Togito Pty Ltd v Pioneer Investments

[3] It is necessary for me now to outline the communication between the parties in relation to the undertaking. It began on 22 July 2008, when the second defendant raised the plaintiff's inability to meet an adverse costs order, and sought evidence of capacity to pay, in the context of a possible application for an order. On 28 July 2008, the plaintiff responded saying:

"Mr Smits has $3 million on deposit with the Bank of Queensland ... Mr Smits is quite willing to produce documentary evidence to that effect ... Mr Smits offers his personal undertaking to pay your client's standard basis costs to the extent that costs are ordered to be paid ... in lieu of your client seeking security for costs ... this offer will remain open for seven days."

[4] On 7 August 2008 the second defendant responded, saying:

"Please produce documentary evidence of Mr Smits having $3 million on deposit with the Bank of Queensland together with any other evidence which demonstrates that he has, and will have, the capacity to pay any costs awarded against Togito Pty Ltd."

"We enclose a draft statement of assets which will be signed by Mr Smits and furnished to you with the Bank of Queensland deposit record ... after you acknowledge that there will be no application for security for costs given Mr Smits' undertaking to pay any costs ordered to be paid by Togito to your client. Otherwise, Mr Smits will depose to these matters and Togito will seek indemnity costs in your client's application."

In terms of the security of the undertaking, one questions the reasonableness of the plaintiff's requiring that acknowledgement from the second defendant in advance of Mr Smits' preparedness to furnish a signed statement of assets.

[6] On 24 September 2008, the second defendant put this proposal:

"We have our client's instructions to accept Mr Smits' personal undertaking to pay any costs ordered to be paid in our client's favour by Togito Pty Ltd on the condition that your client provide our client with the documents listed below. In accepting this offer, our client has relied upon the draft statement of assets and liabilities which was attached to your letter of 15 August 2008. The documents our client requires are:

(1) a signed statement of assets and liabilities verified by Mr Smit;

(2) a copy of the Bank of Queensland deposit record;

(3) a copy of the Tendiris facility letter with Suncorp."

[7] On 20 November 2008 the second defendant reminded the plaintiff of the letter of 24 September 2008 and sought copies of the three documents within three business days. Then on 26 November 2008 the second defendant wrote referring to the earlier letters and saying: "your client has failed to provide our client with the requested signed documents."

[8] The next day the plaintiff responded rather querulously:

"What possible utility is there in dealing with your client 'issues' over security for costs that same day served its summary judgment application ... it is clear that our client offered its undertaking in respect of your client's claims over security and provided your client with a statement of assets and liabilities ... our client's undertaking was not conditioned on your client's ongoing enquiries into his affairs."

On the same day, the second defendant pointed out that his acceptance of Mr Smits' undertaking was conditional upon Mr Smits' providing the three documents adding:

"Despite our requests, your client has failed to produce the documents."

He also pointed out that the material provided showed that Mr Smits no longer had the $3 million on deposit with the Bank of Queensland. It will be recalled the availability of that sum was the primary foundation on which the undertaking had been proffered as sufficient security.

[9] The following day, 28 November 2008, Mr Smits sent emails directly to the second defendant, attaching two documents:

(a) a letter from Suncorp to Tendiris varying a letter of offer but referring to conditions and saying "all other terms and conditions of the facility remain unchanged"; and

(b) page one of a two page bank statement from the Bank of Queensland covering the period 21 December 2007 to 21 June 2008.

The second defendant pointed out that the two documents were incomplete, one being a variation of something else and the other but one page of a two page bank statement. The second defendant again requested the three documents, and sought an explanation for the discrepancies between the two statements of assets and liabilities which had by then been furnished.

"Our client has provided to you the two items that he undertook to provide on the acceptance of his undertaking and again recently called for by your firm ... our client has disclosed to Pioneer that (he has) assets in excess of $15 million and has deposed to such."

[11] On 2 December 2008 the second defendant again said that acceptance of Mr Smits' personal undertaking was conditional upon the provision of the three documents, which had not been done. The plaintiff responded saying: "In respect of security what documents do you say you have not been provided with?" The following day the second defendant referred to earlier correspondence.

[12] Mr Hackett who appeared for the plaintiff, submitted as follows:

"Mr Smits in his affidavit in response to the second defendant's application repeats his undertaking and gives it to the court. His undertaking as a solicitor is sufficient to dispose of the application as it should have been from the time it was offered. The court and the second defendant should be comforted by the fact that in addition to being a solicitor, Mr Smits is a man of considerable financial substance and his personal undertaking as the sole shareholder of the plaintiff has real substance. While an undertaking has never been sought from Mr Smits' wife, as she is not a person standing behind the plaintiff in the traditional sense (she is not a shareholder but is a director) she too is prepared to give (through Counsel) the same undertaking as her husband to the court."

The undertaking by Mrs Smits was offered for the first time in Counsel's outline of argument.

[13] On the other hand, Mr Freeburn, appearing for the second defendant, submitted that "the plaintiff has persistently and deliberately refused to supply the three documents it undertook to provide as a condition of the second defendant accepting Mr Smits' personal undertaking in lieu of an order for security of costs."

[14] Confronted with a statement of financial position only in draft form, and the demand that the second defendant abandon any right to bring any court application for costs in the court in return for Mr Smits' actually signing the document, it was quite reasonable for the second defendant to entertain some initial concern about the undertaking. The documents he went on to seek were relevant and potentially important to the assessment of the worth of the undertaking. They were not provided.

[15] Additionally, there was the circumstance that Mr Smits was initially presented as having a $3 million cash deposit with the bank. After the undertaking was offered, and without any notice to the second defendant, that was lent to a company with repayment secured by mortgage. By not informing the second defendant of that change, the plaintiff was prepared to have him proceed under a substantial misapprehension.

[16] In these circumstances, there was reasonable ground to query the security and worth of the undertaking offered.

[17] Also, as submitted by Mr Freeburn: "Significantly, the plaintiff does not say that an order for security for costs will stifle the litigation. No other difficulties are said to arise by reason of an order for security. The plaintiff and those behind the litigation do not say they are impecunious. Quite the contrary. Nor do they say that there would be any problem at all in providing the security."

[18] As to an issue of delay, any delay in the bringing of the application is explained by the communications over a period in relation to the undertaking, and it is right to observe that throughout the proceeding, the plaintiff has been on notice that the defendants were concerned about its capacity to meet a costs order. There is no complaint of prejudice.

[19] In the exercise of my discretion, I do intend to order that the plaintiff provide security for the second defendant's costs.

[20] As to the amount, Mr Coyne has assessed the second defendant's likely costs at $161,830. That compares with a costs assessor's assessment of the first defendant's costs at $94,087 up to and including the first day of trial, and $11,300 for each subsequent day. Assuming a five day trial, the first defendant's costs are estimated at $139,287.

[21] The plaintiff has asserted over-statement, and put forward an estimate of $67,250, assuming a two day trial. The plaintiff relied on the assessor's estimate of the first defendant's costs at $94,087 to the end of day one, subject to some deductions.

[22] I intend to set the amount to be ordered for security, covering the period to the end of the first day of the trial, at $90,000.

1. that the plaintiff furnish security for the second defendant's costs of and incidental to the proceeding, to the conclusion of the first day of trial, in the amount of $90,000, either by payment of that amount into court to the credit of the proceeding, or by the provision of a bank guarantee or other security in form satisfactory to the Registrar;

2. that pending the provision of such security, the proceeding is stayed; and

3. that the plaintiff pay the second defendant's costs of and incidental to the application for security, to be assessed on the standard basis.