Tonks, in the matter of Ambient Rail Pty Ltd (in liq) v Fishwick

Federal Court of Australia|2020-12-08|Before: Markovic J

Counsel for the Plaintiffs: Mr S Lipp

Solicitor for the Plaintiffs: Lancione Partners Lawyers Pty Ltd

Counsel for the First and Second Defendants: Mr D F McAloon

Counsel for the Third, Fourth and Fifth Defendants: Mr N Simpson

Solicitor for the Third, Fourth and Fifth Defendants: Eakin McCaffery Cox Lawyers

BETWEEN: BRADLEY JOHN TONKS First Plaintiff

AMBIENT RAIL PTY LTD ACN 151 384 771 Second Plaintiff

AND: MARK ROBERT FISHWICK First Defendant

CAPTIVE VISION OUTDOOR PTY LIMITED ACN 165 527 426 Second Defendant

CAPTIVE VISION PTY LIMITED ACN 119 849 571 (and others named in the Schedule) Third Defendant

order made by: MARKOVIC J DATE OF ORDER: 8 December 2020

THE COURT ORDERS THAT:

The parties are to agree on the appropriate form of orders to be made giving effect to these reasons and to provide a draft form of orders to the Associate to Markovic J by 11 December 2020.
If the parties cannot agree the form of orders, they should each provide a draft form of orders together with a submission, not exceeding two pages in length, explaining any differences in approach by 11 December 2020. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MARKOVIC J: 1 By interlocutory applications filed on 15 October 2020 and 28 October 2020 respectively, the first and second defendants (who I will refer to as the Fishwick Parties) and the third, fourth and fifth defendants (who I will refer to as the Conder Parties) seek orders, pursuant to s 56(1) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) and r 19.01 of the Federal Court Rules 2011 (Cth) (Rules) and/or s 1335(1) of the Corporations Act 2001 (Cth) (Corporations Act) that the plaintiffs, Bradley John Tonks and Ambient Rail Pty Ltd (in liquidation) (Ambient Rail), give security for the payment of their costs of the proceeding. The first plaintiff, Mr Tonks, is the liquidator of the second plaintiff, Ambient Rail. 2 In addition, in their interlocutory application the Conder Parties seek an order pursuant to r 9.08 of the Rules that Mr Tonks be removed as a party to the proceeding.

Background 3 On 4 April 2014 Mr Fishwick appointed Mr Tonks and John Vouris as joint and several administrators of Ambient Rail. 4 On 18 July 2014 Messrs Tonks and Vouris were appointed as joint and several liquidators of Ambient Rail. Mr Vouris subsequently resigned as liquidator, leaving Mr Tonks as the sole liquidator of Ambient Rail. 5 On 16 August 2019 Mr Tonks entered into a litigation funding deed (Funding Deed) with Premier Litigation Funding Pty Ltd (PLF). 6 On 19 September 2019 this Court relevantly made an order pursuant to s 477(2B) of the Corporations Act approving the entry into of the Funding Deed by Mr Tonks: see Tonks, in the matter of Ambient Rail Pty Ltd (in liquidation) [2019] FCA 1556 (Ambient Rail (No 1)). 7 A copy of the Funding Deed has not been provided to the defendants nor was it in evidence before the Court. However, in Ambient Rail (No 1) at [5] Yates J described it in the following way: In consideration of the funding provided to Mr Tonks, PLF will receive priority payment from any recoveries made as a result of Mr Tonks' investigations. PLF will be repaid the funds it has advanced. It will then be entitled to an additional amount representing, in effect, 45% of the recoveries made after deducting the amount of the funds advanced. On its face, this percentage figure is high. However, Mr Tonks has deposed that, in light of the absence of other funding sources, and given the risks associated with litigation of the kind he might pursue, the amount potentially payable to PLF is, in his view, reasonable. As to the other terms of the Litigation Funding Deed, Mr Tonks has deposed that they are, in his experience, typical, reasonable and competitive. 8 The plaintiffs commenced this proceeding on 27 September 2019. 9 On 18 December 2019 the plaintiffs were granted leave to join the fourth and fifth defendants, Alan William James Conder and Lynn Conder, to the proceeding and to file an amended originating process and statement of claim. 10 On 6 February 2020 the Fishwick Parties filed a notice of address for service in the proceeding. 11 On 5 March 2020 the plaintiffs filed an interlocutory application seeking leave to file a further amended statement of claim (Amendment Application). 12 On 27 April 2020 at the hearing of the Amendment Application the Court relevantly made the following orders: 1. Leave be granted to the plaintiffs to serve a further draft of their proposed further amended statement of claim on the first and second defendants by 4 May 2020. 2. The first and second defendants are to notify the plaintiffs of their attitude to the further draft of the proposed further amended statement of claim served in accordance with Order 1 above, including whether they consent to its filing, by 18 May 2020. 3. The plaintiffs' interlocutory process lodged with the Court on 4 March 2020 and accepted for filing on 5 March 2020 seeking leave to further amend their statement of claim be adjourned for further hearing to 26 May 2020 at 10.15 am, including in relation to the costs of that interlocutory process to date. 4. The costs of the interlocutory process referred to in Order 3 above be reserved. 13 On 29 April 2020 the Conder Parties filed a notice of appearance in the proceeding. 14 On 26 May 2020 at the further hearing of the Amendment Application the Court relevantly made the following orders: 2. On or before 9 June 2020 the plaintiffs are to respond to the letter dated 20 May 2020 from the solicitors for the first and second defendants or serve a draft of their proposed further amended statement of claim. 3. By 23 June 2020 the defendants are to notify the plaintiffs of their attitude to the draft further amended statement of claim having regard to the material provided by the plaintiffs pursuant to Order 2 above, including whether they consent to the filing of the draft further amended statement of claim in the form that is then proposed by the plaintiffs. 4. The plaintiffs' interlocutory process filed on 5 March 2020 seeking leave to file a further amended statement of claim be adjourned for further hearing to 14 July 2020 at 10.15 am. … 6. The plaintiffs are to pay the first and second defendants' costs of and incidental to the plaintiffs' interlocutory process filed on 5 March 2020 seeking leave to file a further amended statement of claim up to and including today. 7. The plaintiffs are to pay the third, fourth, fifth defendants' costs thrown away by reason of today's adjournment of the hearing of the plaintiffs' interlocutory process filed on 5 March 2020 seeking leave to file a further amended statement of claim. 15 On 9 July 2020 the Court made an order by consent granting the plaintiffs leave to file and serve their consolidated further amended statement of claim which was then filed by the plaintiffs on 14 July 2020. 16 On 2 September 2020 the Court made a further order by consent granting leave to the plaintiffs to file and serve a second consolidated further amended statement of claim (SFASOC) which was then filed on 3 September 2020. 17 On 11 September 2020 the Conder Parties filed their defences and on 16 September 2020 the Fishwick Parties filed their defence. 18 After the filing of the defences the parties exchanged correspondence touching on a number of issues including Mr Tonks' role as a plaintiff in the proceeding in circumstances where he makes no claim for relief and the plaintiffs' ability to meet a costs order if they are unsuccessful in the litigation. 19 As to the former, in their letter dated 14 September 2020 Lancione Partners, the lawyers for the plaintiffs, informed Eakin McCaffery Cox, the lawyers for the Conder Parties, and Mills Oakley, the lawyers for the Fishwick Parties, among other things, that: The liquidator does not consent to his removal as plaintiff. Proceedings were filed but not initially served due to issues as to timing and accrual of causes of action. Your clients were subsequently joined, on the same basis. Such potential time bar issues were caused by my clients' late qualification for funding. It may be that the facts in this case give rise to further causes. In the circumstances, the liquidator seeks to preserve his position notwithstanding that causes are yet to be identified. This is not to suggest that there will in fact be further causes. 20 As to the latter, among other things, the defendants requested a copy of the Funding Deed, which request was declined. On 14 October 2020 Lancione Partners wrote to Eakin McCaffery Cox and Mills Oakley noting, among other things: The Liquidator As we have consistently stated, we will not be able to determine whether there are any claims available to the Liquidator until discovery and evidence in this matter is complete. To the extent that your real concern as to the Liquidator's as a part to the proceeding is that, generally speaking, security for costs will not be ordered against a Liquidator, then we do not propose to rely upon that principle insofar as any application for security you might bring on the current pleading. Security for Costs The underlying facts of this matter are now well known to all parties. There is no doubt that Ambient Rail is insolvent and we accept that it will be unable to pay your clients' costs if ordered to do so. Accordingly, the criteria in section 1335 of the Corporations Act must be considered. Lancione Partners then set out the reasons why the plaintiffs say they will not provide security for the defendants' costs and concluded by declining the invitation extended to the plaintiffs to provide "either the Costs Undertaking or Security for Costs, as requested". 21 As noted at [1] above, on 15 and 28 October 2020 respectively the Fishwick Parties and the Conder Parties filed the interlocutory applications which are now before me for determination.

The SFASOC 22 In their SFASOC the plaintiffs seek relief from Mr Fishwick for breach of his duties owed to Ambient Rail as a director pursuant to ss 181, 182 and 183 of the Corporations Act and for breach of his fiduciary duty, and from the remaining defendants on the basis of accessorial liability for Mr Fishwick's breaches. 23 In summary the plaintiffs claim that the defendants engaged in a scheme whereby the business of Ambient Rail was removed from it in the period prior to its winding up as part of an alleged deliberate strategy to strip it of its assets during and after a dispute between Mr Fishwick and his fellow shareholder, Milan Bozic. More particularly, the plaintiffs contend that: (1) prior to October 2013 Ambient Rail conducted a business of providing outdoor advertising services primarily or exclusively to APN Outdoor Pty Limited (APNO) in respect of two contracts APNO had with the Rail Corporation of New South Wales and Metro Trains Melbourne Pty Limited (Services); (2) Ambient Rail generated at least 75% of its revenue from providing the Services; (3) prior to September 2013 Mr Fishwick became involved in a dispute with Mr Bozic which caused disruption to Ambient Rail's business; (4) Messrs Fishwick and Conder has had a long standing business relationship since at least 2006; (5) Mr Fishwick, with the assistance of Mr Conder, sought to have Ambient Rail's business, i.e. the provision of the Services, transferred to a company controlled by Mr Conder, A2 Consulting Pty Ltd (A2 Consulting); (6) in October 2013 APNO entered into contracts with A2 Consulting for the provision of the Services and Mr Fishwick worked in the business of A2 Consulting managing the provision of the Services; (7) in December 2013 APNO entered into contracts with the second defendant, Captive Vision Outdoor Pty Limited or, in the alternative, with the third defendant, Captive Vision Pty Limited, for the provision of the Services; and (8) the scheme, as described above, was engaged in by Mr Fishwick in breach of his duties to Ambient Rail and has caused loss and damage to it.

Legislative framework and relevant principles 24 Section 56 of the Federal Court Act relevantly provides: (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. 25 Rule 19.01 of the Rules relevantly provides: (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. 26 Section 1335 of the Corporations Act relevantly provides: (1) Where a corporation is plaintiff in any action or other legal proceeding, the 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 costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 27 In All Class Insurance Brokers Pty Ltd (in liq) v Chubb Insurance Australia Limited [2020] FCA 840 (All Class Insurance) at [40]-[44] Allsop CJ summarised the principles applicable to the question of whether an order for security for costs should be made a follows: 40 Where the applicant is a corporation, the Court is empowered to order security for costs pursuant to s 1335 of the Corporations Act if "it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant". Once this threshold is met, the Court will turn to the matters relevant to the exercise of its discretion to order security for costs: Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; 98 ACSR 301. 41 Section 56 of the Federal Court of Australia Act does not expressly impose any threshold to be met before the Court considers the various discretionary matters. However, the applicant's inability to pay the costs of the respondent remains an important consideration in the exercise of the Court's discretion. 42 The Court's discretion to require the provision of security for costs is broad and the factors informing the exercise of that discretion cannot be stated exhaustively. The only limitation is that the discretion be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation [1984] FCAFC 29; 2 FCR 1 at 3. The matter which lies at the heart of the discretion is one of fairness, both in terms of whether security should be granted, and if so, in what amount: Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 at 21 [92]. The Court aims to achieve a "balance between ensuring that adequate and fair protection is provided to the defendants, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings": Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470 (Giles J). 43 The Court's discretion should be exercised having regard to all of the circumstances of the case (see Merribee Pastoral Industries Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] HCA 41; 193 CLR 502 at 513 [26] (Kirby J)). There are a number of well-established factors relevant to the Court's exercise. These include (see KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; 56 FCR 189 at 197-198 per Beazley J): whether the application for security for costs has been brought promptly; the strength and bona fides of the applicant's case; whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim; whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate; and 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. 44 An additional factor to add to this list is whether there are aspects of public interest which weigh in the balance against the making of an order (see Equity Access Ltd v Westpac Banking Corporation [1989] FCA 520; ATPR 40-972 at 50,635 per Hill J).

Consideration 28 Mr Tonks is named as the first plaintiff but makes no claims in the proceeding. The plaintiffs have declined invitations to remove him as a party. However, as set out at [20] above, they will not rely, in response to the applications for security, upon the principle that security will generally not be ordered against a liquidator. 29 Given the nature of the proceeding and the relief sought by the plaintiffs, it is appropriate to consider the applications for security pursuant to s 1335 of the Corporations Act. 30 There was no dispute between the parties that the defendants had met their evidentiary onus and satisfied the Court that there is reason to believe that Ambient Rail will be unable to meet their costs if they successfully defend the litigation. 31 Ambient Rail has been in liquidation since 18 July 2014. As at September 2019 it had an estimated asset deficiency of $803,183 and, subject to the recoveries that might be available as a result of the investigations Mr Tonks intended to undertake at that time and, inferentially, this proceeding, it was unlikely that Ambient Rail's creditors would receive any return in the winding up: see Ambient Rail (No 1) at [2]. 32 An annual administration return for Ambient Rail lodged by Mr Tonks on 14 September 2020 for the period 18 July 2019 to 17 July 2020 showed that the estimated value of creditors remained at $803,183.78 and cash at bank at the end of the period was $6,943.40. 33 There is thus a proper basis to believe that Ambient Rail will be unable to pay the defendants' costs if they are, or either of the Fishwick Parties or the Conder Parties are, successful in their defence. So much is conceded by the plaintiffs in the letter from their lawyers dated 14 October 2020: see [20] above. 34 That being so, the power in s 1335 of the Corporations Act is enlivened and I turn to consider the factors raised by the parties which are relevant to the exercise of my discretion to order security for costs.

Merits of the plaintiffs' claim 35 The plaintiffs submit, relying on Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 (Live Board Holdings) at [97]-[102], that on an application for security for costs the Court is entitled to have regard to the prospects of success or merits of the proceeding. 36 The plaintiffs rely on the SFASOC, the particulars thereto and a bundle of documents tendered at the hearing of the defendants' applications for security for costs to demonstrate that their case has merit. By way of example: (1) in support of the contention pleaded at paragraph 28 of the SFASOC that, as at August 2013, the provision of the Services by Ambient Rail constituted at least 75% of its annual income, the plaintiffs rely on an extract from the transcript of an examination of Mr Fishwick which appears to have taken place on 29 January 2020 in which Mr Fishwick gave evidence to that effect; and (2) in support of the contention pleaded at paragraph 29 of the SFASOC that on 30 August 2013 Mr Fishwick requested APNO to transfer the Services to a new company, the plaintiffs rely on an internal email dated 30 August 2013 between Andrew Hines, Damian Potter, Paul Osborne and Peter Franklin who all appear to be employees of or associated with APNO. 37 The plaintiffs submit, based on their pleaded case and the particulars thereto, that there is sufficient material to conclude that their claims have merit and that this is a factor which militates against ordering security. 38 The strength and bona fides of an applicant's case is a factor which can be taken into account in the exercise of the Court's discretion in determining whether to make an order for security for costs: see Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 (Bryan E Fencott) at 514; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 197. 39 In Live Board Holdings the New South Wales Court of Appeal considered, among other things, an application for leave to appeal from orders made requiring the applicant to provide security for the respondent's costs. That order was made pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) which as the Court of Appeal observed at [98] "entitles the court in terms to have regard to 'the prospects of success or merits of the proceedings'" (original emphasis). No similar prescription of the matters which the Court may take into account is found in the Rules or in s 1335 of the Corporations Act. Putting that distinction to one side and noting that the strength and bona fides of an applicant's case is a factor that can be taken into account in the exercise of the discretion in an application for security for costs, at [98]-[99] and [101]-[102] the Court of Appeal relevantly continued: 98 … It is true that in many cases it will not be possible to form a meaningful view as to the strength or weakness of a plaintiff's claim for the purposes of an application for security for costs. Such applications are ordinarily brought before pleadings are closed and evidence filed. But that does not mean that, for example, there may never be a case in which a court can be satisfied that an impecunious corporate plaintiff has prima facie a very strong case, such as to inform the exercise of discretion on an application for security for costs. The starting point in the exercise of discretion is the legislation conferring the power, not some gloss upon it. 99 The authorities on which the primary judge relied for the narrower proposition that the strength of a claim was neutral so long as it was advanced bona fide and gave rise to real issues should not be understood as denying an ability on the part of the Court, in an appropriate case, of relying on its assessment of the strength or weakness of the case, in accordance with UCPR r 42.21(1A)(a). … … 101 In any event, the entitlement to have regard to the strength of a party's case found in UCPR r 42.21(1A)(a) post-dates all of those cases. It was inserted by the Uniform Civil Procedure Rules (Amendment No 61) 2013, Sch 1, item 4 with effect from August 2013. It seems that when the respondents made the submission that the strength of the case was neutral, his Honour was not directed to the fact that the authorities on which they relied pre-dated the insertion of the new rule. 102 Ordinarily, it may be very difficult to express a meaningful view as to the strength of a case. … 40 This proceeding is not one where an assessment of merits can be made. It is at an early stage. The pleadings have closed but the plaintiffs have not filed any evidence in support of their claims. Relevantly, the defendants either deny or do not admit the preponderance of the allegations made against them in the SFASOC. The SFASOC and the documents to which I was taken in the bundle of documents tendered by the plaintiffs on the defendants' applications for security for costs are not sufficient to enable me to make any assessment of the merit or otherwise of the plaintiffs' claims particularly given, as I apprehend will be the case based on the defences which have been filed, that there is a significant factual contest between the parties. 41 While I accept the plaintiffs' claims are brought bona fide, given the nascent stage of the proceeding I am unable to assess the strength or merits of the plaintiffs' claims. Accordingly, this is not a factor which militates against ordering security in this case. Rather, it is a neutral factor in the weighing up exercise to be undertaken.

Did the defendants cause the plaintiffs' impecuniosity? 42 The plaintiffs submit that the end result of the matters pleaded in the SFASOC as supported by the documents which they tendered in support of those matters is that, as a result of the breaches of duty committed by Mr Fishwick with the assistance of the other defendants, Ambient Rail was put out of business. In other words, they contend that Ambient Rail's impecuniosity was caused by the defendants' conduct and that this is conclusive of the issue of whether the Court should order that security for costs be given. 43 It is at this point relevant to note that the plaintiffs do not contend that if they are ordered to pay security for the defendants' costs of the proceeding, the proceeding will be stultified. They have not filed any evidence which would bear that out or made any submissions to that effect. 44 In All Class Insurance at [76]-[77] Allsop CJ said: 76 Where security for costs is resisted on the ground that it is the conduct of the respondent that has caused the applicant's impecuniosity, the apparent strength of the applicant's case should be assessed: Statewide Developments Realty Pty Ltd v Owners Corporation, SP 77457 [2013] NSWSC 1750 [20]. However, as observed by White J in Statewide at [23], the real reason for investigating the strength of the applicant's case arises only where it was said that, on the particular facts of the case, the grant of security would stultify the proceedings. This approach was taken by the Full Court of the Supreme Court of Western Australia in BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 346 (per Anderson J, Kennedy and Ipp JJ agreeing), with Anderson J observing that the question of whether the respondent contributed to the applicant's impecuniosity had to be considered in conjunction with the proposition that the effect of an order for security would be to stultify the action. This principle was also applied by Black J in Advance Innovative Solutions Pty Ltd (in liq) v X-Dem Group (Aust) Pty Ltd [2012] NSWSC 1112 at [19] (citing the passage in BPM 131 FLR at 346). 77 In circumstances where there is no basis for concluding that the effect of ordering the security would be to stultify the litigation, and in fact there are four creditors willing and plainly able to provide $49,000 in security, I do not find it appropriate to consider further whether Chubb is the cause of All Class' current impecuniosity. That exercise ought to be left for the final hearing. 45 In General Trade Industries Pty Ltd (in liq) v AGL Energy Limited [2020] FCA 1562 (General Trade) Derrington J also considered a submission by the plaintiff, General Trade, that to require it to provide security for costs would be unjust because its impecuniosity was caused by the defendant, AGL. At [79]-[81] his Honour relevantly said: 79 Although the question of the cause of General Trade's impecuniosity took up some not inconsiderable time in the course of the hearing, it cannot be of great relevance given the above conclusion that the action will not be stultified by requiring the provision of security. If it had been concluded that stultification would or might occur, the cause of General Trade's inability to provide security would be of some significance. If the wrongful action which underpins the suit being pursued deprived General Trade of the resources to provide security, it would be an injustice to allow AGL to rely upon its own wrongdoing to prevent the action against it being progressed. However, here the action will not be stifled by requiring the provision of security. That being so, even if AGL's alleged wrongful conduct did cause General Trade's impecuniosity, it cannot be said that it extends to preventing the action being pursued against it. 80 There are a number of authorities which support the above propositions. In BPM v HPM, Anderson J (with whom Kennedy and Ipp JJ agreed) said at 346 when speaking of the consideration that the defendant's alleged wrongful conduct had been causative of the plaintiff's impecuniosity: Anyway I doubt this factor can be taken in isolation. 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 will 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. 81 This passage was approved of and applied in MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Limited [2002] FCA 821 at [25]. … 46 As I have already observed, here the plaintiffs do not claim that the proceeding will be stultified by requiring the provision of security. It is open to infer that is so because there is another party, PLF, who will benefit from the proceeding if the plaintiffs are successful, and who, I assume, is able to provide security if so ordered. Two things follow. First, the question of whether the defendants caused Ambient Rail's impecuniosity does not arise for consideration. Secondly, and in any event, in the absence of a claim that the proceeding will be stultified if an order for security is made, as was the case in General Trade, even if the defendants' alleged wrongful conduct caused Ambient Rail's impecuniosity, it cannot be said that it extends to preventing the action being pursued against it. 47 Contrary to the plaintiffs' submission, this is not a factor that is conclusive of the issue of the grant of security.

Public importance 48 The plaintiffs submit that where directors undertake actions in breach of their duties, it is a matter of public importance that they be held to account for the consequences of their breach, particularly where the company is in liquidation and creditors have been deprived of their debts, relying on In the matter of 77738930144 Pty Limited (in liq) (formally known as Commercial Indemnity Pty Limited) [2019] NSWSC 626 (Commercial Indemnity) at [39]. The plaintiffs contend based on their pleaded case that this is a further factor which militates against the grant of an order for security. 49 Commercial Indemnity concerned an application that the plaintiffs, the company (formerly known as Commercial Indemnity) and its special purpose liquidator, pay security for the defendants' costs. The proceeding was brought by the plaintiffs as against Commercial Indemnity's former director, Mr Gardiner, for breach of duty, as against Commercial Indemnity's shareholder, Mrs Gardiner, on the basis of accessorial liability, and as against another company, 4142 Clarence Street Limited, for recovery of a loan. At [2] Rees J summarised the "essence of the claim" as an allegation that Mr Gardiner had "removed large sums of money from Commercial Indemnity in the period prior to the winding up as part of a deliberate strategy to denude it of assets in the face of litigation by a shareholder". The plaintiffs opposed the application for security on the basis that their claim was very strong and that it established that Mr Gardiner was dishonest. 50 Justice Rees noted that it was thus necessary to set out the plaintiffs' claim and proceeded to do so based on the plaintiffs' evidence which, unlike in this case, had been filed and by reference to two judgments issued in the proceeding. Her Honour observed that the defendants, in default of orders requiring them to do so, had failed to file their evidence. At [38], having reviewed the plaintiffs' evidence and the two judgments that had issued in the proceeding, her Honour found that there was "sufficient evidence to conclude that the plaintiffs' claims have merit, which militated against ordering security". Her Honour then said at [39] under the heading "Public importance": The defendants say this case does not involve a matter of public importance but is another incarnation of an ongoing dispute between Mr Newling and Mr Gardiner. I do not agree. Where directors undertake transactions in breach of their duties, it is a matter of public importance that directors be held to account for the consequences of their breach, in particular, where the company is in liquidation and creditors have been deprived of payment for goods and services extended to the company. 51 At [50], in concluding that security for costs would not be ordered, her Honour said: It appears that the plaintiffs have a strong case. The defendants are in breach of an order, made by consent, to file their evidence. The special purpose liquidator is seeking to unravel transactions entered into by Mr Gardiner which, it would appear, have had the effect of depriving creditors of Commercial Indemnity of a distribution in the winding up, and this is a matter of public importance. There is a funder, but it appears to me that obtaining funding was effectively necessitated by Mr Gardiner's actions taken before placing Commercial Indemnity into liquidation. Mr Hancock has acknowledged that he may be personally liable to pay a costs order in these proceedings. As a liquidator, I do not doubt that he would comply with an order made by the Court in this regard. Whilst ordering security would not stultify these proceedings, ultimately, I do not want to make it harder for the plaintiffs to retrieve the assets of Commercial Indemnity than Mr Gardiner already appears, on the evidence before me on this interlocutory application, to have made it. I am not prepared to order security. 52 It was in the context of the conclusion her Honour had reached in relation to the merits of the case that she observed that the case before her involved a matter of public importance, namely the issue of directors undertaking transactions in breach of their duties. In contrast to the position in Commercial Indemnity, I do not have the benefit of the plaintiffs' evidence or other material to enable an assessment of the merits of the case. 53 I accept that where directors breach their duties owed to a company it is a matter of public importance that they be held accountable for the consequences of their breach. However, given the nascent stage of this proceeding and the denials of the alleged conduct on the part of the defendants, that factor of itself only weighs marginally against the making of an order for security in this case.

Funding 54 The plaintiffs are funded by PLF, a factor which the defendants say favours the making of an order for security. 55 The Funding Deed has not been disclosed to the defendants and there is no evidence relied on by the plaintiffs in relation to PLF's ability to meet a costs order if made. In short, beyond the matters set out in Ambient Rail (No 1), neither the Court nor the defendants know anything about PLF or the Funding Deed. Neither PLF nor Mr Tonks has provided an undertaking to satisfy any costs orders made against Ambient Rail. 56 The plaintiffs submit that it is the defendants who have necessitated the obtaining of funding by reason of their conduct and that Ambient Rail has been left with no business and no assets to conduct the litigation. They contend that the defendants cannot now use that as a reason to make it more difficult for Ambient Rail to retrieve its assets. 57 The plaintiffs submit that the terms of the Funding Deed are confidential, it is not in Mr Tonks' unilateral discretion to disclose them, and disclosure of the Funding Deed would cause the defendants to obtain an unfair forensic advantage in the proceeding by giving them knowledge of the amount of funding and its terms and would be prejudicial to the plaintiffs, particularly in any negotiated settlement. The plaintiffs say that Mr Tonks is not looking to avoid any adverse costs order, entry into the Funding Deed was approved by the Court, and Mr Tonks is a party to the Funding Deed and is an officer of the Court. 58 In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 (Green) the New South Wales Court of Appeal considered, in the context of an application for security for costs in a proceeding where the plaintiff was a liquidator, the impact of the presence of a litigation funder. At [45(2)], [51], [53] and [61] Hodgson JA said: 45 In my opinion, on the basis of this review of cases, and especially on the basis of the previous Court of Appeal decisions in Hession and Melville, a court considering applications for security for costs against liquidators should not treat the matter as being entirely at large, but should have regard to guidelines, which I would express as follows: … (2) 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 (Bell Wholesale P/L v Gates Export Corporation (No 2) (1984) 8 ACLR 588) and there is no presupposition in favour of granting security (Bryan E Fincott P/L v Eretta P/L (1987) 16 FCR 497). 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 (Bell Wholesale). … 51 However, in my opinion a court should be readier to order security for costs where the non-party who stands to benefit from the proceedings is not a person interested in having rights vindicated, as would be a shareholder or creditor of a plaintiff corporation, but rather is a person whose interest is solely to make a commercial profit from funding the litigation. Although litigation funding is not against public policy (Campbells Cash and Carry Pty Limited v Fostif Pty Limited [2006] HCA 41; 229 CLR 386 at [87]-[95]), the court system is primarily there to enable rights to be vindicated rather than commercial profits to be made; and in my opinion, courts should be particularly concerned that persons whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails. … 53 In all these circumstances, in my opinion, the existence of the funder and the funding agreement is a matter that favours an order for security which, according to the funding agreement, the funder would be obliged to comply with. This view is supported by the consideration that in this case the court is left in the dark as to the proportion to which the funder is entitled of any verdict obtained by the liquidator; although, because this is the result of a claim of legal professional privilege, the court would not be justified in drawing any conclusion that the proportion to which the funder is entitled is unreasonably high: cf Wentworth v Lloyd (1864) 10 HL Cas 589; 11 ER 1154. (It may be that where the court knows the extent of the funder's interest in the outcome of the case, this could be a factor which might lead the court to order security for less than the totality of the costs.) … 61 I think it is right that the court should be concerned to ensure that a litigation funder, involved in the litigation purely for commercial profit, should not be able to avoid responsibility for costs if the litigation fails, or be in a position where there may be obstacles in the way of a successful defendant obtaining costs from such a funder. I think this is enough to take this case outside the normal position in which a liquidator suing personally is assimilated to the position of an ordinary natural plaintiff and thus generally liable to an order for security for costs only in the circumstances set out in the UCPR. 59 At [86] Campbell JA, who agreed with Hodgson JA, noted that a special problem arises when any proceeds of litigation brought in the name of a liquidator will partly go to a funder for its private profit and will partly remain with the liquidator for distribution to creditors. His Honour recognised a tension between the guideline that, insofar as the litigation is for the private profit of a funder, it is appropriate to order security but, insofar as it is brought by a liquidator for distribution in the ordinary course of a winding up, it ought not to be required. His Honour concluded that whether to depart from this guideline and, if so, how, will depend on the facts of the case. 60 At [76]-[77] Basten JA, in dissent, was not persuaded that there was any distinction between a liquidator pursuing a claim with funding and a proceeding maintained by a creditor whose interest similarly will not be in the subject matter of the proceeding except to the extent that success in the litigation will expand the resources from which that creditor may receive payment. 61 The existence of the litigation funder and the Funding Deed is clearly a relevant matter. It is not in dispute that PLF will stand to gain from this proceeding should the plaintiffs be successful. No information has been provided about PLF's ability to meet a costs order should it be made. No comfort has been given to the defendants about PLF and the circumstances in which it will or will not meet an order for costs, if made, and PLF has failed to provide an undertaking that it will meet the defendants' costs if an order is made in their favour. In my opinion, that the plaintiffs are funded by a funder who has a commercial interest in the outcome of the proceeding and about whom little or no relevant information has been provided weighs in favour of an order for security. I have addressed at [42]-[47] above the question of the cause of the plaintiffs' impecuniosity and, it follows, why it is they need funding.

Delay 62 An application for security for costs should be made promptly. That is because a plaintiff is entitled to know its position in relation to security before it embarks to any real extent on its litigation and before it commits substantial sums of money towards it: see Bryan E Fencott at 514-515. 63 In All Class Insurance at [58] Allsop CJ observed that how any delay in making an application for security for costs will impact on the exercise of the Court's discretion will depend on the prejudice likely to be suffered by the plaintiff and the reasons for the delay, citing Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (No 3) [2007] FCA 1078 at [30]. 64 The plaintiffs submit that this proceeding was commenced in October 2019, served on the Fishwick Parties in February 2020 and the Fishwick Parties and the Conder Parties filed their appearances on 6 February 2020 and 29 April 2020 while their security applications were not filed until 15 October 2020 and 28 October 2020 respectively. That is, according to the plaintiffs the applications for security were not brought, in the case of the Fishwick Parties, until eight months after service of the proceeding on them and, in the case of the Conder Parties, until six months after they filed a notice of appearance in the proceeding. This, the plaintiffs say, constitutes an unacceptable delay. 65 However, the period between, in the case of the Fishwick Parties, the service of the proceeding and, in the case of the Conder Parties, the filing of a notice of appearance and the date on which their respective applications for security for costs were filed must be viewed in the context of the events recited at [8]-[21] above. It was not until 3 September 2020 that the plaintiffs finally filed the pleading on which they now rely. In the intervening period the defendants did not know the case they had to meet. Indeed, the Fishwick Parties, through their initial opposition to the plaintiffs' application to amend their statement of claim, sought to challenge the pleading in the form proposed. It was the plaintiffs who took time to finalise their pleading and to get their house in order. In those circumstances, any delay does not fall at the feet of the defendants. 66 In any event, the plaintiffs have not put before the Court any evidence of prejudice that they contend they have suffered by reason of the applications for security for costs having been made at the time that they were. 67 There has been no relevant delay on the part of the defendants in bringing their applications for security for costs.

Should security be ordered? 68 Having weighed up the discretionary factors raised by the parties, I am satisfied that it is in the interests of justice that orders be made requiring the plaintiffs to pay security for the defendants' costs.

Quantum 69 I turn then to consider the quantum of the security to be ordered. 70 The Fishwick Parties rely on an affidavit sworn by Michael John Dudman, a costs consultant, on 2 December 2020. Mr Dudman has considered the Fishwick Parties' costs incurred to date and has assessed their likely future costs. Having undertaken that exercise, Mr Dudman estimates the Fishwick Parties' costs as follows: (1) costs to date recoverable on taxation and calculated on a party/party basis - $89,967.98 comprising professional costs of $77,689.72 and disbursements of $12,276.26; and (2) estimated costs up to and including the conclusion of a trial recoverable on taxation and calculated on a party/party basis - $643,335.81 comprising professional costs of $347,694.44 and disbursements of $295,641.37, thus making the Fishwick Parties' total recoverable party/party costs $733,303.79. 71 The Conder Parties rely on an affidavit sworn by their solicitor, Mark Geoffrey Doble, on 28 October 2020 and an affidavit affirmed by Ross Nicholas, a costs consultant, on 18 November 2020. Relevantly, Mr Doble has provided a schedule of costs and disbursements incurred by the Conder Parties to 6 October 2020 and an estimate of future costs and disbursements in a total amount of $467,443.45 made up of solicitors' costs of $219,830, counsels' fees of $198,059.50, other disbursements of $20,651.23 and GST of $28,902.72. Mr Nicholas estimates, based on the total amount of costs incurred to date and estimates of future likely costs calculated by Mr Doble, that the Conder Parties would recover party/party costs of $372,610.19. In addition, Mr Nicholas considers that the costs of preparing his report would be recoverable on a party/party basis, thus making the Conder Parties' total recoverable party/party costs $376,110.19. 72 There are two available approaches to determining the quantum of security to be provided: see Norcast S.ár.L v Bradken Limited [2012] FCA 765 (Norcast) at [17]-[18]. One relies on a costs consultant to prepare an affidavit setting out the steps likely to occur in the proceeding and providing an estimate of the party/party costs for each step recoverable by the respondent were it to succeed and obtain a costs order. The alternative approach is for the respondent's own solicitor to give evidence about the likely steps to be undertaken in the proceeding and the likely costs to be incurred in completing each step. When that approach is adopted, the solicitor usually calculates the actual costs that would be payable but then discounts those costs by some factor. 73 In this case, both the Fishwick Parties and the Conder Parties have effectively adopted the former method, referred to in Norcast as the traditional approach. That is, they have each retained a costs consultant who has assessed the likely costs that would be recovered on a party/party basis should they succeed. In the case of the Conder Parties, Mr Doble estimates the future steps and the associated actual costs of those steps. Thereafter, Mr Nicholas has considered those costs and expressed an opinion as to the likely recoverable party/party costs. 74 Notably, the plaintiffs do not rely on any evidence which disputes the conclusion as to quantum reached by Messrs Dudman and Nicholas or their methodology. Notwithstanding that, the plaintiffs raise three issues about the quantum sought by the defendants. First, they say that security ought not to be granted for costs already incurred and that it is not permissible to order costs already the subject of an existing costs order. Secondly, they say that, if it is granted, security ought to be granted only up to a mediation. Thirdly, they say that as PLF's interest is 45% of the outcome, any security ordered to be provided ought to be discounted to 45% of the overall amount considered fair and reasonable as security, thus reflecting the funder's interest in the potential recovery in the proceeding.

Costs already incurred 75 As the plaintiffs acknowledge, an order for security for costs may be made not only for future costs but also for costs already incurred: see Bryan E Fencott at 515. However, the plaintiffs submit that delay on the part of a defendant in bringing an application for security for costs may disentitle it from obtaining security in relation to costs already incurred. In doing so, they rely on the decision in Robertson v Knott Investments Pty Ltd (No 2) [2010] FCA 796 (Knott Investments) at [14] where Flick J said: It should finally be noted that an order for security for costs may be confined, in an appropriate case, to such future costs as may be incurred and may even be ordered during the course of a hearing: Equity Access Limited v Westpac Banking Corporation (1989) ATPR 40-972. An application was there brought at the conclusion of the first three days of a hearing and before the hearing resumed. Hill J was of the opinion that the case should have been completed within the allocated 3 days but ordered security for the forthcoming 2 ½ days of hearing. Reference was there also made to the following observations of Street CJ in Buckley v Bennell Design and Construction Pty Limited (1974) 1 ACLR 301 at 308: A significant matter to be weighed in determining whether or not an extension of time should now be allowed is that this arbitration has run on for some eight hearing days. The builder has expended money in respect of its own legal costs for those eight days. And, if security now be ordered, accompanied by the usual sanction that the arbitration as well as the proceedings in this court be stayed until such security be furnished, this would, in effect, place the company in the position of running a risk, if unable to provide security of having wasted the costs of these eight days. It is an accepted principle in the ordering of security for costs that such an application should be made promptly. There may of course, be cases where the impecuniosity of the company will only be discoverable or provable at a later stage of the proceedings. Similarly there may be cases in which the length of the proceedings was not foreseen when they commenced. Other situations could occur in which a late application could, without procedural prejudice, be brought forward during the currency of the disputed proceedings. But ordinarily, I reiterate, the application ought to be made promptly in order to avoid the very situation which has developed in this case. The primary Judge, Helsham J, had there refused to order security and the application for extension of time for seeking leave to appeal from that decision was refused. See also: Readymix Holdings International Pte Ltd v Wieland Process Equipment Pty Ltd [2008] FCA 373. 76 The plaintiffs are not assisted by Knott Investments. I have addressed the issue of delay in the context of whether the Court should exercise its discretion to make an order for security for costs at [62]-[67] above. In doing so, I concluded that any delay was not occasioned by the conduct of the defendants. Rather, the timing of the filing of the applications for security for costs was dictated by the time it took for the plaintiffs to settle their pleaded case. Given those findings, it cannot be said that this is a case where there has been any disentitling conduct on the part of the defendants that would preclude them from obtaining security in respect of costs already incurred. 77 In Vantage Holdings Group Pty Ltd v Donnelly (No 4) [2019] WASC 398 (Vantage Holdings) at [237] Smith J observed that security may only be ordered in respect of costs that have already been incurred provided those costs are not the subject of an existing costs order. Her Honour does not set out the basis upon which that is said to be so but cites the decision in Edenham Pty Ltd v Meares (No 2) [2016] WASC 302 (Edenham) at [26] where Le Miere J similarly observes that the Court may make an order for security for costs already incurred provided those costs are not the subject of an existing costs order. 78 In my opinion, that a party cannot obtain security for its costs that are the subject of an existing costs order is not controversial but, properly understood, it has limited application in this case. That is, I understand the principle set out by Smith J in Vantage Holdings and Le Miere J in Edenham to mean that a court would not order security in respect of costs that have been incurred by an applicant on an application for security where the costs relate to a step in a proceeding in respect of which the respondent to the application for security has the benefit of a costs order. 79 That principle is reflected in the approach taken by Mr Dudman in assessing the Fishwick Parties' recoverable party/party costs where he identified "out of scope costs" based on a costs order made on 26 May 2020 by which two interlocutory applications filed by the plaintiffs were dismissed with no order as to costs was made (see [14] above). It is plain that had Mr Dudman identified any costs that had been incurred by the Fishwick Parties in relation to those interlocutory applications, he would have made a deduction to reflect that they were excluded from the amount claimed.

Should the quantum of security be limited to steps up to a mediation? 80 The plaintiffs seek to limit the quantum of security by requesting the Court to grant security only for the steps to be taken up to a mediation, which as I understand the submission, would take place after discovery and the filing of evidence. The plaintiffs submit that it is appropriate to reduce the amount of security, having regard to the prospects of early settlement by restricting the steps included in the security up to a mediation. They also submit that the current environment, which embraces alternative dispute resolution, mitigates against offering any encouragement to parties relentlessly pursuing litigation. 81 In Bryan E Fencott at 515 French J (as his Honour then was) observed that, in fixing the amount of security, the Court should look firstly at the whole case and take into account, among other things, the chance of it collapsing without coming to trial. His Honour also observed that, in such a case, the Court may "order somewhat less than if there seems to be every prospect that the action will be fought to a finish". 82 Whether this proceeding will settle at some early stage at a mediation without the need for a trial or whether it will proceed to trial is unknown. Despite the passage of time since its commencement, the matter is, as I have already observed, at an early stage of pre-trial preparation. 83 On the one hand, I am reluctant to put the parties in a position where an order for security is limited so that it covers only the steps up to a mediation, thus requiring them to return to Court to make a formal application for further security should the proceeding not settle. I do not think to do so would be in the parties' interests or in keeping with s 37M of the Federal Court Act. 84 On the other hand, it is possible for the Court to order the payment of security in stages requiring the respondent to the application to make payments when certain milestones are reached in a proceeding, commonly referred to as the payment of security in tranches. Given the quantum of the overall security sought by the defendants, I am minded to proceed that way and to make an order that the security for the defendants' costs be provided in tranches, with the first tranche to accommodate steps up to and including a mediation and the second tranche to accommodate steps following an unsuccessful mediation, or, if no mediation is scheduled, from the date on which the plaintiffs are required to file and serve their evidence in reply on their claims as pleaded and up to and including a trial.

Should the quantum of security be limited to PLF's interest in the outcome of the proceeding? 85 The plaintiffs submit that, as PLF's interest is 45% of the outcome, any security to be provided ought to be discounted to 45% of the overall amount considered by the Court to be fair and reasonable as security. The plaintiffs rely on the observations of Hodgson JA in Green at [53] (see [58] above). However, they were unable to point to any case in which a court had adopted that approach to making an order for security in circumstances where there was a funder standing behind the plaintiff. 86 I am not satisfied that it is appropriate to reduce the quantum of security to reflect PLF's commercial interest in the outcome of the proceeding. First, PLF's true interest is not known. If the plaintiffs are successful, PLF will take 45% of the net proceeds. That is, after all of its costs are reimbursed. In other words, PLF's commercial interests seem to be in excess of 45%. The true extent of its interests is unknown. Secondly, and more compellingly, the observation of Hodgson JA in Green at [53] was no more than that if a court knows the extent of a funder's interests in the outcome of the case, that could be a factor which might lead to an order for less than the totality of the costs sought. There is no evidentiary or other basis for that approach to be taken in this case.

Conclusion on quantum 87 In striking the amount of security to be paid, the Court does not provide a full indemnity for the estimated costs but fixes an amount that it considers adequate in all the circumstances of the case. In doing so, it does not undertake a precise mathematical calculation but adopts a broad-brush approach underpinned by the evidence adduced by the parties as to quantum: see Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293 at [63]-[64]; Bryan E Fencott at 515. 88 I have considered the evidence relied on by the Fishwick Parties and the Conder Parties in relation to the costs already incurred and costs likely to be incurred. In each case those costs have been estimated by experienced costs consultants who have each provided a considered opinion of the costs likely to be recovered on a party/party basis. Save for the issues addressed at [74]-[86] above, the plaintiffs do not challenge those estimates. 89 I am satisfied that in each case, and despite the disparity between the amounts sought by, on the one hand, the Fishwick Parties and, on the other, the Conder Parties, the amounts sought are reasonable and orders requiring the plaintiffs to provide security for the defendants' costs should be made, in the case of the Fishwick Parties, in the sum of $733,303.79 and, in the case of the Conder Parties, in the sum of $376,110.19.

Conclusion and form of orders 90 I will make orders requiring the plaintiffs to pay security for the Fishwick Parties' and Conder Parties' costs in the amounts set out in the preceding paragraph. The security should be paid in two tranches: the first tranche is to cover costs incurred to date and the steps up to and including mediation, and is to be paid within 21 days of the date of orders being made; and the second tranche is to cover the remaining steps up to and including a trial and is to be paid within 21 days either of the date of the conclusion of an unsuccessful mediation or, if no mediation is scheduled, the date on which the plaintiffs are required to file and serve their evidence in reply on their claims as pleaded. 91 The defendants will need to apportion their costs incurred to date and their estimated costs which are to be the subject of the orders for security for their costs (see [89] above) between: costs incurred to date and the estimated costs of the steps up to and including a mediation, which will be the subject of an order for payment of the first tranche of security for their costs; and the estimated costs of the remaining steps up to and including trial, which will be the subject of an order for payment of the second tranche of security for their costs. 92 The plaintiffs suggest that if the Court was inclined to make an order for payment of security of the defendants' costs of the proceeding, the parties should be given an opportunity to consider the mode of security and to bring in short minutes reflecting any subsequent agreement. Unless the parties agree to an alternate method of provision of security for the defendants' costs, I will make an order for the provision of security by way of payment into Court or provision of an irrevocable bank guarantee issued by an Australian authorised deposit-taking institution. 93 The proceeding will be stayed until such time as the security so ordered is provided. If there is failure to provide the security in accordance with the Court's orders, the proceeding will be dismissed with costs. 94 Finally, as the plaintiffs have been unsuccessful in their opposition to the applications brought by the Fishwick Parties and the Conder Parties for payment of security for their costs, I will make an order that the plaintiffs pay the defendants' costs of those applications.

Removal of Mr Tonks as a party 95 The Conder Parties seek an order pursuant to r 9.08 of the Rules that Mr Tonks be removed as a party to the proceeding. They submit that, as a liquidator, Mr Tonks is not entitled to the relief currently pleaded in the SFASOC, namely relief in the form of equitable compensation or under s 1317H of the Corporations Act. 96 The Conder Parties refer to the letter dated 14 September 2020 from the plaintiffs' lawyers (see [19] above) in which the plaintiffs declined the invitation to remove Mr Tonks as a plaintiff and submit that, on the basis of the concession in that letter, there can be no doubt that Mr Tonks is a stranger to the controversy between Ambient Rail and the defendants and that Mr Tonks' only connection is that he is the liquidator of Ambient Rail but he lacks any standing to bring proceedings as he does not possess any cause of action. In those circumstances, the Conder Parties contend that the test in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 has been satisfied as it is plain and obvious that the SFASOC as brought by Mr Tonks against the defendants cannot succeed. 97 The Conder Parties submit that Mr Tonks has never been a necessary party to the proceeding and must be removed. They say that such an outcome is desirous from the perspective of costs and overall delay to the litigation. 98 The plaintiffs resist the application for removal of Mr Tonks.

Legal principles 99 Rule 9.08 of the Rules provides: A party may apply to the Court for an order that a party that has been improperly or unnecessarily joined as a party, or has ceased to be a proper or necessary party, cease to be a party. 100 In Dudley (Liquidator) v RHG Construction Fitout and Maintenance Pty Ltd [2019] FCA 1355 Jackson J considered an application made by two defendants for an order pursuant to r 9.08 of the Rules that they be removed as parties to the proceeding. That case concerned "mothership proceedings". That is, proceedings commenced by, in that case, the liquidators of Precision Catering & Equipment Pty Ltd (in liq), seeking repayment of alleged unfair preferences against multiple defendants in relation to separate payments made by the company to each defendant. The proceeding was originally commenced against 17 defendants but, after settlement of the claims made in relation to four of the defendants, it remained on foot against 13 defendants. 101 At [51]-[53] Jackson J set out the principles guiding the operation of r 9.08 of the Rules: 51 … The requirements authorising an order under r 9.08 are satisfied here. In Launceston Superstore, Edmonds J ordered the removal of all but one of the respondents to proceedings which the ACCC had commenced against 11 parties. His Honour did not indicate which provision gave him power to do that, but I infer it was r 9.08. The term 'improperly … joined' is wide enough to encompass a situation where the joinder was unauthorised by the rules. In its context, immediately after r 9.07, which provides that the proceeding is not defeated only because a party has been 'improperly … joined', the evident purpose of r 9.08 is to empower the court, in appropriate circumstances, to remove a party even though the proceeding against that party is not defeated only because of the improper joinder. 52 The liquidators referred to authorities on r 9.08 and similar rules where the test for the operation of the rule has been stated in terms of the well-known standard for summary termination of an action that was laid down in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129. However while it is true that r 9.08 and similar rules are often invoked where it is said that a plaintiff has no arguable case for relief against a defendant who has been joined, there is no reason to suppose that this confines the circumstances in which r 9.08 can be invoked. 53 The applicants accepted, correctly, that the power to make an order under r 9.08 is discretionary. It seems to me that the discretion to remove parties is unconfined but the court should take 'whatever course seems to be most conducive to a just resolution of the disputes between the parties, but having regard to the desirability of limiting, so far as practicable, the costs and delay of the litigation': Wilcox J in Bishop v Bridgelands Securities (1990) 25 FCR 311 at 314. That is a case concerning leave to proceed against multiple parties, but it seems to me the same principle applies in the present, converse situation of the removal of parties. It is consistent with the requirement in s 37M(3) of the Federal Court of Australia Act that any power conferred by the civil practice or procedure rules be exercised in the way that best promotes the overarching purpose of facilitating the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible.

Consideration 102 I am not presently minded to remove Mr Tonks as a party. 103 The plaintiffs commenced this proceeding in circumstances where they had a concern about the expiry of limitation periods and, I infer, for that reason took a broad approach, in terms of covering the field, to necessary parties and claims. The plaintiffs wish to have Mr Tonks remain as a party against the event that, after discovery and the filing of evidence, a further claim might arise in his favour that needs to be included in their statement of claim. Whether, if identified, any such claim is available or time barred will be a matter for consideration and determination once the claim is identified and made. Of course the proceeding should not be viewed as a moving target in which the plaintiffs can continue to reformulate and add to their claims at their whim. The defendants are entitled to know the case against them and to proceed on that basis. There will come a point when the plaintiffs must 'nail their colours to the mast'. 104 Notwithstanding the matters set out above, while Mr Tonks makes no claim and seeks no relief in the proceeding, it is not apparent that his continued presence as a plaintiff adds to the cost or detracts from the efficient running of the proceeding. In other words, putting to one side an implicit uncertainty about whether the plaintiffs will seek to amend (a course that is available to the plaintiffs whether or not Mr Tonks remains as a party), there is no apparent prejudice to the defendants in Mr Tonks remaining a party, particularly where the plaintiffs have expressly ruled out reliance on his joinder as a matter relevant to security for costs. 105 Accordingly, I decline to make an order removing Mr Tonks as a party to the proceeding at this stage. 106 Paragraph 1 of the Conder Parties' interlocutory application filed on 28 October 2020 by which they made their application for removal of Mr Tonks as a plaintiff should be dismissed and the Conder Parties should pay the plaintiffs' costs of paragraph 1 of that application.

Conclusion 107 The parties are to provide my associate with draft orders reflecting the conclusions I have reached by 11 December 2020 or, if they cannot agree the form of orders, they should each provide a draft form of orders together with a submission, not exceeding two pages in length, explaining any differences in approach. I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.

SCHEDULE OF PARTIES NSD 1568 of 2019 Defendants Fourth Defendant: ALAN WILLIAM JAMES CONDER Fifth Defendant: LYNN CONDER

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