage within the meaning of s1005 (1) of the Corporations Act.

16 In paragraphs 111 to 119 of the Further Amended Summons the plaintiffs plead an alternative claim that New Cap entered into an underwriting agreement with MECM and that it made false or misleading representations to MECM in the Prospectus that was submitted to MECM. It is alleged that MECM did not terminate the underwriting agreement because it relied upon the truth, accuracy and completeness of the representations made in the Prospectus. It is alleged that were it not for the alleged representations MECM would have terminated the underwriting agreement and the rights, convertible notes and shares acquired by the plaintiffs would not have been issued or acquired. It is alleged that each of the plaintiffs has suffered loss or damage by reason of this conduct.

17 In paragraphs 120 to 134 the plaintiffs allege that New Cap had an obligation to issue a supplementary Prospectus by reason of a number of material matters of which it was aware. It is alleged that the failure to issue a supplementary Prospectus resulted in loss being suffered by the plaintiffs. In paragraphs 135 to 143 there are further allegations of misrepresentations made by New Cap to MECM upon which MECM relied and did not terminate the underwriting agreement. It is alleged that by reason of this conduct each of the plaintiffs suffered loss or damage.

18 In paragraphs 144 to 154 it is alleged that by reason of the above-mentioned matters Macquarie contravened the Corporations Act 2001 (Cth) (the Corporations Act), the Australian Securities and Investments Commission Act 1989 (Cth) (the Australian Securities and Investments Commission Act) and the Trade Practices Act 1974 (Cth) (the Trade Practices Act). It is also alleged in paragraphs 155 to 160 that Macquarie breached duties of care to investors. Each of the plaintiffs claim damages against MECM, MEL and MBL.

Claims against Beach 19 Beach is referred to in the Further Amended Summons at times as Beach and at other times by reference to the collective description "the Directors". The claims made against Beach are pleaded in paragraphs 161 to 176. It is alleged that Beach was a member of the Audit Committee of the New Cap board and was responsible for the preparation of the half-yearly financial statements for the period ending 30 June 1998. It is alleged that on 4 September 1998, as a director of New Cap, he certified half-year financial statements of New Cap for the period ending 30 June 1998 including, without limitation, the balance sheet as at that date. It is alleged that he was aware of the inclusion in the Prospectus of an actual and pro forma consolidated balance sheet of New Cap for the period ending 30 June 1998 and that he was a signatory to and authorized the issue of the Prospectus.

20 The plaintiffs allege that Beach was aware of a number of false or misleading statements within the Prospectus and that by reason of his authorisation of the issue of the Prospectus contravened the Corporations Act, the Australian Securities and Investments Commission Act and the Trade Practices Act. The plaintiffs allege that each of them suffered loss or damage by reason of Beach' s conduct. The plaintiffs also allege that Beach breached his duty of care to the investors by reason of which each plaintiff alleges it suffered damage.

Claims against Trowbridge 21 The case pleaded against Trowbridge is in paragraphs 182 to 208 of the Further Amended Summons. The plaintiffs allege that prior to 26 October 1998 Trowbridge was retained by New Cap to, inter alia, determine an independent net central estimate of the outstanding claims liabilities of the New Cap Group as at 30 June 1998, to comment upon the balance sheet provision adopted as at 30 June 1998, to examine the progress of known claims between 30 June 1998 and 31 August 1998, to comment upon the implication of the known claims upon the provisioning which had been adopted, and to provide an independent actuarial report. It is alleged that Trowbridge produced and provided an independent actuary's report which was included in the Prospectus with Trowbridge's consent. It is also alleged that Trowbridge produced to New Cap certain other reports and a draft assessment of New Cap's outstanding claims liability as at 31 December 1998.

22 It is alleged that Trowbridge failed to provide New Cap with notice of certain material matters of which it is alleged Trowbridge was aware prior to the closing date stated in the Prospectus of 31 December 1998. It is alleged that Trowbridge failed to provide, as it was obliged to, written notice to New Cap of these matters. It is alleged that such conduct amounted to representations that the report included in the Prospectus was true and accurate in all respects, that there was no material statement in the Prospectus that was false or misleading, that there was no material omission from the Prospectus, that no significant change affecting a matter included in the Prospectus had occurred and that no significant new matter had risen which would have been required to be included in the Prospectus had it arisen when the Prospectus was prepared.

23 It is alleged that Trowbridge's conduct amounted to breaches of the Corporations Act, the Australian Securities and Investment Commission Act and the Trade Practices Act and that each of the plaintiffs thereby suffered loss or damage. There are also allegations of breaches of duty of care to investors by reason of which the plaintiffs allege they each suffered loss or damage. Claims against Phillips Fox 24 The pleading against Phillips Fox is found in paragraphs 34 to 36 and 161 to 176 of the Further Amended Summons. It is claimed that the ninth defendant, William Peck, was a director of New Cap and that at all material times he, and Andrew Mutton and the persons named in Schedule A to the Further Amended Summon, were partners of Phillips Fox. It is alleged that Peck acted as a director during the ordinary course of the business of Phillips Fox, or alternatively, with the authority of the partners of Phillips Fox. The plaintiffs allege that Phillips Fox are liable by reason of Peck's conduct in acting as a member of the audit committee of the New Cap board and in preparing the half-year financial statements for the period ending 30 June 1998. It is also alleged that Peck was a member of the due diligence committee and was involved in and supervised the preparation of the Prospectus.

25 The claims made against Beach are repeated as against Peck and Phillips Fox. They include allegations of knowing breaches of the Corporations Act, the Trade Practices Act and the Australian Securities and Investment Commission Act by reason of which it is alleged that each of the plaintiffs suffered loss or damage. There is also an allegation of breach of duty of care owed to the investors by which it is alleged each of the plaintiffs suffered loss or damage. Defendants' Evidence on the Motions 26 Macquarie relied upon the affidavits of Ashley John Black, sworn 20 March 2002, 5 April 2002 and 22 May 2002, and the affidavit of Justin Richard Williams, sworn 22 May 2002. Beach relied upon the affidavits of Gregory Allen Skehan, sworn 3 April 2002 and 3 May 2002. Trowbridge relied upon the affidavit of Pamela Madafiglio sworn 2 May 2002. Phillips Fox relied upon the affidavit of Bruce John Ramsay sworn 3 May 2002. There was no cross-examination of any of the deponents of the affidavits relied upon by the defendants.

27 Mr Black's affidavits set out his experience since 1989 as a solicitor and subsequently as a partner of Mallesons; the estimate of the necessary work to be undertaken in the matter and the estimate of the time solicitors and partners will need to spend on the matter; and the estimate of time and costs of counsel and experts. 28 Mr Black gave evidence of the public information available in relation to the plaintiffs' financial positions. That information establishes that the first plaintiff has paid up capital of $2 and has granted a charge in favour of JDV Margin Lending Pty Ltd. It has not lodged accounts with ASIC in the last ten years. The second plaintiff has an aggregate nominal value of issued shares of 2 pounds sterling. As at 31 May 2001 the second plaintiff's liability exceeded its assets by 2,621,047 pounds sterling compared with a deficiency of 2,195,904 pounds sterling the previous year. Those accounts also indicate that the second plaintiff made a loss of 425,143 pounds sterling for the year ended 31 May 2001, compared with a loss of 260,844 pounds sterling the previous year. 29 The third plaintiff applied for a change of company status on 22 December 2000 from a public company to a proprietary company. It was suspended from the ASX on 7 April 2000. The most recent available accounts are unaudited accounts for the year ending 31 December 1999 that indicate that it had net assets of 2,612,000 pounds sterling. 30 The fourth plaintiff's most recent annual return available to Mr Black was that dated 16 October 2001 which indicates that it had net assets of 7,724,000 pounds sterling as at 31 May 2001 as against 7,533,000 pounds sterling the previous year. The fifth plaintiff, incorporated in Guernsey, has a paid-up capital of 7 pounds and the sixth plaintiff has not lodged accounts with ASIC since 1994. 31 After a detailed analysis of the Further Amended Summons, which is 73 pages in length, Mr Black expressed the view (pars 64-67) that if the third, fifth and sixth plaintiff's claims are dismissed, and by reason of the plaintiff's separate causes of action, Macquarie may not be entitled to enforce a costs order against the remaining plaintiffs. Emphasis was placed upon the fact that the second, fourth and fifth plaintiffs are incorporated outside the jurisdiction. 32 Mr Black's estimate of Macquarie's costs is $1,789,149 with an estimate of 70% as a reasonable estimate of recovery at $1.25 million. 33 Mr Skehan, solicitor for Beach, has been in practice since 1976 at Colin Biggers and Paisley. He describes his broad litigation experience in that lengthy period and agrees with much of Mr Black's description of the proceedings, in particular that they are in fact complex. He provides an estimate of the time and cost for the necessary work to defend the proceedings for Beach. His estimate is a total cost of $1,264,570.

34 Ms Madafiglio, solicitor for Trowbridge, has been in practice since 1978 firstly as a solicitor and then as a partner at Minter Ellison. She describes her corporate litigation practice during that lengthy period and helpfully outlines the allegations made against Trowbridge in the Further Amended Summons. Ms Madafiglio estimates the necessary time and costs that will be expended in defending the proceedings at $1,031,740 with a 70% recoverable amount of $722,218.

35 Mr Ramsay, solicitor for Phillips Fox, details his experience at Freehills since 1984 firstly as a solicitor and then as a partner. He also agrees with Mr Black's assessment of the nature of the proceedings expressing the opinion that they are factually and legally complex and document heavy. He provides a careful estimate of what he regards as the necessary work to be done in defending the proceedings and estimates the time and cost that will have to be expended at $1,428,337. Plaintiffs' Evidence on the Motions 36 The plaintiff relied upon the affidavits of Maurice Bass, a director of a number of the plaintiffs, sworn 10 May 2002, Mitchell Mathas, solicitor, sworn 14 May 2002 and 23 May 2002, and Maxine Mary Evers, cost consultant, sworn 13 May 2002. Each of these deponents was cross-examined. 37 Maurice Bass is a director of the first, third and sixth plaintiffs. He was appointed a director of the first plaintiff on 30 March 1999 and has held that office continually since that date. The first plaintiff was incorporated in Australia on 17 March 1996 and is an investment company with common directors with the sixth plaintiff. The sixth plaintiff provides investment management and advisory services to the first plaintiff. 38 In his affidavit Mr Bass referred to the first plaintiff's financial statements for the years ending 30 June 1999, 2000 and 2001 and noted that the first plaintiff is exempt from preparing audited financial statements. Mr Bass expressed the view that the financial statements reflect a true and fair view of the financial position of the first plaintiff at each balance date. The first plaintiff's investments comprise shares and preference shares in listed and unlisted Australian companies. The balance sheets do not include any intangible assets and the first plaintiff has not capitalized any intangible assets since 30 June 2001. 39 Mr Bass annexed to his affidavit a summary of what he regarded as the financial position reflected in the financial statements for the first plaintiff. That summary indicates a fluctuation in amount but a consistent deficit position for the three years in question respectively of $1,877,207, $1,852,723 and $1,567,641. 40 The third plaintiff was incorporated in Australia on 14 July 1988 and is also an investment company with common directors with the sixth plaintiff. The sixth plaintiff also provides investment management and advisory services to the third plaintiff. Once again Mr Bass annexes a summary of what he regarded as the financial position of the third plaintiff as reflected in financial statements for the years ending 30 June 1999, 2000 and 2001. The third plaintiff's investments comprise shares and notes in listed Australian companies at a cost of $1,703,774 and shares in New Zealand listed companies at a cost of $800,227. The shares in New Zealand companies are held in Dairy Brands Ltd. Mr Bass stated that as at 12 April 2002 those shares had an approximate value of 50.55 cents each and that the third plaintiff held 3,277,583 shares giving an approximate market value at that time of $1,656,818. 41 The summary lists the investments for each of the three years respectively as $3,175,001, $3,819,575 and $5,280,975 and the net assets as $2,612,351, $2,430,908 and $3,766,054. 42 Mr Bass was an employee of the sixth plaintiff from 1996 and was appointed a director on 30 March 1999. The sixth plaintiff was incorporated in Australia on 11 August 1994 and is an investment management company which provides investment management and advisory services. It also holds investments in its own right. 43 Once again Mr Bass has annexed to his affidavit a summary of the sixth plaintiff's financial position as reflected in the audited financial statements for the years ending 30 June 1999, 2000 and 2001. The summary lists the net assets for the three years respectively as $1,790,779, $2,538,727 and $3,803,204. Mr Bass stated in his affidavit that he had estimated that the sixth plaintiff's net assets had reduced by approximately $1,150,000 since 30 June 2001 to $2,650,000. 44 Mr Bass states that the second plaintiff was incorporated on 23 August 1996 in England, is a 100% owned subsidiary of the fourth plaintiff and was, and still is, used solely as a vehicle for holding the notes in New Cap. The sixth plaintiff also provides investment management and advisory services to the second plaintiff. Once again Mr Bass annexes a financial summary of the second plaintiff's position that lists the deficits for the three years respectively as $5,224,662, $5,928,941 and $7,076,827. 45 The fourth plaintiff was incorporated in England on 21 May 1997 and is an investment company to which the sixth plaintiff also provides investment management and advisory services. Once again Mr Bass annexes to his affidavit a summary of the financial position of this company and states that as at 12 April 2002 its investments comprised, at market value, $34,537,117 in bonds, shares, notes, options and warrants in listed Australian companies; $329,706 in bonds in European companies; and $7,174,698 in shares and notes in New Zealand companies. The summary lists the net assets for the years ending 31 May 2000 and 2001 respectively as $20,474,100 and $20,989,800. 46 Finally Mr Bass refers to the fifth plaintiff which was incorporated in Guernsey on 28 February 1990. It is an investment company to which the sixth plaintiff provides investment management and advisory services. Once again Mr Bass annexes to his affidavit a summary of the fifth plaintiff's financial position and states that its investments comprise convertible notes and shares in New Cap. The summary lists the net assets for years ending 31 March 2001 and 2002 at 8 pounds. 47 In cross-examination Mr Bass agreed that he had "indirect" non-beneficial shareholdings in the first, third and sixth plaintiffs. He said that he held those indirect interests on trust for companies associated with Mr Duncan Saville. Mr Bass is an employee of the Saville companies and part of his role is to provide accounting services and otherwise "whatever comes up" (tr. 28). Mr Bass expressed the view that Mr Duncan Saville is successful and that the companies he is associated with are successful. He thinks Mr Saville is a multi-millionaire. 48 Mr Bass also agreed in cross-examination that he was a director of the sixth plaintiff and that he deals with its business on a day-to-day basis. He also agreed that he is a chartered accountant, however, when he was asked about the current cash position of the sixth plaintiff he said, "I couldn't tell you that" (tr. 31). He said that he had not looked into it lately and that "money comes in, money goes out" (tr. 31). Mr Bass expressed the view that based on the shares in the sixth plaintiff the net asset position was in the order of about $2.6 million (tr. 33). He was unable to say what amount of cash, if any, the third plaintiff had at the time he gave his evidence. He was also unable to give evidence as to the receivables position. However he agreed that the way the group of plaintiff companies operates is that moneys are moved between them on a regular basis according to their needs (tr. 39). 49 Mr Mathas was admitted as a solicitor in 1988 and has practised continuously since January 1989. He has been a partner of Deacons since 1 July 1996. After setting out, in general terms, the nature of the claims in the Further Amended Summons, Mr Mathas stated in his affidavit that "each of the plaintiffs acquired Rights, Notes and shares in (New Cap) which would not have been acquired but for the breaches of duties and the proscribed conduct of the various defendants" (par 12). Mr Mathas also stated that within two months of the US$50 million fund raising by the issue of the notes, New Cap had collapsed. He also referred to the fact that the plaintiffs will claim that many of the factors leading to the collapse were known at a time before the allotment of the notes pursuant to the Prospectus such that the allotment should never have proceeded. 50 Mr Mathas states that the plaintiffs' cases are that "each of the plaintiffs invested in the manner in which it did on the faith of the representations" made to the sixth plaintiff "prior to and by way of the Prospectus" (par 21). The sixth plaintiff then "facilitated the various investments of the plaintiffs" (par 21). Mr Mathas states that the plaintiffs rely "on the same facts to establish that one or more of the defendants have engaged in proscribed conduct or have breached a common law or statutory duty" (par 21). He also states that the evidence of causation will involve two components, (1) the decision-making process of the particular plaintiff which will require proof of the authority of the sixth plaintiff to acquire securities on behalf of each plaintiff, and (2) for the decision-making process within the sixth plaintiff, in particular, the factors which led to the decision being made to invest in particular Notes, Rights and shares in New Cap at various times. Mr Mathas also expressed the view that it would be unlikely that significant hearing time would be required for the ventilation of these issues. He stated that "each of the plaintiffs has claimed different losses" (par 25), however he was also of the view that the quantification of these losses is unlikely to be complex and would not require significant hearing time. 51 Mr Mathas took issue with the amount of time Mr Black suggested that a partner of the firm would spend on the matter per day during the trial. Mr Black had assessed that 7.5 hours of partner time would be necessary. Mr Mathas expressed the opinion that such assessment was "excessive given the level of experience of the solicitor attending Court and that of both senior and junior counsel" (par 27) are briefed. Mr Mathas recalculated the amounts estimated by the defendants in accordance with the approach adopted by Ms Evers in her affidavit of 13 May 2002. Applying that approach, the estimated costs are $1,151,948 for Macquarie, $1,039,250 for Beach, $941,600 for Trowbridge and $1,232,300 for Phillips Fox. 52 On 17 May 2002 Mr Mathas wrote to the solicitors for each of the defendants advising that the plaintiffs did not accept that there is reason to believe that they will be unable to pay the costs of the defendants should an adverse costs order be made against them. He also advised that to the extent that any of the plaintiffs are individually in an impecunious position, such impecuniosity was caused by the conduct of the defendants. An offer was then made in the following terms (the May Offer):

1. The Third and Sixth Plaintiffs will jointly and severally guarantee any costs award made in favour of your clients against any or all of the plaintiffs in these proceedings up to a maximum of $2.5 million each, to the extent that those awards cannot first be recovered from the plaintiffs against whom such awards are made.
2. The Fourth Plaintiff will guarantee any costs award made in favour of your clients against the Second Plaintiff, to the extent that those awards cannot first be recovered from the Second Plaintiff.
3. That the Third, Fourth and Sixth Plaintiffs will provide undertakings that the net worth will not reduce below the following amounts:

· In respect of the Third plaintiff-$2.5 million; · In respect of the Fourth plaintiff-3 million sterling; · In respect of the Sixth plaintiff-$2.5 million 53 Mr Mathas also advised that to the extent that any net worth undertakings are breached, the third, fourth and sixth plaintiffs agreed to provide additional security in a form determined in advance by the defendants and themselves, but limited to the amount by which net worth undertakings are breached, on the proviso that once the undertakings are no longer in breach, the additional security is to be withdrawn. It was suggested that this could also form part of an undertaking to the Court. Each of the defendants rejected the offer and, put shortly, suggested that the appropriate form of security was a bank guarantee from the plaintiffs.

54 In cross-examination, Mr Mathas agreed that at this early stage the estimate for the trial of the matter is three months. He also accepted that when other defendants have been served they would probably make applications for security for costs. He agreed that the plaintiffs' costs would be greater than those of any individual defendant. He said that Deacons sends its accounts to either the first plaintiff or the sixth plaintiff, however he accepted that the first, second and fifth plaintiff were "impecunious". He said he did not know how the proceedings would be financed.

55 Mr Mathas also accepted that whether or not a particular plaintiff succeeds or fails, whether in whole or part, may depend upon the time at which particular investments were made, even though the vast bulk of the investments were in notes which were subscribed for on 31 December 1998. However he accepted there might be "any number" of permutations of outcomes in the case. 56 Mr Mathas accepted that the first, second, third and sixth plaintiffs would be unable to meet a cost order of the defendants making these applications. The fourth plaintiff has not volunteered to undertake to meet the defendants' costs. Mr Mathas also accepted that if at the end of the trial the plaintiffs are unsuccessful, the interests of each of the plaintiffs in relation to the position of costs may differ as between the plaintiffs. He accepted that it may be very difficult to advance the submission or to accede to a submission that the fourth plaintiff should be made jointly and severally liable for the defendants' costs. 57 Mr Mathas agreed that it is a highly complex case for a very significant sum of money in which professional reputations are at stake. He accepted that it would be appropriate for Mr Black to be present in court during "parts" of the hearing but not the entire hearing. He said that Mr Black could be assisted by senior and junior counsel and the solicitor handling the matter in court to keep abreast of what was happening in the case. However, he accepted that in complex and important litigation, which this obviously is, it can be more economical for the partner to be in court.

58 Mr Mathas takes instructions from Mr Duncan Saville. Although he knows that Mr Saville is a prominent and successful businessman, he is not aware whether he is a shareholder in any of the plaintiff companies. He said that he knows that Mr Saville has some link into the plaintiff companies and that there may be family trusts. Mr Mathas has requested Mr Saville to agree to provide security in the proceedings and he has agreed to provide "some security" (tr. 20). The most significant amount claimed by any of the plaintiffs in the proceedings is $17.8 million claimed by the fifth plaintiff. Mr Mathas has not requested one of the shareholders of the company, the Royal Bank of Scotland Trust Co Jersey Ltd, to provide a bank guarantee from its parent in relation to the proceedings. 59 Ms Evers, the costs consultant, had no difficulty in cross-examination in agreeing that this litigation is highly complex commercial litigation and that, by inference, it would come into the top end of the range for party/party cost recovery. That means that it would attract the higher rates for counsel for solicitors. Submissions 60 Mr Epstein SC submitted that a settled rule of practice has developed over 200 years that is applicable to this case. That rule is that if the jurisdiction to order security for costs is not available against all plaintiffs, then there is no jurisdiction available to order security for costs against any plaintiff.

61 In Winthrop v Royal Exchange Assurance Co (1755) 1 Dick 282; 21 ER 277 Lord Chancellor Hardwicke refused an application for security for costs on the grounds that: "as one of the plaintiffs lived in England, who would be always liable to the costs, and as there was no evidence before him of the inability of such plaintiff to answer them, the order was improper". 62 In Pearson & Anor v Naydler & Anor [1977] 3 All ER 531, the Vice-Chancellor, Sir Robert Megarry, said at 533: One consideration seems to be that if the defendant is in any case exposed to proceedings by the plaintiff resident within the jurisdiction, then even if there is no prospect of him being able to pay the costs, the mere existence of another plaintiff who resides abroad ought not to provide means of hampering the bringing of the action by the plaintiff residing within the jurisdiction.

63 It is submitted that the same approach has been adopted in respect of the jurisdiction to order security for costs under Section 1335 of the Corporations Act 2000 (Cth): Harpur v Ariadne Australia Ltd (1984) 8 ACLR 835 at 841; Drake v Hunter Douglas Ltd (1983) 8 ACLR 39; George Stack & Anor v Brisbane City Council & Ors [1996] 71 FCR 523 Life Airbag Company of Australia Pty Limited & Ors v Life Airbag Company (New Zealand) Ltd & Ors FCA 545, unreported, Branson J, 22 May 1998. 64 It was submitted that in this case any differences and divergences among the cases of the various plaintiffs are miniscule. It was also submitted that the case that each plaintiff propounds is identical to each of the others in every respect in which those cases raise allegations of legal wrongdoing on the part of the various defendants. It was further submitted that the plaintiffs' respective claims differ solely to the extent that theoretically different considerations may be applicable with respect to their reliance on a defendant's alleged representational wrongdoing and the extent to which a particular plaintiff's loss was causally connected with a defendant's legal wrongdoing. 65 To the extent that there exists the theoretical possibility of divergence between the position of the respective plaintiffs on those issues, the evidence in the present applications is said to demonstrate (a) the divergence in the plaintiff's respective positions will be microscopic in its likely impact on the conduct of the case, and (b) no realistic or reasonable possibility exists of that divergence giving rise to relevantly different outcomes to the proceedings, with consequentially and relevantly different cost orders among the six plaintiffs. For those reasons it was submitted the applications for security should be wholly rejected. 66 Alternatively, the plaintiffs submitted that if jurisdiction exists, the court should not exercise its discretion to grant the applications. The plaintiffs also submitted that if the court is minded to order security for costs, then adequate and fair protection to the defendants can be provided by awarding such security in the form proffered in the May Offer. A further submission was that if bank guarantees are to be provided, then the staggering of the amounts to be provided by way of guarantees would avoid prejudice to the plaintiffs and also protect the defendants adequately. 67 Although the defendants are separately represented in these Motions as described earlier, there are a number of submissions made that are common to them all. It is submitted that on the plaintiffs' own evidence, three of the plaintiffs are insolvent and two others do not have anything like the necessary capacity to meet an adverse costs order in favour of the defendants, if the plaintiffs are unsuccessful. It is submitted that the one plaintiff with assets, the fourth plaintiff, is a publicly listed foreign company. It is submitted that there are six separate claims before the court and that the court, in this case, cannot proceed on the assumption that a joint and several costs order would be made against all plaintiffs in favour of some or all of the defendants. 68 The reasons proffered for the unavailability of that assumption are firstly, that it is inappropriate to make that assumption at this early stage of the proceedings to, in effect, second-guess what the trial judge may decide after a lengthy hearing; secondly, that there is a possibility that some, but not all plaintiffs, may succeed and that those that do not will not have sufficient funds to meet an adverse cost orders that may be made against them in favour of some or all of the defendants; and thirdly, there may be a number of reasons why a several, as opposed to a joint and several, costs order may be made on the facts of this case. 69 Two reasons were proffered for this last proposition: Firstly, that each of the plaintiffs' claims are separate claims for differing amounts of money and relate to investments made at different times, which may be critical to the liability of particular defendants; and secondly, in the case of the fourth plaintiff, a foreign publicly listed company, and it is submitted the only plaintiff of any real substance, the court may be reluctant to make a joint costs order against it that has the effect of relieving the other proprietary plaintiff companies from costs burden at the expense of the shareholders of the fourth plaintiff. It was submitted that to do so may be, in effect, to sanction a funding arrangement that could never have been sustainable and would be voidable as a matter of company law: ANZ Executors & Trustee Co Ltd v Qintex Australia Ltd (1990) 2 ACSR 676. 70 The plaintiffs have conceded in these applications, through the evidence of Mr Mathas, that there would be issues under the Corporations Law or the Companies Act 1989 (UK) associated with the fourth plaintiff undertaking to meet the costs of all defendants. There has been no concession made by the plaintiffs that if one of the plaintiff companies fails in the action, the rest must also fail. This was contrasted with the position in Harpur v Ariadne Australia Ltd at 837. 71 It was submitted that the plaintiffs' semantic analysis in relation to the possible range of outcomes and costs orders, with the use of the terms "realistic possibility" and "plausible prospect", is a test too stringent to apply in this matter. However, in any event, even if such test is applied, it is submitted that realistic possibilities include that some, but not all, of the plaintiffs may succeed or fail, in whole or in part against the defendants, or some of them. In particular, it was submitted that the plaintiff of some substance, the fourth plaintiff, may be successful and have no liability to pay costs, whilst the insolvent plaintiffs may be unsuccessful, leaving the defendants unable to satisfy any cost order against them if security is not provided. It was also submitted that a plausible prospect is that a joint and several order for costs against all plaintiffs may not be made by reason of the separate causes of action of each of the plaintiffs. 72 The defendants submit that jurisdiction does exist to order security under s 1335 of the Corporations Act and Part 53, Rule 2 of the Supreme Court Rules. Mr Dick, on behalf of Phillips Fox, submitted that the plaintiffs' submissions in relation to a lack of jurisdiction were flawed by reliance upon cases that were clearly distinguishable from the present case. It is submitted in particular that there is no complete overlap between the claims of the plaintiffs, as there was in the cases cited by the plaintiff in their submissions, and there is no concession of the type given in Harpur. Mr Dick highlighted the facts in Harpur, including that Mr Harpur joined the three corporate plaintiffs, none of which were in a position to pay the costs of the defendants if the defendants were successful, and that those corporate plaintiffs were only joined because Mr Harpur had chosen to conduct his business affairs in a fashion which required their presence in the litigation. It was conceded in that case that if one plaintiff failed, so must all plaintiffs fail. 73 Dr Bell, on behalf of Macquarie, also submitted that the plaintiffs' submissions in respect of jurisdiction were flawed. To demonstrate the point Dr Bell relied upon the analysis by Plowman J in John Bishop (Caterers) Ltd & Anor v National Union Bank Ltd & Ors [1973] 1 All ER 707 of the cases relied upon in Harpur. His Honour said at 710-711: In the first place, they were quite different on the facts from the present case. There, as I have indicated when going through them, there was a complete identity or overlap of claim. In the present case-and I say this without attempting to analyse the long and complicated statement of claim which has been served-it seems to me that they are very large areas of claim raised by the plaintiff company, in which Mr Sneddon, whose interest is that of a secured creditor, appears to have no locus standi. In other words, unlike the cases to which I have referred, in the present case the overlap seems to me to be comparatively small. And if that is so and this action goes to trial and the plaintiff company loses, I am not satisfied that Mr Sneddon will necessarily be ordered to pay to the defendants all the costs which they incurred vis-à-vis the plaintiff company. 74 In Slazengers Ltd & Ors v Seaspeed Ferries Ltd [1988] 1 WLR 221 Dillon LJ said at 224: It has been recently laid down by the House of Lords in Aiden Shipping Co. Ltd. v Interbulk Ltd [1986] A.C. 965 that the discretionary power of the court to award costs under section 51 (1) of the Supreme Court Act 1981 is expressed in very wide terms. It appears that it may well be that in cases where large numbers of plaintiffs join in one action or in one appeal and fail, the Court may take the view that only an aliquot share of the total costs should be awarded against each of the unsuccessful parties, instead of making an order for all the costs against all the parties. Thus, in a case where it was just to make such an aliquot order, there would be no risk of one plaintiff being pursued for more than his fair share of the costs and being left to endeavour to recover it from his co-plaintiffs… If therefore the case in which security is sought, where there are some English plaintiffs and some foreign plaintiffs, was a case where there was a realistic possibility that the court at the trial might make an order if the plaintiffs failed, ordering each merely to bear an aliquot share of the costs, an order…ordering security for aliquot shares of the costs would in my view be highly appropriate.

75 Dr Bell emphasised the fact that in the May Offer the fourth plaintiff did not offer to provide security for any party other than its wholly-owned subsidiary, the second plaintiff. Reliance was placed upon Schmidt v Bank of New Zealand Ltd [1991] 2 NZLR 60 in which it was said at 65: There is the argument on the merits for the narrow construction that if there is a resident New Zealand plaintiff then a defendant has someone to look to for costs, but that is hardly fair, logical or in accord with modern commercial practice. Why should a non-resident be excused from security simply on that ground alone? In addition, a defendant if making an application for security naturally would like it from every plaintiff who is suing him. If a defendant loses he is liable to pay every plaintiff costs. Consideration 76 The defendants rely upon both the Supreme Court Rules and the Corporations Act 2000 to make these applications. Part 53, Rule 2 of the Supreme Court Rules 1970 (NSW) relevantly provides: (1) Where, in any proceedings, it appears to the Court on the application of a defendant: (a) that a plaintiff is ordinarily resident outside the State;…or (e) that there is reason to believe that a plaintiff being a body corporate will be unable to pay the costs of the defendant if ordered to do so, the Court may order that plaintiff to give such security as the Court thinks fit for the costs of the defendant of and incidental to the proceedings and that the proceedings be stayed until the security is given. 77 Section 1335(1) of the Corporations Act provides relevantly: (1) Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

78 Although on the evidence on these applications it is apparent that the third and sixth plaintiffs may have some capacity to pay, it is clear that such capacity will be quickly exhausted, given the number of defendants and the estimates of costs already made about which there is no issue. It is appropriate to consider these applications on the basis that the fourth plaintiff is the only plaintiff with real substance or capacity to meet an adverse costs order. The fourth plaintiff is a foreign listed public company ordinarily resident outside the State. The provisions of Part 53, Rule 2 of the Supreme Court Rules therefore apply to give the Court jurisdiction to order the fourth plaintiff to give such security as it thinks fit. In those circumstances the plaintiffs' submissions that the Court lacks jurisdiction to make an order for security because the fourth plaintiff is a plaintiff of substance lacks force. The Court is able to order security against a foreign plaintiff even if that plaintiff is not impecunious. However I shall deal with the arguments raised by the plaintiffs notwithstanding this view.

79 The line of authority relied upon by the plaintiffs, which it is submitted establishes "a rule" that the jurisdiction is not available unless jurisdiction to order security is available against all plaintiffs, warrants closer analysis. 80 The analysis made by Plowman J in John Bishop Ltd v National Union Bank Ltd is one that I respectfully adopt, in particular that the cases relied upon in Harpur had "a complete identity or overlap of claim". In Life Airbag Company of Australia Pty Ltd v Life Airbag Company (New Zealand) Ltd, FCA 545, unreported, 22 May 1998, at page 4 (BC9801995) Branson J analysed the Statement of Claim as containing claims in which "there will presumably be complete overlap in the cases of all applicants both as to issues and evidence". Her Honour also expressed the view that "one costs order may be expected to be made against" all the applicants and that this was an important matter having regard to what was said in Harpur. 81 In Drake v Hunter Douglas Ltd (1983) 8 ACLR 39 Begg J, on analysis of the pleadings, concluded, at 42, that "one or both of the plaintiffs will win or lose. If the plaintiff who succeeded was Mr Drake, then any question of a costs order to be paid by the other plaintiff would be almost academic because of the similarity of the issues involved in these proceedings".

82 George Stack & Anor v Brisbane City Council & Ors (1996) 71 FCR 523 was a case in which orders had been made that issues of liability be heard before any other issues and that those issues be heard concurrently with the hearing of a number of other actions. Drummond J reviewed the pleadings and particulars and concluded, at 529, that it was a "case in which exactly the same issues, limited to the validity of the petty patent, will be litigated as between the first applicant and the second and third respondents in the first part of the trial, as will be litigated in that phase of the proceedings, as between the second applicant and those same respondents". Drummond J was satisfied that there was a "complete overlap" of the issues to be decided (at 530). 83 The presence of a co-plaintiff of substance in applications for security for costs has been dealt with in a number of authorities in varying factual situations: for example, Rajski v Computer Manufacture & Design Pty Ltd (1982) 2 NSWLR 443; Electrona Carbide Industries Pty Ltd v The Tasmanian Government Insurance Board (1985) 3 ACLC 702; Ravi Nominees Pty Ltd v Phillips Fox (1992) 10 ACLC 1313 and Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621. On the analysis of these and the earlier referred to authorities it seems to me that the "rule" referred to by Mr Epstein is stated too broadly.

84 It is a rule applicable to cases in which there is a complete overlap or identity of issues between the cases brought by co-plaintiffs. There is also the question of whether the court hearing the application for security can be satisfied that the substantial plaintiff will, at the conclusion of the trial, be subject to a costs order that has the effect that it is liable for the costs of the impecunious plaintiffs. If there is not such an overlap or identity of issues and satisfaction it seems to me that the "rule" is not applicable.

85 Mr Epstein described any "theoretical" differences as "miniscule". He also submitted that there was no realistic or reasonable possibility that the divergences or differences, as minuscule as they may be, would give rise to relevantly different outcomes in the proceedings. The defendants submit that these submissions ignore Mr Mathas' concession in evidence that whether or not a particular plaintiff succeeds or fails may depend upon the time at which particular investments were made and the concession that there might be "any number" of permutations of outcomes in the case (tr.11).

86 It is alleged in the Further Amended Summons that the fourth plaintiff agreed to acquire notes and to sub-underwrite part of the rights issue (par 63). It is also alleged that the sixth plaintiff agreed to sub-underwrite part of the rights issue (par 61). There is no allegation in respect of any other plaintiff entering into or participating in the sub-underwriting arrangements. The other plaintiffs claim losses allegedly resulting from investments in converting notes, either acquired on the exercise of rights acquired on market or acquired directly on market (pars 80-100).

87 Macquarie submitted that a review of the Investment Material referred to in Mr Black's affidavit demonstrates that the offer letter from MECM to Mr Saville was expressly made available "solely to consider the Offer". In the circumstances, it is submitted that it can be easily appreciated that it is not a fanciful possibility that the fourth plaintiff may succeed in its claim that it relied on the Investment Material accompanying the sub-underwriting/firm placement offer letter in entering into sub-underwriting and firm placement arrangements with MECM, but that other plaintiffs might fail in relation to similar claims in respect of purchases made independently of the sub-underwriting/firm commitment placement or on market.

88 Macquarie also drew attention to the New Cap announcement to the ASX on 23 December 1998 concerning further losses. It is submitted that this announcement is clearly relevant to the issue of causation and that there is an obvious point of distinction between claims based on investments made before and after this date. The point is made that a plaintiff cannot suffer loss when it knew of the relevant matter because it was announced to the ASX.

89 It is submitted that the fourth and sixth plaintiffs made their investments prior to 23 December 1998 and that other plaintiffs exercised their acquired rights on or about 31 December 1998. Once again it is submitted that in these circumstances it is not fanciful to suggest that the fourth plaintiff may succeed in its claims and the other plaintiffs may fail to establish causation in respect of their claims.

90 Macquarie also submitted that the plaintiffs seek to link the investments made by each of them to the representations made to Mr Saville or the sixth plaintiff upon the basis of the allegation that the sixth plaintiff acted as the investment manager for each of the plaintiffs. Macquarie has indicated that it is likely there will be a dispute as to the existence of any contractual relationship between the sixth plaintiff and all other plaintiffs, with the exception of the fourth plaintiff. It is submitted that if the plaintiffs are unsuccessful in establishing the existence of any contract between them and the sixth plaintiff, they may be unable to establish reliance on representations allegedly made to the sixth plaintiff. Once again it is submitted that the possibility of different outcomes for each of the different plaintiffs is not at all fanciful.

91 Beach submitted that the case made against him in the Further Amended Summons relates to conduct occurring up to the time of the issue of the Prospectus and not beyond. This was contrasted with the case pleaded against the other directors of New Cap and the submission was made that there is every likelihood of various outcomes and various costs orders being made.

92 Trowbridge submitted that there is in reality a conglomeration of six separate claims for six separate amounts with the success of individual plaintiffs likely to turn on considerations particular to them, including the decision-making processes of, and information available to, them at particular times. In those circumstances it is submitted that there is a real possibility of a range of outcomes in the case, a matter conceded by Mr Mathas. It was also submitted that at the conclusion of the trial the position of the plaintiffs as to costs may differ, and as was conceded by Mr Mathas, it may be very difficult for the fourth plaintiff to acquiesce in a costs order being made against it that would have the effect of it being liable for the costs of the impecunious plaintiffs.

93 Phillips Fox made similar submissions. In addition emphasis was placed upon the fairly lengthy period, November 1998 to March 1999, during which shares and rights in New Cap were acquired by each of the plaintiffs. It was also submitted the emphasis should be placed upon the fact that the fourth plaintiff has not volunteered to meet all costs. It was also submitted that the plaintiffs have deliberately chosen to structure these proceedings as six separate causes of action by each plaintiff rather than as a joint action. In those circumstances it was submitted it must be assumed that separate reliance and causation issues pertaining to each plaintiff will have to be proved together with the different and separate losses claimed by each plaintiff.

94 It seems to me at this early stage of the proceedings that the differences and divergences between each of the plaintiff's cases against the five applicants are not miniscule. Indeed the differences referred to in the defendants' submissions are, in my view, real. The concessions made by Mr Mathas were appropriately made in this case. I agree that there may well be a number of permutations of outcome in the cases brought by the plaintiffs. It also seems to me that there is not a complete overlap or identity of issues, as identified in the defendants' submissions. Additionally, it may well be that different costs orders will be made at the end of the complex and lengthy hearing. On the evidence before me I could not be satisfied that a costs order will probably be made whereby the defendants will be protected from an inability to recover costs from impecunious plaintiffs. I am satisfied that the court has jurisdiction to award security. The next question is whether I should exercise my discretion to do so.

95 The law is now replete with authorities to guide the Court on the approach to be adopted in relation to the exercise of discretion in these applications: Drumdurno Pty Ltd & Ors v Braham & Ors (1982) 42 ALR 563; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; Idoport Pty Limited & Anor v National Australia Bank Limited; Idoport Pty Limited & Market Holdings Pty Limited v Donald Robert Argus ; Idoport Pty Limited "JMG" v National Australia Bank Limited [2001] NSWSC 744. Although there are a number of factors to which these authorities refer for consideration the relevant matters in these applications are considered below.

96 It is appropriate to commence from the position that the plaintiffs' claims are bona fide with a reasonable prospect of success: KP Cable Investments Pty Ltd v Meltglow Pty Ltd at 197. This is so, notwithstanding the submissions made by Mr Dick that the claims against the partners of Phillips Fox are speculative. Mr Epstein made it very clear that there is no suggestion by the plaintiffs that an order for security would stultify the litigation. However it was submitted that the defendants have caused the plaintiffs' impecuniosity. This submission can be dealt with very shortly. The onus is upon the plaintiffs in these applications to establish that the defendants, or any of them, caused the impecuniosity: GPI Leisure Corporation Ltd v Yuill, NSWSC, unreported, Young J, 22 April 1998; BPM Pty Ltd v HPM Pty Ltd, WASC, unreported, Full Court, Anderson, Kennedy & Ipp JJ, 7 April 1996. There is no evidence of the financial position of any of the plaintiffs prior to the alleged legal wrongdoing by the defendants. I simply do not know what the position was and in those circumstances I reject the plaintiff's submissions on this aspect of the applications.

97 No person, in particular Mr Saville, who will benefit from the litigation has come forward to provide any undertaking that would protect the defendants in the relevant sense. It is also important to remember that the fourth plaintiff has not volunteered to meet any adverse costs order against the defendants, although there is the qualified undertaking in relation to the second plaintiff. Macquarie submitted that this stance adopted by the fourth plaintiff is entirely consistent with the real prospect that at the conclusion of the trial, in the event that all or some plaintiffs lose, the fourth plaintiff will resist any order that it be jointly liable for the costs of all plaintiffs. I am of the view that this submission has some force and weighs in favour of making an order for security that includes the fourth plaintiff.

98 The plaintiffs submitted that there is significant public interest in upholding the requirements of statutes and the common law governing corporate regulation. It was submitted that this is particularly strong in relation to the insurance sector, where the impact of financial failure of insurance companies frequently has extensive financial ramifications throughout the general community. It was said that such public interest militated against the making of an order for security. This submission should be balanced with the facts that the proceedings are complex and involve significant amounts of money with professional reputations at stake as a result of allegations being made by impecunious plaintiffs. There is also the significant concession relevant to this factor that an order for security will not stultify the litigation. In those circumstances this factor is not one that would weigh against the making of an order.

99 The aim is to achieve adequate and fair protection to the defendants who are being sued by impecunious plaintiffs in separate claims and at the same time avoid prejudice to those impecunious plaintiffs. There is presently no protection of the defendants that is adequate or fair. The May Offer limits the fourth plaintiff's undertaking in a manner that is of little comfort to the defendants. They would have to firstly pursue the second plaintiff and exhaust such pursuit before the fourth plaintiff's undertaking to meet their respective costs is triggered. 100 The undertaking in relation to not reducing the net worth of the various plaintiffs does not mean that such net worth will be available to meet a costs order should it be made at the end of the trial. The exigencies of commercial existence may mean that others have first call upon that net worth. Accordingly, such an undertaking, without more, is of little comfort to the defendants. 101 I am satisfied that it is appropriate to make an order for security for costs against the plaintiffs. I am also satisfied that the appropriate security is the provision of a bank guarantee from a reputable Australian bank. Although it was conceded that there is no suggestion that an order for security would stultify the litigation, I am of the view that it is appropriate to require the plaintiffs to provide security in tranches. In utilising this method, protection will be afforded to the defendants without prejudice to the plaintiffs in preparing for and in prosecuting the litigation. As matters develop, it may be appropriate to review whether the timing and amounts of the tranches should be adjusted. The orders that I intend to make will be subject to the defendants' liberty to restore the applications to the list for adjustment of the timing and/or amounts of the tranches, should developments in the case warrant it.

102 In this case the burden on the court of having to make an assessment of whether the costs claimed are reasonable has been eased by reason of the recalculation of the costs on the basis of the plaintiffs' costs consultant's evidence. It seems to me that such recalculation is, in the circumstances, a reasonable and fair approach to adopt in ordering security in this case. The division of costs as between the first tranche and the second is a division made on the evidence of each of the solicitors of the estimates of costs for preparation for trial and for the trial itself. I am of the view that on the evidence it is appropriate to allocate 45% of the estimate to preparation costs and 55% of the estimate to the costs of the trial. It has to be remembered that the present estimate of the length of the trial may change and that this award is made at a very early stage of the proceedings. It may well need adjustment.

103 Subject to the defendant's/applicant's liberty to restore the Motions to the list on the abovementioned basis, I order that the plaintiffs provide security for the first, second, third, fifth, twelfth and fourteenth defendants' costs of, and incidental to, defending the proceedings by way of bank guarantee from an Australian bank on the dates and in the amounts as follows: For the first, second and third defendants (Macquarie); (1) $518,377 by 4pm on 23 July 2002 and (2) $633,571 no later than 12 weeks before the date fixed for trial. For the fifth defendant (Beach): (1) $467,663 by 4pm on 23 July 2002 and (2) $571,587 no later than 12 weeks before the date fixed for trial. For the twelfth defendant (Trowbridge): (1) $423,882 by 4pm on 23 July 2002 and (2) $518,078 no later then 12 weeks before the date fixed for trial.

For the fourteenth defendant (Phillips Fox); (1) $554,535 by 4pm on 23 July 2002; and (2) $677,765 no later than 12 weeks before the date fixed for trial. If the parties are unable to agree on a costs order in respect of these applications I will hear argument on a date to be fixed.

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