The matter before me is a notice of motion filed by the two defendants on 2 August 2024, seeking security for costs from the plaintiff together with some ancillary orders.
The motion is supported by affidavits of Mr Christopher John Morris, affirmed on 1 August 2024 and 23 September 2024 respectively.
Mr Morris was originally required for cross-examination, but instead has answered a series of questions that were sent to him by the plaintiff. The questions and answers are contained in the statement of Mr Morris dated 22 October 2024 (Exhibit A).
This is not the first time the defendants have sought security for costs. They did so by a notice of motion filed on 8 February 2023, which was also supported by an affidavit of Mr Morris (affirmed on 8 February 2023) and was heard by Registrar Jones. In her decision of 8 May 2023, the learned Registrar sets out the nature of the proceedings and then gives her reasons for dismissing the motion.
I will gratefully adopt the Registrar's description of the proceedings:
"1. These proceedings were commenced by Statement of Claim filed on 24 October 2022.
2. The plaintiff seeks payment of about $1.2 million which it pleads is due and payable to it under litigation funding agreements entered into with the defendants on 18 September 2019. A claim is also made for payment of pre-judgment interest and costs.
3. In their Defences filed on 29 November 2022, the defendants deny any breach of the agreements and deny being indebted to the plaintiff.
4. By Cross-Claim filed on 29 November 2022, the defendants seek a declaration that there were no such written agreements in place, or that the written agreements were void ab initio or ought be set aside."
Litigation Fund WCX Pty Ltd v Aversa [2024] NSWSC 1348 | Case summary | Zoe
Other important background facts are:
1. Both parties have sought leave to amend their pleadings. Both failed.
2. There are two outstanding costs orders in favour of the plaintiff. Mr Morris estimates their quantum at $8,686.05 and $9,861.20 respectively.
3. The matter has been set down for hearing, to commence on 25 November 2024. It has an estimate of 3 days.
The application relies on r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and on s 1335 of the Corporations Act 2001 (Cth). There is no real difference if the application is made under the Rules or under the Act.
Beazley J (as her Excellency then was) set out the relevant principles in Feltafield Pty Ltd v Heidelberg Graphic Equipment (Federal Court of Australia, Beazley J, 12 August 1994, unrep). The principles may be summarised in this way:
1. Whether the respondent is impecunious and could not meet an adverse costs bill.
2. The application should be brought without undue delay.
3. The merits of the applicant's case are relevant.
4. Whether the application is oppressive in that it is being used to stultify the litigation.
5. Whether there is a person or entity "standing behind the company" who is likely to benefit from the litigation and is able to provide the security.
6. Whether the respondent is impecunious because of the applicant's conduct.
The above considerations are of course supplemented by the factors listed in r 42.21 of the UCPR.
In his first affidavit, Mr Morris states that he has conducted a property owner search on the plaintiff. It does not own any property. An Australian Securities & Investment Commission (ASIC) search on 23 May 2024 indicated that "the plaintiff has shares in the total amount of $1.00".
On 28 June 2024 Mr Morris wrote to the plaintiff expressing concerns about the plaintiff's ability to meet an adverse costs order. He said that his clients had already spent $138,774.57 in costs. Mr Morris has not received a response to his letter.
In his first affidavit, at Annexure 'C', Mr Morris estimates another $51,372.75 will be incurred for the balance of the proceedings. In his statement Mr Morris agrees that his costs estimates are calculated on a solicitor-client basis and include the costs of the two motions for which the defendants have been ordered to pay the costs.
The plaintiff has submitted that I should not consider the motion unless there has been a material change of circumstances since the Registrar's decision. The plaintiff has submitted that the current motion is a 're-hash' of the former motion, pointing out that a number of the defendants' submissions are simply a "cut-and-paste" of their previous submissions.
I think there has been a material change in the relevant circumstances. When the matter was heard in 2023 the evidence revealed the plaintiff had $440,720 in a Commonwealth Bank account. It offered to retain $68,970 which was the amount then sought by the defendants as security.
The Registrar found that the defendants had failed to prove the threshold requirement of impecuniosity because of the $440,720 held in the bank. This fact had been derived from affidavit evidence of Mr Robert Coshott, the plaintiff's then sole director and shareholder.
There is no equivalent evidence form Mr Coshott, who maintains the same position in the company, in the present application. In fact, there is no evidence from the plaintiff at all. There is an overwhelming inference that the monies referred to by Mr Coshott before Registrar Jones no longer exist or are no longer available.
The deciding factor before the Registrar (the $440,720) is therefore absent from the present application. This has two consequences: there has been a material change in circumstances and the defendants have established the impecuniosity of the plaintiff.
This application was filed on 2 August 2024. The hearing date had been allocated on 1 May 2024. It might be thought that the application being so close to the final hearing date, that there had been undue delay in the making of the application. However, noting the application was being made for a second time and there was no response to Mr Morris' letter of 28 June 2024, I do not think the defendants have improperly delayed the motion.
The merits of the case are impossible to discern on the information before me. I will consider this as a 'neutral' consideration.
It may be that the requirement for security will stultify the litigation, but this is a consequence of the plaintiff not maintaining sufficient resources to fund the litigation.
Again, the absence of evidence from the plaintiff, does not allow me to find whether or not there is a person or entity standing behind the litigation who might benefit from the litigation and could provide funds to be used as security for the defendant's costs.
There is no evidence to suggest the plaintiff is impecunious because of the defendants' conduct.
Taking all of the above matters into account, including all relevant matters referred to in r 42.21(1A), I am satisfied that there should be an order providing for security for costs.
Turning now to quantum, I have already mentioned two factors in the plaintiff's favour:
1. The costs estimate is on a solicitor-client basis.
2. The costs include the motions where costs were ordered against the defendants.
These two factors must substantially reduce the amount sought. The two points were acknowledged by the defendants who, as the hearing progressed, reduced the amount sought, ending at $35,000. In addition, I am mindful that a too large amount will increase the risk of the litigation being stultified and will be more difficult to secure before the hearing date in November.
I think the reduction should continue to $30,000. I take the plaintiff's point that some of Mr Morris's estimates do not seem conservative, as asserted by the defendants.
The defendants have sought an order that the proceedings be dismissed if the security is not provided. I am not prepared to make such an order but will order that there be a stay failing the provision of the security.
I make the following orders:
1. The plaintiff is to provide security for costs in the sum of $30,000.
2. The security is to be provided within 14 days.
3. The security may be provided by any one of the following means:
1. Payment into court.
2. A bank guarantee.
3. A deposit bond.
1. If the security is not provided as ordered above, the proceedings are stayed pending further order.
2. The parties have liberty to restore the matter in respect of the above orders.
3. Costs of the Notice of Motion be costs in the cause.
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Decision last updated: 25 October 2024