Macquarie International Health Clinic Pty Ltd v Sydney Local Health District

Category: Procedural rulings

Parties: Macquarie International Health Clinic Pty Ltd (Plaintiff)
Sydney Local Health District (Defendant)

Representation: Counsel:
Mr A Harding SC / Mr S Philips (Plaintiff)
Ms S Scott (Defendant)
Solicitors:
Bruce & Stewart Lawyers (Plaintiff)
Clayton Utz (Defendant)

File Number(s): 2023/00170696

Judgment – EX Tempore (REVISED FROM TRANSCRIPT)

1. This is the latest skirmish in a decades-long sequence of litigation between the plaintiff and the defendant arising out of commercial arrangements concerning the proposed development of a co‑located private hospital within the precincts of Royal Prince Alfred Hospital, Camperdown. That facility was never built. The history and details of those arrangements are not presently relevant. The current proceedings concern an attempt by the plaintiff to enforce what it says are residual rights arising under certain of the transaction documents.

2. By a notice of motion filed on 24 December 2025 the defendant seeks:

“1 Pursuant to section 1335 of the Corporations Act 2001 (Cth) and/or r 42.21 of the Uniform Civil Procedure Rules 2005, the Plaintiff is to provide further security for the Defendant’s costs by paying into the Escrow Account, as defined in the Escrow Agreement between the parties dated 16 November 2023 (and to be held subject to the terms of that agreement), the further sum of $1.93 million or such other amount as the Court may determine.

2 The further security be provided by way of payment into the Escrow Account within 7 days of Order 2 being made (or at such other time as the Court sees fit), on which date the matter is to be listed before the Court for consequential orders, or, in the event that the security has not been provided, an order for the dismissal of the proceedings under r 42.21(3) of the Uniform Civil Procedure Rules 2005.

3 Until further security is provided in accordance with paragraph 2 of these Orders, there be a stay of the proceeding.”

3. I am informed by the parties that the Escrow Agent named in the Escrow Agreement is willing and able to accept – and hold pursuant to the terms of that agreement – any further amount of security that I might order be paid.

4. The defendant relies on three affidavits sworn by its solicitor, Mr Tobin Meagher.

5. The application is opposed by the plaintiff for reasons elaborated upon in an affidavit sworn by its solicitor, Mr Robert Gorczyca.

6. As will be apparent from the orders sought, this is not the first application made by the defendant for security for costs. The first application was made in October 2023 and sought security in the amount of $1,414,000. That application was based on an estimate given by Mr Meagher at that time of what he anticipated would be the defendant’s likely recoverable costs of defending the proceedings.

7. In arriving at his then estimate, Mr Meagher commenced by estimating the defendant’s likely total costs (including professional costs, counsel's fees and other disbursements such as costs associated with expert evidence), excluded some costs identified by him as being referable only to the prosecution of the defendant's cross‑claim, and then applied a discount to that figure (30% to his firm's anticipated professional fees and slightly lesser discounts to counsel's fees and other disbursements) to estimate the portion of those costs likely to be recovered in any assessment.

8. In estimating the total costs and selecting his proposed discounting rates, Mr Meagher drew on his extensive experience as a commercial litigator. However, the exercise performed by Mr Meagher was predictive and relied upon a number of assumptions as to how the matter might unfold as it progressed. Those original assumptions made by Mr Meagher, which were detailed in the evidence filed in support of the defendant’s original application, have proved to be incorrect. The scope of the issues in dispute have proved themselves to be wider than he had anticipated; more evidence than was anticipated has been filed; and the estimated length of the final hearing has grown.

9. While there is some dispute between the parties as to the likely length of the hearing, and the scope of evidence required to address the issues in dispute, on either view it seems likely that the hearing will take a longer period, and the range of issues in dispute during that hearing will be wider than had been anticipated by Mr Meagher.

10. The initial application was not ultimately determined by the Court. That is because the parties, in an outbreak of pragmatism, resolved that application on the basis that the plaintiff would pay $1 million to the Escrow Agent, to be held by him as security on terms reflected in the Escrow Agreement. It was further agreed that orders disposing of the initial application would be made by consent. For present purposes, it is relevant only to note that those orders expressly reserved to the defendant the right to seek further security; that is what the defendant is seeking to do through the present application.

11. There are three relevant steps which must be taken in determining this application. First, I must consider what is usually described as the "threshold test". If the threshold test is satisfied, I must consider whether, in the exercise of my discretion, I consider it appropriate to order that further security for costs be paid; and, finally, if I do exercise my discretion in favour of the defendant, a question arises as to the appropriate quantum of any further security.

12. Starting with the threshold test. In making the application, the defendant relies principally on the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 42.21(1)(d), which relevantly provides that:

(1) If, in any proceedings, it appears to the court on the application of a defendant —

…

(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or

…

the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant’s costs of the proceedings and that the proceedings be stayed until the security is given.

13. In the alternative, reliance is placed on the power contained in s 1335(1) of the Corporations Act 2001 (Cth), which provides:

Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

14. The approach which is to be taken to the threshold test posed by UCPR r 42.21 and s 1335(1) of the Corporations Act was considered by Macfarlan JA in Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 at [16], where his Honour noted:

“Almost inevitably, the Court's assessment will be preliminary one based on limited materials. Nevertheless, for the power to order security to arise, the outcome of the assessment must be that the Court considers that there is 'reason to believe' that the plaintiff 'will be' unable to meet an adverse costs order. A conclusion that there is a risk that will, or may, be the case is insufficient.”

15. To similar effect is the observation of Von Doussa J in Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205, that the power:

“Arises if credible evidence establishes that there is reason to believe that there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur if judgment goes against it. This will be so even if in other events, which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs.”

16. The plaintiff has been described by the defendant as a "shell company". The plaintiff has paid-up share capital of $2 and holds no property. It sits at the bottom of a long chain of companies, the ultimate holding company of which is Traknew Holdings Pty Ltd. It is said by the defendant that the plaintiff "would need to rely on the largesse of others within its corporate group to meet any costs order".

17. As is common on an application such as this, the defendant wrote to the plaintiff and asserted that, based on publicly available information, it appeared to lack the financial capacity to meet any costs order which might be made against it in the proceedings. There was no substantive response from the plaintiff in respect of this assertion. As was noted by the plaintiff, the onus of proving the threshold test is satisfied rests with the defendant. However, evidence was served by the plaintiff in response to this application which addressed its financial position.

18. The plaintiff’s evidence, insofar as it is immediately relevant, consisted primarily of a balance sheet stated to reflect the financial position of the plaintiff as at June 2025. It was pointed out by the defendant that this balance sheet was printed on 19 January 2026 and says nothing of the plaintiff's financial position after 1 July 2025. Ultimately, little turns on this fact as, on its face, the balance sheet reveals that, as at June 2025, the plaintiff had no real ability to pay any adverse costs order which might be made against it out of its own immediately available resources.

19. Reliance was placed, by the plaintiff, on the fact that the balance sheet records an entitlement on its part to recover from another company, Macquarie Health Corporation Limited, a loan of $11,073,203.01.

20. The difficulty with seeking to rely on this loan is that it is largely offset by a countervailing loan of over $33 million, which is recorded in the same balance sheet as owed by the plaintiff to Macquarie Health Corporation Limited. This difficulty was clearly recognised by the plaintiff, which placed into evidence the minutes of a meeting of the directors of Macquarie Health Corporation Limited recording their undertaking not to call on the $33 million loan pending the making of any costs orders in the proceedings. This did not significantly advance the matter as they did not contain any undertaking to pay to the plaintiff the $11 million loan, or so much of it as might be required to meet any costs order which might be made against it in the proceedings.

21. During the course of the hearing, I raised this issue with Mr Harding SC, who appeared with Mr Philips for the plaintiff, whereupon the plaintiff proffered a further undertaking by Macquarie Health Corporation Limited, to the following effect:

“Macquarie Health Corporation Limited undertakes that it will cause to be paid to Sydney Local Health District (SLHD) directly the amount of any costs ordered to be paid by Macquarie International Health Clinic Pty Ltd to SLHD in these proceedings, up to but not exceeding an amount of $1.84 million.”

22. This second undertaking shifts the focus to the financial capacity of Macquarie Health Corporation Limited to meet any costs order which might be made against the plaintiff in the proceedings.

23. Macquarie Health Corporation Limited is a company that sits somewhat higher than the plaintiff in the corporate chain that ultimately leads to their ultimate holding company. The evidence tells me nothing about the financial affairs of that holding company.

24. The audited accounts of Macquarie Health Corporation Limited for the year ending 30 June 2025 were in evidence. A balance sheet contained in those accounts reveals that, as at 30 June 2025, Macquarie Health Corporation Limited had cash and cash equivalent assets of $4,974,289, and other assets described as "current" which collectively brought the current asset position of that corporation to $7,964,168. It is clear from the evidence that there has, at least potentially, been some deterioration of that cash position since 30 June 2025 by reason of Macquarie Health Corporation Limited having paid in excess of $1 million to the defendant on account of costs orders made in earlier proceedings. It is otherwise not clear how closely the figures contained in the balance sheet reflect the current asset position of Macquarie Health Corporation Limited.

25. Whatever its current asset position might be, the balance sheet also records that Macquarie Health Corporation Limited has liabilities which exceed $271 million. The notes to the accounts indicate that the vast majority of those liabilities are loans payable to companies which, based on their names, would appear to fall within the same broad corporate group to the plaintiff and Macquarie Health Corporation Limited. On the other hand, the balance sheet also identifies non‑current assets, including loan receivables of some $244,000,381. Once again, the notes to the accounts raise at least a strong possibility that those loans were made to a range of other related entities.

26. Ultimately, I am not confident that the position reflected in the balance sheet amounts to a great deal more than the product of book entries between a large number of related corporate entities. Whilst those book entries may provide an accounting platform or pathway through which group funds could be liberated to meet any costs order made against the plaintiff – and significant reliance has been placed by the plaintiff on the fact this has, in recent times, occurred – I have no confidence that it will necessarily occur in the future.

27. The financial position of Macquarie Health Corporation Limited at any moment in time would appear to be dependent on a wide range of matters; many if not most of which would involve little more than an adjustment made to the accounts of related entities, none of which are in any way restrained by the undertaking proffered.

28. In these circumstances, I am not satisfied it will, at the relevant time, necessarily be able to meet any costs order which may be made against the plaintiff. I am further satisfied that, in the relevant sense, there is reason to believe the plaintiff will be unable to meet an adverse costs order. Therefore, the threshold test has been satisfied.

29. That brings me to the issue of discretion. The only discretionary consideration which has been raised by the plaintiff as providing a reason not to make an order for further security is the time it has taken for that application to be brought by the defendant.

30. On 15 August 2025, the defendant foreshadowed the need for further security. Since that time, there has been engagement between the parties on that issue, initially in correspondence and then through this application. While I am satisfied that some significant time has now passed since the defendant first became aware that its likely costs of defending the proceedings would greatly exceed the amount initially predicted by Mr Meagher, I do not think this delay is so sufficient to be disentitling.

31. As I have already noted, the issue was raised in mid‑August 2025. Given the initial application for security was able to be resolved on commercial terms, I do not think it was incumbent on the defendant to have immediately applied to the Court for further security where inter partes correspondence about that issue was in its early stages. Once it had become apparent to the defendant that no agreement would likely be reached in relation to security for costs, a further application to the Court was made.

32. That brings me to the third step in the process, namely, the assessment of the appropriate quantum for any order for a top up of the security.

33. Whilst I do not think that the delay in bringing the application is disentitling, the timing of that application does throw up an issue in relation to how I should approach the question of security for such costs as might have been incurred before the application was made.

34. There is a significant body of authority which supports the proposition that, unless an application for security has been made promptly, the Court will be reluctant to order security for costs that have already been incurred: Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114; Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 5) [2006] FCA 1672.

35. Here, the issue is further complicated by the way in which the initial application for security for costs was disposed of. The defendant seeks security for all of its past costs. In essence, what Mr Meagher has done in his more recent affidavits is make an assessment of what he now believes to be the likely total costs of the proceedings. He discounts that figure in a way which he has carefully described to reflect what he says is likely to be the recoverable costs, subtract from that figure the $1 million security already provided to the Escrow Agent, and seeks further security for the balance.

36. I am not inclined to order that further security be provided for costs incurred prior to the making of this application. I have reached that view, in part, by reason of what flows from the authorities addressing the interaction between delay and the recovery of security for costs for past costs and also because I am concerned that, by doing so, I would be revisiting the bargain struck between the parties at the time the first security for costs application was resolved. I do not think that would be appropriate, in the exercise of my discretion, to do this.

37. I note and adopt the useful summary of principles to be applied when determining the quantum of an order for security for costs found in Louise Haselhurst v Toyota Motor Corporation Australia Ltd t/as Toyota Australia [2020] NSWSC 1607 at [12]‑[16], where Sackar J noted:

“[12] In determining the quantum of an order for security the Court does not set out to give a complete and certain indemnity to a defendant and there is no principle that entitles a defendant to be given security for the whole of its recoverable costs.

[13] Rather the Court embarks on a process of estimation which embodies to a considerable extent, necessary reliance on the “feel” of the case after considering relevant factors.

[14] Whilst the Court requires some evidentiary basis for the estimate of costs, a precise estimate is not required. The Court is not fixing a gross sum amount, and should not decline to act on the evidence before it because the evidence was not the ‘best evidence’ available to support the application Although a discount for exigencies may be required.

[15] Further the Court is to stand back from the amounts claimed and the precise assessment of costs to consider the case on its particular facts and will make an order that is just and reasonable in the circumstances.

[16] In embarking on such a process the Court is not required to attempt its own detailed costs assessment but can take a ‘broad brush’ approach having regard to the information before it, seeking to prevent (on the one hand) prejudice to the party paying costs by overestimating the costs and (on the other hand) injustice to the party recovering costs by adopting an arbitrary ‘fail safe’ discount across the board on the costs claimed.”

(Footnotes omitted).

38. Mr Meagher, in his most recent affidavit, has estimated the future costs likely to be incurred in the proceedings at $1,280,995. This figure is broken up into three parts:

(a) Clayton Utz’s professional costs of approximately $569,195; (b) Counsel’s fees of approximately $513,800; and (c) other disbursements of approximately $198,000.

39. While there is some dispute between Mr Meagher and Mr Gorczyca as to the likely costs which might be incurred going forward, I am generally satisfied that Mr Meagher's estimate reflects – in a rough‑and‑ready way – a fair estimate of the likely costs which will be incurred by the defendant between the time of his affidavit and any ultimate hearing.

40. My particular attention has been drawn to one aspect of Mr Meagher’s estimate, being a sum of $98,025 which is identified as the likely costs associated with preparing for and attending a mediation. It is said by the plaintiff that the costs of preparing for and attending a mediation would not likely be recoverable were any costs order to be made in favour of the defendants in the proceedings. I accept that is likely to be the case.

41. As to how much of the balance of the costs might be recoverable on any assessment, Mr Gorczyca has identified a slightly different set of discount rates by reference to his analysis of actual recoveries made by the defendant following the assessment of its costs under previous costs orders made in this long‑running saga. On this basis he has suggested that only 60% of the professional fees payable to the defendant’s solicitors and other disbursements would likely be recovered. Counsel's fees were recovered in their entirety in the previous costs assessments; although I note that Mr Meagher has, with appropriate caution, estimated that counsel’s fees might be discounted by something in the order of a 5% in the event the matter were to be assessed.

42. Applying Mr Gorczyca’s percentage figures to Mr Meagher's estimate of the total costs going forward, I am told by Mr Harding – and accept his arithmetic as correct – that the professional fees identified by Mr Meagher would be reduced on that basis to $342,000, counsel's fees to $488,000, and other disbursements to $118,000. In total, this amounts to $948,000. Of course, this total incorporates the costs identified by Mr Meagher as being referable to the mediation (albeit those costs have also been discounted).

43. Accepting the rough‑and‑ready nature of the task which I must embark upon in assessing the quantum of security to order, I am inclined to broadly accept the discounting approach suggested by Mr Gorczyca and subtract a further sum of $48,000 on account of the mediation costs, reducing the overall security for costs top‑up figure to $900,000.

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