Plaintiffs v Defendants

For the First, Third, Fourth and Sixteenth Defendants

For the Fifth, Sixth, Seventh, Eighth and Ninth Defendants

1 The plaintiffs are a foreign partnership and a foreign corporation. They have no assets in Victoria. In these circumstances, they have agreed to give security for the defendants' costs. As the proceeding is likely to involve substantial costs, the parties agreed that the security should be provided in tranches to each group of defendants. There was agreement as to the costs of three defendant groups, but the plaintiffs and the first, third, fourth and sixteenth defendants ('B&B Defendants') could not agree as to the amount of the first tranche. There was no agreement as to the form in which the security was to be given. In these circumstances, an associate justice determined:

(1) the amount of the first tranche of security to be provided to the B&B Defendants. There is no appeal against that decision; and

(2) that the plaintiffs' proposed form of security should be rejected. The associate justice ordered that security be provided in the form of 'deposit into Court, or by way of [a] guarantee from an agreed Australian bank or other authorised deposit-taking institution.'[1]

2 The plaintiffs have appealed against the decision as to the form of security.

3 In order to succeed on appeal, the plaintiffs must demonstrate that the associate justice made a legal, factual or other discretionary error.[2]

4 The form of security ultimately proposed by the plaintiffs to each group of defendants was:

(1) a deed of indemnity to be given by a United Kingdom insurance company, AmTrust Europe Ltd, directly to the defendants ('AmTrust indemnity');

(2) payment into court of, or a bank guarantee for, $20,000 per defendant group - to cover the costs of registration of a foreign judgment in the United Kingdom in the unlikely event that enforcement of the AmTrust indemnity was required, notwithstanding a judgment of this Court for costs against the plaintiffs ('UK registration costs');[3] and

(3) an undertaking by the plaintiffs to ensure that the AmTrust indemnity included a term to the effect that AmTrust would not seek security for costs in any enforcement proceedings against it in the United Kingdom.[4]

5 The associate justice rejected this form of security on the basis that the interests of justice required security in the form of cash deposit or bank guarantee.[5]

6 Before considering the associate justice's reasons in detail, it is necessary to summarise the evidence before the associate justice and the applicable law.

7 The principal evidence relied upon by the plaintiffs was an affidavit sworn by their solicitor, Gregory Whyte, in which he:

(1) produced the proposed form of deeds of indemnity to be provided by AmTrust to the defendants; and

(2) deposed that he had been informed by AmTrust's underwriting manager and believed that:

(a) AmTrust is a registered insurance company in England and Wales, authorised by the Prudential Regulation Authority and regulated by that authority and the Financial Conduct Authority;

(b) AmTrust was established in 1975 and is a wholly owned subsidiary of AmTrust Financial Services Inc, a multinational insurance holding company based in New York;

(c) AmTrust's principal activity is the underwriting of general insurance business in the United Kingdom and other European countries;

(d) AmTrust is rated by A.M. Best, an international ratings agency with a specialisation in insurance companies. As at 13 June 2014, the whole AmTrust Group, of which AmTrust is a member, maintained a financial strength rating of A (Excellent) from A.M. Best;[6]

(e) AmTrust itself has its own financial strength rating of 'A', which was confirmed by A.M. Best on 17 February 2015;[7] and

(f) AmTrust released its report and financial statements for the year ended 31 December 2014 on 27 March 2015;[8]

(3) noted from the report and financial statements that AmTrust has reported:

(a) a before tax profit of £45,521,000 which was an increase from £39,817,000 for the previous year;

(4) produced, as an exhibit, AmTrust's parent company market release reporting on its financial performance for the year ended 31 December 2014;

(5) noted from the market release that AmTrust's parent company has reported:

(a) total assets of approximately US$13.85 billion, an increase of US$2.57 billion, or 22.8 per cent, from the previous year;

(b) total cash, cash equivalents and investments of US$5.66 billion, an increase of US$1.08 billion, or 23.5 per cent, from the previous year; and

(c) stockholders' equity of US$2.04 billion (an increase of 41.4 per cent from the previous year);

(6) in order to maintain its insurance licence, AmTrust is required to hold a minimum capital amount in accordance with the 'EU Insolvency II' directive.[9] Mr Whyte noted that article 129(1)(d) of that directive requires a minimum capital requirement with 'an absolute floor' of €2,200,000 for non-life insurance undertakings and of €3,200,000 for each of life insurance undertakings and re-insurance undertakings, a total of €8,600,000. As noted above, AmTrust's recently reported cash at bank and in hand was £35,862,000 (or approximately €49,941,315);

(7) deposed that he had been further informed by AmTrust's underwriting manager and believed that:

(a) 'AmTrust issues a variety of products in connection with its legal expenses coverage business. These include direct liability deeds of indemnity in favour of defendants in respect of security for costs commitments';

(b) 'AmTrust first issued a policy to an insured in Australia in 2012 and a deed of indemnity in favour of a litigant in Australia in 2013. The deed was issued as security for a defendant's costs and was accepted for that purpose', although confidentiality obligations prevented the underwriting manager from disclosing further details;

(c) 'AmTrust has issued other instruments in favour of litigants as a form of security for costs in three or four matters in Australia, since that time', although confidentiality obligations prevented the underwriting manager from disclosing further details; and

(d) 'on no occasion has AmTrust ever failed to honour a deed of indemnity it has issued in favour of a defendant';

(8) deposed that the plaintiffs have proposed providing security for costs 'by way of a Deed of Indemnity from AmTrust directly in favour of [the defendants] in respect of their costs of the first stage of the litigation up to the close of pleadings.' Mr Whyte exhibited a copy of the proposed 'form of the deeds of indemnity proposed';[10] and

(9) deposed that he believed 'there is no reason to believe that there are any grounds enabling AmTrust to avoid honouring the [proposed deeds of indemnity] should the [defendants] succeed in this action.'

8 During the hearing before the associate justice, the defendants objected to this evidence on the ground it was hearsay. Notwithstanding that she was considering an interlocutory application, the associate justice accepted this argument. Her Honour refused an adjournment to allow direct evidence. Instead, she ruled that the hearing proceed on the basis that, if she was 'otherwise minded to allow security in the form proposed by the plaintiffs', she would order such security on condition that direct evidence be provided 'from an appropriately authorised officer of AmTrust' to the same effect as Mr Whyte's evidence.[11]

9 The proposed 'form' of the AmTrust deed of indemnity for the B&B Defendants was limited to the sum of $75,000, as that was the amount which the plaintiffs had contended in correspondence was the appropriate amount for the first tranche of security. There is nothing in Mr Whyte's affidavit or exhibits which indicates that this was the maximum amount which AmTrust would provide by way of deed of indemnity, even if the Court were to order a higher amount for the first tranche of security. If the Court ordered a higher amount, and AmTrust was not prepared to provide a deed of indemnity for that amount, the proceeding would be stayed pending security for the ordered amount being provided.

10 The 'form' of the AmTrust indemnity before the Court may be relevantly summarised as follows:

(1) Clause 2: AmTrust 'unconditionally and irrevocably undertakes to pay' the defendants any sum or sums which the plaintiffs are liable to pay in respect of the defendants' costs up to a specified limit (ie the respective amounts of the first tranche of security);

(2) Clause 3: A certified copy of a 'relevant Court Order' against the plaintiffs for the payment of the defendants' costs, or a signed agreement, shall be 'conclusive evidence of the liability of and binding upon AmTrust without further enquiry by AmTrust';

(3) Clause 4: AmTrust 'shall be deemed to be a Principal Debtor and not merely a surety and, accordingly, AmTrust shall not be discharged nor shall its liability be affected by any act or thing or means whatsoever (including, without limitation, any defences to payment asserted by, insolvency of, or unenforceability as against the [plaintiffs])';

(4) Clause 5: For the avoidance of doubt, 'AmTrust's liability under this Deed shall not be subject to avoidance on the grounds of fraud or misrepresentation by the [plaintiffs], nor shall it be affected by any lack of substance in the claim which has been brought by the [plaintiffs]';

(5) Clause 10: the AmTrust indemnity is governed by and construed in accordance with the laws of Victoria and is subject to the exclusive jurisdiction of Victorian courts; and

(6) Clause 11: During the course of the appeal, the plaintiffs put forward a further form of the AmTrust indemnity annexed to the plaintiffs' minutes of proposed orders on appeal. By clause 11 of that further form, AmTrust undertakes that it will not seek security for its costs in respect of any application made by the relevant defendant in the United Kingdom to register any costs order in this proceeding.

11 The plaintiffs also relied on evidence as to the ease with which judgments of Australian courts can be registered in the United Kingdom and as to the moderate costs of doing so. That evidence was accepted by the associate justice.[12]

12 In Yara Australia Pty Ltd v Oswal,[13] the Court of Appeal considered whether to award security for costs against two plaintiffs resident in the United Arab Emirates. Redlich JA stated:[14]

The form of a fund or asset will be immaterial so long as it is adequate to achieve its object as a security. The court has an unfettered discretion under r 62.03(1) as to what form of security may be acceptable. The degree of likelihood of the respondent being unable to pay the costs, along with all the circumstances, actual and possible, may be taken into account in the exercise of discretion.

13 In considering the adequacy of a proposed security, Redlich JA stated that the fact the security may not be 'immediately available and accessible' when a costs order is made against a plaintiff is not a decisive factor which requires the security to be rejected.[15]

14 Priest JA (with whom Macaulay AJA agreed) enunciated seven relevant principles arising from the case law:[16]

• first, the purpose of ordering security against a plaintiff ordinarily resident out of Victoria - and with no assets within it - is so that a successful defendant will have a fund in Victoria against which it can readily enforce an order for costs;
• secondly, to make or refuse an order for security is a discretionary judgment;
• thirdly, since such a judgment is discretionary, the court must weigh all relevant circumstances;
• fourthly, the weight of any one circumstance must depend not only on its own persuasiveness, but must be considered against the impact other circumstances might have against it;
• fifthly, a circumstance of great weight, but not necessarily decisive, is that the plaintiff is resident out of Victoria and has no assets within it;
• sixthly, the weight of that circumstance may be outweighed by the plaintiff being able to point to other countervailing circumstances; and
• seventhly, the ultimate question must always be - how is justice best served in the particular circumstances of the case?

15 In distilling these seven principles, Priest JA considered a number of authorities. The first principle, concerning the purpose of ordering security in a case such as the present, was based on the statement by Gummow J (as a judge of the Federal Court) in Energy Drilling Inc v Petroz NL & Ors, that:[17]

The purpose of ordering security for costs against an applicant ordinarily resident outside the jurisdiction is to ensure that a successful respondent will have a fund available within the jurisdiction of this Court against which it can enforce the judgment for costs, so that the respondent does not bear the risk as to the certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement.[18] On the other hand, the mere circumstance that an applicant is resident outside the jurisdiction does not necessarily invite an exercise of discretion in favour of ordering security, the question being how justice will be best served in the particular case.[19]

16 It is in my opinion clear, however, that this purpose is not decisive as to whether security should be ordered nor as to its form. This is plain from the whole of the above-quoted passage, from the second to seventh principles summarised by Priest JA, from the cases on which the second to seventh principles were based, and from the cases referred to below. There may be countervailing circumstances in a particular case which point to the justice of the case not requiring that a 'fund in Victoria' be established. The associate justice was correct to so hold.[20]

17 The second, third and fourth principles - that the decision whether or not to make an order for security for costs is discretionary and depends on all the circumstances of the case - are trite.

18 The fifth and sixth principles were based upon a decision of McHugh J (as a single judge of the High Court) in PS Chellaram & Co Ltd v China Ocean Shipping Company:[21]

To make or refuse to make an order for security for costs involves the exercise of a discretionary judgment. That means that the court exercising the discretion must weigh all the circumstances of the case. The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed ... However, for over 200 years, the fact that a party, bringing proceedings, is resident out of the jurisdiction and has no assets within the jurisdiction has been seen as a circumstance of great weight in determining whether an order for security for costs should be made. Indeed, for many years the practice has been to order such a party to provide security for costs unless that party can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction.

19 The same emphasis was given by Priest JA when quoting the above passage in Yara v Oswal.[22]

20 In PS Chellaram,[23] the 'other circumstance' McHugh J considered was an undertaking by Mr Chellaram, a Hong Kong-based shareholder of the appellant, to pay any costs ordered to be paid by the appellant up to the amount of $8,250. His Honour held that the proffered undertaking was not a 'satisfactory alternative' to an order that the appellant provide security for the costs of the appeal. This was because 'the difficulties of enforcing any undertaking given by [Mr Chellaram] would be formidable',[24] as breach of the undertaking would be 'a civil contempt of court enforceable only by committal or sequestration of [Mr Chellaram's] property' by the Court.[25]

21 PS Chellaram was considered by Jagot J in Maxim's Caterers Limited v Magnona Pty Ltd (No 1).[26] In that case, Jagot J considered whether a Hong Kong based party with 'substantial assets' in Hong Kong ought to provide security for costs in the amount of $145,950 in circumstances where enforcing an order for costs against it in Hong Kong was estimated to cost no more than $15,000.

22 Jagot J referred to the judgments of Gummow J in Energy Drilling Inc v Petroz NL & Ors[27] and of Lindgren J in Austin, Nichols & Co Inc v Lodestar Anstalt[28] and stated:[29]

the real issue ... in a case of foreign residence is whether for that reason a respondent would be subject to any 'unacceptable disadvantage'. On this basis the principal purpose of the power is protective; to ensure that there is no 'unacceptable disadvantage' to the respondent by reason of the applicant's foreign residence.

In other words, this is a case where, on the available evidence and other than to the extent of the costs of enforcement of a costs order in Hong Kong, the fact that Maxim's is ordinarily resident outside Australia does not place Magnona at any greater risk in terms of its capacity to enforce a costs order than would be the case if Maxim's were ordinarily resident inside Australia. In this case, accordingly, the weight which foreign residency and lack of assets within Australia would ordinarily attract is largely, if not wholly, offset by the evidence that enforcement of any costs order in favour of Magnona will be able to be enforced in Hong Kong against Maxim's substantial assets in that jurisdiction with relative ease pursuant to procedures which are well defined and known. Using the words of McHugh J this is a case where, on the evidence, Maxim's 'can point to other circumstances which overcome the weight of the circumstance that that person is resident out of and has no assets within the jurisdiction' (P S Chellaram at 323).

24 In Berry v Innovia Security Pty Ltd,[31] the applicants were resident in the United Kingdom and the respondent was an Australian company. The respondent sought security for costs in the amount of $175,000. The applicants submitted that, given the first applicant was the legal and beneficial owner of an unencumbered real property in the United Kingdom, purchased for £1.1 million, all that was required in the circumstances was to protect the respondent against the cost of registering any judgment in its favour as a foreign judgment in the United Kingdom. Those costs were estimated at $4,000, although the applicants offered security of $20,000 in this regard. The first applicant provided various undertakings to the court, including as to the unencumbered nature of the property and with respect to any potential future sale or encumbrance. On this basis, Buchanan J held that there were 'adequate, realisable assets held by the first applicant in the United Kingdom to satisfy a costs order against him' and ordered the payment of $20,000 as the only security.[32] His Honour stated:[33]

The position adopted, in this Court at least, therefore seems to be as follows. A foreign applicant with no assets in Australia should normally expect to provide some security for costs if requested to do so. The amount of the security which is appropriate will depend on all the circumstances. A foreign applicant bears a practical onus of showing that the party seeking security will not be unreasonably disadvantaged if a costs order is made against the foreign applicant. It will be relevant, in that regard, that there are arrangements for the enforcement of Australian judgments in the jurisdiction of the foreign applicant and that, in that jurisdiction, the foreign applicant has adequate assets to satisfy a costs order in the proceedings. It may be relevant that the foreign applicant has given an undertaking not to seek security for costs in its own jurisdiction if enforcement of an Australian costs order is sought.

In the present case there are reciprocal arrangements for the enforcement of judgments. The first applicant has undertaken not to seek security for costs, if a costs order against him is sought to be enforced in the United Kingdom.

25 The plaintiffs contend that the principles in Maxim's Caterers and Berry v Innovia are akin to the present circumstances, because, under the proposed form of indemnity, AmTrust will effectively 'stand in the shoes' of the plaintiffs for the purpose of providing security. Thus, the plaintiffs will in substance be in the same position as a foreign plaintiff with substantial assets in a foreign jurisdiction where enforcement of an Australian judgment is essentially a routine matter.

26 The decision of Jagot J in Maxim's Caterers was referred to with apparent approval by the New South Wales Court of Appeal in Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd.[34] Young JA stated:[35]

There are a series of cases which suggest that ordinarily, and that is probably a word that must not be forgotten, where one has an application for security for costs based on the fact that the applicant is outside New South Wales, the security for costs that ought to be ordered is the additional costs of realising the costs order in a foreign country as opposed to Australia.[36]

Accepting that this is a case where that ordinary rule applies it is appropriate to apply it to this particular case.

27 On the facts of that case, the ability to register a judgment in South Africa, while 'fairly straightforward and inexpensive',[37] was outweighed by the fact that there was legal doubt as to whether or not there were 'barriers' to actually collecting on a registered foreign judgment in South Africa in the circumstances of the particular case.[38] On this basis, the trial judge's order for increased security, in an amount which well exceeded the amount necessary to register any judgment in favour of the defendant in South Africa, was approved.

28 Recent cases in England have considered the form in which acceptable security for costs may be given.

29 In Aoun v Bahri Tuckey LJ observed as follows:[39]

Traditionally, security was provided by payment into court or solicitors' undertakings. Nowadays bank guarantees are the norm, provided they are from first class banks. Other forms of security are not ruled out, but they must be copper bottomed - in the sense that they can be enforced in a simple and straight forward way - otherwise the purpose of ordering security is defeated.

30 In Versloot Dredging BV v HDI Gerling Industrie Vesicherung AG,[40] an order was made that security for costs be provided by way of 'first class' London bank guarantee. The plaintiffs applied to vary the order, so as to allow them to provide a deed of indemnity from an insurer in substitution for a bank guarantee. Clarke J (as he then was) varied the order. His Honour stated:[41]

There is no magic in the provision of security from a first-class London bank. The essential question for the court in deciding on what form of security is acceptable is whether what is proposed does indeed provide real security. This it may do if it amounts to a promise which would in all likelihood be honoured, given by an entity with the wherewithal to pay and against whom enforcement can readily be obtained; in short, if given by a truly creditworthy entity.

31 Versloot was cited with approval in Harlequin Property (SVG) Ltd & Anor v Wilkins Kennedy (a firm).[42] In that case, Coulson J considered relevant English authorities (including Versloot) concerning when an 'after the event' ('ATE') insurance policy could be sufficient security under English law. His Honour concluded:[43]

(a) Adequate security for costs can be provided to a defendant by means other than a payment into court or a bank guarantee;

(b) Depending on the terms of the insurance and the circumstances of the case, an ATE insurance policy may be capable of providing adequate security;

(c) There may be provisions within the ATE insurance policy which a defendant can point to and say that, on the happening of certain events, those provisions may reduce or obliterate the security otherwise provided;

(d) In that event, the court should approach such objections with care: in order to amount to a valid objection that an ATE policy does not provide appropriate security, the defendant's concern must be realistic, not theoretical or fanciful.

32 Parker LJ in Rosengrens Limited v Safe Deposit Centres Limited stated:[44]

So long as the opposite party can be adequately protected, it is right and proper that the security should be given in a way, which is the least disadvantageous to the party giving that security.

It may take many forms. Bank guarantee and payment into court are but two of them. Frequently security is considered wholly adequate when it is provided merely by a London solicitor's undertaking. So long as it is adequate, then the form of it is a matter which is immaterial ... as long as it is adequate to protect the opposite party, it is not his concern whether it should be in one form rather than another.

33 In Blue Oil Energy Pty Limited v Tan,[45] the New South Wales Court of Appeal (Beazley P and Tobias AJA) approved the above-quoted statement of Parker LJ but stated that security for costs need not always be ordered in a form 'least disadvantageous' to the party giving security: [46]

As the respondents submitted, his Lordship was not laying down some general proposition to the effect that security can only be ordered in favour of a defendant in a manner which is the least disadvantageous to a plaintiff. The true issue was whether the form of security ordered was adequate to protect the party seeking it.

34 The language in Rosengrens and Blue Oil Energy is consistent with the statement of Redlich JA in Yara v Oswal, which is quoted above.[47] As appears below, the plaintiffs contend that adequacy of the plaintiffs' proposed form of security is the central factor to be considered in the exercise of the Court's discretion as to form.

35 The effect of the authorities concerning the exercise of the Court's discretion as to the form in which security for costs may be provided by a foreign plaintiff with no assets in the jurisdiction (the 'relevant security circumstances') may be summarised as follows.

36 First, the first principle stated by Priest JA in Yara v Oswal does not require that, in every case involving the relevant security circumstances, the form of the security must comprise a fund or asset in Victoria. There may be countervailing circumstances which point to the justice of the case not requiring security in the form of a fund or asset in Victoria.[48]

37 Second, countervailing circumstances may include that the plaintiff has substantial assets in a foreign jurisdiction, judgments of this Court can readily be registered in that jurisdiction at a cost which is secured by an asset or fund in Victoria, and execution of the judgment in the foreign jurisdiction does not pose undue difficulties or obstacles.[49] An undertaking by the plaintiff not to seek security for costs in the event that proceedings to enforce a costs judgment are brought in the foreign jurisdiction may also be relevant.[50]

38 Third, a plaintiff is entitled to put forward security in a form least disadvantageous to it.[51] Where a plaintiff puts forward security in a form other than payment into court or a bank guarantee from an Australian bank, the central inquiry is whether the proposed form of security is adequate to achieve its object as security; namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff.[52] The fact that some delay may be involved in accessing that security is, while relevant, not decisive.[53]

39 Fourth, a plaintiff proposing security bears a 'practical onus' of satisfying the Court that the proposed security will not impose an 'unacceptable disadvantage' on the defendant.[54] Where that onus is satisfied, the Court should ordinarily order security in that form.[55]

40 Drawing these threads together, in exercising its broad discretion as to the form of security for costs in the relevant security circumstances, the Court will usually apply the following principles:

(1) the plaintiff is entitled to propose security in a form least disadvantageous to it;

(2) the plaintiff bears a 'practical onus' of establishing that the proposed security is adequate and does not impose an 'unacceptable disadvantage' on the defendant;

(3) in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and

(4) based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.

41 Her Honour commenced by setting out the facts underlying the dispute in the proceeding, and describing the role of the various parties in relation to the issues. Relevantly, she noted that the first plaintiff is a Delaware limited partnership established as a vehicle for investments in transactions originated and promoted by the global investment and advisory firm 'Babcock & Brown'. The second plaintiff is a Cayman Islands company, a subsidiary of the first plaintiff, and an investor in the relevant transaction which allegedly gave rise to loss caused by the conduct of the defendants. Damages exceeding US$23 million are claimed.

42 Her Honour described the roles of the various defendants in the impugned transaction. Relevantly, her Honour described the first, third, fourth and sixteenth defendants as the 'B&B Defendants' and the fifth, sixth, seventh, eighth and ninth defendants as the 'Executive Defendants'. I will adopt that terminology to refer to those two defendant groups individually, and refer to them collectively as 'the defendants'. The B&B Defendants are alleged to be the promoters of the failed investment. The Executive Defendants are alleged to be individuals holding various senior positions in the promoter entities. It is unnecessary to refer to the other defendant groups, who did not participate in the hearing of the appeal from her Honour's orders. I note, however, that all four groups of defendants were represented before the associate justice.

43 After noting that the plaintiffs do not dispute that security for costs should be provided,[56] albeit in tranches,[57] her Honour noted that there was no form of security prescribed by either r 62 of the Supreme Court (General Civil Procedure) Rules 2015 or s 1335 of the Corporations Act 2001 (Cth), being the relevant sources of power other than the Court's inherent jurisdiction, which specify the circumstances in which the jurisdiction of the Court to order security for costs is enlivened.[58] Her Honour correctly noted that the form of security was a matter of discretion under r 62.03, which provides that '[w]here an order is made requiring the plaintiff to give security for costs, security shall be given in the manner and at the time the Court directs'.[59] Her Honour noted, however, that the form of security sought by the defendants, either by payment into Court or by bank guarantee, was the 'conventional form of security'.[60]

44 Her Honour then reviewed relevant authorities concerning the form in which security for costs should be ordered. Her Honour commenced her review of the authorities by reference to the principles in Yara v Oswal and determined, as discussed above, that the first principle enunciated by Priest JA in that case is not decisive as to whether security should be ordered or as to its form in circumstances such as the present. As I have said, I agree with the associate justice on this point.

45 Her Honour then proceeded to review the other principles stated by Priest JA and the cases from which he extracted those principles, as discussed above.

46 Her Honour concluded her review of Yara v Oswal with the following summary of its effect:[61]

It follows in my view, that [Yara v Oswal] stands for the proposition that notwithstanding that the purpose of security for costs in the case of an overseas plaintiff is to provide a fund within the jurisdiction, all relevant circumstances must be considered in determining both whether to order such security, and its form. The ultimate question for the court in relation to both issues is - how is justice best served in the particular circumstances of the case?

47 Her Honour then turned to consider specific authorities concerning the form of security for costs in cases such as the present, where a foreign plaintiff has no assets in Victoria. Her Honour considered Maxim's Caterers, Berry v Innovia and Dense Medium.[62] Her Honour summarised the effect of these cases, and the difference between them and the proffered form of security in this case, in the following terms:[63]

These cases demonstrate that where a foreign plaintiff itself has assets sufficient to meet a likely costs order in a foreign jurisdiction, in which an Australian judgment may be enforced, sufficient security for costs may be the costs of enforcement in that jurisdiction.

There is, however, in this case an additional intervening factor. The foreign plaintiffs here do not assert that they themselves have sufficient foreign assets or financial resources to meet a costs order, or to offer as security. As noted, they provide no information about their own financial position. They propose security by way of deed from an overseas insurer, which they assert has more than sufficient assets to meet any costs order, and cash security sufficient to enforce that deed if required.

48 Her Honour then turned to a situation similar to this case, where a foreign plaintiff with no assets in the relevant jurisdiction proposes that security be provided by a third party with substantial assets in a foreign jurisdiction. Her Honour noted that the only case of that kind which had been put before her was PS Chellaram.[64]

49 Her Honour next considered two cases in which security for costs was proffered in the form of an undertaking to be given by an insurer. First, her Honour considered the decision of Mandie J in Nylex Corporation Pty Ltd v Basell Australia Pty Ltd,[65] in which a proposed undertaking from the insurers of an insolvent corporate plaintiff was rejected on a number of grounds involving uncertainty as to the adequacy of the undertaking, the lack of direct proof of the assets of those insurers and the lack of proven authority by the person who it was proposed would give the undertaking on behalf of the insurers.[66] In her Honour's view, there was another reason given by Mandie J for rejecting the proposed undertaking from insurers:[67]

Thirdly, Mandie J noted that there was no evidence that the insurers would have any difficulty in obtaining a guarantee from an Australian bank, and the only apparent prejudice to them by ordering that form of security would be the bank charges incurred in obtaining such a guarantee. The defendant offered to abide any order of the Court in relation to those charges if the plaintiff eventually succeeded in the proceeding, or it was otherwise appropriate to reimburse the plaintiff or its insurers for those charges.

50 Second, her Honour referred to the decision in Versloot[68] and distinguished it from cases such as the present, on the basis that it concerned a 'reputable and creditworthy insurance company, present in London ... [which] had assets in the jurisdiction in which the security was sought.'[69]

51 Her Honour concluded her review of the authorities with a summary of their effect.[70] That summary did not include her Honour's previous finding that the purpose of providing security for costs as expressed in the first principle stated by Priest JA in Yara v Oswal[71] is 'not necessarily decisive'.[72] Nor, notwithstanding that her Honour had previously quoted it with apparent approval,[73] did the summary include any reference to the statement by Redlich JA in Yara v Oswal that:[74]

The form of a fund or asset will be immaterial so long as it is adequate to achieve its object as a security. The court has an unfettered discretion under r 62.03(1) as to what form of security may be acceptable.

52 Later in her reasons, however, her Honour rejected a submission by the plaintiffs that:[75]

... the question the Court is required to determine [is] whether the security proposed is adequate, taking into account whether there is any unreasonable disadvantage to the defendants. Counsel further submits that this is the test as propounded by Redlich JA in [Yara v Oswal].

53 Her Honour rejected the plaintiffs' formulation of the relevant question in the following terms:[76]

In my view, counsel's formulation is not the correct formulation of the question the Court must determine, and nor does Redlich JA express it in these terms. In the quote on which counsel relies, Redlich JA merely states that the form of security is in the discretion of the court. He does not posit any test for the exercise of that discretion. The test in [Yara v Oswal] was formulated by Priest JA, with whom Macaulay AJA agreed. Priest JA stated that the ultimate issue for the Court is what justice requires. A consideration of what justice requires in the circumstances of the case involves consideration of the interests of both the plaintiffs and the defendants.

I accept the plaintiffs' submission that the Court should not commence its consideration with a predisposition in favour of a bank guarantee, being the defendants' proposal. But nor should it commence its consideration with the plaintiffs' proposal, and ask if it is sufficient, as might be suggested by the test advanced by the plaintiffs.

54 In her Honour's view, the correct way to approach the issue of form was:[77]

... on the basis that it is for the defendants to show that the proposed form of security offered by the plaintiffs is inferior to the form of security they propose.

55 Taking her reasons as a whole, it is clear that the associate justice approached her task on the principal basis that she was required to engage in a comparison process between the attributes of the forms of security put forward by the parties, and order that security be ordered in the form which she considered 'superior' to the opposing form. Her Honour undertook that comparison process by reference to a range of potential difficulties and uncertainties which the defendants contended attached to both the proposed AmTrust indemnity and the cash security for UK registration costs, when compared with the 'familiar'[78] form of acceptable security by payment into court or bank guarantee from an Australian bank, and concluded that the proposed AmTrust indemnity was an inferior form of security to payment into court or bank guarantee.[79]

56 However, notwithstanding this reasoning, her Honour expressed her conclusion in slightly different language:[80]

Applying the ultimate test as articulated in [Yara v Oswal], I consider that the defendants have shown that in the circumstances of this case, and on the evidence before me (even assuming that the matters to which Mr Whyte deposes can be put on direct evidence) security by way of deed of indemnity from AmTrust is not how justice is currently best served. The interests of justice require in my view cash deposit or bank guarantee.

I do not hold that security by way of a deed of indemnity from a third party insurer can never be appropriate. Nor do I find that there is any reason to doubt the financial standing of AmTrust, assuming direct evidence is given by an appropriately authorised person to the same effect as Mr Whyte's evidence on information and belief on that point. Given that financial standing, however, there is no explanation given why bank guarantee, which would deal with all the defendants' objections, cannot be given for the full amount of security, and not just the costs of enforcement overseas.

Further, I consider that the defendants have identified a number of practical issues with the proposed security, and have shown that those issues are not currently satisfactorily addressed.

For these reasons, I will require security for the first tranche to be given by way of deposit into Court, or by way of guarantee from an agreed Australian bank or other authorised deposit-taking institution.

57 Read in the context of the whole of her Honour's reasons, this summary conclusion should be understood as having been based primarily on the associate justice's view that a cash deposit or bank guarantee was a superior form of security over the proposed AmTrust indemnity and cash security for UK registration costs.

58 The defendants contend that no error has been demonstrated by the associate justice engaging in the comparative process described above, for two principal reasons.

59 First, the Executive Defendants raised a threshold issue. They contend that the proposed AmTrust indemnity is incapable of satisfying the purpose or object of an order for security for costs against a foreign plaintiff with no assets in Victoria, namely, to provide 'a fund in Victoria against which [the defendants] can readily enforce an order for costs.'[81] The Executive Defendants contend that this purpose is 'the essential principle' or 'the overriding objective' which 'guides the exercise of the Court's discretion' as to the form of the security in such cases. They contend that the plaintiffs' reliance on the statement by Redlich JA in Yara v Oswal is misplaced, because it should be understood as relating only to immateriality of the form of a fund or asset which is otherwise in Victoria, as it was in that case. In other words, the discretion as to the form of the fund and or asset is limited by the overriding objective that it should in any event be a fund in Victoria. In this respect, the Executive Defendants disagree with the conclusion reached by the associate justice to contrary effect which, for the reasons given above, I agree with.

60 The B&B Defendants accept that the associate justice correctly held that the first principle stated by Priest JA as to purpose did not dictate that the form of the security ordered against a foreign plaintiff with no assets in Victoria must involve a fund or asset, in whatever form, being established in Victoria by way of security. They accept the adequacy principle, as formulated by Redlich JA in Yara v Oswal,[82] and by the New South Wales Court of Appeal in Blue Oil Energy,[83] and the principle that a 'plaintiff is entitled to offer security in the manner least disadvantageous to it, so long as the defendant is adequately protected',[84] may apply in circumstances where security is ordered against a foreign plaintiff with no assets in Victoria.

61 For the reasons given above in summarising the applicable law, I reject the submission by the Executive Defendants that these principles are only relevant insofar as they relate to security in the form of a 'fund in Victoria'. I accept that the associate justice correctly held to the contrary, as acknowledged by the B&B Defendants, and that the issue on appeal is whether the associate justice gave sufficient weight to these considerations in the exercise of her discretion as to the acceptability of the form of security proffered by the plaintiffs.

62 Second, the defendants contend that the associate justice made no error in engaging in a comparison between the relative adequacy of cash deposit or a bank guarantee from an Australian bank on the one hand and the proposed AmTrust indemnity on the other. In summary, they contend that the associate justice was required to consider the form of security sought by the defendants, because if she had not done so, she would have failed to have regard to a relevant consideration in determining how justice was best served in the particular case. This required her to consider 'relative as well as absolute adequacy'.[85] I do not accept that contention.

63 The question for the Court is not one of relative adequacy. The central inquiry is whether the form of security put forward is adequate to achieve its object as security,[86] namely, whether that form will give a successful defendant a fund or asset 'against which it can readily enforce an order for costs'.[87]

64 As set out above, the focus on the adequacy of the proposed form of security is consistent with other authority in Australia and England, including Versloot ('whether what is proposed does indeed provide real security'),[88] Rosengrens ('so long as it is adequate, then the form of it is ... immaterial'),[89] and the New South Wales Court of Appeal in Blue Oil Energy ('the true issue was whether the form of security ordered was adequate to protect the party seeking it').[90] This approach is consistent with giving due weight in the exercise of the Court's discretion to any 'countervailing circumstances' which weigh against insisting that, in the case of a foreign plaintiff with no assets in Victoria, the form of security should involve isolating a 'fund in Victoria' against which a successful defendant can have ready access to obtain payment of favourable costs orders. The relevance of countervailing circumstances is demonstrated by the fifth and sixth principles stated by Priest JA in Yara v Oswal,[91] applying the statement of McHugh J in PS Chellaram.[92]

65 In determining whether the associate justice was relevantly in error in this respect, it is unnecessary to consider the detailed factors which led her to conclude that the proposed AmTrust indemnity was an inferior form of security to payment into court or bank guarantee. For the reasons given above, the associate justice was in error in approaching the issue as to the form of the security by embarking upon a comparison exercise of assessing the relative attributes of the proffered security on the one hand, and the 'conventional' or 'familiar' forms of security by cash deposit or bank guarantee on the other, with a view to determining which form of security was superior and which was inferior. As the plaintiffs submitted, such an approach will invariably lead to payment into court on each occasion security is ordered, because that is by far the superior form of security. The discretion is accordingly re-opened.

66 Further, for the reasons appearing below in re-exercising the Court's discretion as to the form of the security, there are a number of respects in which I respectfully disagree with the associate justice's acceptance of some of the defendants' criticisms of the proffered security. Those aspects of her Honour's reasons also involved error of the relevant kind, thus providing separate grounds to set aside the decision and re-exercise the discretion on appeal.

67 I turn to consider how the discretion should be re-exercised.

68 I start by considering the adequacy of the form of the security put forward by the plaintiffs. The defendants challenged the adequacy on a number of grounds.

69 First, the defendants challenged the admissibility and weight to be attached to Mr Whyte's evidence, as set out above, concerning the amount of AmTrust's assets and the likelihood that it would honour the AmTrust indemnity according to its terms if called upon to do so. As appears above, the defendants relied on Nylex v Basell to contend that hearsay evidence as to these matters was inadmissible, notwithstanding that the evidence was tendered in an interlocutory application and admissible on that basis.[93] They were wrong to so contend, and the associate justice erred in accepting that submission and holding, contrary to her ruling that the evidence could be relied upon in argument and verified by direct evidence should she find in favour of the plaintiffs, that:[94]

As I have indicated, considerable uncertainty as to the nature of the plaintiffs' proposal arises from the absence of direct evidence from AmTrust. Further, [Nylex v Basell] is authority for the proposition that there should be direct evidence from the proposed third party provider of security as to its financial standing. No such direct evidence is before the Court.

70 Nylex v Basell is authority for no such proposition. The lack of direct evidence in that case as to the insurers' financial position was just one of the matters to which Mandie J referred in reaching his decision on the particular circumstances before him. It is apparent from his Honour's decision that he took into account 'the apparent substance' of the insurers in reaching his conclusion, and must have relied upon the hearsay material to that end.[95] Moreover, her Honour's later express finding that there was not 'any reason to doubt the financial standing of AmTrust, assuming direct evidence is given',[96] sits uneasily with her Honour's statement, quoted above, that the absence of direct evidence gave rise to 'considerable uncertainty as to the nature of the plaintiffs' proposal'.

71 In my opinion, Mr Whyte's evidence is admissible. It is largely based on apparently genuine documents and is inherently plausible. His evidence establishes that AmTrust is a truly creditworthy insurer with the means to meet any claims on the proposed AmTrust indemnities to be issued to the defendant groups.

72 Second, the defendants contend that Mr Whyte's evidence, even if confirmed by direct evidence, was otherwise deficient because it gave rise to uncertainties, complexities and was incomplete.[97] The associate justice accepted many of these criticisms, describing Mr Whyte's evidence as 'so deficient that gaps in the evidence would remain' if it was confirmed by direct evidence.[98] The principal matters relied on by the defendants were as follows:

(1) There was no evidence before the Court of the basis on which AmTrust has agreed to enter into the AmTrust indemnity - for example, pursuant to an insurance policy or a litigation funding agreement. I do not accept that this is a relevant deficiency in the plaintiffs' evidence. Courts do not inquire into the reasons why, or the terms on which, a bank agrees to provide a plaintiff with a bank guarantee addressed to the defendants by way of security for costs. The private arrangements between the provider of the security and the person providing the security, such as a bank or an insurance company, are no business of the defendants or the Court. The form of guarantee put forward is either adequate for its purpose as security for costs, or it is not. The associate justice was wrong to give any weight to this alleged deficiency in considering the adequacy of the AmTrust indemnity or the evidence in relation to it. The associate justice determined that 'the nature of the relationship between AmTrust and the plaintiffs retains some relevance',[99] and speculated that 'there are some aspects of the underlying arrangement that may conceivably impact on the provision of security in the future, and that is significant given that what is agreed is the provision of security in tranches'.[100]

I do not accept that the nature of the relationship between AmTrust and the plaintiffs has any relevance to the provision of further tranches of security. It is as irrelevant to that question as to the adequacy of the first tranche. That is not to say, however, that any dispute as to the form of security for further tranches may not require further evidence from the plaintiffs if they seek to rely upon a further AmTrust indemnity in the amount of any further tranches. For example, updated evidence of AmTrust's creditworthiness may be required.

(2) There was no evidence as to the likely willingness of AmTrust to provide further tranches of security if asked. This is irrelevant to the adequacy of the form of security for the first tranche, which was the only issue before her Honour. Her Honour accepted that this was a relevant consideration nonetheless,[101] and expressly held that the uncertainty as to whether AmTrust would provide deeds of indemnity in respect of future tranches of security was a 'further factor ... tending against the plaintiffs' proposal'.[102] That was an error.

(3) The draft AmTrust indemnity in favour of the B&B Defendants was limited to the sum of $75,000, in circumstances where the associate judge fixed the amount of the first tranche of security to be provided by those defendants in the sum of $253,990 (in respect of which there is no appeal). I do not accept that this is a relevant deficiency in the plaintiffs' evidence. Further, although the associate justice was critical of the lack of evidence that the AmTrust indemnity would be for the amount ordered by the Court,[103] her Honour did not consider this to be a 'compelling reason standing alone for rejecting that form of security'.[104] In my view, this alleged deficiency in the plaintiffs' evidence is irrelevant, and has an air of unreality about it. If the Court accepts that the form of security proffered by the plaintiffs, including the AmTrust indemnity, is acceptable, then the plaintiffs will need to provide an AmTrust indemnity in the amount ordered by the Court in respect of the B&B Defendants, and if they do not do so then the proceeding against the B&B Defendants will be stayed unless they provide an alternative form of acceptable security. Moreover, the insertion of the limit of $75,000 in the proposed AmTrust deed in respect of the B&B Defendants is readily explicable. That was the amount which, at the time they filed their evidence, the B&B Defendants contended should be ordered for the first tranche of security. As appears above, Mr Whyte exhibited the form of AmTrust indemnity for the B&B Defendants as a proposed form. It was implicit that the notional limit in the draft would alter if the Court otherwise ordered. Finally, the situation is not different from a dispute as to the amount of security to be provided by way of payment into court or bank guarantee. In those cases also, where there is no dispute as to the form of the security to be provided, the plaintiff may be unable to comply with the order for the amount fixed and, if so, the proceeding will be stayed until it is provided.

(4) The draft AmTrust indemnity was unexecuted, there was no evidence of any warranty of authority from AmTrust for any person to execute the AmTrust indemnity on its behalf, and there was uncertainty as to whether the AmTrust indemnity required execution by both AmTrust and the defendants. There is no merit in these criticisms of the plaintiffs' evidence. The form of the AmTrust indemnity clearly does not require execution by the defendants. The situation is no different from a bank guarantee, which is provided by a deed executed by a bank without the need for the beneficiary to sign it. Moreover, like a bank guarantee, it will only be acceptable if it is regularly executed. This complaint could have been dealt with by the associate justice requiring the AmTrust indemnity be executed under its company seal or by a duly authorised attorney who provides evidence of his or her authority to do so. The associate justice erred in accepting the defendants' arguments in this respect, which put form over substance.[105]

(5) The evidence as to the number of similar deeds of indemnity previously given by AmTrust, in Australia and elsewhere, and of its history in meeting its liabilities under such deeds when they fall due for payment, was of a vague and general nature. I accept that the evidence concerning these matters was scant, but it was explained that this was for client confidentiality reasons. In any event, given the terms of the proposed AmTrust deed, it is hard to think how it could justifiably fail to honour its obligations under the indemnity if the terms required it to do so. The proposed AmTrust indemnity is to be governed by Victorian law and proceedings under it are required to be brought in Victoria. Given the similarity of the AmTrust indemnity to the terms of a standard bank guarantee by an Australian bank, summary judgment would likely follow in the unlikely event that AmTrust defaulted.

(6) There is no evidence before the Court that the plaintiffs would have any difficulty in obtaining a guarantee from an Australian bank for the full amount of the first tranche of the security, especially in circumstances where they have offered to provide $20,000 in cash or a bank guarantee from an Australian bank as security for the UK registration costs in respect of each defendant group. The defendants contend that the decision of Mandie J in Nylex v Basell demonstrates that the plaintiffs were required to explain why they could not, or did not wish to, provide a bank guarantee from an Australian bank by way of security - or that the failure to give such evidence is at least an important discretionary factor which the associate justice was entitled to take into account in the exercise of her discretion. As appears above, the fact that the plaintiffs did not give this evidence was an important reason given by the associate justice for rejecting the AmTrust indemnity and security by cash or bank guarantee for any UK registration costs.[106] In my opinion, this is not a strong discretionary factor. Standing alone, it is incapable of providing a good reason for the security proffered by the plaintiffs being rejected, especially in circumstances where that security is objectively adequate to provide a fund or asset against which a successful defendant can readily enforce an order for costs.

Moreover, the associate justice's reliance in this regard on Nylex Corporation v Basell was in my opinion misplaced. That case did not, as her Honour apparently held, create any binding precedent that a plaintiff putting forward security in a form other than cash or a bank guarantee must, simply because the defendant insists on cash or a bank guarantee, explain any prejudice or disadvantage in giving security in that form. The relevant question remains: is the proposed form of security adequate? In Nylex Corporation v Basell 'the uncertainties and complexities' of the proposed form of security caused Mandie J to hold that it was not 'an appropriate mode of providing ... security.'[107] In other words, that it was not adequate to give the defendant, if successful, 'ready and certain access to the amount secured if and when entitlement to claim it arises'.[108]

After reaching that conclusion, Mandie J added a comment, perhaps intended to bolster his conclusion but not necessary for it, that 'there was no evidence that the plaintiffs insurers would have any difficulty in obtaining a guarantee from an Australian bank, as the only apparent prejudice to the insurers by ordering this form of security would be bank charges'.

(7) There is no evidence that the proffered security was more advantageous to the defendants than providing bank guarantees. This alleged deficiency is relevant to the principle that, provided it is adequate, security should usually be given in a way which is the least disadvantageous to the party giving security.[109] The defendants contend that the plaintiffs ought to have given evidence that they could not obtain a bank guarantee, or that they would suffer greater prejudice than under the proposed AmTrust indemnity if they were required to do so. These arguments found favour with the associate justice.[110] I do not accept them. Having regard to the evidence as whole, and the vigour with which the plaintiffs pursued their arguments in support of providing security by the AmTrust indemnity in lieu of a bank guarantee, it was necessarily implicit that the proffered security was less disadvantageous to them. The associate justice erred in not inferring that such was the case.

73 Third, the defendants contend that the interposition of AmTrust, as an overseas insurer with no presence in Australia, reduces their ability to both:

(1) readily enforce a costs order in their favour, because if enforcement is required they will need to register any judgment of this Court against AmTrust in the United Kingdom and execute there; and

(2) monitor any changes in the financial ability of AmTrust to honour its obligations under the AmTrust indemnity, because AmTrust is an English company, owned and controlled by an American parent company, and neither company has any presence in or reputation in Australian financial markets or commercial dealings.

74 In these circumstances, the defendants contend that there is real uncertainty as to whether 'the protective purpose' of an order for security for costs is achieved. They rely on the fact that no undertaking has been proffered by the plaintiffs to advise the defendants of any change in AmTrust's financial position,[111] and that the fact AmTrust and its parent company are registered in England and America and do not file financial statements in Australia reduces their ability to ascertain or monitor any adverse change in their financial position.

75 I do not accept those contentions. There exists a global financial community, with easy access on the internet to any financial statements and reports required to be publically filed by AmTrust in England and by its parent in the United States. The fact that a guarantee is put forward by an Australian bank or other authorised deposit-taking institution is no guarantee that the bank or institution will not fail. Moreover, AmTrust is a regulated insurer and subject to capital adequacy requirements. This objection to the AmTrust indemnity appears to be based solely on its foreign status. The evidence from Mr Whyte establishes that AmTrust is a substantial and well-regulated insurer and has the support of a substantial United States parent company. There is no evidence which provides a basis for questioning AmTrust's creditworthiness and ability to honour its obligations under the proposed AmTrust indemnity.

76 In my opinion, the factors considered in Maxim's Caterers and Berry v Innovia support a finding of adequacy in the circumstances. The plaintiffs submit that those principles are relevant because the proffered deed is 'irrevocable, directly enforceable and unconditional'. As such, AmTrust 'stood in the shoes' of the plaintiffs and they should therefore be treated as a foreign entity with substantial assets in a jurisdiction where enforcement of any judgment is essentially a routine matter with modest attendant costs. I accept those submissions. The proposed AmTrust deed of indemnity is akin to the form of bank guarantee. It is an unconditional promise by deed to pay the defendants the amount of any costs order, or a written agreement with the plaintiffs to pay them costs. It is 'a promise which would in all likelihood be honoured, given by an entity with the wherewithal to pay and against whom enforcement can readily be obtained'.[112] As such, it will, in substance, put the defendants in the same position they would be in if the plaintiffs were UK residents with sufficient assets in the UK to pay the amount of the security ordered if the defendants are successful and obtain an order for costs of that amount in the proceeding. Put another way, the proposed AmTrust indemnity will in substance place the plaintiff in the same position as a foreign plaintiff with substantial assets in a foreign jurisdiction where enforcement of an Australian judgment is a routine process. The situation contemplated by the proposed AmTrust indemnity is thus analogous to that discussed in cases like Maxim's Caterers and Berry v Innovia. The interposition of AmTrust strengthens, rather than weakens, the defendants' position when compared with cases of that kind.

77 Fourth, the defendants rely on the fact that the plaintiffs have not put forward any evidence as to their own respective financial positions - all that is known is that they are foreign entities with no assets in Victoria. I do not think that this is an important discretionary consideration. The proffered security is either adequate or it is not.

78 Fifth, the defendants contend that the undertaking to secure the sum of $20,000 for each defendant group in respect of UK registration costs may be an insufficient amount to cover their costs of enforcement in the United Kingdom, should AmTrust fail to honour its obligations under the AmTrust indemnity. Moreover, they contend that the amounts ordered for security during the course of the proceeding may transpire to be insufficient to indemnify them against all of their recoverable costs if they succeed in the proceeding. In these circumstances, they face the prospect of having to recover from both AmTrust in the UK and from the plaintiffs in the United States and the Cayman Islands respectively. I do not accept that this factor has any significant weight in the exercise of the Court's discretion.

79 Any defendant in like circumstances faces the risk that its costs will exceed the amount of security ordered by the Court. If that transpires, then separate proceedings to recover any unpaid costs orders, after exhausting the security, will be required. That is the stuff of ordinary commercial litigation. The fact that the recovery may be overseas is not to the point. If execution in either of those countries is difficult, that is a factor to be taken into account by the Court in fixing the amount of the security - perhaps being more generous given any such difficulties of enforcement overseas.

80 On the evidence, the sum of $20,000 is sufficient to cover the UK registration costs in respect of each defendant group.

81 Sixth, the defendants complain that the plaintiffs' undertaking, to ensure that the AmTrust indemnity which is provided will include a term that AmTrust will not seek security from the defendants in any enforcement proceedings in the United Kingdom, is not 'meaningful'. I reject that submission. If the undertaking is not complied with, then the AmTrust indemnity put forward will not satisfy the Court's order that security be provided in that form, and the proceeding will be stayed until it does. The proposed clause 11 put forward on appeal complies with the undertaking.

82 For the reasons given above, I conclude that the proposed form of security put forward by the plaintiffs will, upon provision of the AmTrust indemnity (including a satisfactory term of the AmTrust indemnity that it will not seek security for costs against the defendants in any enforcement proceedings in the United Kingdom), and a bank guarantee or cash deposit into Court for $20,000 per defendant group in respect of UK registration costs, provide adequate protection to the defendants in case they need to call upon the security to satisfy any costs order in their favour up to the amount of the security for costs which has been ordered for the first tranche. I accept that the proposed form of security will provide a fund or asset against which the defendants can readily enforce an order for costs.

83 In reaching my conclusion, I have had regard to the following countervailing circumstances which satisfy departure from the first principle expressed by Priest JA in Yara v Oswal:

(1) the AmTrust indemnity is irrevocable and unconditional;

(2) the AmTrust indemnity is directly enforceable against AmTrust in Victoria and it is governed by the laws of Victoria;

(3) AmTrust is based in the United Kingdom, a jurisdiction which has clear and straightforward arrangements for the enforcement of Victorian judgments;

(4) the plaintiff has offered extra security to cover the cost of any enforcement in the United Kingdom which may be necessary;

(5) the evidence shows that AmTrust has significant assets in the United Kingdom and is generally of good financial standing; and

(6) as a large regulated insurer, which is also in the business of underwriting legal expense risks, it is unlikely that AmTrust would default on the deed.

84 I will hear the parties as to the form of orders, and as to costs.

DIF III GLOBAL CO-INVESTMENT FUND, L.P. (formerly [Babcock & Brown DIF III Global Co-Investment Fund, L.P.])

BABCOCK & BROWN INTERNATIONAL PTY LTD (ACN 108 617 483)

BABCOCK & BROWN INTERNATIONAL PTY LTD (ACN 108 617 483)

DIF III GLOBAL CO-INVESTMENT FUND, L.P. (formerly [Babcock & Brown DIF III Global Co-Investment Fund, L.P.])

[1] DIF III Global Co-Investment Fund, LP & Anor v BPLP LLC & Ors [2015] VSC 484 [131] ('Reasons').

[2] Glass v Chief Examiner [2015] VSC 29 [2].

[6] A copy of the A.M. Best 'A' rating document was produced as an exhibit.

[7] A copy of the A.M. Best credit rating was produced as an exhibit.

[8] Copies of that report and those financial statements were produced as an exhibit.

[9] A copy of the relevant parts of the EU Insolvency II directive was produced as an exhibit.

[13] [2013] VSCA 156; (2013) 41 VR 245 ('Yara v Oswal').

[16] Ibid 268-9 [115] (emphasis added).

[17] (1989) ATPR 40-954, 50-422 (emphasis added); see also Logue v Hansen Technologies Ltd [2003] FCA 81; (2003) 125 FCR 590, 597 [18] (Weinberg JA as a judge of the Federal Court).

[18] Kent Heating Ltd v Cook on Gas Products Pty Ltd & Anor (1984) 59 ALR 277, 279.

[19] Barton v Minister for Foreign Affairs [1984] FCA 89; (1984) 2 FCR 463.

[21] [1991] HCA 36; (1991) 102 ALR 321, 323 ('PS Chellaram') (emphasis added).

[22] [2013] VSCA 156; (2013) 41 VR 245, 268 [113].

[23] [1991] HCA 36; (1991) 102 ALR 321.

[26] [2010] FCA 450 ('Maxim's Caterers').

[28] [2009] FCA 1228 [23]-[24].

[29] Maxim's Caterers [2010] FCA 450 [6] (emphasis added).

[31] [2014] FCA 357 ('Berry v Innovia').

[33] Ibid [34]-[35] (emphasis added).

[34] [2011] NSWCA 84 (Young JA, Campbell and Whealy JJA agreeing).

[35] Ibid [32]-[33] (citations in original).

[36] See for instance Barton v Minister for Foreign Affairs [1984] FCA 89; (1984) 2 FCR 463; Energy Drilling Inc v Petroz NL [1989] ATPR 50,418 (40-954) and Maxim's Caterers [2010] FCA 450, a decision of Justice Jagot in the Federal Court on 10 May 2010.

[37] Dense Medium Separation Powders Pty Ltd v Gondwana Chemicals Pty Ltd [2011] NSWCA 84 [34].

[39] [2002] EWCA Civ 1390 [11] (emphasis added).

[40] [2013] EWHC 658 (Comm) ('Versloot').

[42] [2015] EWHC 1122 (TCC).

[44] [1984] 3 All ER 198, 200-1 (emphasis added) ('Rosengrens').

[45] [2014] NSWCA 81 ('Blue Energy Oil').

[47] [2013] VSCA 156; (2013) 41 VR 245, 249 [10].

[48] PS Chellaram [1991] HCA 36; (1991) 102 ALR 321, 323.

[49] Maxim's Caterers [2010] FCA 450 [13].

[50] Berry v Innovia [2014] FCA 357 [35].

[51] [1984] 3 All ER 198, 200-1.

[52] Yara v Oswal [2013] VSCA 156; (2013) 41 VR 245, 249 [10] (Redlich JA), 268 [115] (Priest JA).

[54] PS Chellaram [1991] HCA 36; (1991) 102 ALR 321, 323; Maxim's Caterers [2010] FCA 450 [6]; Berry v Innovia [2014] FCA 357 [34].

[55] Rosengrens [1984] 3 All ER 198, 200-1; Yara v Oswal [2013] VSCA 156; (2013) 41 VR 245, 249 [10] (Redlich JA); Blue Energy Oil [2014] NSWCA 81 [22].

[65] [2009] VSC 97 ('Nylex v Basell').

[71] [2013] VSCA 156; (2013) 41 VR 245, 268-9 [115].

[74] [2013] VSCA 156; (2013) 41 VR 245, 249 [10].

[76] Ibid [123]-[124] (emphasis added) (citations omitted).

[80] Ibid [128]-[131] (emphasis added).

[81] Yara v Oswal [2013] VSCA 156; (2013) 41 VR 245, 268 [115] (Priest JA).

[83] [2014] NSWCA 81 [22].

[84] Cleal Holdings Pty Ltd v JG King Developments [2015] VSC 414 [29] (Ierodiaconou AsJ), affirmed on appeal [2015] VSC 573 [20] (Digby J); Rosengrens [1984] 3 All ER 198, 200-1; Blue Oil Energy [2014] NSWCA 81 [22].

[85] B&B Defendants' written submissions [33]-[34].

[86] Yara v Oswal [2013] VSCA 156; (2013) 41 VR 245, 250 [12] (Redlich JA).

[88] Versloot [2013] EWHC 658 (Com) [10].

[89] Rosengrens [1984] 3 All ER 198, 200.

[90] [2014] NSWCA 181 [22].

[91] [2013] VSCA 156; [2013] 41 VR 245, 268-9 [115].

[92] [1991] HCA 36; (1991) 102 ALR 321, 323.

[95] Nylex v Basell [2009] VSC 97 [33].

[107] [2009] VSC 97 [29].

[108] Yara v Oswal [2013] VSCA 156; [2013] 41 VR 245, 250 [12] (Redlich JA).

[109] Rosengrens [1984] 3 All ER 198, 200; Blue Oil Energy [2014] NSWCA 81 [22].

[111] See Berry v Innovia [2014] FCA 357 [8].

[112] Versloot [2013] EWHC 658 (Com) [10].