Motor Trade Finances Prestige Leasing P/L v Elderslie Finance Corporation Ltd & 2 Ors

CATCHWORDS : PRACTICE AND PROCEDURE - Security for costs - Plaintiff is a special purpose vehicle and lacks assets to pay defendants' costs - Prior application for security for costs was settled by consent orders - Where plaintiff provided security of $50,000 under consent orders - Whether consent orders were a compromise of the claim for security for the whole litigation or up to mediation only - No evidence that plaintiff's sole shareholder would be unable to provide any security ordered - Quantum of security where junior solicitor's hourly rate more than that of senior counsel - Held that consent orders applied only in respect of costs up to conclusion of mediation - Further security for costs ordered.

Trade Practices Act 1974 (Cth) LEGISLATION CITED : Fair Trading Act 1987 (NSW)

CASES CITED : Bell Wholesale Company Pty Limited v Gates Export Corporation No. 2 (1984) 2 FCR 1

Motor Trade Finances Prestige Leasing Pty Ltd PARTIES : v Elderslie Finance Corporation Ltd & 2 Ors

Plaintiff: Miss J E Richards COUNSEL : Defendants: Mr CRC Newlinds SC & Ms T Wong

Plaintiff: Abbot Tout SOLICITORS : Defendant: Clayton Utz

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

50064/05 Motor Trade Finances Prestige Leasing Pty Ltd v Elderslie Finance Corporation Ltd & Ors JUDGMENT 1 HIS HONOUR: This is an application for security for costs. 2 On 11 March 2002, the plaintiff, Motor Trade Finances Prestige Leasing Pty Limited, and the first defendant, Elderslie Finance Corporation Limited made an arrangement, to use a neutral expression, under which EFCL offered to provide funding of up to $50 million per annum for what was called a "receivables securitisation program". According to MTFPL, EFCL was required to make available funding of up to $50 million per annum for MTFPL to purchase prestige or luxury motor vehicles from dealers, lease them to customers, and to assign some or all of its rights under the leases, including the right to receive moneys payable under the leases, to EFCL. 3 There is an issue as to whether the arrangement documented in a letter of offer of 8 March 2002 accepted by MTFPL on 11 March 2002 is a binding contract or whether it was subject to formal legal documentation by the contemplated Master Receivables Purchase Agreement. That agreement was entered into on or about 9 April 2002. EFCL says that it superseded the prior alleged agreement of 11 March 2002. 4 Under the Master Receivables Purchase Agreement, EFCL agreed to consider all purchase proposals made to it under that agreement. The agreement provided that either party could give notice of termination on one month's notice. 5 According to Mr Dunn, the director and shareholder of MTFPL, on 8 August 2002 EFCL advised MTFPL that the financier to EFCL, Societe General, was no longer able to fund EFCL. EFCL advised that it had negotiated $2.5 million of temporary funding but, according to Mr Dunn, it did not provide any funding for leases after 31 December 2002. MTFPL says that this was a breach of contract, and it sues for damages. It also claims damages for what it alleges was misleading and deceptive conduct engaged in by EFCL. In substance, it says that EFCL represented that it had the capacity to provide funding of $50 million per annum which it did not. 6 MTFPL was incorporated as a special purpose vehicle for the purpose of entering into the venture; in other words, this was its only business. It alleges that between 11 March 2002 and 6 April 2004 it spent $693,852 in implementing and promoting the Prestige Motor Vehicle Securitisation Program. 7 Its balance sheets of 31 March 2004 showed a deficiency of assets to liabilities as at that date of $300,310. 8 MTFPL sues for damages for loss of profits of in excess of $2,200,000 and also for the loss of opportunity to earn profits in an alternative venture or ventures which it says would have been available to it if the first venture was successful. In respect of this matter, it claims not less than $8,950,000 in damages. 9 The defendants apply for security for costs under Pt 42 r 21(1)(d). That rule provides that if in any proceedings it appears to the Court on the application of a defendant 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, the Court may order the plaintiff to give such security as the Court sees fit and 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. There is no issue that the ground under which the Court may order the plaintiff to give security under Pt 42 r 21(1)(d) is established. It is clear from the financial records of the plaintiff which have been tendered, that if the defendants succeed in the litigation, the plaintiff does not have the assets which would be sufficient to meet an order for costs. 10 The issues which arise on the present application are, first, whether the defendants are precluded from obtaining an order for security for costs because of an order which was made by consent on 6 May 2005 that the plaintiff provide security for costs in the sum of $50,000 by 6 June 2005. If that issue is resolved in favour of the plaintiff, it will dispose of the application. If not, the second question which arises is whether that consent order, nonetheless, contained a compromise of the defendants' claim for security for costs up to the time of mediation which was fixed for, and took place, on 23 and 24 June 2005. The third issue is whether security should be refused for discretionary factors. 11 One ground argued was that there was delay in the making of this application; another is that it is said that the plaintiff's financial impecuniosity has been brought about by the conduct of the defendants about which the plaintiff complains. If those discretionary factors are resolved in the defendants' favour, then the final question is the quantum of the security which should be ordered. 12 It should be noted that in so describing the issues which arise on this application I have not included as an issue whether, if security were ordered in the amount claimed, the litigation would be stultified. No such submission was made on behalf of the plaintiff. There is no evidence which would support such a submission. In particular, there is no evidence that Mr Dunn, who is the shareholder in the plaintiff and who stands to gain if the litigation is successful, would be unable to provide any security that might be ordered (see Bell Wholesale Company Pty Limited v Gates Export Corporation No. 2 (1984) 2 FCR 1 at 4). Nor was it submitted by the defendants that the plaintiff's proceedings were not brought bona fide. 13 It was submitted for the defendants that even at this stage the Court should assess the plaintiff's claim for breach of contract as being one which was unlikely to succeed. No such submission was made in relation to the plaintiff's claim for relief under the Trade Practices Act or the Fair Trading Act. In any event, on the material before me I am not able to make any assessment as to the plaintiff's likely prospects of success. I put that consideration aside in dealing with this application. 14 The proceedings were commenced in the Supreme Court of Victoria on 6 April 2004. On 17 March 2005 the defendants filed a summons in the Supreme Court of Victoria. Part of the relief sought in the summons was an order that the plaintiff provide security for the costs of the defendants incurred up to the date of the making of the order and to be incurred up to and including the hearing of the matter in the amount of $257,787.49, or such other amount as the Court thought proper. The summons also sought an order that the proceedings be transferred to the Supreme Court of New South Wales. On 15 April 2005, Whelan J transferred the proceedings to this Court. His Honour did not determine the other issues raised by the summons. 15 On 22 April 2005, the defendants' motion was listed for hearing on 6 May 2005. On that day, Bergin J made orders by consent, including the following order: "3. Order the plaintiff to provide security for costs in the sum of $50,000, such form (sic) as is acceptable to the defendants by 6 June 2005 (it is noted that a bank guarantee from one of the main banks in Australia in the usual form will be acceptable).

4. In the event that security is not paid by the due date, proceedings to be stayed."

16 On 1 July 2005, Bergin J listed the matter for hearing on 14 November 2005 for two weeks. Her Honour also made orders for the filing and serving of affidavits. The plaintiff was required to file and serve all its affidavit evidence-in-chief, including any expert report, by 12 August 2005. The plaintiff has not complied with that order. No order was made for the separate trial of any issue in the proceedings. This application was brought by notice of motion filed on 3 August 2005. 17 Turning to the first two issues which were raised, namely the effect of the consent order of 6 May 2005, the order does not specify the period to which or the work to which the security of $50,000 was to apply. It might be possible to construe the order by reference to the application for security for costs as applying to the costs incurred and to be incurred up to and including the hearing. On the other hand, I think it is clear that that is not how either of the parties understood the order. 18 In his affidavit of 24 August 2005, Mr Jerrard, the plaintiff's solicitor, deposed: "The plaintiff has provided security for inter alia the costs referred to in paragraphs 14(i)-(l) and 17(b) of the Ball affidavit in the sum of $50,000 pursuant to the orders of the Honourable Bergin J on 6 May 2005."

19 The Ball affidavit is a reference to an affidavit of Ms Ball, a partner of Clayton Utz, who are the solicitors for the defendant, who deposed to the costs incurred by the defendants up to 15 March 2005 and those she estimated would be incurred after that date. It is clear that Mr Jerrard did not consider that the $50,000 of security was security for all of the costs which the defendants might incur up to and including the hearing. In particular, he omitted from the items of work to which the $50,000 security was to apply all of the work still to be done for the plaintiffs outlined in paragraph 17(c) to (k) of Ms Ball's affidavit, including reviewing witness statements of the plaintiff and any expert reports of the plaintiff, preparing the defendants' witness statements, both lay and expert, preparing for hearing and attendance at the hearing and other pre-trial motions. 20 On 6 July 2005, Clayton Utz wrote to Jerrard & Stuk and said: "We refer to your client's provision of $50,000 security for our clients' costs of 6 June 2005 by way of bank guarantee which was considered by the parties to be security up to the mediation."

21 In her evidence before me, Ms Ball said in substance that she did not know that the consent order made on 6 May 2005 was intended only to be security for costs incurred up to the mediation. It seems to me from the terms of Clayton Utz' letter of 6 July 2005 and what I infer to be Mr Jerrard's understanding of the order reflected in his affidavit of 24 August 2005, that that was the intention of the order made on that day. 22 The amount which the defendants claim as security for costs incurred and to be incurred from the conclusion of the mediation is an amount of $188,887.50. This was described as an estimate of future costs as set out in paragraph 17(c) to (k) of Ms Ball's affidavit. She struck this essentially by estimating the likely actual costs to be incurred, having regard to the rates to be charged by solicitors and counsel insofar as the work to be done can be estimated, and then applying a discount of 30 percent. That discount is based on Ms Ball's experience as to the typical outcome of assessments where successful parties' costs have to be assessed. In my view, the consent order of 6 May 2005 does not preclude the defendants from maintaining the present application in respect of those costs. 23 I turn to the two discretionary considerations. The first is the delay between April 2004 and March 2005 in the making of an application for security for costs. That would be a powerful consideration if the effect of an order for security for costs was that the plaintiff was unable to proceed with the litigation. If that were the position, then the costs which it expended in the eleven months up to March 2005 would have been wasted. 24 However, that is not this case. I agree with the submission made for the defendants that in this case, unlike many cases where there is a delay in applying for security for costs against impecunious defendants, there is no relevant detriment suffered by the defendants by reason of the delay in making the application. I do not consider that the delay between the unsuccessful mediation at the end of June and the filing of this application on 3 August 2005 is a relevant period of delay. Thus, the delay in making the application is not itself a reason for refusing security. It is, however, a factor which indicates, in my view, that it would not be unjust to the defendants if they do not obtain a complete security for their costs in the event that they obtain an order for payment of their costs. 25 The second suggested reason for refusing an order for security for costs is that it is said that the plaintiff's present impecuniosity is caused by the defendants' conduct about which the plaintiff sues. It is true that the present deficiency in assets compared with the plaintiff's liabilities appears to result from its conducting business under the arrangements made with the first defendant. It is also true that the plaintiff says that it was induced to enter into those arrangements by representations made by the first defendant which it claims were misleading, and in that sense, it is true to say that the plaintiff alleges that its present financial position has been brought about by the defendants' conduct. However, if one considers the position of the plaintiff before the defendant engaged in the conduct about which the plaintiff complains, the plaintiff at that time had no assets and no liabilities. This is not a case where the plaintiff had means, and because of what it claims to be wrongful conduct by a defendant it now has a lack of means. At no time would the plaintiff, if it had to engage in litigation, have been able to meet any order for costs against it. In my view, this distinguishes this case from others where security is refused on this ground. I do not decline to order security on the ground that the plaintiff's present impecuniosity is caused by the conduct about which it complains. 26 I turn then to the question of the quantum for which security should be ordered, and for the reasons I have given I address that to the costs incurred and to be incurred after the mediation. That work is covered in paragraph 17(c) to (l) of Ms Ball's affidavit of 17 March 2005. Miss Ball assumed a hearing of eight days. For the plaintiff it was said that this was an overestimate. However, as the matter is set down for two weeks, I do not think that that is correct. 27 There was a contest between Mr Jerrard on the one hand, and Ms Ball on the other, as to how many hours of work would need to be spent by the defendants in preparing the case for hearing. One of the difficulties in making that assessment is that it is uncertain still precisely what case the defendants have to meet. I do not consider that the plaintiff can complain that Ms Ball's estimate to which she still adheres of how much work is required is excessive, when the plaintiff is in default in complying with the timetable. As a result of that default, it is more difficult than it otherwise would be for the defendants to assess the extent of preparation required. That is an important consideration in inclining me towards accepting Ms Ball's estimate as to the extent of work required compared with Mr Jerrard's estimate. In any event, it appears to me that Ms Ball's estimate as to the amount of hours required to be spent in preparing the matter for hearing is fairly conservative. 28 A matter of concern, however, is the balance of the estimated work to be done, between work to be done by the three solicitors engaged in the matter for the defendant and counsel. That is significant because the solicitors engaged in the case charge a significantly higher rate than do counsel. Indeed, the most junior solicitor, although a solicitor who is herself a senior solicitor, but only of some nine years standing, charges more per hour than does senior counsel. Whilst I accept that Ms Ball's assessment of the balance of work to be done between counsel on the one hand and solicitors on the other in preparing the matter, is likely to reflect how the work will be divided, that does not appear to me to be an efficient division of labour, having regard to the different rates of charge. 29 It was submitted for the defendants that that is an irrelevant consideration because Miss Ball says that she expects to recover seventy percent of the costs actually incurred on an assessment if the defendants are successful, and that that is the only relevant consideration. I am not satisfied that that is necessarily right. In my view, a costs assessor should consider whether it is just and reasonable for a losing party to pay more for a successful parties' costs than would have been incurred if the successful party made an efficient use of the resources provided by the junior bar. Having said that, the bulk of the costs between now and the hearing is contained in items for the attendance by counsel and solicitors at the hearing and the preparation for hearing. Those are the two largest items in Ms Ball's assessment. In relation to those two items, it appears to me to be the division of likely time to be spent in preparation is appropriate. It is impossible to assess the likely costs accurately. It is also impossible to assess the extent to which the estimates are higher than they otherwise would be if the work to be done by solicitors and junior counsel were allocated differently, except to say that I think that they are higher to some extent. 30 Issue was taken with the amount allowed for experts' fees. This was a sum of $20,000. Whilst I have some doubt as to whether all of the work which is proposed be done by experts to be retained by the defendants will ultimately be useful, it is really impossible on the present state of material to form any concluded view about that. Given the nature of the plaintiff's claim for damages, I do not consider that the estimate of $20,000 as recoverable experts' costs is excessive. 31 In my view, the appropriate amount to be allowed as security for costs up to and including the hearing is a sum of $160,000 and I will make an order accordingly. 32 I order that the plaintiff provide further security for the costs of the defendants incurred up to the date of making this order and to be incurred up to and including the hearing of this matter in the amount of $160,000. Such security to be provided as follows:

(a) That on or before 30 September 2005 the plaintiff provide security in the sum of $80,000 by way of bank guarantee from an Australian bank or otherwise in such form as is acceptable to the defendants.

(b) That on or before 28 October 2005 the plaintiff provide security in the sum of $80,000 by way of bank guarantee from an Australian Bank or otherwise in such form as is acceptable to the defendants.

33 The costs of the defendants' notice of motion of 3 August 2005 will be the defendants' costs in the proceedings. 34 In the event that such security is not given within the times ordered, I order that the proceedings be stayed. 35 The exhibits on this application may be returned forthwith. 36 I order that a subpoena issued on 18 July 2005 to the Proper Officer of MacBurg Pty Limited be stood over to 9am on Tuesday 6 September before the Registrar.

15/09/2005 - AMENDMENT TO NAME OF PLAINTIFF FROM 'MOTOR TRADES' TO 'MOTOR TRADE' - Paragraph(s) 0

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