//
[2023] QSC 155
General information, not legal advice.
Supreme Court of Queensland
2023-07-14
Freeburn J
Original judgment source is linked above.
PROCEDURE - COSTS - SECURITY FOR COSTS - where the defendants apply for security for costs - where the plaintiff opposes the application - where the threshold question is satisfied as the plaintiff would be unable to pay an adverse costs order - whether, in weighing the discretionary factors, security for costs should be provided - whether the conduct of the litigation should preclude the court from exercising its discretion to award security for costs - whether the estimate of the quantum of security is reasonable
Uniform Civil Procedure Rules 1999 r 5, 670, 671, 672
Aqwell Pty Ltd v BJC Drilling Services Pty Ltd [2008] QSC 266
Australian Energy and Electrical Holdings Pty Ltd v Isbell [2006] QSC 34
Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114
Bellaluz Pty Ltd v Westpac Banking Corp [2014] QSC 273
Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497
Equititrust Ltd v Tucker [2020] QSC 269
Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336
Get Tonic Pty Ltd v Pocket Health Pty Ltd [2020] QSC 235
Global Access Ltd v Educationdynamics LLC [2009] QSC 373; [2010] 1 Qd R 525
J & M O'Brien Enterprises Pty Ltd v Shell Co of Australia Ltd (No 2) [1983] FCA 92; (1983) 70 FLR 261; 7 ACLR 790; 1 ACLC 924
Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276; [2007] NSWCA 291
Jet Corporation of Australia Pty Ltd v Petres Pty Ltd (1983) 50 ALR 722
Kennedy v Nine Network Australia Pty Ltd [2008] QSC 134
KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189
Lanai Unit Holdings Pty Ltd v Jacques [2016] QSC 2
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] 2 Qd R 187
Norcast SarL v Bradken Ltd [2012] FCA 765
Robson v Robson [2008] QCA 36
Specialised Explosives Blasting & Training Pty Ltd v Huddy's Plant Hire Pty Ltd [2009] QCA 254; [2010] 2 Qd R 85
Suncare Constructions Australia Pty Ltd v Gainspace (Mackay) Pty Ltd [2016] QSC 67
Thune v London Properties Ltd [1990] 1 WLR 562
Vocisano v Vocisano (No 1) (1973) 1 ACTR 138
[1] The four defendants apply for security costs in the sum of $240,000.
[2] It is necessary to set out something of the background.
[3] Ms Julie van Eps developed a therapeutic product. It is said that the product can be used to treat various ailments. One suggested effect of the product is weight loss. To develop and commercialise the product, Ms van Eps incorporated or acquired various companies including the plaintiff company. She sought investment funds.
[4] One party interested in investing, particularly in the weight loss aspect, was a private investment group called "Brisbane Angels". Through their company, Brisbane Angels Nominees Pty Ltd, they invested $185,000 in shares in the plaintiff company.
[5] Ultimately Brisbane Angels elected to discontinue with their investment. They demanded the return of their investment. According to Ms van Eps she demanded the return of certain confidential information, but Brisbane Angels refused to supply or return that confidential information.
[6] The relationship soured when Brisbane Angels made a complaint to the Queensland Police Service which resulted in criminal proceedings against Ms van Eps for fraud. Ultimately those criminal proceedings were discontinued. Ms van Eps sues various parties for malicious prosecution arising out of those criminal proceedings. That separate proceeding is continuing in this court.
[7] Ms van Eps' company, the plaintiff, sues in this proceeding for the recovery of certain confidential information and for damages. The shareholding in the plaintiff company has altered from Ms van Eps to Mr van Eps. Ms van Eps has become a bankrupt.
[8] The procedural history is usefully summarised in the applicant defendant's submissions as follows.[1]
[9] On 5 November 2020 the plaintiff company commenced this proceeding by filing a claim and statement of claim. Since then, the plaintiff has amended its statement of claim on six occasions. The latest version was filed on 8 November 2020.
[10] I should mention that the plaintiff complains that the defendant has also amended its defence on four occasions,[2] including an application to withdraw 70 admissions.
[11] On 5 February 2021, the defendants first requested security in the amount of $50,000.
[12] On 1 April 2021 Mr van Eps filed an affidavit exhibiting a deed whereby he personally guaranteed the payment of the defendant's costs of no more than $50,000. On 21 October 2021 Bradley J ordered the parties to attend a mediation by 26 November 2021. Despite that order the plaintiff did not participate in a mediation. In fact, the plaintiff conceded in a review before Bradley J that it made a deliberate decision not to comply with that order.
[13] On 16 May 2022 the defendants requested that the plaintiff provide security in the amount of $240,000. No security was provided and so on 15 August 2022, the defendants filed an application for security.
[14] On 31 August 2022, and again on 21 September 2022, Bradley J adjourned the application for security to a date to be fixed.
[15] On 9 February 2022 the matter came before me on a review, and I ordered that the application for security be listed for a hearing on 24 May 2023. Ultimately, the application for security was heard on 8 and 15 June and on 12 July 2023.
[16] That summary of the procedural history is just that, a summary. It is not intended to be comprehensive, but it does explain the major events and, in broad terms, the sequence of events.
[17] As this is an application for security for costs, the threshold question is whether the defendants have demonstrated that there is reason to believe that the plaintiff company will not be able to pay an adverse costs order.
[18] For the following reasons I am satisfied that there is reason to believe that the plaintiff will be unable to pay an adverse costs order.
[19] Firstly, the paid-up capital of the plaintiff is only $140.
[20] Secondly, the plaintiff owns no land or other assets in Queensland.
[21] Thirdly, the plaintiff has chosen not to put on any evidence of its financial position or of those who stand behind the corporate plaintiff.
[22] Fourthly, Mr van Eps, the plaintiff's present director and major shareholder, conceded that the plaintiff was impecunious. He made that concession at a review before Bradley J on 15 February 2022. On that occasion Mr van Eps explained that the plaintiff company is a research company, and its assets are its intellectual property in its confidential information. That meant, according to Mr van Eps, that the company did not have assets which enabled it to engage legal representation. His Honour expressly enquired as to whether the plaintiff company was impecunious in the sense that it was unable to afford legal representation. Mr van Eps confirmed to His Honour that that was correct.[3]
[23] Fifthly, and finally, Ms van Eps the original director and principal shareholder of the plaintiff company is a bankrupt.
[24] The plaintiff's arguments on this threshold issue are set out in some detail at paragraphs 27 to 35 of its written submissions. The plaintiff points out that, as Mr van Eps explained to Bradley J, the plaintiff is a research company and so its assets are its right to develop and exploit its intellectual property in the therapeutic product.
[25] The plaintiff contends that the parties themselves attributed to the plaintiff a "post-money valuation" of over $4m in a term sheet a document produced by Brisbane Angels. The plaintiff says that Brisbane Angels invested $185,000 on a "pre-money valuation" of $4m and that an actual "pre-money valuation" was $8m.
[26] None of that is persuasive. First, the valuations - if they qualify as valuations - are assessments made when the term sheet was prepared and when the investment was made in 2016. In my view that is too long ago to be a reliable guide to the value of the company's capital value in 2023, seven years later. Certainly, no evidence establishes that the 2016 valuations are relevant for the purposes of assessing the plaintiff's financial standing in 2023.
[27] Second, the relevant question for present purposes is not the underlying value of the plaintiff company. The relevant question is whether there is reason to believe that the plaintiff company would be unable to pay an adverse costs order. The fact that the plaintiff company is, as the plaintiff's submissions describe it, "asset rich, cash poor" is certainly a factor to be considered. It is rather collateral to the question of whether the plaintiff company will be able to pay an adverse costs order. No evidence establishes that the plaintiff's intellectual property can be sold or used to satisfy an adverse costs order. The absence of that evidence means that the plaintiff is relying on a 'locked' or intangible asset as its only means of satisfying an adverse costs order.
[28] Third, no real valuation evidence of the plaintiff's assets is proffered. No audited financial accounts have been exhibited. No details of any bank accounts are tendered. And no method is identified by which an adverse costs order might be paid.
[29] Having considered all of those factors, it seems to me that the defendants have established the threshold question, namely that there is reason to believe that the plaintiff company will be unable to pay an adverse costs order.
[30] It remains to consider the various discretionary factors that were argued and are relevant. Some of the relevant discretionary factors are set out in rule 672 of the Uniform Civil Procedure Rules 1999 (UCPR), but the list is not exhaustive.[4]
[31] The plaintiff argues that the delay here is significant. The plaintiff's submission is that there was a delay of some 20 months before an application for security was brought. That 20 months is measured from the time the claim and statement of claim was served until the application for security was filed.[5] The plaintiff argues that the delay disentitles the defendant applicants to any order for security for costs.
[32] I am not persuaded that the delay is significant in the circumstances, and I am not persuaded that it is fair to say that there is a delay of 20 months. Security for costs was first raised with the plaintiff at a very early stage in the proceeding. Within three months of the filing of the claim and statement of claim the defendants put the plaintiff on notice that they required security. The parties corresponded about that issue and, ultimately, in April 2021 Mr van Eps supplied a personal guarantee for security up to $50,000. The amount of that request for security was on the basis that the parties would participate in a mediation. In other words, the security sought at that early stage was security designed to protect the defendants' costs position until the conclusion of the proposed mediation. Ultimately, as I have explained, the plaintiff refused to participate in a mediation.
[33] The present request for security was made in May 2022, more than a year ago, and after the mediation did not proceed in November 2021. The application was brought in August 2022. The application has been adjourned a number of times, but nobody suggests that the delays between then and now are attributable to the defendants.
[34] And so, the only relevant delay is the time span between the aborted mediation in November 2021 and the defendants request that the plaintiff provide further security in May 2022. No significant milestones are said to have occurred in that time period. In fact, the plaintiff filed and served an amended statement of claim at the end of November 2021, another in January 2022 and yet another in March 2022.
[10] Both sides accept that the prospects of success may be a relevant discretionary factor. However, in oral argument they also accepted that the court was not in a position to form a view as to the prospects of success that would enable them to be taken into account in the exercise of discretion.
[11] On an application for security for costs, that will often be the position. Such an application is not to become a mini trial with provisional views formed so as to encourage one or other side. The accepted approach is that the strength and bona fides of the plaintiff's case are relevant considerations, but usually 'the court should proceed on the basis that the claim is both bona fide and has reasonable prospects ... [and] should not go into the merits of the claim in detail unless it can be demonstrated that there is a high degree of probability of success or failure'.[citations omitted]
[37] Here the plaintiff sought to convince the court that its claim was strong and that the merits of the case justified taking that factor into account. The defendants took the opposite view arguing that the claim had some weaknesses in it and was a generally weak claim. Overall, I am not convinced by either argument. It is appropriate to adopt the approach of Jackson J in Suncare Constructions and proceed on the basis that the claim is both bona fide and has reasonable prospects.
[38] There is, however, one aspect of the merits of the case that deserves attention. There are, in broad terms, three aspects to the plaintiff's claim. The plaintiff claims the return or destruction of all of the confidential information it supplied at the time of the investment, damages for the retention of that confidential information, and damages for conspiracy to cause harm to the plaintiff. As to the first aspect, the return or destruction of the confidential information, the defendants adopt these defences:
(a) It is admitted that Ms van Eps developed the product, but it is not admitted that she owned any intellectual property in the product;
(b) The defendants deny that Ms van Eps assigned her interest in the product to the plaintiff;
(c) The defendants "do not know what is meant by the term confidential information as it is not particularised and therefore do not admit that any confidential information exists";
(d) In the alternative, the defendants deny that Ms van Eps assigned her rights in the product because those rights were incapable of being assigned;
(e) In the further alternative, if the product was capable of being assigned, the defendants do not admit that Ms van Eps assigned her rights in the product;
(f) In the further alternative, Ms van Eps' rights in the product vested in Ms van Eps' bankruptcy trustee when she became a bankrupt on 26 November 2016;
(g) In the further alternative, the defendants do not admit what the product is, or that it was capable of treating or preventing obesity.[10]
[39] Of course, parties are entitled to take every reasonable defence available to them, including technical defences. However, for the purposes of the present application for security for costs, it is worth noting that in 2016 the defendants invested $185,000 for the purposes of clinical trials of the product. A terms sheet was prepared which provided for the return of confidential information in the event that the investment did not continue. In that context, it is odd, to say the least, that the defendants contest that there was any confidential information, or that it was assigned to the entity that they chose to invest in. This was an investment they made after, as the terms sheet records, due diligence.
[40] On 22 November 2022 an appeal against an interlocutory decision came before the Court of Appeal. At the outset of the appeal Mullins P proposed that the defendants deliver the documents to Ms van Eps' bankruptcy trustee, whether the information in the documents was confidential or not. There was a deal of sense in the suggestion from two perspectives. The first was that in the interlocutory skirmish the defendants had maintained that, if there was confidential information, it was the property of the bankruptcy trustee, not the plaintiff. The second was that the confidentiality of the information was something of a distraction. Whether or not the information was confidential, the defendants themselves were not entitled to the information they had been given. A perfectly rational approach of the defendants may well have been along these lines: 'we do not concede that that we were given any confidential documents or information, but here is what we have.' After all, even on their own case, the defendants had withdrawn their investment. They could have no legitimate use for the information, whether confidential or not.
[41] In the Court of Appeal, in response to the suggestion of Mullins P, the defendants counsel sought time to take instructions.
[42] My query about what then happened in the Court of Appeal, and why the documents had not been provided, led to the defendants relying a further affidavit of Mr Hill filed on 13 June 2023. That affidavit raises these points:
(a) "the defendants have had difficulty understanding what information comprises the 'confidential information'";
(b) the defendants do have some documents that fit the plaintiff's descriptions of the confidential documents;
(c) the defendant understands that the Commonwealth Director of Public Prosecutions has commenced a prosecution against Ms van Eps and so has requested that documents not be destroyed;[11]
(d) although the plaintiff has made several demands for the return or destruction of the confidential information, or the provision of undertakings, the plaintiff has not offered any compromise of its damages claims and has not offered to compromise other proceedings against the defendants;
(e) the lack of compromise is a reason why the defendants have not agreed to provide undertakings (as to the destruction of the documents or their return);
(f) the defendants do not want to cause any inference to be drawn that they admit that any information is confidential, or that they were obliged to return any documents;
(g) the defendants are concerned that they will require all of the records of their involvement with the plaintiff to defend themselves against any future proceedings - this being the fourth proceeding commenced against them.[12]
[43] It is an odd collection of arguments. A doubt about whether the documents are truly confidential or not is not a justification for holding on to documents that are another person's property. The request that the documents not be destroyed is not supported by any cogent evidence[13] and, in any event, is irrelevant.[14] There would be no sensible basis for any adverse inference if the documents were returned on the explicit basis that there was no obligation to return them and that they were being returned with no admission as to confidentiality. And, whilst the communications between the parties recording their involvement with each other may be required for the defence, there is no evidence that the documents themselves are required for the defence. In any event, the position could be secured by merely ensuring that a quarantined copy was made and provided to the registrar of the court or to the lawyers or to the bankruptcy trustee.
[44] In any event, as the defendants make clear, they are really holding the documents because they perceive a tactical advantage in doing so. That is explicit in paragraphs 19 and 20 of Mr Hill's affidavit:
"[19] Although the plaintiff has made several demands for the return or destruction of the alleged confidential information, or the provision of undertakings, the plaintiff has neither offered any compromise in terms of the damages it seeks from the defendants nor offered any compromise regarding the discontinuation of the various proceedings brought against the defendants.
[20] I am instructed by the defendants, and I believe, that the lack of compromise offered by the plaintiff and/or Ms van Eps is a reason why the defendants have not agreed to provide undertakings to date."
[45] And so, the defendants continue to hold onto the documents in the hope of securing a compromise of the plaintiff's damages claims. Given that the defendants themselves have no property in the documents, it is an extraordinary stance. They continue to refuse to hand over the documents - to the plaintiff or to the bankruptcy trustee - on the basis that the continued detention of the documents may secure for themselves an advantage in any compromise of the plaintiff's damages claims. A curiosity is whether the defendants' stance would be any different if they held a fund of money or real property or other property owned by the plaintiff, rather than, as is the case here, the plaintiff's documents and any associated intellectual property. There is, it seems to me, something rather unprincipled in the tactical ploy of holding another's property in the hope it will secure a better compromise.[15]
[46] That excursion into the merits of the 'documents' part of the plaintiff's case, illustrates two salient features about this proceeding. The first is that there is some strength to the plaintiff's claim to the return of its documents - whether they are confidential or not. The defendants admit that they continue to hold onto documents given to them at the time they decided to invest. Those documents include an instruction sheet, documents relating to pilot and clinical trials as well as patents, trade secrets, efficacy and safety results. (These documents are described in more detail below.) For those reasons, there is good reason to doubt the merits of the defendants' continued claim to those documents, long after they purported to withdraw their investment.
[47] The second aspect illustrated by this excursion is that the litigation is being conducted by both sides on a 'no holds barred' basis with neither side prepared to give an inch. For example, my enquiry about what happened in the Court of Appeal resulted in the defendants filing and serving Mr Hill's affidavit. The plaintiff sought and obtained leave to respond. Its response comprised a supplementary submission and a further affidavit from Ms van Eps. That material prompted the defendants to object to the admissibility of 12 paragraphs of Ms van Eps affidavit and consequent objections to three paragraphs of the plaintiff's supplementary submissions. The objections were then withdrawn. All of that extended controversy concerns the 'documents' part of the case. Indeed, the damages aspects of the plaintiff's case has had little focus.
[48] Whether the plaintiff's claim is genuine or bona fide is a relevant discretionary factor.[16] Here, at the least, it is important to recognise that the plaintiff has a bona fide claim for return of its documents, whether confidential or not. More than that, the defendants do not appear to have any right to retain the documents but are refusing to release the documents for a combination of reasons including a tactical choice.
[49] In my view, the plaintiff's 'documents' claim can be characterised as a strong and apparently meritorious.
[50] If the plaintiff has a strong and apparently meritorious claim the court will be reluctant to make an order which may have the effect of shutting the plaintiff out.[17] The discretionary factors are often inter-related, and so the merits of the claim and the genuineness are often considered together.[18]
[51] Another factor, which was not raised by the parties, is the existence of a counterclaim by the defendants. Certainly, it is not the case that the plaintiff has commenced a defensive proceeding in the way discussed by Applegarth J in Global Access Ltd v Educationdynamics LLC.[19] Nevertheless, it is relevant to note that the first defendant seeks the return of its investment by reason of a failure to issue shares.[20]
[52] That counterclaim is consistent with what I have described as the 'no holds barred' character of the litigation.
Impecuniosity Attributable to the Defendants' Conduct?
[53] The plaintiff contends that the defendants' conduct has caused its lack of cash reserves which would make it unjust for the court to require security. However, the plaintiff carries the onus of establishing both the adequacy of their financial position before their dealings with the defendants and that the defendants' actions have caused, or at least materially contributed to, the plaintiff's inability to meet an adverse costs order.[21] The requirement is to establish a real causal connection between the defendants' conduct and the plaintiff's impecuniosity which would make it unjust to require security.[22]
[54] Here, Ms van Eps' evidence deposes to the financial and other distress created by the dispute. However, it difficult to draw any conclusions about the cause of financial incapacity. Certainly, there is no evidence that the plaintiff company had significant assets and net worth and was capable of paying an adverse costs order in 2016 and 2017 but it is no longer able to do so by reason of the defendant's conduct.
[55] Certainly, as explained above, the plaintiff is a research company and so its principal asset is its right to develop and exploit its intellectual property in the product. Ms van Eps says that one of the impediments to exploiting the product is that a prospective investor sought to ensure the security of the intellectual property and confidential information relating to the product.[23] No specifics are given but that may be understandable given the commercial-in-confidence nature of any such discussions. Thus, whilst it cannot be concluded that the plaintiff's impecuniosity has been caused or contributed to by the defendants' conduct, there is at least some reason for thinking that the defendants' continued retention of the documents is some impediment to the plaintiff's further development or exploitation of the product.
[56] Similarly, the plaintiff contends that there is a risk that an order for security would stifle the proceedings.[24] That the plaintiff is impecunious, and an order for security for costs may stifle the plaintiff's claim, may very well be a powerful reason for not ordering security.[25] The fact that an order for security for costs might stifle proceedings is not, by itself, a ground for refusing an order but it does militate against the making of an order.[26]
[57] The likelihood is that the plaintiff company will be unable to pay any substantial order for security. It is true that the plaintiff company has chosen not to put on evidence as to its financial position. However, for the reasons discussed when considering the threshold question, the evidence is that the plaintiff company is likely to hold nothing more than the capital and intellectual property value of the product. The worth of that is unknown.
[58] The difficulty is that a proceeding cannot be regarded as stultified unless those who stand behind the impecunious plaintiff are unable (not unwilling) to provide the requisite security for costs.[27] Here, it is Mr van Eps who now stands behind the plaintiff company. He has given a personal guarantee up to $50,000 but there is no evidence that he is willing and able to provide further security.
[59] It is therefore difficult to conclude that the proceeding will be stultified by a security for costs order. Mr Eps has not demonstrated that he will be unable to provide the requisite security for costs.
The Means of those Standing behind the Proceeding
[60] One of the factors relevant to the discretion,[28] but not explored in any detail in the submissions, is the means of those standing behind the proceeding. UCPR rule 672(a) provides that, in deciding whether to make an order, the court may have regard to the means of those standing behind the proceeding.
[61] An order for security for costs will not generally be made when those behind a corporation bring their own assets into play. That was the view White J came to in Maggbury Pty Ltd v Hafele Australia Pty Ltd.[29] Of course, the mere fact that certain of the shareholders had offered personal guarantees, whilst important, is not determinative.[30] The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security.[31] Notwithstanding that broad unfettered discretion, the court will take into account whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security and whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking.[32]
[62] Here, it is relevant that Mr van Eps, the person now behind the plaintiff company, and the person who presumably stands to benefit from the litigation has offered a personal guarantee of the defendant's costs but chooses to restrict his personal liability to $50,000.
[63] The plaintiff contends that the issues in the proceedings involve matters of public importance and that is a ground for refusing an order for security for costs or for reducing the amount of security. The plaintiff submits that two of the defendants made the fraud claims against Ms van Eps without any basis, and that the defendants prosecuted their defence and counterclaim for over a year on the premise that the terms sheet and the shareholders agreement were legally binding, a premise they have now abandoned.
[64] I accept the submission that there have been some substantive changes the way the case has been defended. Those changes are consistent with what I have described as the 'no holds barred' approach to the litigation. However, I do not accept the wider submission that this proceeding can be held aloft as a contest of public importance.
[65] The issues at stake in this proceeding are not issues of public importance in the way Northrop J discussed in Jet Corporation of Australia Pty Ltd v Petres Pty Ltd.[33] There the public aspect of the case comprised the public standards of conduct imposed by the Trade Practices Act 1974 (Cth). The standards being considered were those that were considered desirable and in the public interest such that the public interest transcended the private interests of the parties to these proceedings and weighed in the balance against making the security for costs orders.
[66] At the heart of the disputes here are the fiercely contested private rights of the parties to an investment arrangement.
[67] The court has an unfettered discretion to order security for costs that must be exercised judicially and consistently with the purposes for which the discretion has been granted.[34] The discretion is to be exercised in all the circumstances of the particular case and by a process that involves the assessment and weighing of the relevant factors, some of which are inter-related.[35]
[68] In this case, weighing the factors relevant to the discretion is a difficult exercise. Some factors can be excluded. There has been no relevant delay in seeking security and there are no issues of public importance.
[69] Two other factors raised by the plaintiff as reasons not to order security can be put aside. The plaintiff's impecuniosity has not been shown to be attributable to the defendants' conduct, and the proceeding cannot be regarded as likely to be stultified. That is because Mr Eps has not demonstrated that he will be unable to provide the requisite security for costs.
[70] As is often the case, it is necessary to proceed on the basis that the claim is both bona fide and has reasonable prospects. And, as I have mentioned, it is important to recognise that the plaintiff has a strong and apparently meritorious claim for the return of its documents, whether they are confidential or not.
[71] The documents withheld by the defendants have not been produced to the court, or to Ms van Eps bankruptcy trustee, but their description demonstrates that the documents are likely to have some commercial significance. The defendants' affidavits label the documents in this way:
(a) an instruction sheet;
(b) a summary of results provided to participants in pilot trials;
(c) emails involving a patent attorney regarding draft provisional specifications for the product;
(d) emails from the plaintiff attaching process diagrams;
(e) a financial modelling spreadsheet.
[72] The defendants accept that some of those documents are identified in this way by the plaintiff: draft patents, trade secrets, efficacy and safety results for the product, metabolic interactions for the product, human performance expectations based on research and modelling of the product, clinical trial protocols, organisation and management of clinical trials, and patents.
[73] They appear to be valuable documents. There is no contention to the contrary. They are held by the defendants for the tactical reasons explained above - and not because the defendants claim any ownership rights over the documents. The fact that the defendants continue to hold the documents for their strategic value in the proceeding rather illustrates their significance.
[74] The result is that the court is being asked to exercise its discretion to order the plaintiff to provide security, in circumstances where the defendants have themselves chosen to withhold important documents for tactical reasons and where that conduct has led to more extensive, and perhaps more heated, litigation than would otherwise have been the case. The 'documents' part of the case is, at the least, a weighty part of the contest. And possibly an unnecessary segment of the case.
[75] It must be remembered that UCPR rule 5 provides that the purpose of the rules is to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense. That purpose is hardly promoted by the court exercising its discretion to order security for the costs of litigating not just the real issues but also the issues left in the litigation by the defendants for tactical reasons.
[76] There is another, practical perspective. As discussed above, an order for security for costs will not generally be made when those behind a corporation bring their own assets into play. Here, Mr van Eps, the person now behind the plaintiff company, and the person who presumably stands to benefit from the litigation, is prepared to offer a personal guarantee of the defendant's costs, but he has limited his personal liability to $50,000. In that sense, the present application is, in reality, an application for further security. That raises a question: what would be the likely quantum of the defendants' anticipated costs if the only issues being litigated were the damages claims?
[77] As will be explained in the next section, there is some difficulty in teasing out, even in a rough way, the defendants' costs in a 'pared down' proceeding. This consideration is not a strong factor for or against ordering security. It does, however, mean that the defendants are unable to satisfactorily establish the amount of security that is appropriate.
[78] On balance, having regard to the security already provided, and the factors explained above, it seems to me that the court should decline to order further security in the rather special circumstances of this case.
[79] In case I am wrong, and for the reasons just stated, it is necessary to make some findings about the quantum of security in the event that the discretion was exercised in favour of security.
[80] On 16 May 2022 Mr Hill, an experienced solicitor and a director of the defendants' solicitors, sent a letter to the plaintiff seeking an additional $250,000 for security for costs, on top of the $50,000 already secured by Mr van Eps guarantee. He sought that sum for further security for costs based on an estimate of $460,000 for the defendants' total recoverable costs, up to and including the first day of trial. That estimate can be summarised in this way:
Total adjusted by reducing professional fees by 50%
[81] Some modest detail is provided for each of those items. For example, the security for costs item is described in this way: "Corresponding with the plaintiff regarding security for costs." The pleadings item is described in this way:
(a) Corresponding with the plaintiff regarding deficiencies in the various iterations of the statement of claim;
(b) Counsel's fees to prepare defences to various iterations of the statement of claim;
(c) Counsel's fees to prepare requests for further and better particulars;
(d) Counsel's fees to prepare responses to requests for further and better particulars;
(e) Reviewing any reply.
[82] Mr Hill states that the estimate is based on the following assumptions: the standard costs are awarded in the defendant's favour, resulting in the defendants recovering 50% of professional fees and 100% of disbursements;[36] the trial will be four or 5 days, the plaintiff agrees to provide the security requested; and the defendants are not required to bring any interlocutory applications to enforce compliance with court orders and/or the rules.
[83] It can be seen that the costs estimate is rather rudimentary. There is no explanation as to how each item has been arrived at or the hours involved or even what costs have been spent already and what remains to be spent.
[84] In his affidavit of 15 August 2022 Mr Hill explains that he had now revised that estimate down to include only the defendants' total anticipated costs from the date of the request for additional security, that is 16 May 2022.
[85] This second estimate is explained in this way. First, Mr Hill explains the hourly rates for the legal team, which range from $440 to $715 per hour[37] and the hourly and daily rates for junior counsel ($560 and $5600).[38] Then, Mr Hill describes the nature of the work for each of the steps of pleadings, review hearings, mediation (likely to involve a senior counsel as mediator), evidence and trial (anticipated to be 7 days).
[86] Second, Mr Hill says that, based on his experience and the work that he anticipates that will be required to defend the proceeding, he has estimated that the costs the defendants are likely to incur up to and including day one of the trial are $288,922.[39] That estimate comprises $174,202 in professional fees and $114,720 in disbursements.[40]
[87] Third, Mr Hill says that the cost estimate is based on a table set out at the end of his affidavit. The table contains hourly estimates for each member of the legal team.[41] For example, under the heading 'Mediation', a table similar to this appears:
GRT[42] preparation (one day) and attendance at one day mediation
Counsel preparation (one day) and attendance at one-day mediation
[88] On 16 November 2022 Mr Hill sent a letter to the plaintiff containing an updated request for security. This letter requested $240,000 in security based on a further estimate of the defendants' recoverable costs up to and including the first day of trial. The updated estimate follows the same template as the second estimate, but the amounts are adjusted.
[89] The three estimates can be summarised by this table:
[90] Even recognising the inherent difficulty in estimating future legal costs, it is hard to reconcile all of that. The first estimate looks to be a broad and rough estimate. The amount specified for pleadings is $120,000 for the first estimate and approximately $22,000 for each of the second and third estimates.[44] The subtotals for the professional fees vary rather wildly - from $320,000 to $174,202 and then to $210,345. Possibly the explanation for that is that in the second and third estimates counsels' fees and other disbursements are included as part of the components of the professional costs estimate but then excluded. But none of that is clear.
[91] In the three estimates the anticipated disbursements vary from $140,000[45] to $114,720 and then to $136,075. Counsels' fees comprise the lion's share of the estimate for disbursements.[46] For the second estimate, counsels' fees comprise $104,720 within the professional fees' component of $114,720. For the third estimate, counsels' fees comprise $118,574 within the professional fees' component of $136,075. The third estimate also includes, within the professional fees' component:
(a) a fee of $5000 for one-half of the mediator's fees;
(b) a sum of $7,500 anticipated to be paid to KordaMentha for "preparing the defendants' further disclosure for production"; and
(c) $10,000 for "Transcripts and other miscellaneous costs";[47]
(d) $10,000 for "general care and conduct".
[92] At the further hearing of the application on 12 July 2023 I raised with counsel some problems I had with the mathematics in the estimate. The result was that counsel for the defendants produced a schedule which resolved the problems in the calculations.
[93] The plaintiff submits that the defendants' estimates are inflated because:
(a) the defendants' estimate includes the cost of two counsel when that is not necessary;
(b) the estimate includes the cost of a mediation when there is no likelihood of a mediation;
(c) the security is sought on the basis of the plaintiff's alleged low prospects of success.
[94] As to the first of those criticisms, the question of whether two counsel are appropriate depends on the circumstances of the case. The fees of more than one counsel are allowed where the nature and circumstances of the case are such that the services of two counsel are required if the case is to be presented to the court in such a manner that justice can be done between the parties.[48] Here, it is hard to see why the presentation of the defendants' case requires the services of two counsel. The case does not appear to be unduly complex, even on the basis that the trial will involve both the 'documents' and the 'damages' components.
[95] Counsel for the defendants submitted that the use of two counsel may involve some savings because the two different counsel will be engaged in different tasks. The example he gave was that the only one counsel was involved in the security for costs argument. I am not sure whether that is accurate or not. However, the second estimate refers to 'counsel' in a generic way, without specifying two counsel, and arrives at a counsels' fees estimate of $104,720. The third estimate, which identifies the work of two different counsel arrives at an estimate of $118,574. That rather suggests that the involvement of two counsel may increase the costs.
[96] As to the second of the criticisms, during the course of argument on 8 June 2023 the defendants expressly pointed out that the plaintiff had refused to attend a court ordered mediation in November 2022. Despite that, the defendants' third costs estimate in March 2023 includes $28,023 for a mediation. When I raised that inconsistency with the defendant's counsel on 12 July 2023, I was told that the reason for the mediation not proceeding was that the plaintiff regarded the mediation as premature because disclosure had not been completed. He said that, now that disclosure was complete, or at least once it was complete, there was hope for a mediation. In response, Mr van Eps said that there would need to be some discussions before the plaintiff would consider participating in a mediation.
[97] The situation is not clear but, given that the defendants first applied for security up to a proposed mediation, and the fact that the mediation did not proceed, and the defendants decision to then apply for security up to the first day of trial, the conduct of both parties makes it plain that there is only a slim prospect that the parties will voluntarily participate in a mediation.[49] There is therefore likely to be little or no utility in the court ordering a mediation. Thus, the defendants' anticipated costs ought not include a proposed mediation - at an anticipated cost of $28,023.
[98] As to the third criticism, it seems likely that the origin of the plaintiff's criticism is the following paragraph from Mr Hill's affidavit filed on 15 August 2022:
In applying a 50% discount to my estimated total of GRT's professional fees, I have taken the following matters into account:
(a) The prospect that any costs that the defendants recover will likely be on the standard basis;
(b) The seemingly low prospects of success of Stockingham's claim.[50]
[99] It is hard to see the logic in sub-paragraph (b). Mr Hill's view appears to be that the plaintiff's claim has "seemingly low prospects", and that that pessimistic view of the plaintiff's prospects was taken into account by him in applying a 50% discount to his estimate of the defendants' professional fees. But Mr Hill does not say how or why that view of prospects impacts the estimate or the decision to apply a 50% discount. A case with low prospects may be expensive to defend. And a case with strong prospects may be relatively cheap to defend. The real issue is the work required to defend rather than the prospects. Without a proper explanation, sub-paragraph (b) adds an element of mystery to Mr Hill's estimate which erodes confidence in the estimate.
[100] One possibility is that in sub-paragraph (b) Mr Hill was relying on the accepted principle that the weaker the plaintiff's case appears on the merits, the stronger the defendant's case for security and the less inclined the court will be to discount its quantum.[51] However, if that is the rationale, there is no explanation as to why 50% is arrived at, or why the court should apply that figure.[52]
[101] When this issue was raised on 12 July 2023, counsel for the defendants said that his clients did not rely on sub-paragraph (b).
[102] The defendants have a counterclaim. Identifying the costs attributable to prosecuting the counterclaim is an impossible exercise, but the defendants' estimate is a global estimate, which presumably includes both the costs of defending the plaintiff's claim and prosecuting the counterclaim.
[103] For those reasons there are some major problems with the defendants' estimate, namely:
(a) Three different estimates have been made with markedly different components and totals;
(b) The discount applied is unexplained, except for Mr Hill's statement that it is based on his experience;
(c) The components and maths of the third and final estimate are difficult to understand;
(d) The estimate includes $28,023 for a mediation which is an unlikely step;
(e) The estimate includes the costs of two counsel when the presentation of the defendants' case does not appear to require the services of two counsel.[53]
[104] On top of those problems there are two further reasons for caution in adopting the defendants' estimate. The first is the issue raised above that there is some strength to the plaintiff's claim to the return of its documents - whether they are confidential or not. The continued defence of the 'documents' part of the case means that the case may be a larger enterprise than it need be. In other words, the quantum of the security ordered ought not be inflated by reason of the defendant's tactical choice to fight the plaintiff on every beach.
[105] Dal Pont explains the relevant principles that apply to the quantum of security:
The basic rule regarding the appropriate quantum of security is that the court should fix an amount it considers as adequate for the services to be rendered. The court should have 'regard to the probable costs which the defendants may be put to so far as it can be ascertained, that the security ordered should not be illusory or oppressive - not too little nor too much, and that the nature of the suit must be considered'. As this process occurs (often well) before the costs are incurred, and is subject to various contingencies inherent in litigation, it relies on the 'feel' of the case, involving many factors, 'some of them imponderable'. It also means that precision is ordinarily neither necessary nor possible, although security cannot be in an amount disproportionate to what is in dispute. Ultimately, little concrete guidance is to be obtained from the authorities, as each case must depend upon its own facts...
An applicant for security - typically the defendant - bears the onus of adducing material that enables the court to estimate the costs of the litigation. The court is certainly not bound to order the amount of security a defendant identifies as the amount of his or her costs. In fact, judges have gone to some lengths to emphasise that the amount fixed as security is not ordinarily intended as a pre-estimate of the actual amount of party and party costs, let alone indemnity costs, that might become payable should the case go to trial and the defendant succeed. Hence, 'in ordering security for costs, the court does not set out to give a complete and certain indemnity to a respondent'; instead '[c]ourts have traditionally been conservative in relation to the quantum of orders for security for costs'.[54] [citations omitted]
[106] It is necessary to recognise that precision is not possible, and that there are many contingencies in litigation, and that, as a consequence, the court will often need to adopt a broad-brush approach. One approach to the quantum of security would be to reduce the defendants' estimate of its recoverable costs by deducting the costs of the mediation, and by deducting a further figure to reflect the additional costs associated with having two counsel. But, even that broad-brush approach leaves the costs estimate inflated, to an unknown extent, by the 'documents' part of the case which remains a hard-fought part of the litigation because the defendants seek to retain the documents for a tactical purpose. Trying to excise the additional costs associated with the 'documents' part of the case would be akin to trying to unscramble an egg.[55]
[107] In the circumstances, it is difficult to have any confidence in the third estimate. The defendants have not discharged the onus of adducing material that enables the court to estimate the costs of litigating the real issues.
[108] For the reasons explained above, I refuse the application for security.
[1] The summary is at paragraphs 6 to 14 of the applicant defendant's submissions.
[2] See Affidavit of Ms van Eps filed 15 May 2023 at [19].
[3] Exhibit AJS-1 of Affidavit of Mr Sloan filed 15 August 2022 at page 2 of 25.
[4] Robson v Robson [2008] QCA 36 at [61]; Kennedy v Nine Network Australia Pty Ltd [2008] QSC 134 at [34].
[6] Various inconsistencies and problems with the defence are identified at paragraphs [20] to [34] of Ms van Eps affidavit of 15 May 2023.
[8] Here, an admittedly superficial examination of the pleadings and the documents discloses some problems with the case presented by both parties. For example, for the plaintiff there is some imprecision about the identification of the intellectual property sought to be returned. For the defendants there is something incongruous in their approach which was to invest in the plaintiff's product, on the basis of a terms sheet, but to now disavow the terms sheet as legally binding, and to not admit the confidentiality of the information, but be unwilling to return it to the plaintiff or to Ms van Eps bankruptcy trustee.
[9] [2016] QSC 67 at paragraphs [10], [11].
[10] Paragraph 2(d) of the second further amended defence.
[11] This evidence is rather indirect. The defendants do not put on evidence that there is a prosecution; merely that they understand there to be a prosecution.
[12] The other three proceedings have been stayed or struck out. Here, of course, there is a conflation of documents that passed between the parties, such as emails, and the documents provided to the plaintiff relating to the product. The latter need not be kept and could easily be provided to the bankruptcy trustee, or to the court or to some other independent party without prejudicing the defendants' ability to defend themselves.
[13] In paragraphs [14]-[17] of Mr Hill's affidavit filed on 13 June 2023 he says that he understands that the CDPP has commenced criminal proceedings, and he says he has been told by the third defendant that Mr Rains of the ATO gave the third defendant a direction not to destroy documents, and he says he has been told by the second defendant that the second defendant was told by an unidentified person from an unidentified entity not to destroy communications with Ms van Eps, and that he was told by the fourth defendant that the fourth defendant was told by either the second or third defendants that the ATO had requested that records not be destroyed. No dates are specified. No specific details are given. Three of the four communications are sought to be proved by double hearsay.
[14] Whilst destruction of the documents may have been requested as an alternative, the thrust of the case has revolved around the defendants' continued detention of the documents.
[15] Given the way the litigation has progressed, and the plaintiff's refusal to mediate, it may be doubted whether the tactical ploy has achieved anything or is likely to do so.
[16] The factor is expressly referred to in UCPR rule 672(c).
[17] J & M O'Brien Enterprises Pty Ltd v Shell Co of Australia Ltd (No 2) [1983] FCA 92; (1983) 70 FLR 261 at 264; [1983] FCA 92; 7 ACLR 790 at 793; [1983] FCA 92; 1 ACLC 924.
[18] Australian Energy and Electrical Holdings Pty Ltd v Isbell [2006] QSC 34 at [6]- [11].
[20] As might be expected, the terms sheet does not entitle the investor to return of its investment, although it does provide for the return of shares and a "withdrawal of what's left of the investment...". Here, the defendants contend that the investment should be returned because they were not allocated shares.
[21] Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276; [2007] NSWCA 291 at [94]- [95]; accepted as correct in Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114 at [26].
[22] Again, see the reasons of Jackson J in Suncare Constructions Australia Pty Ltd v Gainspace (Mackay) Pty Ltd [2016] QSC 67 at [23]- [33].
[23] Affidavit of Ms van Eps filed on 15 May 2023 at [35]-[36].
[24] The discretionary factor of stifling the proceedings is referred to in UCPR rule 672(h) but overlaps with the consideration as to whether the order for security would be oppressive: UCPR rule 672(g).
[25] Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114 at [45], quoting Thune v London Properties Ltd [1990] 1 WLR 562 at 573; LexisNexis, Civil Procedure Queensland (service) at [r 672.40].
[26] Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 512-13; Bellaluz Pty Ltd v Westpac Banking Corp [2014] QSC 273 at [34].
[27] Equititrust Ltd v Tucker [2020] QSC 269 at [71]- [73]. Note that this discretionary factor overlaps with UCPR rule 672(a) - the means of those standing behind the proceeding.
[28] This is not a specific factor referred to in UCPR rule 672 but generally falls within the discretion under rule 671.
[29] [2001] 2 Qd R 187 at 192. See also the discussion of this issue by Daubney J in Aqwell Pty Ltd v BJC Drilling Services Pty Ltd [2008] QSC 266 at [20]- [28], a case that was discussed in Specialised Explosives Blasting & Training Pty Ltd v Huddy's Plant Hire Pty Ltd [2009] QCA 254; [2010] 2 Qd R 85 at [20]- [24].
[30] Aqwell Pty Ltd v BJC Drilling Services Pty Ltd [2008] QSC 266 at [20]- [28].
[31] Specialised Explosives Blasting & Training Pty Ltd v Huddy's Plant Hire Pty Ltd [2009] QCA 254; [2010] 2 Qd R 85 at [32], adopting and applying the reasons of Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189 at 196 - 198.
[34] Get Tonic Pty Ltd v Pocket Health Pty Ltd [2020] QSC 235 at [32]; LexisNexis, Civil Procedure Queensland (service) at [r 672.1].
[35] Base 1 Projects Pty Ltd v Islamic College of Brisbane Ltd [2012] QCA 114 at [23].
[36] Thus, a reduction in the professional fees by 50% leads to a total recoverable cost of $300,000.
[40] Mr Hill's affidavit filed 15 August 2022 at [53].
[41] The hourly rates are slightly different to the rates specified in the affidavit, but the discrepancy is relatively minor.
Stockingham Pty Ltd
Brisbane Angels Nominees Pty Ltd [2023] QSC 155
(1987) 16 FCR 497
(1994) 28 IPR 336
(1983) 70 FLR 261
(1983) 50 ALR 722
(1995) 56 FCR 189