By notice of motion filed on 10 September 2018 the defendants seek an order that the plaintiff provide additional security for the costs of these proceedings. For the reasons which follow, the Court will order that additional security be provided in the amount of $210,000.
At today's hearing, Mr A Bailey of Counsel appeared for the plaintiff company. He and his solicitor had only recently been retained. They only had limited instructions, being to apply for an adjournment of the hearing of the defendants' notice of motion. When that adjournment was refused, Mr Bailey remained to put such submissions as he could on the issue of additional security.
The sole director and shareholder of the plaintiff, Mr Robert Melhem, was present by audiovisual link from Long Bay where he is currently being held on remand in relation to alleged criminal offences. Because of Mr Bailey's limited instructions, from time to time I permitted Mr Melhem to supplement submissions put on behalf of the plaintiff by Mr Bailey. The defendants did not object to that course.
The defendants were represented by Mr M Condon of Senior Counsel and Mr P Sharp of Counsel.
[2]
Procedural history
These proceedings were commenced on 18 February 2016. They appear to be factually complex commercial proceedings by which the plaintiff seeks to recover $2,390,000 from the defendants.
This Morning Pty Ltd v Melhem [2018] NSWSC 1460 | Case summary | Zoe
On 1 June 2016, the defendants filed a notice of motion seeking an order for security for costs. The motion was resolved and Lindsay J made these orders on 30 January 2017 by consent:
"By and with the consent of the parties, Lindsay J makes the following notations and orders:
1. ORDER that the plaintiff pay into court for the purposes of security for costs of the defendants the sum of $214,500.00 ("security amount").
2. ORDER, subject to further order, that the security amount be paid as follows:
a) a first payment of $80,000, on or before 28 February 2017.
b) a second payment of $45,000, within 7 days from the date of an order for further evidence being made.
c) a third payment of $45,000, within 14 days from the date on which the proceedings are listed for a final hearing.
d) a fourth payment of $44,500, not later than 28 days prior to the first date of the final hearing.
3. ORDER, subject to further order, that the proceedings be stayed pending the first payment (due to be made on or before 28 February 2017) and be further stayed should any subsequent payment not be made as ordered.
4. ORDER that the plaintiff pay the defendants' costs of the defendants' notice of motion filed 1 June 2016.
5. ORDER that the proceedings be listed before the Registrar on 2 March 2017 for directions."
The plaintiff paid the first tranche of $80,000 on 1 March 2017, one day late.
The orders for the provision of evidence were made on 16 March 2017. The plaintiff paid the second tranche of $45,000 on 24 March 2017, one day late.
On 20 December 2017, the Registrar listed the proceedings before me for final hearing for five days, commencing on 24 September 2018.
The plaintiff paid the third tranche on 31 January 2018, being approximately one month after the due date (3 January 2018).
The plaintiff was required to pay the fourth tranche of $44,500 by 26 August 2018. That amount was only paid this morning during the course of the hearing before me of the defendants' notice of motion.
Quite apart from the effect of the late payments of the earlier tranches, failure to pay the last tranche in accordance with Lindsay J's orders means the proceedings were stayed from the date of the non-payment and remain stayed.
Because of the non-payment of the last tranche, the proceedings were listed before me by the defendants on 6 September 2018. I vacated the hearing. The defendants indicated they wished to move to dismiss the proceedings or, if that was not done, for additional security. I made these orders to enable that to occur:
"The Court:
1. Grants leave to Robert Melham to appear for the company This Morning Pty Ltd.
2. Grants leave to the defendants to file and serve on or before 10 September 2018:
(a) notice of motion;
(b) affidavit in support; and
(c) outline of submissions.
3. The plaintiff is to file and serve any affidavits and an outline of submissions in response to the defendant's notice of motion on or before 21 September 2018.
4. Vacate the hearing fixed for five days commencing on 24 September 2018.
5. Fix the Notice of Motion referred to in Order 1 for hearing at 10.00am at 26 September 2018.
6. Costs of today reserved.
7. Grant liberty to any party to apply on two days' written notice to the Associate to Kunc J."
The plaintiff did not comply with order 3.
On or about 21 September 2018 the plaintiff retained new solicitors. The plaintiffs' former solicitors are exercising a lien over their file due to unpaid fees.
Because at the time the defendants filed their notice of motion the final tranche had not been paid, the motion includes a prayer for the dismissal of the proceedings. Because the final tranche was in fact paid during the course of this morning, the defendants did not press for the dismissal of the proceedings, but maintained their claim for an order for additional security.
[3]
The Facts
The evidence establishes the following facts.
The plaintiff is unable to provide security because it has no significant assets and is not currently trading. The plaintiff:
1. is a trustee company (acting solely as trustee for the BJM Family Trust);
2. has paid up capital of $12. This is its only financial asset apart from its claim against the defendant;
3. owns no real property;
4. has failed to provide evidence of its financial status and capacity to pay a potential costs order in response to reasonable requests from the defendants' solicitors; and
5. has failed to provide evidence from the value of the trust assets that are available in support of its right of indemnity against the assets of the BJM Family Trust.
On 4 July 2018, the plaintiff's former solicitors asked the plaintiff, through its director Mr Melhem, to pay $184,000 into their trust account by 31 August 2018 to meet the estimated fees of senior and junior counsel and the solicitors themselves for the preparation and conduct of the hearing. Neither the plaintiff nor, I infer, Mr Melhem was able to provide those funds.
Mr Melhem is entitled to an amount of approximately $132,000 from the sale of a property. He said he intended to apply this to retain lawyers to conduct the final hearing of these proceedings. There is no admissible evidence before me that he has any other assets to which he might have recourse to indemnify the plaintiff for any costs it might be ordered to pay to the defendants.
The security for costs ordered by Lindsay J was originally intended to include a five day hearing and has (today) finally been paid in the amount of $214,500. However, the defendants' solicitor/client costs to date are $362,000. Even when that figure is discounted to a party and party basis, it is clear those costs exceed the amount of security that has been ordered and paid.
Counsels' fees for a 10 day hearing, with five days preparation, will be $165,000 (inclusive of GST).
The defendants' solicitors' fees on a solicitor/client basis for preparing for and instructing on a 10 day hearing, will be $80,000 (including GST).
[4]
Consideration
There is no dispute that the Court can order additional security where there has been a material change of circumstances since the earlier order was made.
I accept Mr Condon SC's submissions that quite apart from the fact that, for proper reasons, the defendants' legal costs to date well exceed the amount of security that has been ordered to date, there have been a number of material changes of circumstance since Lindsay J's order was made. These include that Mr Melhem's incarceration has obviously caused a material change in his financial position and his ability to fund the plaintiff's claim. He is unable to work and earn an income. He is presumably incurring legal expenses in relation to the matters that have caused his incarceration. Mr Melhem informed the Court that his committal hearing is to take place in the next few days. The plaintiff's lawyers who are owed outstanding fees have ceased to act and the plaintiff is now unrepresented (other than for limited purposes today - see paragraph [3] above).
In circumstances where there is no evidence upon which I can conclude that any final hearing will take place on any basis other than that the plaintiff will be unrepresented, I accept Mr Condon SC's submission that the length of the hearing, presently listed for five days, will invariably increase as a result of the plaintiff being self-represented and Mr Melhem's incarceration.
I accept the estimate of the solicitor for the defendants that the length of the hearing will be approximately doubled if the plaintiff will be represented by Mr Melhem (assuming he is granted leave to do so). This means that the Court will now proceed on the basis that the hearing will take 10 days.
Counsel's fees have been estimated on the basis of the 10-day hearing with five days' preparation. I accept that the fees of counsel proposed to be retained and the amount of preparation assumed are reasonable. There was no dispute that counsels' fees would generally be completely recoverable on assessment.
The defendants' solicitor estimates that his costs on a solicitor/client basis to prepare for and instruct on a 10-day hearing will be $80,000 (inclusive of GST) by reference to a table attached to his affidavit, which sets out the charge-out rates of those involved in the matter, the various tasks they will undertake and the likely time those tasks will require. I accept all of these as prima facie reasonable.
Mr Bailey indicated that he did not consider that he was able to question the defendants' solicitor's table without expert evidence filed on behalf of the plaintiff. However, in response to Mr Condon SC's submission that it was to be expected that 80% of solicitor/client costs would be allowed on assessment (i.e, $64,000 inclusive of GST), Mr Bailey drew attention to s 172(1) of the Legal Profession Uniform Law (NSW) 2014. This provides:
"172 Legal costs must be fair and reasonable
(1) A law practice must, in charging legal costs, charge costs that are no more than fair and reasonable in all the circumstances and that in particular are -
(a) proportionately and reasonably incurred; and
(b) proportionate and reasonable in amount."
Mr Bailey submitted that when the terms of s 172(1) were taken into account, the Court should allow in its assessment for the possibility that less than 80% of the solicitor/client costs would be recoverable.
Adding Mr Condon SC's figures for counsels' fees and solicitor's costs (the latter discounted to 80%) gives a total figure of $229,000 inclusive of GST. Mr Condon submitted that this was the amount of additional security which the Court should order to be provided.
I accept Mr Bailey's submission that 80% may be too high. I also take into account that determining an amount to be paid for security for costs is a broadbrush exercise. It is not intended to provide a complete indemnity for the defendants' likely costs. However, it is clear that the security provided to date will be inadequate and that there is no basis on which the plaintiff or Mr Melhem will be able to meet a future costs order in favour of the defendants. In the circumstances and exercising the discretion of the Court, I will order additional security to be provided in the sum of $210,000.
I will hear the parties as to the terms on which that security should be provided.
[5]
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Decision last updated: 27 September 2018