Ryberg Telecommunications Pty Limited (in liquidation) v Optus Mobile Pty Limited

Judgment 1By notice of motion filed on 21 July 2011 Optus Mobile Pty Ltd, the defendant in the proceedings ("Optus"), seeks orders that Ryberg Telecommunications Pty Ltd (in liquidation), the plaintiff in the proceedings ("Ryberg"), provide security for costs and ancillary orders. The security is sought under s 1335 of the Corporations Act 2001 (Cth) or alternatively r 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW) and Optus seeks a stay of the proceedings until Ryberg gives security in the amount and in the manner ordered by the court. 2The applicable principles are well established and not in contest in these proceedings. Corporations Act s 1335 relevantly provides that where a corporation is the plaintiff in any action, or any other legal proceedings, a court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the defendants' costs if successful in its defence, require sufficient security to be given for those costs and stay the proceedings if the security is not given. UCPR r 42.21(1)(d) relevantly 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, a corporation, will be unable to pay the defendants' costs, if ordered to do, so the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, and that the defendant's costs of the proceedings and the proceedings be stayed until the security is given. 3In Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 at [6], Brereton J observed that three issues generally arise in a security for costs application. The first is whether the ground referred to in the section or rule is established; the second is whether, if the ground has been established, as a matter of discretion an order should be made; and the third is the quantum of any order to be made and the terms on which it might be made. His Honour there reviewed the authorities and noted that the jurisdiction to order security for costs under s 1335, and by analogy r 42.21(1)(d), was available where the plaintiff was a company in liquidation as distinct from where a liquidator personally is the plaintiff. In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105, Hodgson JA observed at [45] that: "Where the plaintiff is a company in liquidation and not the liquidator, then security for costs will more readily be ordered although the court's discretion is unfettered ... and there is no presupposition in favour of granting security. ... However, the court will not refuse to order security on the ground that this will frustrate the litigation unless the company proves that those who stand behind the company and would benefit from the litigation are unable to provide security". 4Optus relies on affidavits of the solicitor acting for it in the proceedings ("Mr Collins") sworn 21 July, 9 August and 27 September 2011. Ryberg relies on an affidavit of a partner of its liquidator ("Mr Elberton") sworn 22 September 2011. 5The underlying proceedings relate to a claim by Ryberg that it was underpaid commission in respect of sales of connections to the Optus mobile network and other Optus products, by reason of the omission of relevant customers from reports prepared by Optus on the basis of which commission was calculated. The proceedings were filed in December 2009. Optus previously raised an issue as to security for costs in February 2010 and directions were made, including for any motion to be filed on the security for costs, the pleadings were subsequently filed, and discovery was given prior to the winding up of Ryberg. Ryberg was wound up on 4 March 2011. Ryberg contends that Optus became aware of its winding up on 30 March 2011. Two directions hearings then occurred. Optus raised the question of security for costs again on 31 May 2011 and filed this motion seeking security for costs on 21 July 2011. 6The court has jurisdiction to order security for costs if it appears to the court by credible testimony that there is reason to believe that Ryberg will be unable to pay Opus's costs if Optus is successful in its defence. The evidence establishes that this test is satisfied and Ryberg does not contend to the contrary. Ryberg contends, and Optus accepts, that the court has a discretion whether to order security for costs where it has jurisdiction to do so under s 1335 and UCPR r 42.21(1)(d). 7Ryberg identifies several reasons why it contends security for costs should not be ordered. First, Ryberg contends that there was delay in pursuing the question of security, which it contends continued since February 2010 when the issue was first raised. In my view, the winding up of Ryberg is a significant intervening event, so the delay in question is from 30 March 2011, when Optus became aware of the winding up. By letter dated 31 May 2011 Optus' solicitors requested the liquidator to either confirm that he would accept personal liability for Optus' costs of defending the proceedings or that Ryberg provide a first tranche of security for costs. The subsequent time spent prior to filing the motion for security appears in a large part to have reflected Optus' acceptance that the liquidator needed further time to familiarise itself with the proceedings and I do not think that Optus can properly be criticised for taking that reasonable approach. 8Ryberg contends that it spent time in that period in reviewing the company's books and records and documents produced by Optus. Accepting that is so, it remains that an experienced liquidator would have been aware that companies in liquidation may be required to provide security in order to continue proceedings when they cannot meet the defendants' costs if unsuccessful. Ryberg and its liquidator had been on notice that the issue of security of costs had been raised against them from at least 31 May 2011, and the motion was filed on 21 July 2011. I do not consider that the factor of delay has substantial weight particularly when balanced against the virtual certainty that Optus would be able to recover its costs from the company's assets if it successfully defends the proceedings. 9Ryberg also advances various criticisms of Optus's discovery. Those criticisms are comprehensively responded to by Mr Collins's third affidavit. It may be that the data relating to Opus's billing systems over the very lengthy period in issue in the proceedings will be challenging to analyse and utilise in evidence. However, that is a substantive difficulty facing both parties in the conduct of the proceedings and not in my view a proper criticism of discovery. 10Ryberg submits that security for costs would be unfair since it would prevent further work being done. However, that submission assumes that security would not be provided if ordered and that those who stand to benefit from the proceedings will not fund them and directs attention to the question of stultification which I will address below. If such security is provided, such work can be done since the proceedings will continue; if on the other hand, those who stand to benefit from the proceedings could fund such security but choose not to, then any waste of costs already incurred results from their choice and there is no unfairness in a stay. 11Ryberg also contends that the proceedings have merit. However, as Katzmann J observed in Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222, that question should be treated as neutral particularly in a complex case where the assumption should be made in a security for costs application that the defendant will ultimately succeed in the proceedings so that costs will be payable. 12Ryberg contends that its impecuniosity was caused by Optus since its contract with Optus provided it with its only income. However as Anderson J (with whom Kennedy and Ipp JJ agreed), observed in BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 346, this factor should not be taken in isolation and "It must be considered together with the assertion that the effect on the plaintiff of an order for security will be to stultify the action. If that will not be or is not shown to be the effect of the order, that is, if other parties who benefit from the plaintiff's success are financially able to provide the security and it is reasonable that they do so, the fact that the defendant has caused the plaintiff's own impecuniosity will hardly be good reason to decline security." 13Ryberg also contends that, at the time of its winding-up, its only substantial liabilities were to the Australian Tax Office which has lodged a proof of debt for $174,500, and to the company's sole director, Ryberg Henriques, in the amount of nearly $525,000. It contends that there is nothing to suggest that Mr Henriques was pressing for the company to be wound up due to his debt and suggests that his debt should be disregarded in determining whether it was impecunious. Ryberg therefore contends that an admission which it contends was made by Optus, of underpayment in the amount of $141,588, is sufficient to establish that but for Optus's conduct it would have had sufficient assets to meet the Australian Tax Office's claim. I do not accept either that Mr Henriques' debt should be disregarded (whether or not he would have wound up the company because it was unpaid) or that the letters dated 10 January and 4 June 2008, on which Ryberg relies for the contended admission, were in fact admissions of debt owed in that amount as distinct from a commercial settlement proposal. 14In any view, the evidence indicates that Ryberg's total debts including the amount owing to the Australian Tax office, largely comprising unpaid superannuation guarantee amounts over an extended period of time, and the amount owing to Mr Henriques substantially exceeded the amount of Optus' settlement proposal. Although Ryberg contends that its claim is far in excess of that amount, it accepts that it is not presently in a position to establish that larger claim. I am not satisfied on the basis of the evidence before me that Ryberg has established that Optus' conduct was the cause of its impecuniosity. 15Ryberg accepts that the position of creditors would ordinarily be relevant to the question of stultification, although not determinative in this regard. In Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [66], Einstein J pointed out that a party which contends that security for costs would stultify litigation bears the onus of proving the factual substratum to make good the relevant assertion. Ryberg submits that the company's major creditor, the Australian Tax Office, as a public body, is not in the business of funding insolvent companies' litigation and should therefore be ignored. I do not accept that submission not least because there are several cases in which the Australian Taxation Office has in fact funded litigation brought by liquidators: for example, Bell Group Ltd (in liq) v Westpac Banking Corporation (1996) 18 WAR 21; 22 ACSR 337 and Williams v CD Protective Services Pty Ltd [2010] QSC 032. There is, however, more force in Mr Elkerton's evidence that the Australian Taxation Office may in fact be unwilling to fund the matter given that the costs involved may well exceed the amount of its claim. 16There is no evidence that Ryberg's other major creditor and only director, Mr Ryberg Henriques, is unable to fund the proceedings if he chooses to do so and there is evidence which suggests that he was personally funding the proceedings prior to the winding up and may have sufficient assets to continue to do so. The liquidator has no evidence to indicate the contrary. Mr Elkerton's affidavit also acknowledges the possibility of litigation funding but points to its absence at this time. I accept the complexity of the data that needs to be assessed by Ryberg may mean that it is not easy to secure such funding at this stage and further work may be required to do so. I do not however accept that Optus should be put to the risk or probability of unrecoverable costs incurred in the period while the liquidator seeks to secure such funding. 17Ryberg also contends that any security should be deferred until after discovery is complete and it has obtained an expert's report. I do not consider that that is an appropriate course since, first, the evidence indicates discovery is complete subject to the possibility raised but not established by Ryberg of any inadequacy in Optus's discovery; second, an order for security, and a stay if that security is not provided, will not prevent Ryberg progressing any expert work it wishes to undertake; and, third, the approach urged by Ryberg would expose Optus to the costs of the proceedings continuing for an indeterminate period until that expert evidence had been obtained by Ryberg. 18In these circumstances I consider that security for costs should be ordered. Such an order and associated stay if it is not provided will not amount to a dismissal of the proceedings and will not prevent the liquidator from proceeding with such assessment of the proceedings as he may consider appropriate and pursuing the possibility of funding by the Australian Taxation Office, Mr Henriques, or a third party funder. It will simply mean that Optus is not exposed to the further risk of unrecoverable costs in the proceedings until the question of the liquidator's funding of the proceedings is resolved and Optus is protected against that risk. 19As to the amount of security, Mr Collins has given evidence as to Optus's further costs of the proceedings which he quantifies as $380,625.85 excluding GST. The liquidator has challenged that calculation in a broad way by contending that costs should be proportionate to the amount in issue. However the evidence before me as to the complexity of the quantification issues in the proceedings and the length of the time period in issue suggests that Mr Collins' estimate of future costs including expert costs is not unreasonable. Mr Collins calculates that, on an estimated 75 percent party/party recovery, recoverable costs would be $285,461.39 excluding GST. Adopting a lower recovery rate of 70 percent, recoverable costs would be in the order of $266,400 excluding GST. The court is entitled to take a "broad brush" approach in that regard and I am satisfied that Mr Collin's evidence provides a sufficient basis for doing so with the adoption of that lower recovery rate. I also propose to order that security be provided on a staged basis rather than requiring the entire amount to be now provided. 20Optus has been successful in its motion, which was resisted by Ryberg, and Ryberg should pay the costs of and incidental of the motion. 21Accordingly, I order that: