International Greetings (UK) Ltd (formerly Scandinavian Design Ltd) v Stansfield

8 On the same date the defendants also filed an application for "security for the costs of the Defendants in defending these Proceedings". However, it is plain from prior correspondence and the supporting affidavit of the defendants' solicitor that security was only being sought in an amount which reflected the costs of the defendants in defending the proceedings up to and including the conclusion of a separate and preliminary hearing on solvency assuming a one day hearing.

9 In a letter dated 16 December 2008 to the plaintiff's solicitors, the defendants' solicitor required the plaintiff to provide security for costs in the amount of $38,000 being "approximately 75% of our client's estimated costs calculated as follows". There followed an itemised statement of estimated costs totalling $50,600. The claim for 75 per cent suggests a discount to reduce solicitor/client costs to party/party costs but that was not expressly stated in the letter nor is it conceded in submissions. The basis of the percentage was not otherwise explained in evidence.

10 In that solicitor's affidavit filed three days later on 19 December 2008, he estimated the defendants' costs after the conclusion of a one day separate hearing on the insolvency of Ozwrap on a party and party basis as $50,237, which he itemised.

11 In February 2009 this first application for security for costs was settled on the basis of the plaintiff depositing $38,000 in a controlled monies account with its solicitors. As at 5 May 2010 the balance of this account was $39,604.

12 On 7 August 2009 an order was made that the plaintiff serve its evidence by 19 October 2009. The order was breached. On 23 October 2009 an order was made that the plaintiff serve its evidence by 4 December 2009. On the latter date the plaintiff served its lay evidence but advised that further time was needed for expert evidence. On 5 February 2010 an order was made that the plaintiff serve its remaining evidence by 12 February 2010. On 16 February 2010 the plaintiff served an expert report testifying to the insolvency of Ozwrap from June 2006 to February 2008 when it was placed in liquidation. The expert also expressed an opinion that based on the directors being executive directors and having full knowledge of the company's financial position, there were reasonable grounds for the directors to be aware that they were trading insolvently. The defendants before me foreshadowed an objection to the latter opinion on the ground that it is not a matter for expert evidence.

13 On 26 February 2010 an order was made directing the defendants to serve their evidence on or before 2 April 2010. The order was breached. To date the defendants have not served any evidence.

14 On 2 March 2010 the defendants' solicitor wrote to the plaintiff's solicitors stating that the plaintiff had provided security for costs in the amount of $38,000 and that in contrast the defendants' costs to date were approximately $46,000 (excluding GST). The letter stated that considerable further work would be required to prepare the defendants' evidence and prepare the matter for hearing and that the defendants required the plaintiff to provide further security for costs in the amount of $60,000 being approximately 75 per cent of the defendants' estimated costs calculated and itemised therein at $80,000. As with the letter of 16 December 2008, the claim for 75 per cent suggests a reduction from solicitor/client costs to party/party costs, but that was not stated in the letter nor is it now conceded. The basis of the percentage is not otherwise explained in the evidence.

15 The plaintiff's solicitors replied by letter dated 5 March 2010 indicating that the plaintiff did not accept the proposal for the additional payment of $60,000 as security for costs and observing "that in addition to what you say has been incurred, $46,000, your client claims that an additional $80,000 will be incurred in costs from now until the hearing. This brings the total amount to $126,000. It is our view that this figure is excessive and disproportionate in relation to the nature of this claim".

16 Five days later, on 10 March 2010, the plaintiff filed its second application for security for costs, which is now before the Court for determination. In the supporting affidavit, the defendants' solicitor said that to date the defendants had incurred costs and disbursements of approximately $46,000 which it did not itemise (excluding GST) in defending the proceedings; that if the matter proceeded to final hearing he estimated that it would take approximately two days; that both sides intended calling expert evidence in respect of the solvency of Ozwrap and it appears likely both defendants would be called as lay witnesses; and that he estimated the defendants' costs up to the conclusion of a two day final hearing on a party and party basis at $90,690, which he itemised. That was an increase of over $10,000 compared with the estimate in the letter written eight days earlier.

17 This sum of $90,690, I was told, represented only future costs. That cannot be entirely correct because it includes an item for preparing for and attending this interlocutory application for security for costs in the total sum of $15,145, some of which must have been incurred previously.

18 The defendants estimated total costs are $136,690 ($46,000 plus $90,690). That sum may be compared with the defendants' earlier estimate of costs of the entire proceedings to the conclusion of a preliminary hearing on insolvency estimated at just over $50,000 and the earlier agreed security of $38,000. 19 The defendants' solicitor was cross-examined. He denied suggestions that his costs estimates were exaggerated and that too much time and too many lawyers were allocated in his estimates for various tasks. He denied that the estimate in his affidavit represented costs on a full indemnity basis. He elaborated by saying that there was nothing claimed for liaising with the defendants, that his own time for preparation for this security for costs application was more than that which he had included in his estimates, and that "We sometimes say 75%of the costs is party/party all things being equal" and that "If anything, I suggest that our actual/client costs would be somewhat more than this suggests". As I understand this evidence, the 75 per cent to which he referred is a broad estimate of party/party costs, but solicitor/client costs are somewhat higher than the costs included in his estimates.

20 The defendants submit that the costs in their solicitor's affidavit represented party/party costs. In light of the evidence to which I have just referred, I have difficulty in accepting the submission. However, the issue seems academic because the defendants concede that it was within my discretion to award 75 per cent of such proportion of the defendants' estimated costs as I considered should be awarded by way of security and the plaintiff does not contest that that would be approximately reflective of party/party costs.

21 The defendants further submit that security should be ordered in the amount of $90,690 (subject to it being within my discretion to award 75 per cent of that sum) because: (a) the plaintiff is resident outside the jurisdiction and has no assets within the jurisdiction, they are very weighty circumstances favouring security, and the plaintiff cannot point to other circumstances which overcome their weight; (b) there is no substance in the plaintiff's complaint about delay in bringing this security application. The earlier security was provided in the context where it was anticipated there would be a separate hearing on the question of insolvency, whereas now it is anticipated that there will be a full hearing and therefore more costs will be incurred; (c) there have been delays in the service of the plaintiff's evidence and in discovery by the parties which have necessarily resulted in additional costs; (d) this security for costs application has been brought at a time when the defendants' costs have only recently exceeded the estimated costs that formed the subject of the original security for costs regime; (e) the factor of time is irrelevant. The relevance of delay is said to be because it allows the plaintiff to incur substantial costs in prosecuting the proceedings which it would not have incurred had the application for security been made successfully at the outset: Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at 308 per Street CJ; Loreva Pty Ltd v Cefa Associated Agencies Pty Ltd (1982) 7 ACLR 164 at 165 per Needham J. There is no suggestion that had the application been made earlier the plaintiff might have adopted a different course and not incurred costs, nor that the plaintiff was otherwise prejudiced; (f) in summary, there has been no delay and the passage of time is explicable by events that have transpired since the original regime was put in place. In any event, the timing of the application is irrelevant to the exercise of the discretion; (g) the apparent strength of the plaintiff's case is not a relevant consideration because there is no suggestion that an order for security cannot be satisfied and so no apparent risk of the plaintiff being denied access to justice where it has a legitimate and worthwhile cause of action; and it is impossible for the Court to assess the strength of the plaintiff's claim at this stage without embarking upon an analysis of the plaintiff's expert report and in the absence of evidence at this stage of the defences. 22 The plaintiff submits that no security for costs should be ordered or security should be less than $10,000 and should abide the defendants putting on their evidence because:

(a) the application has not been brought promptly. The proceedings were commenced in August 2008 and it is now May 2010 and the application was brought after the plaintiff has put on its evidence in chief. The defendants have done nothing to address the substantive issues in the case; (b) the security that is now sought is for a case that is very similar to the case for which security was obtained on the first security for costs application; (c) the plaintiff's case is strong and bona fide on the expert evidence that it has served. The defendants cannot complain that the Court is having regard to only one side of the case on this application because they were directed to serve their evidence but have failed to do so; (d) the defendants have exaggerated the costs they are likely to incur in further progress of this matter, including unnecessary handling of work by a number of lawyers. LEGAL PRINCIPLES 23 The fact that a plaintiff is resident out of the jurisdiction and has no assets within the jurisdiction is a circumstance of great weight in determining whether an order for security for costs should be made; and the practice is to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that the person is resident out of and has no assets within the jurisdiction: P S Chellaram & Co Ltd v China Ocean Shipping Company [1991] HCA 36, 102 ALR 321 at [7] (McHugh J). 24 The Court has a broad discretion on an application for security for costs but there are a number of well established guidelines which the Court typically takes into account including, relevantly, that such applications should be brought promptly and that regard is to be had to the strength and bona fides of the plaintiff's case: K P Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197-198 (Beazley J); Western Export Services Inc v Jireh International Pty Ltd [2008] NSWSC 601 at [27]-[37] (Jagot J). If a plaintiff has suffered no real prejudice in the sense of expenditure of its own funds or incurring of liabilities in relation to the litigation, the significance of delay reduces or may substantially disappear: Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [81] (Einstein J). It has been said that "it is usual to fix an amount by way of security which is below the applicant's estimation, so as not to impose an undue burden on…the plaintiff and so that the applicant will bear the risk of over-estimation": Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd [2007] NSWCA 344, 65 ACSR 383 at [66] (Basten JA). 25 Depending on the circumstances, more than one application for security for costs may be reasonable. For example, in Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 an order was made that the applicant pay $5,000 into court as security for costs and that the parties had liberty to apply. There were delays caused by the applicant that tended to make the respondent's costs rise higher than expected, and it was estimated that their costs of the action would exceed $15,000. In the circumstances, French J ordered additional security in the sum of $10,000. CONCLUSION 26 In my view, further security should be ordered for future costs of matters that were reasonably not the subject of the earlier security for costs application. The earlier application assumed, and reasonably did not go beyond, a one day hearing on the preliminary issue of solvency. The current application assumes a two day hearing on all issues. I therefore allow security for the costs of an extra day's hearing and the related time required for preparation of evidence and preparation for the hearing in relation to any additional issue or issues. 27 On the defendants' solicitor's estimates, the costs of the extra day's hearing are approximately $9,000. The costs of the time required to prepare evidence and to prepare for hearing relating to an issue or issues apart from solvency is less clear but I am prepared to allocate another $20,000, being about two fifths of the solicitor's estimated combined costs in those respects. I also allow $10,000 for the costs of this security for costs application. That produces a total of $39,000 which I discount by 25 per cent and round to $30,000.

28 I turn to the rest of the claim for security for future costs. It substantially overlaps with, but is far greater, than the subject of the first security for costs application, which was settled at $38,000.

29 There is an element of uncertainty in estimating future costs. Thus, an application for further security for such costs may be reasonable if they have been found to be greater than originally anticipated for some reason or where circumstances have arisen that indicate that they are likely to be greater than originally estimated: eg Bryan E Fencott (above).

30 On the other hand, a plaintiff who settles a security for costs application or against whom a security for costs order is made, is entitled to proceed with the litigation on the assumption that the quantum of the security to which the settlement or order relates will not be reopened without good reason. Unless there is a good reason, a second application for security for costs which seeks to reopen an earlier assessment of security for the same costs by the Court or agreed between the parties, smacks of two bites of the cherry, is inefficient and duplicates costs.

31 In the present case, and apart from service of the plaintiff's evidence, not a lot seems to have happened to advance the substantive case since the quantum of security was agreed on the earlier application. The defendants have not proffered an explanation as to why the costs to date and the future estimated overlapping costs are so very much greater than that which they put forward on their original security for costs application, except to what seems a relatively minor extent relating to some unanticipated directions hearings, arising in part because of the plaintiff's default, and discovery matters. When that consideration is coupled with the apparent strength of the plaintiff's case on the evidence so far served, the fact that the defendants are in breach of an order requiring them to serve their evidence by a certain date so that nothing is known of the strength of their case, and the stage at which the application is made, on balance I am disinclined to reopen at large the quantum of the security for future costs agreed between the parties on the earlier application. However, I will allow an extra $10,000 for extra items of work which it may not have been reasonable to have anticipated when the earlier estimate was made and security agreed. That brings the total amount of additional security which should be ordered to $40,000. In the circumstances, there should be a stay of the security order until the defendants serve their evidence.

32 There have been in the order of 16 directions hearings, which prima facie is far too many, and the matter has progressed very slowly. The Court's expectation of practitioners includes that they will assist the Court to prepare the case for hearing by putting in place a timetable that will take the matter up to a date for hearing with the aim of having as few directions hearings as possible: Practice Note SC Eq 1 [5.3]. This is consistent with the facilitation of the just, quick and cheap resolution of the real issues, which is the overriding purpose of the Civil Procedure Act 2005 and rules of court: s 56. Having regard to the procedural history, I propose to make directions to progress the matter to hearing as quickly as is reasonable and with a view to avoiding any more directions hearings.

ORDERS 33 The orders of the Court are as follows:

(1) The plaintiff is to provide further security for costs in the sum of $40,000 by paying that sum into a controlled monies account with the plaintiff's solicitor. (2) Order 1 is stayed until the defendants serve their evidence. (3) The costs of the defendants' interlocutory process for security for costs filed on 11 March 2010 are costs in the cause. (4) The exhibits may be returned. (5) Direct: (a) the defendants to serve their evidence by 7 June 2010; (b) the plaintiff to serve any evidence in reply by 10am on 28 June 2010; (c) that the matter be listed before the Registrar on 30 June 2010 to set the matter down for hearing.

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