Litmus Australia Pty Ltd (in liq) v Paul Brian Canty & Ors

CATCHWORDS : PROCEDURE - Costs - Security for costs - Discretionary considerations - Delay - Bona fides and strength of claim - Stultification of litigation - Cause of plaintiff's impecuniosity - Security ordered - Quantum. - CORPORATIONS - Standing - Strike-out of parts of pleadings in which plaintiff sought declarations of contravention under s 1317E of the Corporations Act 2001 (Cth) - Lack of standing in plaintiff, under s 1317J, to make application. - (CTH) Corporations Act 2001, ss 1317E, 1317J, 1335 - (NSW) Uniform Civil Procedure Rules 2005, r 42.21(1)(d)

LEGISLATION CITED : Corporations Act 2001 (Cth) Uniform Civil Procedure Rules 2005 (NSW)

Litmus Australia Pty Limited v Canty & Ors [2006] NSWSC 196; (2006) 57 ACSR 71 Canty v The Deputy Commissioner of Taxation (2005) 63 NSWLR 152 Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326 CASES CITED : Rickard Constructions Pty Ltd v Allianz Australia Insurance [2002] NSWSC 1162 Fiduciary Limited v Morningstar Research Pty Limited (2004) 208 ALR 564 Bell Wholesale Co Limited v Gates Export Corporation (1984) 2 FCR 1 BPN Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 Brundza v Robbie & Co (1952) CLR 174

Litmus Australia Pty Ltd (in liq) PARTIES : v Paul Brian Canty & Ors

COUNSEL : Applicants: C J Bevan & A Iuliano Respondent: J T Johnson

SOLICITORS : Applicants: Evangelos Patakas & Associates Respondent: Marsdens

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2189/05 Litmus Australia Pty Ltd (in liq) v Paul Brian Canty & Ors JUDGMENT 1 HIS HONOUR: This is an application by the first and third defendants for security for costs in the amount of $577,077. The application is brought under s 1335 of the Corporations Act 2001 (Cth) and r 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW). 2 The plaintiff company is in liquidation. It is the sole plaintiff. The liquidator is not a party to the proceedings. The plaintiff is insolvent. There is no issue that the court has jurisdiction to make an order for security for costs. There is reason to believe that the plaintiff will be unable to pay the costs of the first and third defendants if they are successful in their defence. That is so notwithstanding that an order for costs against the plaintiff would have priority as an expense of the liquidation. 3 The plaintiff advanced four grounds as to why security for costs should not be ordered. They were, first, delay; secondly, that the plaintiff's claim was bona fide and prima facie strong; thirdly, that an order for security in the amount sought would stultify the litigation; and fourthly, that the plaintiff's present impecuniosity has been brought about by the conduct of the first and third defendants about which the proceeding has been brought. The plaintiff also contests the quantum of the security sought. Nature of the Proceedings 4 The plaintiff was placed into voluntary administration on 2 April 2001. On 4 May 2001, a meeting of creditors resolved that it be wound up. The first defendant is a former director of the plaintiff. The time at which he ceased to be a director is one of the matters in issue. It is admitted that since about 24 June 1999 he has been a director of the third defendant. 5 The originating process was filed on 31 March 2005. The plaintiff sought declarations that the first defendant had breached various duties as a director or officer of the plaintiff by effecting, permitting, or failing to stop the transfer of the business operations and undertaking of the plaintiff to the third defendant. The plaintiff claimed that the third defendant had been involved or knowingly concerned in the first defendant's breaches of duty. It sought compensation under s 1317H of the Corporations Act or, alternatively, equitable compensation or, alternatively, damages pursuant to s 1324(10) of the Corporations Act. 6 The first and third defendants moved to strike out the originating process. The originating process was supported by an affidavit of the liquidator, which merely exhibited transcripts of examinations and documents. The liquidator did not depose to the material facts or identify the causes of action relied on. 7 In his judgment of 28 March 2006, (Litmus Australia Pty Limited v Canty & Ors [2006] NSWSC 196; (2006) 57 ACSR 71; at [26]-[27]; 76-77, Barrett J said: "26 The liquidator's affidavit merely says that each of the first and second defendants was examined pursuant to s.596A in August 2003 and annexes a transcript of each examination, together with the several documents that were produced at the examinations and marked for identification. Among the documents are a draft agreement for the sale of business and purported minutes of meetings of directors of Quality Images Australia Pty Ltd (as the plaintiff was formerly called) on 7 and 31 August 1999 recording certain resolutions about that company's ceasing manufacturing and that the third defendant 'would takeover the former company's business on the following terms' (9 August) and 'would commence trading and take over the said business' (31 August). Each examinee was examined about these matters and the transcripts record the questions and answers on the subject. This diffuse collection of material buried in long records of examinations is apparently said by the plaintiff to represent or convey the facts upon which the claims in the originating process are made.

27 The plaintiff's approach to this matter has been quite unsatisfactory. While it cannot be said that, as things now stand, the plaintiff has failed utterly to show any factual substratum and to advance any evidence at all in support, it can certainly be said that it has failed to outline its case with any acceptable degree of precision. This is because such material as the plaintiff has produced lacks particularity. The matter is one which, as both sides have recognised, clearly calls for a statement of claim. Yet the plaintiff has not, to this point, produced one. " 8 His Honour ordered that a statement of claim be filed within 14 days, failing which the originating process would be struck out. His Honour also ordered that the plaintiff pay the first and third defendants' costs of the proceedings to that date and the costs of the defendants' interlocutory process. 9 The plaintiff filed a statement of claim on 10 April 2006. The first paragraph of the relief claimed seeks declarations pursuant to s 1317E of the Corporations Act that the first defendant contravened ss 180(1), 181(1) and (2), 182(1) and (2) and 183(1) and (2) of the Corporations Act. The plaintiff also seeks declarations that the third defendant was an accessary or person involved in the third defendant's (a mistake for the first defendant's) contravention of those sections. 10 The plaintiff has no standing to apply for declarations under s 1317E of the Corporations Act (s 1317J(1), (2), (3A) and (4)). The plaintiff's counsel did not oppose an order that para 1 of the relief claimed in the statement of claim be struck out. I so order. 11 The plaintiff also claimed compensation under s 1317H, equitable compensation and damages under s 1324(10). The plaintiff pleaded that between 1 June 1999 and 26 June 2000 it transferred its business, assets and undertaking to the third defendant. This transfer was defined as "the transaction". The plaintiff pleaded that the first defendant was a director of the plaintiff up to 31 March 2000. It pleaded that he owed the duties prescribed by the Corporations Act. It pleaded that he breached those duties by joining in, participating or allowing the transaction to proceed. The grounds for these contentions were not pleaded with any particularity. 12 The plaintiff alleges that, at the time of the transaction, it was insolvent or was likely to become insolvent after the transaction took effect. In particulars later provided, the plaintiff resiled from a contention that the plaintiff was insolvent before the transaction took effect. The plaintiff alleged the defendant failed properly to document or record the transaction, that the transaction was not in the best interests of the company, and that it was carried out for an improper purpose. No facts are pleaded to support these conclusions. 13 An alleged particular of the first defendant's breaches of duty as an officer and as a director of the plaintiff was as follows: " He allowed the transaction to continue and allowed the plaintiff to continue paying debts of the plaintiff in circumstances where he knew that he or the first defendant would not be able to pay the plaintiff in accordance with the terms of the transaction. " (Paras 14(g) and 16(g)).

14 I infer that the reference to the "first defendant" is either to the second defendant or the third defendant. 15 Paragraph 18 alleges that the plaintiff suffered loss and damage by the first defendant's contraventions of his duties. The alleged loss and damage is particularised as being: " (a) The total amount of the debts, expenses and other outgoings that it (the plaintiff) continued to pay during the transaction.

(b) The purchase price the third defendant would pay pursuant to the terms of the transaction. " 16 It is alleged that the third defendant was a knowing participant in, or an accessary to, the conduct of the first defendant and is jointly liable for any loss or damage suffered by the plaintiff. There is no allegation that the third defendant breached any agreement to which it was a party. 17 However, so far as can be inferred from the pleading, the plaintiff's case is that the first defendant caused the plaintiff to enter into, or that he failed to prevent the plaintiff from entering into, a transaction which comprised, or had as an element, an agreement by someone, presumably the third defendant, to pay a purchase price for the business, assets and undertaking of the plaintiff, and to take over responsibility for payment of the plaintiff's debts. That inference arises from the terms of paras 14(g), 16(g) and 18 of the statement of claim. No terms of such an agreement are pleaded. No breach is pleaded. But the damage claimed would seem to follow from the non-performance of such an agreement. 18 Extensive requests for particulars were made by the first and third defendants' solicitors on 5 May 2006. Those requests were responded to on 27 September 2006. The response does not make the plaintiff's case much clearer. There was no direct response to a request that the plaintiff specify whether the alleged transaction was made pursuant to an agreement, and if so, to identify it, and to provide particulars. However, particulars were given of various documents or agreements alleged to constitute agreements for the sale of equipment, goodwill and the balance of the plaintiff's assets. Although it was said that no formal agreement was executed, on the whole the particulars confirm the impression that the plaintiff's case is that an informal agreement was made and not performed. 19 On the hearing of the present application for security for costs, counsel for the plaintiff identified its case as being that although there were negotiations for the transfer of the company's business and assets to the third defendant, and although informal agreement was reached on certain terms, there was no agreement that the parties would be bound by those terms, and therefore no concluded agreement. The plaintiff complains that notwithstanding the absence of such an agreement the company's equipment was transferred to the third defendant, the third defendant took over its goodwill, that is its customer base and trading name, and the third defendant collected its debts. 20 The plaintiff, it was said, claims as damages, or seeks compensation for, the value of the assets so transferred, and the value of the goodwill which the first defendant allowed the third defendant to take. As I understood the plaintiff's case, it was that to the extent the third defendant could prove it had paid creditors of the plaintiff, it would then be entitled to a credit or a set-off. But the claim for compensation or damages was for the loss of such assets. This way of putting the plaintiff's case and identifying its losses is at odds with the statement of claim, and the particulars in paras 14 and 16(g) and 18 which I have quoted. 21 Unsurprisingly, the defence to the statement of claim does not illuminate the issues further. I understood from the submissions of counsel for the first and third defendants that their case is that the third defendant was to buy the plaintiff's equipment at book value, that the third defendant would collect the plaintiff's receivables and pay off the plaintiff's trade creditors. To the extent that the trade creditors paid by the third defendant exceeded the receivables collected, there would be an offset against the price. The third defendant contends that it paid all the trade creditors and paid more than the book value of the equipment, and claims to be a creditor of the plaintiff accordingly. 22 The first defendant has been found to be liable to the Deputy Commissioner of Taxation for amounts of group tax instalments which the plaintiff failed to deduct from the wages or salaries of its employees (Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152). I was told that the amount of the judgment, with interest, exceeds $500,000. Prima facie, on payment of that judgment the first defendant will be entitled to set off the amount paid from any amount for which he may be found liable to the plaintiff (Corporations Act, s 553C). 23 It is apparent from this description of the pleadings that, even now, the preparation of the case for hearing, and the identification of issues, is not well advanced. The difficulties with the plaintiff's pleading are of particular relevance to its contention that the apparent strength of its claim is a ground for refusing an order for security for costs. The state of the pleadings is also relevant to determining what work has to be done by the first and third defendants to meet the claim. 24 I turn to the four grounds relied upon by the plaintiff as reasons why the discretion to order any security for costs should not be exercised. Delay 25 The first ground relied on was delay. The interlocutory process seeking security for costs was filed on 15 February 2007. The plaintiff's counsel identified the relevant period of delay as being the period between 27 September 2006, when particulars were provided, and 15 February 2007. I readily acknowledge that applications for security for costs should be made promptly and that delay may be a good discretionary reason for refusing to make an order. However, in the circumstances of this case, it does not lie in the plaintiff's mouth to complain of delay. Neither in its originating process, nor its statement of claim, nor even in the particulars provided, has it provided a clearly formulated statement of its claim. I regard the delay between 27 September 2006 and 15 February 2007 in filing an application for security for costs as being of little significance. 26 The first and third defendants were entitled to some little time to try to estimate the ambit of the case they have to meet. Moreover, the relevance of delay to applications for security for costs is usually that, during the period of delay, the plaintiff would have spent money on the litigation which will be wasted if the proceedings are brought to an end because security cannot be provided. No such claim was advanced by the plaintiff in this case. The plaintiff acknowledged that it could not point to prejudice arising from delay. To show prejudice it generally must appear that not only will the plaintiff be unable to provide the required security from its own resources, so that costs incurred during the period of delay would have been wasted, but also that those standing behind the plaintiff who could be expected to benefit from the litigation are unable to provide the required security (Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326 at 333; Rickard Constructions Pty Ltd v Allianz Australia Insurance [2002] NSWSC 1162 at [17]-[18]). I will deal with these points further later in these reasons, but it does not appear that any such prejudice could be established. I do not accept that delay is a reason for refusing the security sought. Bona Fides and Strength of the Plaintiff's Claim 27 The second ground relied on was that the claim was made bona fide and that the plaintiff's claim is apparently strong. I accept that the plaintiff's claim is brought in good faith. I accept it may have merit. I accept also that the liquidator is in a difficult position in having to try to piece together, from company records which may be inadequate, what happened in relation to the transfer of the company's assets. It appears to be undisputed that assets were transferred to the third defendant, and that the first defendant is a director of that company, or was at the time at which this was done. However, whether the first defendant was a director of the plaintiff at that time is a matter of contest. 28 It is a rare case in which a court is able to form any view as to the strengths of the respective parties' cases on an application for security for costs, so as to influence its discretion in ordering security for costs (Fiduciary Limited v Morningstar Research Pty Ltd (2004) 208 ALR 564 at 574 [37]-[39]). It is not possible to do so in this case where the plaintiff's claim is not articulated with precision, and where its case as articulated by counsel on the hearing of its application differs in important respects from its case as pleaded. Moreover, there is no quantification of its claim against the first and third defendants, at least on the basis of its claim as articulated during argument. Also, the first and third defendants may be entitled to raise set-offs against the plaintiff's claim. I do not regard the claimed strength of the plaintiff's claim as a factor against ordering security.

Whether an Order for Security for Costs Would Stultify the Litigation 29 The third ground relied on was that to order security in the amount sought would be to stultify the litigation. The liquidator deposed that the plaintiff's costs of the litigation are being funded by a Mrs Margaret Aitken. The liquidator says that she is a creditor for in excess of $1,000,000. It appears from a report to creditors that she is a former director of the company. I was told that she holds a charge over the company's assets, although the administrator's report to creditors states that ASIC's data base revealed that her charge was satisfied and had been discharged on 14 October 1999. Nonetheless, it was common ground that any recovery from the first to third defendants up to the amount of her debt would, in all probability, be applied for her benefit. 30 The liquidator deposed that the significant claims made by creditors included claims of the Australian Taxation Office and of Mrs Aitken, in her case, being a claim in excess of $1,000,000. He deposed: " (2) I have a funding agreement with Margaret Noreen Aitken dated 8 September 2005 annexed, marked 'A'.

(3) I hold $150,000 on term deposit specifically to cover an adverse costs order or order for security for costs.

(4) Further, the agreement provides for funding to carry out litigation.

(5) The significant claims made by creditors of the plaintiff are the Australian Taxation Office for $1,233,000 and Margaret Aitken in excess of $1,000,000.

(6) I have written to the Australian Taxation Office to inquire as to whether they would fund litigation but [they] declined to do so.

(9) On the material presently available to me the only funding available is the term deposit. Therefore, if an order for costs is made higher than the term deposit, it is unlikely proceedings can continue. "

31 There is no evidence that Mrs Aitken is unwilling, let alone that she is unable, to provide security beyond the $150,000 provided on term deposit if security for costs were ordered in excess of that sum. In Bell Wholesale Co Limited v Gates Export Corporation (1984) 2 FCR 1 at 4, the Full Court of the Federal Court said: " In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts. "

32 That passage has frequently been applied. As it is not established that Mrs Aitken (who is the party whom it appears would primarily benefit from the plaintiff being successful in the litigation) is unable to provide security in the amount sought, or indeed that she is unwilling to provide such security as may be ordered, I reject the contention that to order security for costs would stultify the litigation. Defendants the Cause of the Plaintiff's Impecuniosity 33 The fourth ground relied on was that the first and third defendants were the cause of the plaintiff's impecuniosity. This factor is not to be considered in isolation from the argument that to order security would be to stultify the litigation (BPN Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 346; Fiduciary Limited v Morningstar Research Pty Ltd at 587-588 [101]). In any event, I cannot conclude from the documents tendered on this application that the transfer of assets to the third defendant was the cause of the plaintiff's impecuniosity. No such conclusion could be drawn without at least identifying what assets were transferred, what their value was, and what was the value of the plaintiff's existing liabilities which the third defendant satisfied. The documents tendered do not establish these matters. Those matters go to the heart of the dispute to be litigated. 34 It is not possible to say that the first and third defendants are the cause of the plaintiff's present impecuniosity without trying the case. Quantum of Security 35 Accordingly, it is appropriate to make an order for security for costs. The question is what should be the amount of security. 36 Notwithstanding that the litigation has been on foot for two years, it is still at an early stage. I do not blame the first and third defendants for that. The fault appears to lie with the deficiencies in the plaintiff's affidavit filed in support of the originating process to which Barrett J referred, and to the deficiencies in the statement of claim. Moreover, because of the absence of a definition of the issues it is hard to gauge what needs to be done. 37 The solicitor for the first to third defendants, Mr Patakas, deposes that, in his view, the main issues will involve the following: " 9. In general I consider that the main issues for determination in this proceeding are those I have set out in the schedule which is annexure 'A' and the scope of those issues shall have a bearing on the work required by the first and third defendants for the preparation for the hearing of this matter: (a) a determination of the terms of the agreement between the plaintiff and Ausasia in respect of the transfer by the plaintiff to Ausasia of the plaintiff's business and assets; (b) a determination of the date of the transfer by the plaintiff of its business and assets to Ausasia; (c) a determination of the accuracy of the financial statements of the plaintiff for the years prior to 31 August 1999 being the date on which it is alleged the plaintiff ceased to trade, including but not limited to the following: (i) the existence or non existence of the plaintiffs' unencumbered plant & equipment; (ii) the book value of the plaintiffs' unencumbered plant & equipment; (iii) the value and identity of the plaintiff's trade debtors; (iv) the value of the plaintiff's trade creditors; (v) the value of the plaintiff's leased/hired plant and equipment and the plaintiff's liabilities for such equipment; (vi) the value of the plaintiff's stock; (vii) the amount of the plaintiff's liabilities for employment entitlements; (viii) the amount of Litmus tax liabilities; (d) the circumstances of transaction associated with the transfer of the various printing and related equipment which were financed by GE Capital; (e) the circumstances of all other transactions complained of by the plaintiff in the Plaintiff's FBP; (f) the collection of trade debts by the first and third defendant and the collection of approximately $580,000 of Litmus' trade debts by LA which the PC claims were misappropriated by LA; (g) the payments made by the third defendant pursuant to the set off arrangement that was part of the agreement alleged by the first and third defendants for the sale/transfer of the assets of the plaintiff; (h) the solvency of the plaintiff and various transaction undertaken by the second defendant, LA. (i) a reconstruction of the true financial circumstances of the plaintiff. " (Mr Patakas' references to "Ausasia" are to the third defendant; "LA" means Mr Lindsay Aitken, the second defendant; "PC" means the first defendant; and "FBP" means further and better particulars.)

38 I accept that the matters raised in paras (a) to (g) all arise and are likely to have to be determined. Discovery has not yet been given, but it is not expected to be a major task. 39 The first and third defendants foreshadow seeking quantities of documents by subpoenas to third parties, including suppliers of equipment and financiers. More than fifty such persons are identified. I find it hard to see how that could be warranted. I can readily understand that documents of the plaintiff company may be missing. There is evidently a dispute between Mr Aitken and the first defendant, and it would not be at all surprising if any one of them and the liquidator, or all three, asserted that documents were missing. Nonetheless, the present materials do not show why such a very wide casting of the net for documents relating to the plaintiff's assets and liabilities would be warranted. 40 I accept Mr Patakas' assessment that the first and third defendants would need to engage the services of an accounting expert to review the accounts of the plaintiff, and to give an opinion as to the plaintiff's solvency. I also accept his assessment that a valuation expert would need to be retained to express opinions on the value of plant and equipment. 41 The first and third defendants have not presented an estimate as to the likely quantum of costs which would be recovered on an assessment. Mr Patakas has made an assessment of costs on a solicitor and client basis, using his firm's standard charge-out rates for partners and solicitors, namely $400 per hour plus GST for a partner, and $220 per hour plus GST for an employed solicitor. Counsels' fees are also estimated on what is said to be their rates of charge, namely $6,000 and $2,150 per day and $600 or $240 per hour plus GST. As these are rates for junior counsel I find it difficult to conceive that they would be allowed on assessment. I was invited to discount those rates by one third. Even so, without evidence from a costs assessor, I would not accept that it would be likely that fees for junior counsel would be allowed on assessment at $4,000 per day. 42 Mr Patakas's estimate of costs is divided into various tasks. He allows for preparing affidavits from about twenty-nine lay witnesses, as well as from expert valuers and accountants. They were summarised by him as follows: " (a) About 4 witnesses from suppliers of plant & equipment to Litmus and the third defendant regarding the supply and values of plant & equipment;

(b) About 4 witnesses from financiers (including equipment leasing companies; factoring companies etc);

(g) About 5 witnesses from Litmus' Trade Debtors relating to sums recovered by L Aitken;

43 The materials do not demonstrate why such a large number of persons would be required to give evidence. 44 Necessarily, the present exercise is a speculative one. The quantum of security sought has been calculated by reference to costs incurred, and anticipated to be incurred from the filing of the statement of claim. Mr Patakas' calculation of the quantum of security for costs sought does not cover the work for which the plaintiff has already been awarded costs. The costs the subject of the orders the plaintiff already has have not yet been assessed and are not yet payable. There is substance in the submission of counsel for the first and third defendants that any excess in the estimate of future costs may to some extent be offset by the fact that the estimate does not extend to the work for which the first and the third defendants already have the benefit of costs orders. In principle, there is no reason security for costs should not extend to such costs, and every reason that they should. 45 It is impossible to calculate the amount for security with any exactitude. Further, "in ordering security for costs, the Court does not set out to give a complete and certain indemnity to a respondent" (Brundza v Robbie & Co (1952) 88 CLR 174 at 175). In some cases, one can estimate a reasonable expenditure for costs by reference to the amount at stake, as there should be a proportion between the moneys spent preparing a case, and what is in issue. In this case, it is impossible to use such a broad yardstick because the amount of the claim is as yet unquantified. 46 I propose to fix an amount for security to cover the period up to the conclusion of the preparation of evidence, at which time the matter should be ready for hearing. The first and third defendants will have liberty to apply for further security for the hearing when the matter is ready to be fixed. The parties and the court will then be in a better position than they are now to estimate the likely length of hearing. 47 Some of the items in Mr Patakas's schedule of anticipated costs are unlikely to be required. For example, he makes provision for considering and answering requests for particulars of the defence. The plaintiff says they do not intend to ask for such particulars. However, other work, not on his schedule, is likely to be needed. It is inevitable that the existing pleadings will have to be reviewed. I propose to adjust Mr Patakas's assessment of costs of the preparation of the hearing by dividing the estimates for counsel's fees by two, (that is, allowing a total of $4,000 per day for two junior counsel and equivalent hourly rates), and also by applying a more moderate discount of 20% to the rates charged on a solicitor and client basis in Mr Patakas's estimates. I will also reduce substantially, but in a broadbrush way, the amount of the anticipated work required in preparing and issuing subpoenas, and in interviewing and taking statements or affidavits from lay witnesses. 48 In relation to the items of work on page 25 of Mr Patakas's affidavit of 15 February 2007, I adjust the claims for solicitors' costs by applying the 20% discount and counsels' fees by applying the 50% discount. This produces a combined figure for the work shown on that page of $15,160. 49 In relation to work on page 26, which concerns the costs of this application, applying the same methodology, the amount of costs for which security should be provided is $15,600 (I have rounded the figure down to the nearest hundred dollar). 50 In relation to the work on pages 27 and 28, although some of the work set out will not be required, other work not set out will be required. I apply the same discounts and adjusting for rounding, allow as security the sum of $39,900 for counsel and solicitors for the work described on those two pages. This is $10,960 for counsel and $28,900 and solicitors. 51 In relation to the work shown on pages 29 and 30, I allow as security $16,000 for counsels' fees (which is half the amount shown on those pages) and $45,000 for solicitors' costs. The adjustment in relation to solicitors' costs takes account of my assessment that it has not been shown that all of the work required in the taking of witness statements and the issuing of subpoenas will be required. 52 The same comment is true in relation to the work done on page 31, so far as it concerns finalisation of evidence. In relation to that matter, I will allow $12,000 rather than $9,000 for counsels' fees having regard to the division of time shown on the estimate between the two counsel in question. I allow $36,700 as security for solicitors' costs. 53 These figures for security total $180,360. This does not include disbursements for matters such as expert witnesses, subpoena fees, photocopying, travel and accommodation for witnesses. I consider that as a matter of security, an allowance of $60,000 is appropriate. 54 Rounding those figures, it appears to me that an appropriate amount for which security ought to be provided up to the conclusion of the preparation of evidence is $240,000. 55 All of the figures referred to in Mr Patakas's schedules are before GST. The security sought in the interlocutory process did not include an item for GST. In principle, I see no reason why GST ought not be provided for in the amount of security to be provided. That would take the total amount of security to $264,000. A round number of $260,000 seems to me to be the appropriate amount of security to be provided. 56 For these reasons, I make the following orders:

1. I order that paragraph 1 in the section headed Relief Claimed in the statement of claim be struck out; 2. I order that the plaintiff provide security in the sum of $260,000 for the costs of the first and third defendants up to the conclusion of the preparation of evidence for hearing, but not including security for costs of the hearing; 3. I give liberty to the first and third defendants to apply for further security for costs of the hearing at the time the matter is ready to be set down for hearing; 4. I direct that the security ordered be provided within 28 days and that it be provided in a form and manner which, if not agreed between the parties, is to be settled by the Registrar; 5. I order that in the event the security ordered is not provided within 28 days, the proceedings be thereafter stayed until such security is provided; 6. I stand over the proceedings to the Registrar's list at 11 am on 17 July 2007.

[The parties addressed on costs.] 57 So far as the costs of this application are concerned, I order that the costs of the second interlocutory process, filed for the first and third defendants on 15 February 2007, will be those defendants' costs in the proceedings.

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