Ingot & Ors v Macquarie & Ors

LEGISLATION CITED : Corporations Act UCPR r 42.21

ABB Service v Pyrmont Light Rail [2006] NSWSC 187 Barton v Minister for Foreign Affairs (1984) 2 FCR 463 CASES CITED : Brimaud v Honeysett Instant Print Pty Ltd (1951-2002) 217 ALR 44 Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Connop v Varena Pty Ltd [1984] 1 NSWLR 71 Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Ltd & Ors [2002] NSWSC 609

PARTIES : Ingot Capital Investments Pty Ltd & Ors (Plaintiffs/Respondents to the Application) Macquarie Equity Capital Markets Ltd & Ors (1st to 3rd Defendants/Applicants)

COUNSEL : F M Douglas QC/B F Katekar (Plaintiffs/Respondents to the Application) Dr A S Bell/C P Carter (1st to 3rd Defendants/Applicants)

SOLICITORS : Deacons (Plaintiffs) Mallesons Stephen Jaques (1st to 3rd Defendants)

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 [NO. 5]

JUDGMENT - Application for Further Security for Costs HIS HONOUR: Introduction 1 On 9 July 2002, Bergin J ordered the plaintiffs to give security for the costs of, among others, the first, second and third defendants (the Macquarie parties): Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Ltd & Ors [2002] NSWSC 609. Since then, for a variety of reasons, security has been "topped up" (as Bergin J recognised might be necessary: see paras [101] and [102] of her Honour's reasons). The Macquarie parties have now sought what they describe as a further "top up". The application was made when, as the result of detailed analysis by the parties of the time required to complete these already lengthy and expensive proceedings, the estimated completion date was pushed yet further back. 2 On this occasion, in contrast to at least some earlier occasions, the plaintiffs resisted the orders sought. There was no substantial quarrel with the estimate of the likely costs to be incurred by the Macquarie parties (although there were some quibbles to which I shall return), but there was a dispute as to the proportion of those costs that might be allowed on assessment should the Macquarie parties obtain an order for payment of their costs. The plaintiffs opposed the application, saying that whatever may have been the position in July 2002, two of them - the fourth plaintiff, Stocks Convertible Trust Plc and the sixth plaintiff, Ingot Capital Management Pty Ltd - were able to meet any costs that might be ordered against them, and were prepared to undertake to the Court to accept liability for any costs that might be ordered to be paid by some or all of the plaintiffs. Bases for application 3 The Macquarie parties relied, in all cases, on s 1335(1) of the Corporations Act and on UCPR r 42.21(1)(d). Further, as to the second, fourth and fifth plaintiffs, the Macquarie parties relied on UCPR r 42.21(1)(a). The second and fourth plaintiffs were incorporated in England and the fifth plaintiff was incorporated in Guernsey. Issues 4 The principal issues on the application were:

(1) Whether the application was, as the Macquarie parties submitted, a "top up" application, or, as the plaintiffs submitted, a fresh application.

(2) The financial positions of the fourth and sixth plaintiffs (in particular, the sixth plaintiff) and, thus, the value of their undertakings in respect of the other plaintiffs. (3) In amplification of this second issue, the Macquarie parties submitted that there were two principal concerns: · The movement of monies between the sixth plaintiff and its associated companies posed the real threat to the payment of any costs that the sixth plaintiff might be ordered to pay them; and · There was no undertaking of any kind given by the ultimate holding company, Custodial Asset Management Pty Ltd, or Mr Saville, who was in substance the owner (legal or beneficial) of the shares in that company. 5 The plaintiffs did not submit that:

(1) Their prospects of success were so strong that, as a matter of discretion, no further security should be ordered.

(2) The making of an order would stifle the litigation.

(3) There was no real prospect of differential costs orders being made against individual plaintiffs, in the event that they were ordered to pay costs, so that the presence of two solvent plaintiffs, capable of meeting any costs order that might be made against them, was sufficient protection to the Macquarie parties. 6 This last point had been considered by Bergin J: see, in particular, paras [31], [56] (where her Honour referred to a concession made in cross-examination by the then solicitor on the record for the plaintiffs), [64], [65] and [79] to [94]. In para [94], her Honour said: "[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." 7 Although the plaintiffs at one stage submitted to me that "any consideration of the case as it presently stands would suggest that if there are different interests, it is unlikely that they would be significant (written submissions on application for further security, para 20), this submission was withdrawn during the hearing of the application, and the plaintiffs expressly disclaimed reliance on any such submission. Clearly enough, had the plaintiffs persisted in such a submission (or had the plaintiffs put a submission that their prospects of success were so strong that, as a matter of discretion, there should be no further order for security for costs), I could not have continued to hear the application. 8 Notwithstanding what I have just said, it is clear that there is a complete identity of interest between the second and fourth plaintiffs, having regard to the matters to which I refer in para [28] below. I do not think that there is anything in the reasons of Bergin J to prevent me from taking that approach. The nature of the application 9 In Brimaud v Honeysett Instant Print Pty Ltd (1951-2002) 217 ALR 44, McLelland J dealt with what he described at 46 as a challenge to "an interlocutory order of a substantial nature made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings." His Honour said at 46 that if such an order were to be set aside or varied, it must be because of some material change of circumstances, or because of new evidence that could not reasonably have been put before the Court in the prior hearing. 10 His Honour's statement of principle is not directly relevant. The Macquarie parties have not relisted their notice of motion dealt with by Bergin J, although her Honour's orders might have permitted this course. They have brought a fresh application for further security. The plaintiffs do not seek to set aside, vary or discharge the order made by Bergin J on 9 July 2002. Their submission is that the question of jurisdiction (in the sense of establishing one of the necessary preconditions for the making of an order for security for costs) should not be taken to have been settled for all time by her Honour's judgment. Alternatively, they submit, even if the question of jurisdiction should be taken to have been established by her Honour's judgment, a material change in circumstances can be taken into account in considering whether to exercise the discretion that is thereby taken to have been, and to be, enlivened. 11 McLelland J pointed out in Brimaud at [46] that the overriding principle, in circumstances of the kind to which he had referred, was that the Court should do whatever the interests of justice require in the particular circumstances of the case. Thus, it seems to me, even if the question of jurisdiction should be taken to have been established, and if this is to be regarded purely as a top up application pursuant to the discretion thereby enlivened, the changes in circumstances to which the plaintiffs point should be taken into account in deciding whether the interests of justice require the fate of this application to be determined by the fate of the application heard by Bergin J four years ago. Whether there is any distinction of substance between that proposition, and the proposition that change in circumstances is relevant at least to the question of discretion, is a matter that I leave for others or for another time. 12 Alternatively, I think, it would be a defective exercise of discretion (assuming it to have been enlivened), and quite possibly a source of significant injustice, were I to determine the present application without paying regard to, and making findings upon, the evidence to which the plaintiffs pointed as justifying their submission that there had been material changes in the relevant circumstances. 13 At most, I think, the principles enunciated by McLelland J in Brimaud, coupled with the findings and orders made by Bergin J on the first application in these proceedings, might mean that it is for the plaintiffs to show that they are capable of meeting costs orders that might be made against them rather than for the defendants to show that the plaintiffs are, or remain, unable to do so. In substance, the plaintiffs appear to have accepted that proposition because they have adduced evidence of the financial position of the fourth and sixth plaintiffs, and it is upon the basis of that evidence, rather than the conclusions reached by Bergin J on different evidence, that I found the conclusions to which I have come. Confidentiality 14 The plaintiffs submitted that the financial reports of the Ingot plaintiffs were confidential, such that confidentiality orders should be made in respect of them. Further, the plaintiffs submitted, steps should be taken in my reasons to protect that confidentiality. 15 I do not accept that the financial reports have such a degree of confidentiality order as to justify the making of some confidentiality or suppression order in relation to them or the submissions founded upon them, or by treating them in these reasons in any way differently to other evidence on the application. I accept, of course, that a person who conducts his or her business affairs through a private company may do so, among other things, because of a desire to keep his or her affairs confidential. I accept that, in this sense, there is some element of confidentiality in the business records and financial reports of such private companies. However, I do not accept that the element of confidentiality is sufficient to justify the measures that the plaintiffs submitted I should take. 16 The suppression of evidence, or the tailoring of reasons, to protect confidentiality always involves a balancing of the private interests sought to be protected with the public interest in the open and public administration of justice. The latter is a fundamental part of our legal system. The kinds of private interests in confidentiality that should outweigh it are limited. They are far removed from the interests of a private company, or its proprietors, in keeping the business affairs and financial reports of the private company closed to public view. 17 The Macquarie parties sought production from the plaintiffs of many categories of financial records. They were produced on undertakings, between the parties, as to confidentiality. Nothing that I have said should be taken to cast doubt upon, let alone to disturb or release, such undertakings as may have been given. However, for the reasons that I have given, I do not propose to protect the position by orders of this Court, and I do not propose to tailor my reasons to meet the plaintiffs' concerns. In that circumstance, it is not necessary to consider the detail of the orders sought. (In case it be thought that I have overlooked some obvious point, I should mention that the plaintiffs' concerns, and submissions, in this regard did not extend to the financial statements of the publicly listed fourth plaintiff.) Undertakings 18 The fourth plaintiff offered an undertaking to the Court in the following terms: "Stocks Convertible Trust plc (the fourth plaintiff in proceedings number 50169 of 2001 in the Supreme Court of New South Wales (the Proceedings)) undertakes to the Court to pay any costs order made against it and/or Stocks Convertible Limited (the second plaintiff) entered in favour of Macquarie Equity Capital Markets Limited, Macquarie Equities Limited and/or Macquarie Bank Limited being, respectively, the first to third defendants in the Proceedings (the Macquarie Parties), when such order is payable and is not subject to any stay order by reason of any appeal or otherwise, and on receipt of a written demand from or on behalf of the Macquarie Parties, attaching a sealed copy of the order, and identifying the amount payable under such order as set out in a certificate issued by a costs assessor in respect of that Order under section 208J of the Legal Profession Act 1987 or as otherwise determined by a costs assessment or court order specifying the amount of costs or as agreed between Stocks Convertible Trust plc and the Macquarie Parties, such assessment or agreement to be evidenced by a statutory declaration from the Macquarie Parties' solicitor.

This undertaking is to be given subject to it expiring on the earliest of the following events:

An order of the Court releasing this undertaking; Payment by Stocks Convertible Trust plc to the Macquarie Parties, or into Court, of the amount payable under all costs orders which may be made after the date of this undertaking in the Proceedings against Stocks Convertible Trust plc and/or Stocks Convertible Trust Limited in favour of the Macquarie Parties." 19 The sixth plaintiff offered an undertaking to the Court in the following terms: "Ingot Capital Management Pty Limited (the sixth plaintiff in proceedings number 50169 of 2001 in the Supreme Court of New South Wales (the Proceedings)) undertakes to the Court to pay any costs order made against it and/or Ingot Capital Investments Pty Limited (the first plaintiff), Utilico Pty Limited (the third plaintiff) or Eastern States Securities Limited (the fifth plaintiff) and entered in favour of Macquarie Equity Capital Markets Limited, Macquarie Equities Limited and/or Macquarie Bank Limited being, respectively, the first to third defendants in the Proceedings (the Macquarie Parties), when such order is payable and is not subject to any stay order by reason of any appeal or otherwise, and on receipt of a written demand from or on behalf of the Macquarie Parties, attaching a sealed copy of the order, and identifying the amount payable under such order as set out in a certificate issued by a costs assessor in respect of that Order under section 208J of the Legal Profession Act 1987 or as otherwise determined by a costs assessment or court order specifying the amount of costs or as agreed between Ingot Capital Management Pty Limited and the Macquarie Parties, such assessment or agreement to be evidenced by a statutory declaration from the Macquarie Parties' solicitor.

This undertaking is subject to it expiring on the earliest of the following events:

An order of the Court releasing this undertaking; Payment by Ingot Capital Management Pty Limited to the Macquarie Parties, or into Court, of the amount payable under all costs orders which may be made after the date of this undertaking in the Proceedings against Ingot Capital Management Pty Limited and/or Ingot Capital Investments Pty Limited, Utilico Pty Limited or Eastern States Securities Limited in favour of the Macquarie Parties." 20 The Macquarie parties did not submit that the form of those undertakings was defective or insufficient, although of course they did submit that they were entitled to security for costs and not simply to undertakings in respect of costs. In their written submissions dated 31 March 2006, the Macquarie parties submitted at para 22 that "[t]he undertakings proffered are not dissimilar to undertakings previously proffered to the Court … and rejected by Bergin J". They submitted further, and inconsistently, that there was a "key difference": namely, that the undertaking proferred by the sixth plaintiff to Bergin J "was accompanied by an undertaking not to reduce [the sixth's plaintiff's] net worth below a particular amount" whereas "[n]o such undertaking is [now] proffered" (emphasis in original). 21 The statement that the undertakings "are not dissimilar" to those that were proffered originally conceals more than it states. The form of the earlier undertakings is set out in para [52] of the reasons of Bergin J. The undertakings were limited to a defined sum, and were given conditionally: "to the extent that those awards [of costs in favour of the applicants for security] cannot first be recovered from the plaintiffs against whom such awards are made." At para [99], Bergin J pointed out that the limitations on the undertakings made them "of little comfort to the defendants". At para [100], her Honour stated that the undertaking in relation to net worth "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", because "[t]he exigencies of commercial existence may mean that others have first call upon that net worth". 22 Thus, her Honour concluded at para [100], "such an undertaking, without more, is of little comfort to the defendants". 23 The Macquarie parties' submissions before me as to the undertakings were made not in respect of those that I have set out above, but in respect of an antecedent form of undertaking set out in correspondence. What was offered was simply an undertaking "that [the fourth plaintiff] will undertake to meet any costs orders made in these proceedings against it and/or [the second plaintiff]"; subsequently, the plaintiffs indicated that the sixth plaintiff would offer a similar undertaking in respect of itself and the first, third and fifth plaintiffs. It is not clear whether the Macquarie parties intended their submissions on what I might call the short form of undertaking to apply to the more extensive form set out above. In any event, I think, the undertakings now offered address the deficiencies identified by Bergin J. Further, notwithstanding that they do not include any undertaking not to reduce the net worth of the undertaker below a particular amount, I conclude, for the reasons identified by Bergin J in para [100] of her reasons, that this does not materially affect the value of the undertakings that are offered. 24 It will be noted that one significant difference between the undertakings and the further security sought is that the undertakings, although offered as an alternative to further security (supplementary to that already given), are not in terms so limited; on the contrary, they are unlimited in their monetary extent. The financial position of the fourth plaintiff 25 The fourth plaintiff is a public listed company incorporated in the United Kingdom. It is the trustee of a listed investment trust. Its report and accounts for the year ended 31 May 2005 revealed, on a consolidated basis, shareholders' funds of GBP18.6M. That figure represents a very substantial increase from the company's position in 2002, when considered by Bergin J (net assets of GBP7.7M: see para [30] of her Honour's reasons). 26 The Macquarie parties submitted that "the evidence tendered with respect to the fourth plaintiff's financial position is no different in substance to that tendered before Bergin J". That is not correct, unless one regards GBP18.6M as no different in substance to GBP7.7M: a proposition that is somewhat surprising, coming from a substantial financial services organisation; and in any event, one that I do not accept. 27 Perhaps the Macquarie parties recognised the inherent implausibility of this submission because, in oral submissions, they did not submit that the fourth plaintiff would not be able to meet any costs orders that might be made against it. 28 The second plaintiff is a wholly owned subsidiary of the fourth plaintiff. It was formed to take up the fourth plaintiff's entitlements to converting notes in NCRH at a time when it was thought that there might be adverse tax implications for the fourth plaintiff should it do so directly. The Macquarie parties did not submit that the fourth plaintiff would not be able to meet any liability pursuant to its proposed undertaking, to which I have referred in para [18] above, if that undertaking were accepted. 29 It is convenient to mention at this point that the fourth plaintiff's stated position was that, whilst it was proper for it to undertake to meet any costs that might be ordered to be paid by the second plaintiff, it was not proper, having regard to its position as a public listed company and to its directors' duty to its shareholders (and to investors in the trust) for it to offer a similar undertaking in respect of any other plaintiff. The financial position of the sixth plaintiff 30 The sixth plaintiff's audited financial report for the year ended 30 June 2005 showed that it had net assets of $48.95M. The report was dated 21 December 2005, and the audit report was dated 22 December 2005. There was no note indicating that any event occurring between balance date and the date of the report might have a material impact on the financial position disclosed by the report. 31 The Macquarie parties drew attention to a number of matters in the accounts:

30.1 The great bulk of the sixth plaintiff's assets comprised "receivables" of $25.5M and "other financial assets" of $25M.

30.2 The bulk of the "receivables" was made up by a debt of $6.9M owed to the sixth plaintiff by Ingot Capital Finance Pty Ltd (Ingot Finance) and "work in progress" of $18.2M.

30.3 There was no indication of what was the work comprised in the work in progress, how it was charged, or whether it was likely to be recoverable.

30.4 Of the "Other Financial Assets", some $13.3M related to shares in listed companies but the balance, $11.7M, related to "shares in other corporations". The Macquarie parties submitted that I should infer that this latter entry related to shares in related corporations of the sixth plaintiff. Having regard to the matters to which I refer in para [39] below, I think that this is correct.

30.5 An amount of $11.9M owed by the sixth plaintiff to the ANZ Bank had been "transferred" through Ingot Finance to Ingot Capital Asia Pty Ltd (Ingot Asia) and that the sixth plaintiff had guaranteed the liability of Ingot Asia to the Bank and had given securities over all its assets (and a specific charge over shares held by it in Trust Company of Australia Ltd) to secure that liability.

30.6 Although the financial report showed that the sixth plaintiff had made a profit of $31M for the year, the amount was shown "before income tax", and there was no income tax expense, or provision for income tax, shown.

30.7 The sixth plaintiff's accounts included no reference to what, it was submitted, must have been substantial payments for legal fees after 30 June 2005.

30.7 The plaintiffs had put forward no oral or documentary evidence showing the current financial and cash position of the sixth plaintiff; the only affidavit relied upon was that of the auditor, Mr Nicholaeff, who had done no more than prove the audited financial report as at 30 June 2005. 32 The audited financial report of Ingot Asia for the year ended 30 June 2005 showed net assets of $1.4M. The principal asset was "Receivables" ($13.4M), the bulk of which were owed by Ingot Finance ($13.3M). The debt to the ANZ Bank was of course disclosed; it should be noted that the facility was drawn to just under $12M, but that the limit was $16.6M. 33 Again, the accounts of Ingot Asia were prepared in December 2005 and the audit report was signed on 22 December 2005. There was no indication of any post balance date event that might have a material impact on the financial position disclosed by the report. 34 The unaudited financial statements of Ingot Finance showed net assets of $10.1M. The principal asset was "finance receivables" of $41.4M, of which at least a substantial amount appears to be owed by related corporations. The liabilities comprised loans of $36M, the bulk of which appears to be owed to related corporations. 35 The evidence before Bergin J (which was tendered before me, subject to an objection as to relevance) disclosed that at least up to the date of the hearing before her Honour, the cash position of the sixth plaintiff varied from time to time. As its director, Mr Bass, said to her Honour, "money comes in, money goes out". Further, Mr Bass said, the sixth plaintiff and its related companies operate on the basis that monies move between them according to their needs. Her Honour accepted and referred to this evidence in para [48] of her reasons. There was no evidence before me to suggest that the current position is any different. The Macquarie parties submitted that I should infer that the same practice continues today. I think that this is right; and the inference is supported by the financial statements to which I have referred, showing a network of intercompany debits and credits. 36 It is necessary to look separately at the contingent liability of the sixth plaintiff to the ANZ Bank. At present, (more accurately, as at 30 June 2005) the amount of the liability was just short of $12M, and the facility limit was $16.6M. As I have said, the sixth plaintiff has given securities to the Bank for that indebtedness. Those securities include a charge over the sixth plaintiff's shareholding in Trust Company of Australia Ltd. On the evidence, this is the principal investment held by the sixth plaintiff in public listed companies. 37 The sixth plaintiff's shareholding in Trust Company of Australia Ltd was valued (at the date of the hearing) at approximately $12.9M. However, it appears, the ANZ Bank had taken security from another company known as SAC All Ordinaries Index Fund Pty Ltd over some 31.25M shares owned by that company in another listed company known as Resolute Mining Ltd. The evidence showed that this latter shareholding was valued, at the date of the hearing, at about $42M. 38 Thus, whilst it would be open to the ANZ Bank to look to the sixth plaintiff for repayment of the whole of the debt owed by Ingot Asia, the sixth plaintiff on ordinary principles would be entitled to be subrogated to the Bank's rights against SAC All Ordinaries Index Fund Pty Ltd in the event that the sixth plaintiff repaid the whole amount owing to the Bank. As things stand, therefore, the sixth plaintiff would have, and be able to exercise, a substantial right of subrogation. The effect of exercise of this right would be to reduce the net loss to the sixth plaintiff in the event that it were called upon by the Bank to meet the liabilities of Ingot Capital Asia to the Bank. Absent some other negative circumstance, the net assets of the sixth plaintiff in this hypothetical situation would remain (taking into account their value as at 30 June 2005) well above $40M. 39 The Macquarie parties questioned the value of the receivables shown in the balance sheet for the sixth plaintiff. They pointed to the intercompany nature of those amounts. Those receivables related to work and services (including in the nature of investment management and advice) provided by the sixth plaintiff to related corporations. The evidence showed that, after balance date, the sixth plaintiff had been paid the bulk of the receivables shown in its balance sheet at 30 June 2005. Thus, whilst I would infer that receivables (for investment advice and management services provided by the sixth plaintiff to related corporations) continue to form a substantial part of its assets, I see no reason, on the state of the evidence, to conclude that those receivables might not be substantially collectible. 40 There was no evidence to enable me to make any assessment of the realisable value of the "shares in other corporations", valued at $11.8M, shown in the "other financial assets" of the sixth plaintiff as at 30 June 2005. Ability of fourth plaintiff to meet costs orders 41 The financial position of the fourth plaintiff, which I have summarised in para [25] above, makes it plain that the fourth plaintiff is, and is likely to be, in a position to meet any costs order that may be made against it. 42 In reaching this conclusion, I take into account also the circumstance that substantial security for costs has already been given to the Macquarie parties, and that this application is for further security in respect of the further $1.65M that the Macquarie parties estimate they will spend on costs because of the increased duration of the hearing. In my view, the correct question to ask is not whether the fourth plaintiff is likely to be able to meet all costs orders that may be made against it (although, if that question were asked, I would answer it "yes" on the information now available) but whether the fourth plaintiff is likely to be able to meet the further costs burden that is the subject of this application, or so much thereof as may be recoverable on assessment. Given that, as I have said, the total amount of the further costs is estimated at $1.65M then (even putting aside for the present the question of what, out of that, might be recoverable on assessment) clearly the question must be answered "yes". Ability of sixth plaintiff to meet costs orders 43 The Macquarie parties drew attention to the circumstance that the audited financial report of the sixth plaintiff was now some 9 months out of date. They relied on the matters to which I have referred in para [33] above. They referred also to the circumstance that there was no evidence before me from any officer of the sixth plaintiff relating to its current financial or cash position. Thus, they submitted, I could not conclude that the sixth plaintiff could meet any costs that it might be ordered to pay the Macquarie parties, or any costs for which it might become liable under its undertaking to accept responsibility for any costs ordered to be paid by other plaintiffs should such an undertaking be accepted. 44 The plaintiffs submitted that they had been hamstrung in calling oral evidence on this application because of "the difficulties which have arisen in relation to the filing of evidence from the directors [of the plaintiffs] in that there could be a threat of collateral fact findings being made were it necessary to take factual evidence from the directors who have already given evidence in the proceedings." Thus, the plaintiffs submitted, they did "not want to cause the trial to be aborted, and in particular do not wish the Court in any way to have regard to the merit of [their claim] or otherwise in its deliberation of [sic] this issue." (See para 25 of the plaintiffs' written submissions on the application for security for costs.) I do not accept this as a valid reason why the plaintiffs should not have called oral evidence. When the question of the further security was first raised, I enquired whether it should be heard by me or by another judge. Understandably, because of my familiarity with the proceedings and the issues, the relevant parties wished me to hear the application if that were possible. However, I pointed out that I would not do so if, were I to do so, there might be a threat to the trial. Thus, I said, it would be possible to list the application for security before another judge of the Court. The plaintiffs did not avail themselves of this offer. Clearly, had they wished to lead evidence which might have given rise to "a threat of collateral fact findings being made", they could have taken up the offer to have another judge hear this application. 45 The Macquarie parties submitted that I should draw a "strong inference" from the plaintiffs' failure to call oral, or tender other, evidence as to their up to date financial position: relying on Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389. It is difficult to know what the plaintiffs could have done, other than produce management accounts, and documents showing current bank balances and the like, over and above what they did do. I accept, as I have said, that it is likely that money has moved in and out of the sixth plaintiff's account, and will continue to do so, according to the operating needs of the group. In circumstances where the relevant companies appear to be solvent, and where the group appears to be trading profitably (I repeat that the plaintiff reported a profit of $31M for the year ended 30 June 2005), I do not think that this is significant. It is entirely understandable that companies in a group may use the funds of one or other for the advantage of all, rather than calling on, and paying interest in respect of, outside finance. 46 The Macquarie parties did not submit that there was anything improper in the movement of funds through the group in this way; their submission was that the likelihood of such movement made it impossible to assess the cash position of the sixth plaintiff at any given time. I accept that submission; but it does not follow that, as a result, the overall financial position of the sixth plaintiff is thereby imperilled. If, as the plaintiffs have shown, the intracompany obligations are paid in the ordinary course of business, and if the relevant debtor companies appear to have sufficient assets to enable them to meet their obligations to the sixth plaintiff, the question of cash balances at any given time, or on any particular day, assumes less significance. 47 In any event, I think, the point is misconceived. As I said in ABB Service v Pyrmont Light Rail [2006] NSWSC 187 at para [17], proof of bank balances at particular dates do not "show current ability to meet costs orders, let alone prospective ability to do so". It follows, by parity of reasoning, that the failure to prove current bank balances, or cash balances, does not show prospective, inability to meet costs orders. 48 Whether the question is considered by reference to s 1335(1) of the Corporations Act, or by reference to UCPR r 42.21, the requirement is in substance that the Court be satisfied that there is a real likelihood that the plaintiff against whom security is sought might be unable to pay costs ordered against it. The financial position of the sixth plaintiff in July 2002 (to the extent that this was revealed in the evidence considered by Bergin J) led to the conclusion that such a real likelihood then existed. That is why her Honour ordered that it, and the other plaintiffs, provide security for costs. The Macquarie parties submitted that, because this was (as they put it) a top up application pursuant to the leave reserved by Bergin J, I should proceed on the basis thus established by her Honour's reasons unless it was clear on the evidence that there had been such a significant change in the relevant circumstances that her Honour's reasoning no longer applied. In pursuance of this, the Macquarie parties submitted that the factors to which they had drawn attention in the evidence of the sixth plaintiff's financial position were such that I could not be satisfied that there was a relevant change, so as to justify departure from the basis established by the reasons of Bergin J. 49 To some extent, therefore, the resolution of the issue of the ability of the sixth plaintiff to meet adverse costs orders may be thought to depend upon a resolution of the issue as to the nature of the present application. However, assuming for the moment that this is, as the Macquarie parties submit, a top up application, so that I should approach it on the basis established by the judgment of Bergin J unless there is clear evidence of a change in the relevant circumstances, I am satisfied that the evidence of the sixth plaintiff's financial position is such that I should conclude that it is likely to be able to meet any adverse costs order. 50 I acknowledge that the information is somewhat out of date, and that it has not been updated. Nonetheless, even though the balance date is 30 June 2005, it must be remembered that the report is dated 21 December 2005 and that the audit certificate was signed on 22 December 2005. As I have said, there is no note indicating any material change in the financial position of the sixth plaintiff. (There was reference to a decrease of $900,000 in the value of investments in listed companies, but that can be put to one side.) I think that I should proceed on the basis that if the directors or auditors formed the view that there had been a material adverse change in the financial position of the sixth plaintiff between 30 June and 21 or 22 December 2005, they would have drawn attention to it in an appropriate way: by an appropriate note in the case of the directors, or by a qualified audit report in the case of the auditors. In the absence of any such indicia, I think that I should proceed on the basis that the financial report was substantially accurate, or materially accurate (at least as to its overall conclusions) as at 21 and 22 December 2005. On that basis, I think, the audited financial report, and the other material to which I have referred and will refer, provide a sufficient basis for me now to be satisfied, as I am, that the sixth plaintiff is likely to be able to meet any costs that it might be called upon to pay in these proceedings. 51 In my view, the evidence shows that the receivables as at 30 June 2005 related to work done and services provided, and that those receivables were paid. The evidence satisfies me that the work and services are done and provided on a continuing basis. Notwithstanding that they, and the consequent receivables, may relate to intercompany transactions, I am satisfied that the real likelihood is that the amounts owing will be paid in the ordinary course of business. 52 Thus, I am satisfied that the bulk of the sixth plaintiff's assets shown in its financial report as at 30 June 2005 are real, or properly valued, assets. The only qualification relates to the shareholdings in related corporations. But even if those shareholdings are disregarded entirely, the net assets of the sixth plaintiff would exceed $31M. 53 In my view, if one is to get to a position where the net assets of the sixth plaintiff might be insufficient to meet costs of the magnitude in question, one needs to make a number of cumulative and adverse assumptions. They include that:

(1) The sixth plaintiff is called upon to pay the whole of the $16.6M facility that was "transferred" to Ingot Asia;

(2) The sixth plaintiff receives nothing pursuant to any rights of subrogation that it may have (see para [38] above);

(3) The sixth plaintiff is required to pay tax (presumably, at the rate of 30%) on the whole of its profit for the year ended 30 June 2005 (ie, $9.3M) and is not entitled to be recouped for any part of that tax from any other company in the group; and

(4) The sixth plaintiff is subject to costs orders against other defendants that exceed, in a substantial way, the value of the securities given by it to them. 54 On the first two assumptions, the net worth of the sixth plaintiff would reduce to about $14M. If the third assumption be applied cumulatively, its net worth would drop to about $5M. It is only if the fourth assumption is applied, also cumulatively, that any real concern might arise as to the ability of the sixth plaintiff to meet its further (hypothetical) liability to the Macquarie parties. 55 The amount for which further security is sought is a percentage (I discuss what should be the applicable percentage in paras [82] and following below) of $1.65M. It is only if one assumes that all the matters to which I have referred are resolved adversely to the sixth plaintiff, and if the results shown in the financial report as at 30 June 2005 are adjusted accordingly, that it is unlikely to be able to meet those additional costs. 56 I do not think that considerations of adequacy and fairness require all these adverse assumptions to be made cumulatively. 57 I note that the Macquarie parties submitted that on the plaintiffs' evidence, the financial position of the sixth plaintiff was said now to be as it must have been when the last top up application was resolved by consent in September/October 2005 (the application was made in September, and the formal orders were made on 5 October 2005). Of course, the financial report to which I have referred was not then available: it was signed by the directors on 21 December 2005, and the audit report was signed on 22 December 2005. In any event, the commencement of the hearing was scheduled to start within a week (ultimately, as a result of shifting the date back to accommodate various exigencies, it commenced on 17 October 2005). I do not think that the plaintiffs should be criticised, or that any adverse inference should be drawn against them, by reason of their decision to compromise the application for top up, rather than to use vital preparation time in resisting it. 58 In reaching the conclusion set out in para [50] above, I have (as is apparent from what I have said in para [55] above) taken into account also the consideration set out in para [42] above. It may be said (and the Macquarie parties submitted) that this takes no account of costs that the sixth plaintiff might be ordered to pay other parties. However, in many cases, the sixth plaintiff has provided security for the costs of those other parties: see the orders made by Bergin J on 9 July 2002. Presumably, those other parties remain satisfied with the security so provided (or, perhaps, as increased - I do not know the position as between the sixth plaintiff and other parties to whom it has been ordered to give security). Thus, I think, the impact of any costs order against the sixth plaintiff and in favour of parties other than the Macquarie parties will be ameliorated, substantially if not in whole, by the securities already given. The Macquarie parties' submissions on this point did not recognise this; and the same may be said of their submissions as to the ability of the sixth plaintiff to meet costs that it might be ordered to pay to them. 59 I therefore conclude that the jurisdictional basis for making an order for security for costs under either s 1335(1) of the Corporations Act or UCPR r 42.21(1)(d) does not now exist in the case of the sixth plaintiff. Financial position of the first, second, third and fifth plaintiffs 60 Those plaintiffs did not submit that there was any basis upon which I could conclude that they had even a remote possibility of satisfying costs orders against them, or that there was such a material change in circumstances since July 2002 that Bergin J's conclusion, that they could not, ought to be revisited. 61 As I have indicated, the real dispute in the case of those plaintiffs was not their ability, or lack of it, themselves to satisfy any costs orders that might be made, but rather the effect of the undertakings offered (in the case of the second plaintiff) by the fourth plaintiff and (in the case of all) by the sixth plaintiff. Effect of undertakings on the position of the first, second, third and fifth plaintiffs 62 For the reasons that I have given in paras [25] to [28] above, the position as to the second plaintiff is clear. The only conclusion available is that, although the second plaintiff could not meet any order for costs made against it, the fourth plaintiff could do so. If the fourth plaintiff's undertaking to the Court is accepted, then the Macquarie parties will be protected adequately against the inability of the second plaintiff to meet any costs order against it. 63 For completeness, I add that exactly the same conclusion would apply regardless of the undertaking, having regard to the identity of interest between the second and fourth plaintiffs. There is no readily discernible basis on which different costs orders might be made against the second and fourth plaintiffs, and the Macquarie parties did not submit otherwise. In other words, regardless of the position in relation to other plaintiffs, if the situation arises where the Macquarie parties become entitled to costs against the second plaintiff, they will become entitled to exactly the same costs against the fourth plaintiff; and as I have said more than once, I am satisfied that the fourth plaintiff is likely to be in a position to meet any such costs. 64 However, in relation to the first, third and fifth plaintiffs, any alleviation of their inability to meet costs orders that may be made against them must come either through the undertaking to the Court offered by the sixth plaintiff, or from a top up of the existing security for costs that has been given on behalf of all plaintiffs. 65 Bergin J said in para [99] of her reasons, and I agree, that the Court's aim, in ordering security for costs, "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." Her Honour pointed out that, on the evidence before her, "[t]here is presently no protection of the defendants that is adequate or fair." In my view, the undertakings to the Court now offered by the very far from impecunious fourth and sixth defendants, in respect of the impecunious first, second, third and fifth defendants, do achieve adequate and fair protection to the Macquarie parties. To go further, and require the fourth and sixth plaintiffs to tie up more of their assets in securities, and to lose the use of those assets for so long as the securities remain in place, is not something that is required by considerations of adequacy or fairness, and is something that will cause prejudice to those plaintiffs. 66 If the financial position of the sixth plaintiff is such that no further security should be ordered against it, on the basis that I have concluded that it would be able to meet any adverse costs order, then, it seems to me, it would only be appropriate to order further security against the first, third and fifth plaintiffs (who are the subject of the sixth plaintiff's proposed undertaking to the Court) if there were some ground to think that the costs that might be ordered against those plaintiffs were so different from, and so much in excess of, those that might be ordered against the sixth plaintiff that there was a real likelihood that the sixth plaintiff could not meet all its (direct or assumed) costs obligations. 67 I have recognised, as did Bergin J, the possibility that there may be different costs orders made against different plaintiffs. However, I am quite unable to discern any basis upon which it could be concluded that substantial costs - let alone costs sufficient to imperil the sixth defendant's present position of solvency - might be ordered against any one or more of the first, third or fifth defendants but not against the sixth defendant. I am therefore unable to conclude that there is any reason to believe that the sixth plaintiff is, or is likely to be, unable to meet the obligations that it would assume under its undertaking to the Court, if accepted, as well as its direct obligations, if costs were ordered against it. To put the matter positively: I am satisfied, essentially for the reasons that I have given in paras [51] to [58] above, that the sixth plaintiff is likely to be able to meet both costs ordered to be paid by it, and any even remotely conceivable additional costs that might be ordered to be paid by any of the first, third or fifth plaintiffs. 68 In reaching that conclusion, I am of course comforted by the circumstance that substantial security has already been provided, in the form of bank guarantees, to the Macquarie parties. The debate is not about the entirety of the Macquarie parties' costs, but about the top up sought by them, in respect of estimated additional costs of $1.65M. Taking the most adverse view, and assuming that the whole of that were ordered to be paid by some or all of the first, third and fifth defendants but not by the sixth defendant (a hypothetical circumstance, and one so unrealistic as hardly to merit consideration), the likely ability of the sixth defendant to meet that obligation pursuant to an undertaking rather than pursuant to a direct costs order can hardly be doubted. 69 I therefore conclude that the undertaking offered by the sixth defendant on behalf of the first, third and fifth defendants offers sufficient protection to the Macquarie parties for any costs order that might be made in their favour against the first, third or fifth defendants but not against the sixth defendants. Overseas plaintiffs 70 As I have indicated, the Macquarie parties relied on the circumstance that the second, fourth and fifth plaintiffs were incorporated in the United Kingdom. In the case of the fifth plaintiff, the financial position of which is such that it is clearly unable to meet any order for costs, this is not relevant. It may however be relevant in the case of the second and fourth plaintiffs, given what I have said as to the ability of the fourth plaintiff to meet any costs order and as to the sufficiency of its undertaking in respect of the second plaintiff. 71 In this context, as in the context of s 1335 or UCPR r 42.21(1)(d), one must bear in mind that if the relevant jurisdictional fact is found to exist, what is enlivened is a discretion to order security for costs. Whether or not the discretion should be exercised, and the form or manner of giving any security thought to be appropriate, are matters to be considered independently of, although consequent upon, the finding as to the existence of the jurisdictional fact. Put shortly, it does not follow that security must be ordered in any case where the relevant jurisdictional fact, empowering the Court so to order, is found to exist. 72 In my view, the rationale for UCPR r 42.21(1)(a) and its equivalents is to ensure that a defendant that obtains an order for costs is not left lamenting because it cannot enforce, or can only enforce with difficulty, delay and expense, a costs order against the plaintiff in the jurisdiction where the plaintiff is to be found. However, as the Macquarie parties accepted, there is a legislative mechanism in place for the reciprocal enforcement of judgments between Australia and the United Kingdom. In those circumstances, I think, there is no need to protect the Macquarie parties over and above such measure of protection (if any) as may be necessitated by the impecunious state of the relevant plaintiffs. 73 The authorities suggest that where there is a mechanism for reciprocal enforcement of judgments, the appropriate amount for which security should be ordered is ordinarily the cost of enforcing the judgment in the foreign jurisdiction. See Connop v Varena Pty Ltd [1984] 1 NSWLR 71; Barton v Minister for Foreign Affairs (1984) 2 FCR 463. 74 I do not find the rationale for those decisions easy to understand. The relevant rule, and its predecessor or analogue with which those decisions were concerned, assume that the foreign plaintiff is solvent. They seek to address problems associated with the enforcement of a costs order against such a plaintiff. Where those problems have been addressed by legislation, and where the costs of enforcement (of a costs or other) judgment pursuant to that legislative mechanism will be recoverable as costs in the foreign jurisdiction, I do not see why the defendant should have security for those costs of enforcement when, by hypothesis, it is not entitled to security for the other costs that it may recover. But since the question was not argued before me, and the Macquarie parties did not seek security on this basis, I express no concluded view. For completeness, I add that the Macquarie parties led no evidence that would enable me to assess the amount of costs that might be incurred in enforcing in the United Kingdom any costs orders that they might recover against the second, fourth or fifth plaintiffs. Although Rath J in Connop was prepared to fix a sum of $750 as the appropriate amount of security - an exercise that his Honour described at [75] as "an arbitrary exercise" justified "only on a general appreciation of costs" - I do not regard myself as able to undertake a similar exercise in this case, were it necessary to do so. I have no understanding of the amount of work involved, including what might be required to be done by agents in the United Kingdom and of the charges that might be made by such agents. In those circumstances, the selection of a figure would be more than arbitrary: it would be entirely lacking in a reasoned basis. 75 I therefore conclude that it is not appropriate to make the order sought against the second, fourth and fifth plaintiffs on the basis of UCPR r 42.21(1)(a). Amount sought 76 In case I am wrong in what I have said, I will deal briefly with the amount of the further security sought by the Macquarie parties. 77 The question of top up was last dealt with when Einstein J made orders by consent on 5 October 2005. The effect of those orders was to recognise an agreement between the plaintiffs and the Macquarie parties that the plaintiffs would provide further security, and thereupon to dismiss the Macquarie parties' notice of motion seeking further security. The agreement did reserve (with a presently irrelevant exception) the Macquarie parties' right to seek yet further security. Since those orders were made it has become apparent , as I have noted in para [1] above, that the duration of the hearing will exceed the estimate that was current in September/October 2005. 78 The Macquarie parties' solicitor, Mr Ashley John Black, has sworn an affidavit in which he estimates the costs to be spent by the Macquarie parties from 6 March 2006 until what is now thought to be the end of the proceedings (the current estimate fixes that date as 15 September 2006). He then concludes that some $1.65M remain to be spent which is not the subject of the securities given to date. 79 As I have said, the plaintiffs raised some quibbles. They submitted that there was an unexplained discrepancy between the estimate now given and that given to Bergin J, which discrepancy could not be explained by the greater length of the trial. They submitted further that the costs claimed assumed an excessive level of representation, given that the case against the Macquarie parties has been completed for some time. 80 Mr Black was not cross-examined on his affidavit. I do not think that it is open to me in that circumstance to make a finding against Mr Black's sworn evidence but consistent with the submissions now put by the plaintiffs. In any event, I do not accept that the level of representation contemplated in Mr Black's estimate is excessive. It is correct to say that the case against the Macquarie parties is complete. However, the Macquarie parties are deeply involved in cross-claims, as cross-claimants or cross-defendants. The witnesses to be called for the balance of the hearing will be relevant, among other things, to those cross-claims. The Macquarie parties are entitled to be represented (as they have been throughout) and to seek to support their positions, both vis a vis the plaintiffs and vis a vis the cross-claimants/defendants, in cross-examination of the remaining witnesses. 81 The plaintiffs did not challenge the relevant hourly and daily rates of solicitors or counsel. They did, however, challenge the percentage by which Mr Black sought to estimate the costs that would be recoverable on a party and party basis on assessment. 82 In all previous applications, the relevant percentage of actual costs that was used to assess recoverable costs was 70%. Bergin J accepted this figure, which appears to have been derived both from the evidence of the solicitors for the various applicants and from the evidence of a costs assessor. 83 In this application, the Macquarie parties sought security for 80% of their estimated actual further costs. Mr Black sought to justify that percentage by reference to three assessments that had already taken place in respect of costs ordered to be paid by the plaintiffs to the Macquarie parties. Those costs related to the original application for security, an application by the plaintiffs in 2003 for leave to amend, and an application by the plaintiffs in 2004 for leave to amend. The Macquarie parties recovered on assessment 72.6% of their costs on the first of these, 95% of their costs on the second, and 70% of their costs on the third. Somewhat surprisingly, the first and second sets of costs were assessed on the party and party basis, whereas the third was assessed on the indemnity basis. The overall average recovered on the three assessments was 80.6%. 84 I do not think that one can necessarily extrapolate from percentages recovered on assessment of costs payable in respect of interlocutory orders to costs payable in respect of final hearings. Particularly in lengthy and complex litigation such as this, experience suggests that the amount of preparation time (relative to hearing time) that will be expended on a final hearing may well be greater than the proportion of preparation time to hearing time on an interlocutory application. On a solicitor and client basis, the actual preparation done for a final hearing of complex and lengthy litigation may justifiably be substantially higher than the reasonable amount recovered on a party and party assessment. Ordinarily, one would not expect to see this in respect of interlocutory applications. 85 Further, I think, the illusion of certainty given by the overall average of 80.6% is somewhat undermined by the disparate percentages, or the wide variations between them, actually recovered on assessment. 86 In short, I do not think that the Macquarie parties have shown a sufficient basis to depart from the 70% factor used by Bergin J and that formed the basis of subsequent applications before this one. 87 It follows that if I had been minded to order further security, I would have ordered it in the amount of 70% of the amount sought: ie, $1,155,000. Conclusions and orders 88 I conclude that, viewed realistically, the financial position of the fourth and sixth plaintiffs is such that they are, and are likely to be, in a position to meet any costs that might be ordered to be paid by them in respect of the further costs that are the subject of this application. If it were necessary to go further, and to conclude that they are, and are likely to be, in a position to meet any costs (without restriction) that might be ordered to be paid by them, I would do so. 89 Further, I conclude, having regard to the financial position of the fourth and sixth plaintiffs, that the undertakings offered by them in respect of costs that might be ordered to be paid by the second plaintiff (the subject of the proposed undertaking of the fourth plaintiff) and the first, third and fifth plaintiffs (the subjects of the proposed undertaking of the sixth plaintiff) achieve adequate and fair protection for the Macquarie parties in respect of the costs that are the subject of this application, to the extent that costs orders might be made against the first, second, third or fifth plaintiffs but not against the fourth and sixth plaintiffs. 90 I make the following orders:

(1) I note that the fourth plaintiff by its senior counsel gives to the Court the undertaking set out in para [18] of these reasons.

(2) I note that the sixth plaintiff by its senior counsel gives to the Court the undertaking set out in para [19] of these reasons.

(3) I dismiss the first, second and third defendants' notice of motion filed in Court on 20 March 2006.

(4) I order that the exhibits tendered on that notice of motion be handed out.

(5) I extend the date of reply to [Professor Godfrey's] report to close of business on 13 April 2006. 91 I will hear the parties on costs.

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