HIS HONOUR: This is an application for further security for the costs of proceedings listed to commence on 21 February 2022.
On 14 September 2021, Registrar Jones made the following orders:
"1. Pursuant to rule 42.21 of the UCPR the defendant/cross claimant provide on or before 15 October 2021 security for the plaintiff's/cross defendant's costs of defending the Cross Claim in the sum of $60,000, such security to be provided by way of payment into Court or provision of irrevocable bank guarantee(s) issued by an Australian bank in a form acceptable to the plaintiff/cross defendant.
2. In the event that the security ordered in 1 is not provided within the time specified, order that the proceedings be stayed until further order.
3. The parties have liberty to restore the matter within 14 days to make any submissions regarding costs of the NOM [notice of motion]. In the absence of the matter being restored during that period, the defendant/cross claimant is to pay the plaintiffs/cross defendant's costs of and incidental to the NOM."
Rule 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) provides:
42.21 Security for costs (cf SCR Part 53, rules 2, 3, 4 and 5; DCR Part 40, rule 1; LCR Part 31, rule 11A, Part 31A, rule 11)
(1) If, in any proceedings, it appears to the court on the application of a defendant -
(a) that a plaintiff is ordinarily resident outside Australia, or
(b) that the address of a plaintiff is not stated or is mis-stated in his or her originating process, and there is reason to believe that the failure to state an address or the mis-statement of the address was made with intention to deceive, or
(c) that, after the commencement of the proceedings, a plaintiff has changed his or her address, and there is reason to believe that the change was made by the plaintiff with a view to avoiding the consequences of the proceedings, or
(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
(e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so, or
(f) that there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings,
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.
(1A) In determining whether it is appropriate to make an order that a plaintiff referred to in subrule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant -
(a) the prospects of success or merits of the proceedings,
(b) the genuineness of the proceedings,
(c) the impecuniosity of the plaintiff,
(d) whether the plaintiff's impecuniosity is attributable to the defendant's conduct,
(e) whether the plaintiff is effectively in the position of a defendant,
(f) whether an order for security for costs would stifle the proceedings,
(g) whether the proceedings involves a matter of public importance,
(h) whether there has been an admission or payment in court,
(i) whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant,
(j) the costs of the proceedings,
(k) whether the security sought is proportionate to the importance and complexity of the subject matter in dispute,
(l) the timing of the application for security for costs,
(m) whether an order for costs made against the plaintiff would be enforceable within Australia,
(n) the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff.
(1B) If the plaintiff is a natural person, an order for security for costs cannot be made merely on account of his or her impecuniosity.
(2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct.
(3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed.
(4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given.
The Registrar made the following findings:
1. the plaintiff/cross-defendant, Misthold Pty Ltd (Misthold), met the threshold jurisdictional requirement in r 42.21(1) of the UCPR to support the application seeking an order for security for costs;
2. although the defendant/cross-claimant, NSW Historic Sites and Railway Heritage Company Pty Ltd (NSW Historic Sites), failed to comply with the Court's orders in relation to the service of its evidence on the cross-claim, that failure was not determinative of its prospects of success. NSW Historic Sites' claim appeared to be reasonably arguable;
3. NSW Historic Sites' impecuniosity was not caused by Misthold's conduct;
4. NSW Historic Sites was not effectively in the position of a defendant. Save for the claimed right to continue the lease of the locomotive shed, the cross-claim was sufficiently distinguishable from the statement of claim;
5. NSW Historic Sites had not discharged the onus of establishing that financial support was not available from those who may stand to benefit from the outcome of the proceedings;
6. the evidence was insufficient to establish that an order for security for costs would stultify the proceedings;
7. whilst the establishment of a not for profit railway museum is a matter of public importance, this did not obviate the need for the Court to provide protection in the form of security for costs where appropriate; and
8. a security of $60,000 was reasonable and proportionate to the importance and complexity of the subject matter in dispute, being about 80% of Misthold's anticipated costs and disbursements of defending the cross-claim at that time.
Importantly for present purposes, no appeal or application for review was brought by NSW Historic Sites from the Registrar's decision. On 12 October 2021, NSW Historic Sites provided security in the amount of $60,000. In circumstances that I will shortly explain, Misthold now seeks additional security for its costs of the cross-claim brought by NSW Historic Sites.
[2]
Background
The background facts are as follows. Misthold owns land in North Rothbury, NSW. On 1 June 2007, NSW Historic Sites entered into an unregistered lease over part of the land (the 2007 lease). In May 2012, NSW Historic Sites and Misthold executed a "Deed of Agreement for Surrender of Lease" (Deed), whereby NSW Historic Sites allegedly surrendered its right, title and interest under the unregistered lease for the consideration of $450,000. That same day, the parties executed a further two-year lease over part of the land (the 2012 lease).
By statement of claim filed on 13 March 2020, Misthold alleges that NSW Historic Sites has remained in possession and occupation of the land notwithstanding the expiration of the 2012 lease on 29 May 2014. Misthold seeks judgment for possession of the land and an order for leave to issue a writ of possession.
On 29 July 2020, NSW Historic Sites filed an amended defence challenging the validity of the Deed. By reply filed on 7 September 2020, Misthold pleads that NSW Historic Sites should be estopped from denying the validity of the Deed.
On 13 March 2021, NSW Historic Sites filed a cross-claim against Misthold pleading, inter alia, that Misthold had breached an oral and/or written agreement that it would: (i) purchase a heritage railway collection from NSW Historic Sites; (ii) establish and manage a new trust and railway museum through a not for profit company owned and controlled by Misthold; and (iii) provide NSW Historic Sites with a lease of a locomotive shed in North Rothbury, for the purposes of its restoration of historic locomotives and stock to operate in conjunction with the museum (the Agreement). NSW Historic Sites seeks specific performance of the Agreement and damages in the alternative. Misthold filed its defence to the cross-claim on 6 April 2021.
[3]
Application for further security for costs
By motion filed on 24 December 2021, Misthold sought additional security for costs of $189,542.50 in total. In support of that application, the following evidence was filed:
1. an estimate of the costs Misthold is likely to incur in defending the further amended cross-claim ($270,775 excluding GST), including for the work involved in:
1. reviewing the proposed amendments to the amended cross-claim and preparing for and attending the hearing of the motion filed by NSW Historic Sites on 23 December 2021 ($29,925);
2. reviewing the materials served by NSW Historic Sites after 14 September 2021 and preparing evidence in reply ($86,500);
3. preparing subpoenas and notices to produce and reviewing any documents produced ($6,450); and
4. preparing for and attending the trial for the amended cross-claim ($147,900);
1. evidence that Misthold was in the process of engaging senior counsel to appear on its behalf in the proceedings (senior counsel has now been retained); and
2. evidence of ASIC and real property ownership searches suggesting that there had been no change in NSW Historic Sites' financial position since 14 September 2021.
NSW Historic Sites relied on the affidavit of Lachlan McBride sworn 16 December 2021. NSW Historic Sites submitted that the evidence that it now sought leave to file related almost entirely to historical written communications between the parties that would have been within the knowledge and contemplation of Misthold at the time Mr Faraday-Bensley prepared his original estimate of the fees required to respond to the cross-claim.
NSW Historic Sites further submitted that it was not suggested that the five days allocated for the hearing was insufficient and there was no reason for any increase in Misthold's expected costs. It was submitted that the issue of security could be resolved by way of referral of the issue of quantum of the cross-claim to a referee after the determination of liability.
NSW Historic Sites further submitted that there was a realistic prospect that it would be unable to provide further security for costs and would be precluded from pursuing its cross-claim.
In oral submissions, Mr Deakin QC who appeared for NSW Historic Sites emphasised that there was a significant factual overlap between the issues raised in the defence and the cross-claim and that Misthold's estimate of likely costs to be incurred was in any event excessive.
Misthold submitted that a substantial amount of work would be needed and substantial costs incurred as a result of NSW Historic Sites' very late service of evidence (after the Registrar made the order for security for costs on 14 September 2021) and its application to further amend its cross-claim. It was submitted that Misthold's estimate of the costs of the cross-claim is conservative because it:
1. does not include any amount representing potential fees charged by experts to respond to the expert evidence served by NSW Historic Sites;
2. estimates only three days of trial preparation by senior counsel retained by Misthold;
3. does not include any fees for time that will be spent preparing a defence to the further amended cross-claim or a reply to the amended defence; and
4. is GST exclusive.
Misthold further submitted that its decision to retain senior counsel is reasonable having regard to:
1. NSW Historic Sites' retention of Queens Counsel (apparently at some point after 14 September 2021);
2. the very late service of evidence by NSW Historic Sites and the large amount of additional work that Misthold's legal team had (and will have) to carry out as a result;
3. the multi-million dollar damages claim NSW Historic Sites now seeks to advance by its cross-claim; and
4. the volume and complexity of the issues that arise on the cross-claim, including by reason of the addition of the unconscionable conduct claims.
[4]
Consideration
Misthold must demonstrate that there has been a material change in circumstances since 14 September 2021 justifying an order for further security for costs: SSPeetham Pty Ltd as trustee for the CHB CDI Trust v Marcos Accountants Pty Ltd [2020] NSWSC 378 at [19] (Stevenson J); Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46 (McLelland J); Ingot v Macquarie [No 5] [2006] NSWSC 255 at [9] (McDougall J).
In a case such as the present, Misthold bears the onus of demonstrating a material change in circumstances since the date of making the original order and that, in the exercise of discretion, it is appropriate that an order for additional security should be made in a particular amount.
I am satisfied that Misthold has demonstrated that there has been a material change in circumstances since 14 September 2021 justifying an order for further security for costs. Since 14 September 2021, when NSW Historic Sites was ordered to provide security for costs, there have been significant developments in the proceedings affecting the likely costs of defending NSW Historic Sites' cross-claim.
First, on 29 October 2021 significant changes were made to the pleading of the cross-claim by the addition of a claim under s 18 of Sch 2 to the Competition and Consumer Act 2010 (Cth) that Misthold engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, by reason of the following:
1. Misthold made representations to NSW Historic Sites about actions that it would take to give effect to the Agreement referred to at [9] above;
2. those representations were made in trade or commerce;
3. NSW Historic Sites organised an auction sale to dispose of surplus items from its non-core railway collection at North Rothbury and surrendered the 2007 lease in reliance on the representations made by Misthold; and
4. Misthold has failed and has refused to undertake the actions that it represented it would undertake, causing NSW Historic Sites to suffer loss or damage.
NSW Historic Sites filed a great deal of evidence relevant to its claim in December 2021, despite the fact that no order had been made permitting the filing of that evidence and the orders which had been made, that all evidence of the cross-claim be filed by 23 April 2021, had long since expired.
Secondly, significant further changes were effected by amendments to the cross-claim which I granted leave to make today. Those changes were first sought by notice of motion filed on 23 December 2021 by NSW Historic Sites. The amendments made allegations of statutory unconscionability pursuant to s 20 of Sch 2 to the Competition and Consumer Act. Before making orders allowing those amendments, I was assured that no further evidence would now be sought to be filed by NSW Historic Sites in relation to the cross-claim.
In considering the application for further security I was invited by NSW Historic Sites to revisit a number of the conclusions reached by the Registrar. Whilst I doubt that it is appropriate on an application for further security to revisit findings made in an original application for security, I make the following findings on each of the matters raised by the parties:
1. Misthold continues to meet the threshold jurisdictional requirement in r 42.21(1) of the UCPR to support the application seeking an order for further security for costs;
2. NSW Historic Sites' claim is reasonably arguable;
3. I am not satisfied on this application that NSW Historic Sites' impecuniosity was caused by Misthold's conduct. Despite references to underlying evidence sought to be led in the trial, none of that evidence was read on this application and Mr McBride's affidavit sworn 16 December 2021 contained no such claim;
4. on the pleadings, as amended by order made this morning, NSW Historic Sites is not effectively in the position of a defendant. Save for the claim that the Deed should be set aside for unconscionable conduct, none of the causes of action pleaded in the cross-claim are said to provide a defence to Misthold's claim for possession of the land. I do not accept that any of the remaining causes of action relied upon in the cross-claim are pleaded as a defence to Misthold's claim. The two claims, as pleaded after today's amendments, are quire separate, although, as I will explain, there is a degree of overlap in the factual contentions concerning unconscionability which I have taken into account;
5. NSW Historic Sites has not discharged the onus of establishing that financial support is not available from those who may stand to benefit from the outcome of the proceedings. The cross-claimant has made a deliberate forensic choice not to reveal how it is that the litigation is being funded, nor how the original order for security was satisfied. In particular:
1. NSW Historic Sites has failed to provide meaningful details of its overall financial position;
2. no evidence has been provided as to:
1. what NSW Historic Sites did with the $450,000 payment it received from Misthold in June 2012 (as pleaded in paragraph 6(b) of the amended cross-claim);
2. what NSW Historic Sites did with the funds from the sale and/or disposal of its non-core railway collection between June 2012 and 2013 (as pleaded in paragraph 6(c) of the amended cross-claim);
3. what NSW Historic Sites did with the additional $200,000 paid to it by Misthold (payment of which is pleaded to at paragraph 3 of Misthold's reply filed on 7 September 2020);
4. how the litigation is being funded; and
5. the financial records of NSW Historic Sites or the Hunter Valley Railway Trust (of which NSW Historic Sites is the trustee);
1. the evidence is insufficient to establish that an order for security for costs would stultify the proceedings. Although a submission was made by NSW Historic Sites that the proceedings "may" be stultified if further security was ordered, I accept Mr Walton SC's submissions that there was no cogent evidence led by NSW Historic Sites to support such a submission; and
2. I accept that the possible establishment of a not for profit railway museum is a matter of public importance. I do not find, however, that that conclusion overwhelms the other factors tending in favour of making an order for additional security.
For these reasons I am satisfied that the circumstances are sufficiently changed to enliven the discretion to award further security.
The next question is whether, in the exercise of discretion, it is appropriate that an order for additional security should be made in a particular amount. As I have explained, Misthold seeks a further $130,000 in security in addition to the $60,000 already given. I have concluded that this is a grossly excessive sum for a three-four day hearing. Although the matter is listed for five days, security is not sought by Misthold, nor could it be, for the costs Misthold will expend in prosecuting its claim for possession. Although the estimates vary, I find that a maximum of 4 days will be spent dealing solely with the cross-claim. In addition, as I have said, I accept that there is a degree of overlap of factual issues between the defence and the cross-claim as they each relate to the unconscionability claim.
It must be steadily kept in mind on an application such as the present that security for costs are not intended to provide a complete and certain indemnity for costs: Mr D v Ms P [2020] NSWCA 174 at [57]; Brundza v Robbie & Co (No 2) (1952) 88 CLR 171; [1952] HCA 49 at 175; This Morning Pty Ltd v Melhem [2018] NSWSC 1460 at [33]; Elip Pty Ltd v Arch Finance Pty Ltd [2020] NSWSC 752 at [78]; Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd [2014] NSWCA 417 at [163].
Doing the best I can and exercising the broad discretion given to me in the light of all of the matters referred to above, I am satisfied that it is appropriate that an order for additional security should be made in the amount of $50,000.
Accordingly, I order:
1. Pursuant to rule 42.21 of the Uniform Civil Procedure Rules 2005 (NSW), the defendant/cross-claimant provide further security for the plaintiff's/cross-defendant's costs of defending the cross-claim in the sum of $50,000 by 4pm on 9 February 2022, such security to be provided by way of payment into Court or provision of irrevocable bank guarantee(s) issued by an Australian bank in a form acceptable to the plaintiff/cross-defendant, failing which the cross-claim will be stayed.
[5]
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.
Decision last updated: 01 February 2022
Parties
Applicant/Plaintiff:
Misthold Pty Ltd
Respondent/Defendant:
NSW Historic Sites and Railway Heritage Company Pty Ltd