Royal Guardian Mortgage Management Pty Ltd v Nguyen

The Proceedings 9The proceedings were originally commenced by the plaintiff by way of Statement of Claim filed on 29 April 2010 in which it alleged that the defendants were employed by it under agreements referred to as "the Nguyen agreement" and the "Stolyar Agreement". The causes of action allege a breach by each of the defendants of the respective agreements (and other contracts pleaded in the alternative). It was alleged that the plaintiff had suffered loss and damage by way of what are referred to as "the Dibelle Commissions". 10Alternative causes of action are pleaded in the Statement of Claim but need not here be particularised. 11On 20 June 2012, the defendants, as cross-claimants, filed an Amended Cross-Claim in which damages were claimed against the plaintiff in respect of alleged breaches of what are referred to as the "First, Second and Third Profit Share agreements". 12The cross claimants claim substantial damages in respect of bonuses and commissions allegedly owing to the defendants.

The Application for Security for the Defendants' Costs 13The background to the present application may be briefly stated as follows. The first application made by the defendants for an order for security of costs made on 5 May 2011 was due to be heard on 8 September 2011. 14The defendants had originally raised the question of the plaintiff providing security for costs to the defendants in correspondence on 18 October 2010. In December 2010 an offer was made on behalf of the plaintiff to resolve the issue by way of a guarantee to be offered by RGMC. That offer was either not taken up or was rejected. 15The chronology of events subsequent to 18 October 2010 was set out in the judgment of Adamson J delivered on 13 July 2012. 16On 8 September 2011 when the matter was listed for hearing before Harrison AsJ, counsel announced that the application had been resolved by the defendants accepting, by way of security for costs, the Deed of Guarantee referred to above. 17The Deed contained a provision, clause 2, in the following terms: "RGMC hereby guarantees the payment of any costs (as agreed or assessed) which RGMM is ordered to pay Nguyen and/or Stolyar in the Proceedings." 18In the plaintiff's written submissions on the defendants' motion of 3 April 2013 for security for costs, Mr Young SC observed that at the time the Guarantee was provided, the present proceedings consisted simply of the Plaintiff's claim against the defendants in which it was pleaded that the defendants had breached their respective contracts of employment and duties to the plaintiff under the Corporations Act allegedly causing the plaintiff to pay out $2,093,124.36 in commissions that should not have been paid to entities, Dibelle Finance and Dibelle Financial Services. 19At that time, the defendants had proceedings on foot against RGMM as defendant and Ms Nguyen and Mr Stolyar as plaintiffs. Those proceedings were subsequently dismissed after the defendants filed a Notice of Motion seeking to join the two sets of proceedings. Against that background the present cross-claim came into existence. 20A central matter emphasised by Mr Young in his submissions was that the cross-claim against RGMM is not a defensive cross-claim. Instead it relates to what was contended to be an unrelated claim or claims by the defendants involving what Mr Young described as a minor factual overlap. In the Amended Cross-Claim it is alleged that the cross-claimants have not been paid by RGMM all the commissions said to be due to them. 21Against that background the present application filed on 3 April 2013 for the abovementioned orders was opposed. In support it was argued that the defendants, in order to succeed on the application, must first establish what was described as a "threshold point", namely that the existing arrangement, being the liability of RGMM together with RGMC's Guarantee, is inadequate. 22Mr McClintock QC, who appeared with Mr Kaplan of counsel on behalf of the defendants, helpfully summarised the issues arising on the present application in their written submissions dated 23 April 2013. 23One of the key concerns of the defendants is that RGMM is not in a position to offer security to the defendants because it is said to be impecunious and has no assets that could be used to satisfy any costs order made against it in the proceedings. This was stated to be clear from the affidavit of Mr Anthony Tomazin sworn on 12 April 2013 at [79]. 24It was contended that the Deed of Guarantee was conditional and based upon a continuing satisfaction as to RGMC's ongoing ability to meet any costs order made against RGMM: Written Submissions at [5]. 25It was further submitted for the defendants that RGMM had failed, before service of the affidavit of Mr Stariha (the General Manager of RGMC) sworn on 16 April 2013, to provide any documentation from which RGMC's income, expenditure, assets and liabilities, that is the corporation's financial status, could be ascertained. This was said to be the position despite repeated requests of RGMM for such documentation. 26It was contended that RGMM had selectively provided documents to the defendants. These included bank statements showing the current cash balance of one of RGMC's trading accounts and a letter from RGMC's former accountant. However, it was submitted that when considered in isolation and without any understanding of RGMC's liabilities the documents shed no light on its financial status: Written Submissions at [6]. 27Mr Young in response disputed that there was any such obligation as alleged. In his oral submissions on 24 April 2013, he stated that there was no provision contained in the Deed of Guarantee imposing an obligation, as claimed by the defendants, for the provision of updating financial information, that no reference was made in the course of the defendants' submissions as to any such provision and that no order had been sought imposing such an obligation when the previous application for security for costs came before Harrison AsJ. Accordingly, in relation to the present application it was contended for the plaintiff that there was simply no evidence of any such obligation at all. Further, there existed no basis for an implication of an obligation whereby the plaintiff or RGMC had to provide the defendants with ongoing material as to the financial position of RGMC: T 24 April 2013 at p10. 28Mr McClintock in his written submissions raised the question as to whether what was referred to as the "existing regime" (a reference to the Deed of Guarantee), was adequate as a security for costs. To that end, reference was made to both the evidence as to the costs already incurred by the defendants and the evidence as to their estimated future costs. 29Mr McClintock then referred to evidence concerning "three significant events" as having occurred since the entry into the Deed as follows. (a) That the Australian and New Zealand Banking Group Limited (ANZ) is suing RGMC and its sole director and shareholder, Mr Tomazin, for an amount in excess of $3 million and that ANZ seeks costs on an indemnity basis. (b) Origin Mortgage Management Services (Origin) potentially, as early as April 2011 ceased paying commissions to RGMC which, on the basis of RGMC's 2010/2011 trading income summary was its largest source of trading income. (c) RGMC had sold real property. 30Mr McClintock submitted that none of the above matters were drawn to the attention of the defendants voluntarily by either RGMM or RGMC. He observed that as early as 8 August 2011 the defendants' then solicitors had made a request of RGMM to confirm whether RGMC was involved in any proceedings. Further requests for information have been made by the plaintiff's solicitors: Written Submissions at [8]. 31The written submissions for the defendants set out a chronology of events which include the request for and provision of additional information concerning the financial status of RGMC. I note in that respect, without here reproducing the evidence in detail, all of the relevant material at para [9] to [27] of the defendants' written submissions dated 23 April 2013. I also note that there it is stated that the last financial information provided by the solicitors for the plaintiff to the defendants' solicitors was on 8 March 2013 which included copies of the documents referred to in paragraph 26 to (d). On 12 March 2013 the solicitors for the defendants wrote to the solicitors for the plaintiff contending that the documents provided under cover of the letter of 8 March 2013 were wholly inadequate and did not alleviate the defendants' concerns as to RGMC's ability to meet any adverse costs order against RGMM. 32Submissions were made on behalf of the defendants in relation to discretionary considerations at [38]-[44]. 33In this respect it was noted that RGMM is clearly impecunious and cannot meet the defendants' reasonable costs of the proceedings. Specific references were made to financial information at [41]. 34Evidence was also referred to that indicated that Mr Tomazin has been spending more time in Slovenia. 35The impecuniosity of RGMM was stated to be relevant to the exercise of the Court's discretion and requires close consideration. 36It was further submitted that additional discretionary matters included: (a) The fact that defendants' defence and cross-claim are "strong"; (b) RGMM had been reluctant to provide a full and frank statement of its assets and liabilities despite requests; (c) RGMC (and Mr Tomazin) are involved in the ANZ litigation referred to above; (d) That those proceedings had not been disclosed to the defendants; (e) The defendants filed their application for security for costs in the shortest period as possible after becoming aware of the existence of the ANZ proceedings in late January 2013; and (f) There are several inconsistencies in the evidence provided by RGMM as regards to RGMC's financial status. In this respect reference was made to the matters set out in Mr Stariha's affidavit sworn on 16 April 2013 and his affidavit sworn on 19 August 2012. In that respect, specific matters were identified in paragraph 44 of the defendants' written submissions. 37Finally it was submitted that if the Court were minded to make an order for security in the defendants' favour, it ought to do so in respect of the costs incurred by the defendants on and from the date of the Deed (23 November 2011) until completion of the proceedings. Alternatively, the defendants sought an order for security in respect of their future costs until completion of the proceedings. Reliance was placed upon Mr Floro's affidavit affirmed 3 April 2013 which was said to provide a comprehensive breakdown of the defendants' future costs in his affidavit affirmed on 3 April 2013. In contrast it was submitted that Ms Fletcher's affidavit affirmed 15 April 2013 does not provide a breakdown of the plaintiff's costs.

Consideration 38There are, in my opinion, a number of reasons as to why security for costs should not be ordered as sought in the Notice of Motion. The first is that the defendants, with the benefit of advice, and no doubt for particular reasons, settled the previous application for security for costs by way of the Deed of Guarantee in preference to an order of the Court. Notwithstanding the submission for the defendants that the Deed of Guarantee was made conditional on continuing satisfaction as to RGMC's ongoing financial ability to meet any costs order made against RGMM, there was no evidence to which my attention was drawn to support the submission, nor any attempt to identify particular provisions of the Deed said to give rise to the alleged condition. 39Next, although the matters raised on behalf of the defendants as set out in the written submissions, supplemented by oral submissions, raised a number of questions and issues as to the assets and financial standing of RGMC, that material does not, in my opinion, establish to the level of probability that RGMC is not, in fact, or will not be, in a position to meet any commitments that might arise under the Deed. In other words, concerns or doubts that may exist do not, in themselves, require an order for security from the Court either to supplement or replace the consensual agreement contained in the Deed of Guarantee. 40Although the above matters are, in my opinion, sufficient to dispose of the application, there are two other matters to which I should refer. (1) The evidence as to the quantum of the costs is a matter very much in dispute. The evidence as to costs, in particular future costs, based on Mr Floro's estimates, is very much in dispute having regard to the estimates set out in the affidavit of Ms Fletcher for the plaintiff. (2) There is a significant disagreement between the parties as to the extent of factual overlap between the plaintiff's case and the cross-claim. Whilst on the one hand Mr McClintock suggested that the overlap was not great, Mr Young strongly submitted to the contrary. As earlier noted, Mr Young's position was that the cross-claim is not "purely by way of defence" (T 24 April 2013 at p 11) Mr Young relied upon Ms Fletcher's estimates of the future costs, namely $100,000. That estimate he submitted must be apportioned between the costs of the plaintiff's claim and the costs associated with the cross-claim. Mr Young observed that, whilst it is difficult to work out a percentage of apportionment of costs, he suggested that about one-third of the trial would relate to the plaintiff's proceedings on Statement of Claim and two-thirds would relate to the cross-claim. If such an apportionment was adopted, then on Ms Fletcher's estimate of $100,000 the result would be that the future costs for which security would be ordered would be one-third of $100,000 (approximately $33,000). In the event that the defendants were successful on the application, Mr Young submitted, the security amount would be of the order of $33,000 and not $235,000. 41For reasons stated above it is not necessary to resolve the substantial issue as to the costs estimates and the issue of the likely apportionment of costs. On the basis of the submissions made on the present application, as matters presently stand, it is difficult, if not impossible, to determine what would be an appropriate apportionment if a security for costs order were to be entertained. What is apparent is that whilst there is a degree of overlap between the plaintiff's case and the defendant's case as discussed earlier, a significant amount of the estimated hearing time will be spent on hearing the defendant's cross-claim. 42The final matter, relevant to the exercise of the discretion, is the delay that has occurred before the present application for security for costs was filed. Even upon the basis that information concerning RGMC was acquired by the defendants in January 2013, given that the proceedings had been set down for hearing to commence on 20 May 2013, there was still a delay of some months before the application was made in the lead-up to the hearing, a time during which the parties ordinarily would be focused upon preparing for a final hearing. 43In all of the circumstances, I do not consider that the orders sought by the defendants in the Notice of Motion dated 3 April 2013, should be granted. 44Accordingly, the application is dismissed. 45I grant leave on the question of costs of the application.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 December 2013