Consideration
8 As Basten JA noted in Pioneer Park [2007] NSWCA 344 at [56], it may be that when security for costs is sought, a court will be more sympathetic to a small corporation with limited funds as opposed to a major corporation. However, his Honour noted that large corporate defendants should not be seen as standing outside the policy behind s 1335 of the Corporations Act 2001 (Cth) and its analogues in respect of security for costs provisions. Nonetheless, as Brooking J said in Prime Forme Cutting Pty Ltd v Baltica General Insurance Co (1989) 8 ACLC 29 at 32 to 33, large corporations stand in no special need of care and protection. Basten JA said that it might be seen as oppressive to allow a large corporate respondent or defendant to obtain an order for security for costs, beyond the capacity of a corporate applicant or plaintiff to pay, so that it would be likely to stifle litigation if the claim had potential merit and the quantum of costs would, in any event, be a relatively insignificant amount for the corporate respondent or defendant. In those circumstances, his Honour opined that an order for security may constitute a form of "oppression" ([2007] NSWCA 344 at [56]).
9 Mr Coote's wife, Ms Bull is one of the beneficiaries of the trading trust operated by Top Stuff who stands to gain in this litigation. As I noted in Top Stuff [2011] FCA 1495 at [19], she did not then, and still has not seen fit to, proffer an undertaking to the Court so as to risk whatever assets she may have. Vodafone and Wireless Anywhere did not press strongly for an order that financial security be provided prior to today. They had failed on two occasions to comply with orders requiring them to file affidavits seeking any further security and had not given any explanation for that failure. In my opinion, the parties should be held to the conduct that they exhibited in that regard. By not making an earlier application, Vodafone and Wireless Anywhere implicitly accepted that they were prepared to chance their arms on the sufficiency of the undertakings that had been provided by the three other beneficiaries of Top Stuff's trading trust.
10 Top Stuff anticipates that it will call three lay witnesses-in-chief, the principal one being Mr Coote. It will also be likely to call an expert accountant. Vodafone anticipates that it will call up to six lay witnesses and two experts, one an accountant and another a telecommunications network expert, to deal with the allegations of misleading and deceptive conduct and inadequate network coverage. Wireless Anywhere anticipates it will call two or three lay witnesses and an accountant. However, following discussion in Court today, it is possible that both respondents could cooperate to use only one accounting expert.
11 As at early 2011 there were significant issues as to the quality of the Vodafone's service to which I referred in Top Stuff [2011] FCA 1495 at [8]-[10]. Top Stuff particularised its claim for damages as including:
trading losses for 2010 of about $40,000;
lost profits of about $210,000, based on the assumption, that a representation about how the business would fare was correct;
a loss of profit of about $1.1 million for 2010-2011, including loss of customers who had terminated their contracts by reason of deficiencies in Vodafone's network;
a loss of chance to earn a profit of $3.3 million over the succeeding 20 years based on Top Stuff's business plan and an assumption that it would earn an annual profit of about $440,000, discounted by 25%
a loss of about $1.1 million to the value of its business goodwill, brand and reputation.
12 These figures will no doubt be the subject of some refinement when an expert examines them on Top Stuff's behalf. The overlap between the last two factors is obvious. It is not immediately obvious how Top Stuff could make a case out for a loss of the chance to earn a profit for 20 years.
13 The purpose of the order for the parties to exchange critical documents was to enable each of them to make an early appropriate and informed assessment of the strengths and weaknesses of their own and the others' cases. The selections of the critical documents should have provided the other parties with the benefit of what each thought would be the substantive documents that would need to be discovered for and against their interests in the litigation. Although there are some disputes between Top Stuff and Vodafone as to the adequacy of what each has provided as its critical documents, the need for discovery in the proceedings is not evident. If, as I must assume is correct in the absence of evidence to the contrary, the order for provision of critical documents was complied with in substance, the parties can now focus directly on the oral representations alleged to have been made to Mr Coote that are the foundation of Top Stuff's claim that it was induced by misleading and deceptive conduct on the part of each respondent to enter into and maintain its relationships with them over a five year period.
14 Because the Besyl proceedings have an uncertain future, I will leave them out of account and assess the amount of security that ought be provided on the basis that these proceedings alone will proceed to trial. The respondents' solicitors had estimated before the commencement of the Besyl proceedings that a hearing of this matter will take about 10 days. I accept that as a sufficient estimate for present purposes. I do not propose to make any allowance in respect of further discovery or disputes about compliance with the order for critical documents. However, that position may change in the future if it transpires the order for provision of those documents was not complied with or discovery is required.
15 I will now turn to the various other items of work for which security is sought, using the solicitor/client estimates made by the respondents' solicitors. Mr Drinnan estimated that the preparation of evidence, including affidavits by lay witnesses, would cost in the order of about $71,000. Mr Roberts considered that this step would cost about $45,000.
16 The litigation will raise a significant number of factual inquiries. Because the evidence of the lay witnesses is likely to concentrate on conversations that are not particularly extensive, at least so far as the pleadings suggest, that contest is likely to be in a relatively narrow compass. There will need to be an investigation as to whether either Vodafone or Wireless Anywhere had reasonable grounds for making some of the representations for the purposes of s 52 of the Trade Practices Act 1974 (Cth).
17 Mr Drinnan estimated the cost of preparing evidence would include that of affidavits for lay witnesses. However, I will require evidence to be given by the lay witnesses orally after the parties exchange, prior to trial, outlines of the evidence anticipated to be given by each of those witnesses. They will not be allowed to cross-examine on those outlines other than with the leave of the Court. The cost of preparing the outlines should be significantly less than Mr Drinnan's estimate that had been based on the use of affidavits.
18 In my opinion, the use of affidavits in matters where there are contested issues of fact is not calculated to assist the Court in assessing the evidence. Experience has shown that the use of such affidavits is likely to increase the cost of litigation very significantly. That is because lawyers, usually now solicitors and not counsel conducting the hearing, craft and refine such affidavits over a lengthy period with a view to putting their client's case in the least damaging way possible. The affidavits almost always are not written in the natural language of the witness who, when asked in the witness box about the same matter, will give a different account not nuanced in the way that careful hours of discussion with the lawyers has produced in his or her affidavit.
19 An unfortunate tendency of litigation in the last 25 years has been the greater use of such affidavits or detailed witness statements that are tendered as the witness' evidence in chief. Affidavits and witness statements usually do not represent the witness's natural way of speaking or self-expression. Often, once the witness is cross-examined, his or her credibility is attacked when asked about why he or she used the particular phrasing in the written evidence that had been drafted for him or her. Witnesses frequently respond that they said what is recorded in the written evidence because that is what the lawyer said they should do. That is frequently true. While neither the lawyer drafting the written evidence nor the witness necessarily intend it to mislead, the process is expensive, time consuming and calculated to produce such a result. Oral evidence avoids this consequence and its concomitant tendency of referring to and annexing or exhibiting every document that the witness ever saw or had addressed to him or her, regardless of its relevance to the real issues that the Court must resolve.
20 Mr Drinnan anticipated that the cost of an accountant and a telecommunications expert would be at least $200,000, while Mr Roberts thought that an expert accountant would cost about $50,000.
21 In my opinion, it is likely that because the commonality of interests between Vodafone and Wireless Anywhere, only one accountant between them would be a necessary expert to meet Top Stuff's allegations of its financial loss when that has been precisely formulated. I am prepared to allow in total $50,000 for expert accounting evidence. It is difficult to assess precisely how much ought to be allowed for a telecommunications expert. Mr Drinnan's estimate has not been challenged, but it is not particularly clear how such a significant sum of $150,000 or thereabouts should be allowed in globo. On the material presently before me I consider it preferable to take a more conservative approach and allow $75,000 for the costs of such an expert. Once Top Stuff's outline of lay witnesses and expert reports have been provided to the respondents, it may be that in fairness Vodafone should be permitted to revisit the estimate that I have arrived at for this expert, if the issues then raised require a significantly greater expenditure than that allowed.
22 Mr Drinnan calculated that a 10 day hearing would cost in the order of about $250,000 for including preparation and Mr Roberts came to a similar figure. The general costs of preparation, liaising with counsel and conferring were estimated by each of them to be respectively about $45,000 and $21,000.
23 Mr Drinnan estimated, based on his extensive experience, that the likely recovery on a taxation of costs would be in the order of about 70% of solicitor/client costs. Mr Roberts, whose firm's charge out rates are more modest than those of Mr Drinnan's firm, estimates that, in his experience, recovery on a taxation is in the order of between 70% to 85%.
24 It is safe to allow a recovery of around 70% of the estimates that the solicitors have given. I am mindful that Ms Bull, as one of the persons who stands to benefit from a successful outcome of this litigation has not given an undertaking to support Top Stuff's liability for costs. I accept that Top Stuff has no real capacity to meet an order for security.