K & J Acquisitions Pty Ltd & Anor v Manauzzi & Anor

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Cox v Journeaux (No 2) (1935) 52 CLR 713 Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; [1982] 1 All ER 354 Gould v Vaggelas (1985) 157 CLR 215 Chen v Karandonis [2002] NSWCA 412 Thomas v D'Arcy [2005] QCA 68; [2005] 1 Qd R 666 Visnic v Sywak & Ors [2008] NSWSC 427 Ballard v Multiplex Limited [2008] NSWSC 1019 CASES CITED : Johnson v Gore Wood & Co [2002] 2 AC 1 Harpur & Ors v Ariadne Australia Ltd & Ors (No 2) (1984) 8 ACLR 835 Maples v Hughes [2002] NSWSC 617 John Bishop (Caterers) Ltd & Anor v National Union Bank Ltd & Ors [1973] 1 All ER 707 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 Street & 7 Ors v Luna Park Sydney Pty Ltd & 3 Ors [2006] NSWSC 1317 Currabubula & Paola v State Bank NSW [2000] NSWSC 232 Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567 Duchman v Oakland Diary Co Ltd [1930] 4 DLR 989

TEXTS CITED : Law of Costs (2 ed, Canada Law Book Inc, 1987)

K & J Acquisitions Pty Limited (1st Pl) PARTIES : Kevin Carter (2nd Pl) Victor Manauzzi (1st Def) Maurizio Zappacosta (2nd Def)

COUNSEL : P Braham/J C McDonald (Pls) S J Philips (Defs)

SOLICITORS : Benjamin McInnes Lawyers (Pls) Minter Ellison (Defs)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION KIRBY J

2007/20074 K & J ACQUISITIONS PTY LIMITED & ANOR v Victor MANAUZZI & ANOR

1 KIRBY J: An action has been commenced in this Court by Further Amended Statement of Claim by a company (the first plaintiff) and its director (the second plaintiff). The action is against the company's former accountants and auditors (the defendants). The defendants, by an Amended Notice of Motion filed on 4 March 2009, seek two principal orders: First, that the action by the second plaintiff should be dismissed on the basis that no reasonable cause of action has been disclosed ( Uniform Civil Procedure Rules 2005, Pt 13 r 4).

Secondly, that the company (the first plaintiff) provide additional security for costs in the sum of $75,000.00. 2 Let me describe the nature of the action and then deal with each issue. The action. 3 K & J Acquisitions Pty Limited (the first plaintiff) was formerly known as Interco Pty Limited ("Interco"). It carried on a successful business designing and installing office refurbishments. Kevin Carter (the second plaintiff) was a director and shareholder (with a 44.5% shareholding). There was one other director, Mr Colin Alexander, who owned the remaining shares (55.5%). 4 Mr Alexander was delegated by the board to manage Interco's finances and administration. During the period 19 November 1998 to 5 June 2001, Mr Alexander made a number of unauthorised payments using Interco's money without the knowledge or consent of the second plaintiff, Mr Carter. The payments totalled $11,577,212.00. They had been made without first obtaining a signature of a second authorised signatory, as required by the company's bank, Westpac. The money had been used to purchase securities in companies overseas and buy foreign currency. Some of it had been deposited in a cash management account held by an overseas financial institution. Payments had also been made by Mr Alexander to lawyers and consultants in an attempt to recover money which had been lost. 5 Mr Carter first became aware of the unauthorised payments on 5 June 2001. The action, the subject of this motion, is against the accountants and auditors of Interco, who trade under the name of Zappacosta Manauzzi & Associates (the defendants). They had acted as the accountants of the company since November 1995, preparing taxation returns and other documents. They had also acted as the company's auditor in the financial year 2000. Essentially the case brought by the company and Mr Carter against the defendants is that they failed properly to describe the unauthorised payments in the financial statements prepared in the years 1999/2000. They also failed to alert Mr Carter, as the other director and shareholder, whom they knew or ought to have realised, had no knowledge of such payments. Had they alerted Mr Carter, the losses, according to the plaintiffs, would not have occurred or would have been much reduced. 6 Once the losses had been discovered, reparations were sought from Mr Alexander. He paid the company $1,265,484.03 and, in addition, the company recovered $1,752,176.14. An action was commenced against Westpac which, according to the Statement of Claim, yielded a net amount (after the payment of costs and expenses) of $4.5 million. The claim is therefore for the difference between the unauthorised payments and the money which, by reparation or litigation, has been recovered.

The Further Amended Statement of Claim. 7 In the Further Amended Statement of Claim, the first plaintiff asserts a number of causes of action in relation to the financial statements in 1999 and the auditors' accounts for the year 2000. They are: · breach of the 1999/2000 contracts; · negligence; · misrepresentation in the financial reports prepared each year; · misleading and deceptive conduct under the Trade Practices Act 1974. 8 The same causes of action, apart from "contract", are relied upon by the second plaintiff, Mr Carter. The pleading has been framed so that, in respect of those causes of action which they have in common, both plaintiffs relied upon the same assertions, the only difference being the paragraphs which dealt with damages. On the question of damage, the pleading is in the following form, taking "negligence" as an illustration: "8K. By reason of the defendants' negligence, the first plaintiff has suffered loss and damage. PARTICULARS The first plaintiff repeats the particulars to paragraph 8H above. 8KA. Further, or in the alternative, by reason of the defendants' negligence, the second plaintiff has suffered loss and damage. PARTICULARS The second plaintiff repeats the particulars to paragraph 8H above and states that he has suffered a reciprocal decrease in the value of his shares in the first plaintiff and/or in the payment of dividends by the first plaintiff." 9 The particulars previously supplied in paragraph 8H, incorporated by reference, were the particulars provided in the context of the company's (the first plaintiff's) contract count, that retainer being relevant, according to Mr Carter, to the scope of the defendants' duty in negligence. 10 Against that background, let me go to the first issue raised by the Amended Notice of Motion.

Does Mr Carter have a cause of action? 11 The defendants, in helpful written submissions, acknowledged the task which they had. The power to strike out pleadings will only be exercised in a plain and obvious case (General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129). The claim must be "hopeless", such that it should not be permitted to go to trial (Cox v Journeaux (No 2) (1935) 52 CLR 713). 12 The problem with the cause of action pleaded by the second plaintiff, according to the defendants, was that it offended what was known as the "Prudential principle". The principle derived from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; [1982] 1 All ER 354. In that case, the plaintiff was a shareholder in Newman Industries. He alleged a conspiracy by other directors to injure the company, and indirectly the shareholders, for the benefit of a third party. He sought damages, but failed. The House of Lords said this: (p 366) " ... if directors convene a meeting on the basis of a fraudulent circular, a shareholder will have the right of action to recover any loss which he has been personally caused in consequence of the fraudulent circular; this might include the expense of attending the meeting. But what he cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a 'loss' is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only 'loss' is through the company, in the diminution in the value of the net assets of the company. ..." 13 The principle has been adopted in Australia in Gould v Vaggelas (1985) 157 CLR 215, per Gibbs CJ at 219/20, Wilson J at 245 and Brennan J at 253. It was accepted by Beazley JA (Heydon and Hodgson JJA agreeing) in Chen v Karandonis [2002] NSWCA 412 (see also Thomas v D'Arcy [2005] QCA 68; [2005] 1 Qd R 666, per McPherson JA at 6; Brereton J in Visnic v Sywak & Ors [2008] NSWSC 427; McDougall J in Ballard v Multiplex Limited [2008] NSWSC 1019). The defendants therefore said this: (Defendants' WS: para [51]) "51. It is clear from this line of authority that: (a) the Second Plaintiff is not permitted to attempt to recover a loss which in reality is the same as that suffered by the First Plaintiff; and (b) in order to succeed against the Defendants, the Second Plaintiff must establish that he has suffered a loss which is personal to him and separate from any diminution in the value of his shareholding or loss of expected dividends." 14 Yet, according to the defendants, the only loss and damage which the second plaintiff has claimed as a result of the wrongdoing of the defendants is "a reciprocal decrease in the value of his shares in the first plaintiff and/or in the payment of dividends by the first plaintiff", as set out in paras 8KA, 8TA, 8ZA, 17A and 24 of the Further Amended Statement of Claim. No other loss or damage has been identified. 15 The second plaintiff responded by drawing attention to the speech of Lord Bingham in Johnson v Gore Wood & Co [2002] 2 AC 1 at 35. Lord Bingham identified three propositions emerging from the authorities. The first proposition was the "Prudential principle" identified by the defendants. It was expressed by Lord Bingham in these terms: (p 35) "(1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss. So much is clear from Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] 1 Ch 204, particularly at pp 222-223, Heron International Ltd v Lord Grade [1983] BCLC 244, particularly at pp 261-262, George Fischer (Great Britain) Ltd v Multi Construction Ltd [1995] 1 BCLC 260, particularly at pp 266 and 270-271, Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443 and Stein v Blake [1998] 1 All ER 724, particularly at pp 726-729." 16 The second plaintiff, however, relied upon the second and third principles which were expressed by Lord Bingham in these words: (p 35/6 ) "(2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. This is supported by Lee v Sheard [1956] 1 QB 192, 195-196, George Fischer and Gerber.

(3) Where a company suffers a loss caused by breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by a breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other." 17 The second plaintiff accepted that, were the company (the first plaintiff) to succeed, he would have no right to damages in respect of the same loss. His claim would then come within the first proposition of Lord Bingham. It would merely be "a reflective loss". The second plaintiff's claim is brought as an alternative to the company's claim, should that claim fail. Such a claim can be made, according to the plaintiffs, because it arises from an independent breach of duty to the second plaintiff. It can be pursued, consistent with the second principle, should it be determined that the company has no cause of action. 18 The possibility that the company may fail is not fanciful. The defendants have already raised, in the context of a previous motion, the suggestion that Mr Alexander's knowledge can be imputed to the company, he being the person delegated by the board to deal with administration and finance. The plaintiffs said this: (Plaintiffs' WS: p 10) "26. It is possible therefore that the Court will find that the only legal wrong committed by the Defendants in this case was done to the Second Plaintiff and not to the First Plaintiff company. In these circumstances the Second Plaintiff's claim for diminution in the value of his shares and/or loss of dividends and loss of salary will fall within the second of Lord Bingham's categories and the Second Plaintiff, to use the words of Lord Millett in Johnson v Gore Wood & Co at 62, 'can sue and recover damages for his own loss, whether of a capital or income nature, measured by the diminution in the value of his shareholding'." 19 It is noteworthy, according to the plaintiffs, that the various Australian cases referred to by the defendants, which have approved the "Prudential principle", have been cases brought by shareholders, where the company has not joined in the action (Thomas v D'Arcy (supra); Chen v Karandonis (supra); Ballard v Multiplex Ltd (supra)). 20 I accept the plaintiffs' submissions. The claim by the second plaintiff, insofar as it relies upon the diminution in share value, is the same claim as that made by the company. However, it arises independently and is pleaded in the alternative, to be relied upon should the company's claim fail. It is within Lord Bingham's second principle. 21 Further, additional particulars were belatedly given by the plaintiffs to the defendants (Ex A), which come within the third principle, that is, an additional loss personal to the second plaintiff, not shared by the company, that is said to arise from the defendants' breach. 22 Therefore, the defendants' strike out application fails. 23 There was, during the hearing, argument concerning costs on this aspect. The defendants said that it had not been clear until counsel for the plaintiffs outlined his submissions that the claim by the second plaintiff was made only in the alternative. Further, the particulars of the additional loss, which the second plaintiff now asserts, did not arrive until the morning of the hearing. It was therefore appropriate, even though the claim had not been struck out, that costs on this aspect should be awarded to the defendants. 24 The plaintiffs responded by pointing to the terms of the pleading and the particulars that had been supplied. The pleading specifically used the familiar expression, "further or in the alternative", before pleading the second plaintiff's claim. The defendants thereafter sought the following particulars of that claim by letter of 15 August 2008: (Affidavit Madafiglio 9.3.09: Annex A, p 6) "21. In relation to paragraph 8KA: (a) please specify each and every respect in which the second plaintiff asserts he has suffered a 'reciprocal decrease in the value of his shares in the first plaintiff'; ... " 25 On 19 September 2008, the solicitors for the plaintiffs responded in these terms: (Affidavit Madafiglio 9.3.09: Annex B, p 5) "21(a) The second plaintiff owned 44.5% of the first plaintiff. He claims, in the event that the first plaintiff is unsuccessful in its claims against the defendants, 44.5% of the amount of the losses sustained by the first plaintiff particularised in Clause 8H of FASOC as such losses were reflected in a reduction in the net equity of the first plaintiff on its balance sheet and/or in the payment of dividends by the first plaintiff." (emphasis added) 26 This correspondence, I believe, put the defendants on notice concerning the nature of the second plaintiff's claim. Whilst, at that point, there was no justification for the inclusion of the word "further" in the pleading (in the expression "further and in the alternative"), that word can now be justified by the particulars supplied shortly before the hearing. Although those particulars were late in coming, they are not the reason why the strike out application has failed. The claim as pleaded and particularised in the alternative, comes within the second principle of Lord Bingham, so that a strike out was not warranted in any event. The second plaintiff should therefore have his costs. 27 Let me pass to the second issue, which concerns the adequacy of the security which has already been lodged.

Should there be additional security? 28 K & J Acquisitions (the first plaintiff) is no longer trading. It has no significant assets. Its director, the second plaintiff, acknowledged that without support it would be unable to pay the costs of the defendants if ordered to do so (Plaintiffs' WS: para [3]). 29 The defendants, in support of their application, relied upon an affidavit of Ms Pamela Madafiglio, solicitor, sworn on 9 March 2009, which annexed a number of documents, including correspondence with the solicitors for the plaintiffs. Ms Madafiglio was not required for cross examination. On 14 May 2008, the defendants sought $150,000 security. On 27 May 2008, the plaintiffs offered $75,000 security, which the defendants accepted on 4 June 2008, reserving the right to seek greater security if the circumstances required. On 17 July 2008, the plaintiffs provided the agreed security in the form of a bank guarantee. 30 On 17 July 2008, the plaintiffs were granted leave to file a Further Amended Statement of Claim, which had been the subject of debate in a Notice of Motion. Both plaintiffs were ordered to pay the defendants' costs thrown away by reason of the amendments, as well as costs on the motion. The motion had proceeded before Registrar Bradford, where each party was represented by junior counsel. There had been a number of adjournments before the matter was ultimately determined in a hearing which occupied a morning or thereabouts. 31 On 29 October 2008, the defendants filed their Defence, together with a Cross Claim against Mr Alexander and the second plaintiff. On 24 November 2008, the solicitor for the defendants wrote to the solicitors for the plaintiffs enclosing an account of the defendants' costs on the Notice of Motion and the costs thrown away by reason of the amendments. They totalled $35,748.00. The assessment was in the following form: (Aff Madafiglio: Annex N) Notice of Motion To our costs of responding to plaintiffs' motion including briefing counsel, receiving and considering affidavits of Carter and Alexander, further amended statement of claim, drafting affidavit of Brad Cuff and Victor Manauzzi, and Court attendances $15,000.00 Counsel's Fees $9,775.00 Total Costs of Notice of Motion $24,775.00 Costs thrown away by reason of amendment To our costs of reviewing and advising on amended statement of claim, obtaining instructions and attendances at status conferences $10,973.00 Total Costs award $35,748.00

32 The letter of Ms Madafiglioi, which accompanied the account, said that there was a serious risk of insolvency in respect of the plaintiff company. She added: (Aff Madafiglio: Annex N) "Further the costs orders already made against the plaintiffs account for almost half of the security provided in this matter. Accordingly, it is the defendants' view that the $75,000.00 currently held by the Supreme Court does not represent adequate security for their costs in this matter. In the circumstances, we request that the plaintiffs either: (a) pay the defendants $30,000.00 on account of their costs of the notice of motion and thrown away by reason of the further amendment; or (b) provide further security for the defendants' costs in the amount of $35,000.00." 33 The solicitors for the plaintiff then asked for an itemised bill. The defendants immediately wrote back stating that the plaintiffs had no entitlement (not being a client) to such a bill (Aff Madafiglio: Annex Q). On 14 January 2009, the plaintiffs' solicitors responded in these terms: (Aff Madafiglio: Annex R) "Your clients currently have no entitlement to be paid the Interlocutory Costs, nor do they have any ability to have those costs assessed. Pursuant to UCPR 42.7(2) '[u]nless the court orders otherwise, costs [of any interlocutory application or other step in any proceedings], do not become payable until the conclusion of the proceedings.' The Court did not in this case, 'otherwise order'. ..." 34 The solicitors for the plaintiffs added that their clients did not intend to pay the interlocutory costs until the conclusion of litigation. On 3 February 2009, the defendants' solicitors wrote to the plaintiffs' solicitors stating that, unless the plaintiffs agreed to provide additional security by 5.00 pm the next day (4.2.09), the defendants would file a Notice of Motion prior to the directions hearing which was scheduled for 6 February 2009. 35 No consent was forthcoming. The Notice of Motion was duly filed, seeking additional security. Ms Madafiglio, an experienced solicitor, provided an estimate of the defendants' likely costs for each step in the litigation. The costs totalled $219,220.00. That estimate included solicitor and client costs. During the hearing the party and party costs were estimated to be approximately $150,000.00, upon the basis of Ms Madafiglio's estimate. 36 It was common ground that the second plaintiff is "a man of substance". I infer that, if ordered to do so, he could provide further security. Were an order for security made, it would not stultify the proceedings. Nor was it suggested that the defendants' actions alone had brought about the impecuniosity of the first plaintiff company. The original company, Interco, had been restructured. Rather, the plaintiffs resisted further security upon the following bases: · First, the matter which had excited the defendants' further application for security, namely the award of costs on the Notice of Motion to amend the Statement of Claim, was not relevant to an assessment of the adequacy, or otherwise, of the security already lodged. · Secondly, the cases suggested a principle that where there are two plaintiffs, one a company and the other a natural person, and an interlocking between their respective cases, security will not be ordered. · Thirdly, whatever the differences between the cases to be presented by each plaintiff, the defendants have been adequately protected by the security already provided, should the company's claim fail and the company be ordered to pay the defendants' costs. 37 Let me deal with each argument.

The interlocutory costs. 38 The assessment provided by the defendants in respect of the interlocutory costs is certainly large. I assume it includes solicitor and client costs. I approach the matter, therefore, upon the basis that perhaps two-thirds of that sum (or thereabouts) is owing by the plaintiffs. I also approach the issue upon an assumption that ordinarily such costs would be paid at the end of the litigation, there being no order to the contrary. 39 Now, the order in respect of the interlocutory costs was made against both plaintiffs for the whole amount. Mr Carter, a man of substance, is therefore jointly and severally liable for the whole amount. In these circumstances it was suggested, and I accept, that the award against the company is not relevant to the question of the adequacy of the company's security. The defendants may have recourse to Mr Carter for that amount.

A company and a natural person as plaintiffs. 40 In Harpur & Ors v Ariadne Australia Ltd & Ors (No 2) (1984) 8 ACLR 835, the Full Court of Queensland considered an application for security for costs in circumstances where there were a number of plaintiffs. Some were companies, where there was reason to believe they would be unable to pay the costs of the defendants were they to lose. Another was a natural person. Connolly J (Campbell CJ and Demack J agreeing) stated the principles in these terms: (at 841) "…what is the rule where there is more than one plaintiff? In such a case, all plaintiffs suing in the same interest and by the same solicitors and counsel, there is but one set of costs. If the defendants have an opponent who is worth powder and shot they have as much as any litigant is fairly entitled to. The court cannot by its orders guarantee a successful outcome in a practical sense to any party. It is thus no answer when security for costs is sought to say that a person of apparent substance may be able to make away with his assets within the jurisdiction before a judgment for costs can be executed: Re Apolinaris Company's Trade Marks [1891] 1 Ch 1 per Lord Halsbury LC at 3 sitting in the Court of Appeal. The 'two plaintiff' cases start with the situation in which one is out of the jurisdiction. Prima facie he ought to be ordered to provide security but his co-plaintiff is within the jurisdiction. In such a case it was considered that there was no ground for ordering security. See Sykes v Sykes (1869) 4 LR CP 645 at 648 per Byles J and Montague Smith J. This principle was held to apply even where the plaintiff within the jurisdiction was insolvent. I take the underlying reason to be that the defendant was really in no worse position than if he had been sued by a single plaintiff resident within the jurisdiction and insolvent. As Brett J remarked at 650, the cases show that, unless there is ground for making an order for security against all the plaintiffs, it cannot be made against any. One of the earlier cases was McConnell v Johnston [1801] 1 East 431; [1801] 102 ER 167 where it was held that if one of the plaintiffs reside within reach of the process of the court, security will not be required for the costs although the other plaintiff be a foreigner residing abroad and though the first mentioned plaintiff be a bankrupt in execution for debt. In D'Hormusgee & Co and Isaacs & Co v Grey (1882) 10 QBD 13 the same result was reached by Denman and Manisty JJ affirming Cave J in an action brought against a defendant as a common carrier by two plaintiffs, one resident abroad. The statement of claim alleged a contract by the defendant with the plaintiffs jointly and in the alternative with each of the plaintiffs separately. Although their Lordships cited no authority both referred to the practice in relation to security for costs before the Judicature Act. The critical point was that each plaintiff was liable for the whole of the defendant's costs. " (emphasis added) 41 His Honour then considered a qualification upon that rule. He said: "Now in John Bishop (Caterers) Ltd v National Union Bank Ltd [1973] 1 All ER 707 Plowman J made an order for security against a company although there was a co-plaintiff within the jurisdiction who was a natural person. His Lordship distinguished the earlier cases on the footing that there was in those cases a complete overlap as he put it of the causes of action. Accordingly, as he was not satisfied that the natural person would necessarily be ordered to pay all of the defendant's costs he ordered security. That is concededly not this case." 42 The same issue arose on an application for security in Maples v Hughes [2002] NSWSC 617. According to the plaintiffs, the case factually was remarkably similar to the present case. The first plaintiff was a natural person and the second, a company. Both commenced an action against a solicitor, alleging negligent advice concerning a proposed subdivision. The company claimed a loss allegedly suffered in the acquisition of the land. The first plaintiff (a director and shareholder of the company) claimed damages, being the diminution in the value of his shareholding in the second plaintiff. Studdert J, in that context, having quoted and adopted the judgment of Connolly J in Harpur, said this: (at [18]) "18 It seems to me that when one analyses the nature of the claim, Mr Whittle's submission is correct. The claims of the first plaintiff and of the second plaintiff are completely interlocked both as to liability and as to damages, and if the defendant is successful costs would ordinarily follow the event. On the material presently before the Court, it seems to me that the first plaintiff would be exposed to the liability of a costs order for all of the defendant's costs if the defendant succeeds." 43 Counsel for the defendants sought to distinguish these cases upon the basis that the claim of each plaintiff was substantially the same, so that they were "completely interlocked". Attention was drawn to a number of cases, where security had been ordered, because the claims of the corporate plaintiff and the natural person were not "interlocked". The first such case was referred to by Connolly J in Harpur above, namely John Bishop (Caterers) Ltd & Anor v National Union Bank Ltd & Ors [1973] 1 All ER 707. In that case Plowman J was taken to an authority dealing with an application for security, where one plaintiff lived abroad and another within the jurisdiction. It was determined that the person living abroad did not have to provide security. Plowman J, in that context, said this: (at 710/11) "I am not prepared to express the view that D'Hormusgee & Co v Grey ((1882) 10 QBD 13) was wrongly decided, but there are, I think, two observations to be made about those cases. 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 there 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-a-vis the plaintiff company. ... " (emphasis added) 44 Bergin J, in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609, adopted that analysis (para [80]) and said this: (para [84]) "[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." 45 In Street & 7 Ors v Luna Park Sydney Pty Ltd & 3 Ors [2006] NSWSC 1317, a case which the defendants suggested provided a useful analogy in the present context, Brereton J made the following comment: (paras [28] and [29]) "28 However, this is not an absolute rule, as appears from the judgment of Plowman J in John Bishop (Caterers) Ltd v The National Union Bank Ltd [1973] 1 All ER 707; see also Fiduciary Ltd v Morning Star Research . Where there is a complete identity between the corporate plaintiff and the individual plaintiff, so that all plaintiffs are suing in relation to one and the same defendant, and all plaintiffs must succeed or fail together, security will not ordinarily be ordered against only one of them [ Bishop , 709-710]. But where the various plaintiffs' claims have different elements and aspects, so that they will not all necessarily succeed or fail together, although the existence of individual plaintiffs is a factor that diminishes the defendant's claim to be entitled to security against the corporate plaintiff, it does not extinguish it [ Interwest Ltd v Tricontinental ]. And where the degree of overlap between the claim of the individual and corporate plaintiffs is comparatively small, such that separate orders for costs might be made in respect of each of the plaintiffs, it is usually appropriate that an order for security be made [ Bishop , 716; Fiduciary v Morning Star , 33-36]. 29 In the present case, while all the plaintiffs rely on similar facts, they do not sue on the same cause of action. This is particularly so in respect of the Trade Practices claims. Each plaintiff separately has to prove reliance, and each plaintiff separately has to prove that plaintiff's own damages. Importantly, it is only in respect of the Trade Practices claims that liability is asserted against the third and fourth defendants." 46 Each counsel analysed the Further Amended Statement of Claim in order to determine the degree to which the actions by each plaintiff were interlocked. The plaintiffs said the same issues will arise in each case and the same evidence will be called to address those issues. Whilst the company relied upon contract counts, which were not available to Mr Carter, the evidence to be called in relation to the defendants' retainer by the company would also be relevant to the allegations of negligence made by both the company and Mr Carter. Hence, according to the plaintiffs, the cases to be presented on behalf of each plaintiff were substantially the same. 47 The defendants responded that there were differences between the position of each plaintiff. Indeed, to come within the Prudential principles the second plaintiff had to establish an independent cause of action. Further differences, as yet unforeseen, may also emerge. 48 I believe, however, that the cases to be presented by the first and second plaintiffs are, on the pleadings, substantially the same. There is not complete overlap, but the two cases appear to be very similar. Since they are not identical, I should, nonetheless, consider whether the existing security can be said to be adequate.

The existing security. 49 The existing security is substantial ($75,000.00). Counsel for the plaintiffs pointed out that it represented approximately half the party and party costs estimated by the defendants' solicitor, Ms Madafiglio. That estimate, moreover, included the defendants' cross claim, which the plaintiffs assert was not appropriate on a security application. 50 Here, there are four possibilities as to the outcome of these proceedings:

Second, both plaintiffs fail. Third, the first plaintiff (the company) wins and the second plaintiff (Mr Carter) fails. Fourth, the first plaintiff (the company) fails and the second plaintiff (Mr Carter) wins. 51 If both plaintiffs win (alternative (1)), or the corporate plaintiff wins (alternative (3)), there is no difficulty. There will be no order against the company. The protection which the defendant potentially requires arises under alternatives (2) and (4) above, that is, both plaintiffs fail or the company fails. 52 What, then, is the extent of the protection which the defendants arguably need? According to the plaintiffs, there is a principle applied in the taxation of costs which is relevant. It is known as "the rule of thumb". It was examined in some depth by Einstein J in Currabubula & Paola v State Bank NSW [2000] NSWSC 232, in paras [89] to [104]. The rule of thumb, as applied between defendants represented by the same solicitor, was stated by Scrutton LJ in Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567. In that case, the two defendants were represented by the same solicitor. One was successful and one was not. The costs of the successful defendant were taxed at only half of the general costs of the action, applying the rule of thumb. Scrutton LJ gave the judgment of the Court (which included Atkin LJ), and said this: (at p 569) "As the principle of the allowance of costs is that the successful party is to be recompensed the liability he has reasonably incurred in defending himself, if he is only liable to his solicitor for half of certain joint items he cannot be allowed the whole of them, even though by some separate agreement he has made himself liable for the other half, primarily the liability of another and unsuccessful defendant." 53 What is the position where there are several plaintiffs and some only succeed? Einstein J referred to the judgment of Middleton JA of the Ontario Supreme Court in the Canadian case of Duchman v Oakland Diary Co Ltd [1930] 4 DLR 989, where the following was said: (at 992) "It must be borne in mind that there has been from the earliest days a marked distinction in the way in which costs awarded to a successful plaintiff and costs awarded to a successful defendant have been dealt with by the Courts. The retainer of a solicitor by several plaintiffs is a joint and several retainer and each plaintiff is prima facie liable to the solicitor jointly and severally for all the costs of the action; and for this reason, satisfactory or unsatisfactory, costs awarded to one plaintiff to secure him, or indemnify him, carry all the general costs. In the case of defendants the contrary rule has always prevailed; unless the retainer otherwise provides, each of several defendants employing a common solicitor becomes liable to the solicitor only for an aliquot portion of the general costs, and so for his indemnity is allowed only the share of the costs for which he is liable." 54 Einstein J, having considered these and other authorities, reached the conclusion that the correct position had been stated by the author of a Canadian text, Law of Costs (2 ed, Canada Law Book Inc, 1987, para 208.1), Mr Mark Orkin QC, when he said this: (para [104] of Einstein J's judgment) "Where several plaintiffs sue by the same solicitor, and one succeeds while the others fail, the successful plaintiff will be entitled to recover the whole of his costs from the defendant and not merely a proportion. The unsuccessful plaintiffs will be obliged to pay the defendant's costs as occasioned by their having been joined unless the Court otherwise orders." 55 If Mr Carter (the second plaintiff) succeeds, and the company fails (alternative (4)), the defendants will only be entitled to the particular costs arising from the joinder of the first plaintiff in the action, not the general costs. The security already lodged is more than adequate to cover that possibility. If both fail (alternative (2)) then, at least in circumstances of litigation which is completely interlocked, the position will be, as pointed out by Studdert J in Maples v Hughes, that the natural person will be exposed to a costs order for all of the defendants' costs (para [18]). Security would not be appropriate. 56 Here, I have determined that, on the pleadings, the overlap between the cases of each plaintiff is substantial. Assuming both plaintiffs fail, it is likely in my view that costs would be awarded against both. The defendants could then look to either. If the costs order discriminated between the two, and ordered a greater proportion against the company, again I cannot imagine that the difference would exceed the security lodged by the company. The defendants in that circumstance could look to Mr Carter for the balance. There is, accordingly, no warrant in that event for increasing the security already lodged. 57 The action is at a relatively early stage. Issues may emerge, not apparent on the pleadings, which relate only to the company, such that costs in relation to such issues may be awarded against the company and not Mr Carter. If that were to happen, questions may arise as to the adequacy of the present security. At this point, no such issues have been identified and none are apparent.

Order. 58 I therefore make the following orders:

1. The Amended Notice of Motion of 4 March 2009 by the defendants is dismissed.

2. The defendants should pay the plaintiffs' costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.