Before the Court is an application for security for costs. Two of the defendants seek security from the plaintiff company for their costs of defending the plaintiff's claim against them.
The plaintiff, Union Steel Pty Limited ("Union Steel"), is the former owner of a property at Kelso in Bathurst. The property was sold in 2014. After the mortgagee was paid out, the surplus was approximately $2.6 million. In the proceedings Union Steel seeks to recover those monies.
The sole director and shareholder of Union Steel is Ms Susan Huybers. But it is alleged that she was not involved in the sale of the property or the distribution of the proceeds. Instead those steps were taken on behalf of Union Steel by Mr George Dimitriou, an accountant and business advisor who was in practical control of Union Steel at the time.
The applicants are two companies called Wyse Accounting Pty Ltd ("WA") and Wise & Young Pty Limited ("WY"), which were at the time owned by, or associated with, Mr Dimitriou. They are the second and third defendants. The case against them is that some or all of the surplus monies passed through their hands.
[2]
Claims and procedural history
Union Steel alleges that Mr Dimitriou caused the $2.6 million in surplus monies from the sale of the Kelso property to be deposited into a bank account controlled by another company which he controlled, called Union Steel Investments Pty Limited ("USI"). From there the monies flowed to WA. The sum of $1.07 million flowed on to WY and was used to discharge a mortgage over a property owned by Mark Leishman and Kathleen Leishman (also known as Kathleen Furlong) at Memorial Drive in a suburb of Newcastle known as The Hill ("Memorial Drive Property").
The discharge of the mortgage was the subject of earlier proceedings in this Court. In December 2016 Sackar J delivered judgment: Furlong v Wise & Young Pty Ltd [2016] NSWSC 1839. Relevantly, his Honour found that, having provided the funds for the discharge of the existing mortgage, WY held an equitable mortgage over the Memorial Drive Property which secured the $1.07 million provided, together with interest at four per cent on top of the cash rate: see at [204], [209].
Mr Dimitriou had previously lodged a caveat over the Memorial Drive Property on behalf of WY claiming a security interest in the Property. His Honour concluded that, as WY did indeed hold such an interest in the Property, the caveat should remain on the title: at [204]. There remained other claims to resolve, which were eventually the subject of a further judgment in December 2018: Furlong v Wise & Young Pty Ltd [2018] NSWSC 1987. This further judgment left WY's rights against the Property unaffected.
Although WY's caveat remained on the title of the Memorial Drive Property, no steps appear to have been taken to convert WY's equitable security into a registered interest. Then, in September 2019 the property was refinanced. By this stage Mr Leishman had dropped out of the picture; Mrs Leishman borrowed $1.6 million from a third party which was secured by a registered first mortgage on the property. WY's caveat (and some other caveats on the property) were removed to allow the new mortgage to be registered.
Union Steel alleges that the leading role in the refinance transaction was played by Hector Ekes. Mr Ekes is a solicitor who operates under the firm name Gardener Ekes; his practice is actually conducted as an incorporated legal practice through a company called GELAW Pty Limited ("GE Law").
According to Union Steel, Mr Ekes had been acting for Mrs Leishman. He did not himself act directly in the refinancing transaction, but according to Union Steel instructed the solicitor who did so. This was another incorporated practice, operated by a company called GlobalX Legal Pty Ltd ("GlobalX"). The solicitor with the carriage of the matter was Luciana Ignatiadis.
Union Steel alleges that Mr Ekes instructed GlobalX that WY had agreed to withdraw its caveat on payment of the sum of $100,000. Based on this instruction, GlobalX, purporting to act with the authority of WY, withdrew the caveat to allow the settlement of the refinance to proceed. Union Steel alleges that Mr Ekes also procured the withdrawal of the other caveats.
Union Steel alleges that on settlement, the sum of approximately $826,000 was paid into an account controlled by Mr Ekes. The remainder was paid to Mrs Leishman. Of the monies paid into Mr Ekes' account, $100,000 was paid to Mr Ekes himself. GE Law received $226,000. Another company, called GE2 Gardener Ekes Recoveries Pty Ltd ("GE Recoveries") received $500,000.
The case made in Union Steel's initial statement of claim, which was filed before the refinance transaction took place, was that Mr Dimitriou had misappropriated the proceeds of the Kelso property belonging to Union Steel. The statement of claim alleged that the relevant payments were made without the authority, permission or acquiescence of Union Steel. As a result, the monies were impressed with a trust in favour of Union Steel and so was the equitable security interest in the property which Sackar J found WY to have. Union Steel sought declarations that WY held that security interest on trust, and orders requiring WY to realise its security for Union Steel's benefit.
A defence was filed for WA and WY to Union Steel's initial statement of claim, but it was uninformative. The defence admitted that $1.07 million flowed from the proceeds of the Kelso property to WY and was then used to discharge the mortgage on the Memorial Drive Property. In answer to the allegation that Union Steel did not authorise, permit or acquiesce in the payments in question, the defence simply denied that Mr Dimitriou lacked authority. It offered no affirmative justification for the transactions.
The statement of claim did not spell out the reasons why a trust arose. At the hearing before me, counsel for Union Steel accepted that this was a deficiency. That has now been addressed by amendments to the statement of claim.
Those amendments make Union Steel's case explicit. That case is that Mr Dimitriou breached his fiduciary duties to Union Steel. WA and WY are sued as accessories to that breach. Union Steel alleges that the monies received by WA and then WY were received with knowledge that those monies represented the proceeds of a breach of fiduciary duty. Alternatively or additionally, WA and WY are sued as knowing participants in the breaches of duty by Mr Dimitriou.
Union Steel's current statement of claim also deals with the refinancing transaction. The statement of claim alleges that the transaction was a fraudulent one, designed to defeat WY's equitable security interest in the property and hence to defeat Union Steel's claim in these proceedings.
So far as WA and WY are concerned, Union Steel pleads its case about the refinancing transaction in two alternative ways. Either Mr Ekes was right in saying that WY had agreed to discharge its mortgage, in which case WY was a knowing participant in the fraud. Alternatively, WY was itself defrauded. Either way, the value of WY's security interest is recoverable from those who received the benefit of it being extinguished, for the ultimate benefit of Union Steel. The relief sought by Union Steel include orders requiring the various defendants to account to WY for the proceeds of the transaction so that WY can account to Union Steel.
As will be seen below, affidavits have been filed on behalf of WA and WY asserting that they were unaware of the refinancing transaction and did not authorise the withdrawal of the caveat. Nor, they allege, did they receive even the $100,000 referred to by Mr Ekes; it appears that they allege that this money was appropriated by Mr Ekes himself. But WA and WY have not yet pleaded to the current version of Union Steel's statement of claim. In the course of the hearing before me, counsel for WA and WY foreshadowed a cross-claim but so far that has not yet eventuated either.
These proceedings have a tangled procedural history. Union Steel filed its originating statement of claim in December 2018. The statement of claim named three defendants: USI, WA and WY. I will refer to them as the "Initial Defendants". I have already described the case pleaded on behalf of Union Steel.
No notice of appearance was filed, but Mr Dimitriou assumed the conduct of the Initial Defendants' defence. He did not however file the affidavit he was required to file if he (rather than a solicitor) was to represent the Initial Defendants: see Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), rr 7.1-7.2.
The proceedings came before the Registrar for the first time on 27 February 2020. The Registrar fixed a timetable for the Initial Defendants to file their defence and any cross-claim, and for the filing of evidence in chief, in defence and in reply.
On the same day, Mr Dimitriou filed a notice of motion on behalf of the Initial Defendants seeking security for costs (numbered, in the Court's computer system, as motion 002). The amount sought was about $200,000 (this assumed that solicitors and counsel would conduct the defence on the Defendants' behalf).
The notice of motion was allocated 20 March as its return date. On that occasion the Registrar directed that the Initial Defendants file and serve a notice of appearance and an "affidavit" (perhaps the affidavit required under UCPR 7.2). This does not appear to have been done. On 3 April the notice of motion was listed again. Mr Dimitriou did not appear and the Registrar dismissed the motion.
The Initial Defendants' defence to the statement of claim, which I have already described, was eventually filed by Mr Dimitriou on 30 April. On 1 May a further timetable was fixed for the filing and service of Union Steel's affidavit evidence in chief and the Initial Defendants' affidavit evidence in defence. This was later extended so that Union Steel's evidence was due on 19 July and the Initial Defendants' on 9 August.
Union Steel did not file its affidavit evidence by 19 July. On 21 July 2019 Mr Dimitriou filed a notice of motion seeking to have Union Steel's claim dismissed (motion 003) for failure to comply with the Court's directions and to prosecute the claim with due despatch.
The motion was listed before Pembroke J on 25 July 2019. By this stage Union Steel had filed an affidavit from Mr Huybers in support of its claim, on 23 July. His Honour granted Union Steel leave to file in court its own notice of motion (this was not given a motion number). This notice of motion named the Initial Defendants, and Mr Dimitriou personally, as respondents.
It seems that Union Steel's solicitors may have got wind of a plan to refinance the Memorial Drive Property. The notice of motion sought orders enjoining the respondents from dealing with "the proceeds of the refinance and/or settlement" of the Property or any money paid to them by or on behalf of Mrs Leishman, except to pay such monies into court. It also sought "summary judgment" on Union Steel's claims against USI, WA and WY.
Pembroke J fixed both motions for hearing on 14 August. On that day they came before Kunc J in the Duty List. On Union Steel's motion of 25 July, his Honour made the restraining order sought against USI, WA, WY and Mr Dimitriou. The orders were made on the basis that if later contested the onus would lie on Union Steel to justify their continuation. No attempt appears to have been made to contest them.
His Honour also considered case management issues. He noted that Ms Huybers' 23 July affidavit constituted all of Union Steel's affidavit evidence in chief, and dismissed the Initial Defendants' motion of 21 July. He also struck out the paragraph of the defence which contained the bare non-admission of Mr Dimitriou's lack of authority (see [14] above) and directed that by 21 August the Initial Defendants file and serve an amended defence pleading any positive case to be made in answer to the allegation that Union Steel did not authorise, permit or acquiesce in the payments in question. He directed that by the same date, the Initial Defendants file and serve any cross claim, any application for security for costs, and any further application to strike out Union Steel's claim.
Nothing was filed in response to these directions. The proceedings came before Ward CJ in Eq for directions on 27 August. Her Honour ordered the Initial Defendants to file and serve their amended defence by 30 August and their affidavits in defence by 24 September 2019. Again these dates passed without anything being filed on behalf of the Initial Defendants.
The refinancing transaction was settled on 9 September. It appears to have taken a few weeks for Union Steel's solicitors to realise that the caveats (including the one from WY) had been withdrawn and a fresh mortgage registered on the Memorial Drive Property. Once they did find out, they made an urgent application to the Court. The application was made by way of a notice of motion which was filed on 22 October (motion 004) and listed for the following day.
The first three respondents to the notice of motion were the existing defendants, USI, WA and WY. The fourth respondent was Defined Properties International Pty Limited ("DPI"), another company which at the relevant time had belonged to Mr Dimitriou. DPI had also lodged a caveat over the Memorial Drive Property at the same time as WY's caveat, and DPI's caveat had also been withdrawn as part of the refinancing transaction. Union Steel's solicitors appear to have assumed that DPI had been involved in, or otherwise consented to, the refinance. Mrs Leishman was named as the fifth respondent.
The notice of motion first sought orders that any monies payable, or paid, by Mrs Leishman to Mr Dimitriou or to the existing defendants be paid into court. Secondly it sought to strike out the defence of the existing defendants in its entirety and to obtain "summary judgment" against them. Thirdly it sought orders that the existing defendants, Mr Dimitriou and Mrs Leishman file affidavits detailing how WY's caveat had been withdrawn and where the refinancing monies had gone.
Meanwhile, and apparently unknown to Union Steel's solicitors, control of WA, WY and DPI had changed. Mr Louie Nehme had become the director and secretary of the companies in place of Mr Dimitriou. The evidence before me did not exactly identify when this occurred. But according to a later affidavit from Mr Nehme it was at some point after April. Mr Dimitriou was made bankrupt on 30 August.
Union Steel's motion came before the Duty Judge, Rein J, on 23 October. Mr Geoffrey Adelstein, solicitor, appeared for WA and WY. On the same day he entered a notice of appearance for them as defendants in the proceedings, thus giving them formal representation for the first time. The other respondents, DPI and Mrs Leishman, had apparently not been served with the notice of motion and orders were made for that to happen.
Mr Adelstein did not enter an appearance for USI. Nor, it seems, had Mr Nehme become a director of that company. From that point USI appears to have ceased to play an active role in the proceedings.
Rein J made orders requiring WA, WY, Mr Dimitriou and Mrs Leishman to file affidavits about the refinancing transaction as sought. The affidavits were to be filed by 28 October. His Honour also granted leave for short service of subpoenas addressed to GlobalX and Ms Ignatiadis. The application was adjourned to 29 October.
On 25 October 2019 Mrs Leishman became actively involved in the proceedings. A notice of appearance was filed for her as respondent to Union Steel's motion 004. A further notice of motion of her own was filed (motion 005). This motion sought to set aside Rein J's order requiring Mrs Leishman to file an affidavit about the refinancing transaction, and to set aside the subpoenas. It also sought to restrain Union Steel's solicitor, Mr Kekatos, and its then counsel, Mr Allen from acting for it.
On 28 October, Mr Nehme swore an affidavit about the refinancing transaction on behalf of WA and WY in accordance with the order made by Rein J. Mr Dimitriou also swore an affidavit in accordance with the order against him. The affidavits denied any knowledge of, or involvement in, the refinancing transactions.
The proceedings came back before Rein J on 29 October. The affidavits from Mr Nehme and Mr Dimitriou were filed in court. As between Union Steel and the Initial Defendants, Rein J directed WA and WY to serve their proposed amended defence (dating back to the orders made by Kunc J on 14 August) by 8 November. As between Union Steel and Mrs Leishman, there were some procedural orders and directions. The proceedings generally, and Mrs Leishman's motion 005, were adjourned to the Duty List on 5 November.
On 1 November 2019, Mrs Leishman filed another notice of motion (006). The motion claimed privilege over some of the documents produced by GlobalX Legal. Mrs Leishman's motions eventually came before Kunc J in the Duty List on 18 November. They were dismissed.
Meanwhile, the date for WA and WY to serve their proposed amended defence had passed without, apparently, any such document being served. Union Steel's solicitors, however, did not take any steps about this. Instead they decided to amend the statement of claim to take account of the refinancing transaction. On 20 November, Union Steel obtained orders from Lindsay J granting leave to amend the statement of claim and adding Mrs Leishman as fourth defendant in the proceedings.
Union Steel's amended statement of claim was eventually filed on 4 December. It named DPI as fourth defendant and Mrs Leishman as fifth defendant (despite the order of Lindsay J joining Mrs Leishman as fourth defendant). GE Law, GE Recoveries and Mr Ekes were the sixth, seventh and eighth defendants. The existing allegations against USI, WA and WY were left largely unchanged. As I have already described, Union Steel alleged that the refinancing transaction had been fraudulently designed to defeat its equitable security interest arising from the use of its money to pay off the Leishmans' previous mortgage on the Memorial Drive Property.
Meanwhile, on 28 November, another notice of motion was filed for Mrs Leishman (motion 007). The motion sought to set aside a number of orders: Kunc J's orders (14 August) restraining the defendants from dealing with the proceeds of the refinance of the Memorial Drive Property; Rein J's orders (23 October) requiring Mrs Leishman to prepare an affidavit detailing the refinancing transaction; and Lindsay J's orders (21 November) that extended Rein J's orders.
On 3 December, Union Steel filed a further notice of motion of its own (later numbered as motion 009). It sought to transfer the proceedings to the Real Property List, setting aside a notice to produce issued by Mrs Leishman, the determination of separate questions and the production of evidence about the Memorial Drive Property refinancing, including an order for the examination of Mrs Leishman.
Then, on 31 January 2020, the security for costs motion which is currently before me (motion 008) was filed by Mr Adelstein. On 4 February 2020 Mr Adelstein filed a notice of appearance for DPI as fourth defendant.
Darke J declined the application to transfer the proceedings to the Real Property List. This left outstanding the remainder of Union Steel's motion 009 (which was amended to seek leave to file a further amended version of the statement of claim). Also outstanding were Mrs Leishman's motion 007 and the security motion 008. On 27 February the Registrar fixed the hearing of all three outstanding motions before me on 17 July.
As already noted, WA and WY had failed to amend their defence, by way of re-pleading the denial which had been struck out, or otherwise. They had also failed to file their affidavit evidence in defence to Union Steel's original claim against them. Union Steel in its motion 004 had sought a full strike-out of the Initial Defendants' defence and summary judgment against them (see [32] above) but that had not been pressed. Nor did Union Steel seek orders for the filing of defences to the amended statement of claim filed in December 2019. Once the hearing date in July had been fixed, all of the parties appear to have treated the rest of the proceedings as being on hold.
Motions 007, 008 and 009 came on for hearing before me on 17 July in accordance with the Registrar's directions. There was no appearance for Mrs Leishman and accordingly, I dismissed her motion (motion 007). The plaintiff had filed affidavit evidence late and counsel for WA and WY sought an adjournment to consider the evidence. Counsel for Union Steel was not opposed to that course and also foreshadowed that he might amend motion 009. Accordingly, I adjourned the motions until 7 August.
On 7 August, the hearing of the security motion went ahead. But an issue arose about the production of documents which could not be made available in time. The parties agreed that this should be the subject of supplementary evidence and submissions (and if necessary a hearing). Motion 009 did not proceed to hearing because a revised version of the notice of motion had been served the previous day. That revised notice of motion made further alterations to the proposed further amended statement of claim, which needed to be the subject of instructions.
On 18 August, documents were produced and the parties agreed to put on additional submissions and have the security motion relisted on 10 September. They later agreed, however, not to proceed on 10 September and instead to stand the motion over until 23 September. On that date the parties indicated that no further hearing was necessary and they were content to rely on the additional documents and further written submissions which had been provided to the Court.
The parties also sent to my chambers a minute of order which granted the plaintiff leave to file their further amended statement of claim which was filed on 30 September 2020. It added GlobalX Legal Pty Ltd as the ninth defendant. The amendments pleaded the claim against USI, WA and WY arising out of the use of the proceeds of the sale of the Kelso property as a claim based on accessorial liability, as I have described. This left the security motion as the remaining application for me to decide.
[3]
Application for security
As already noted, the application for security for costs was filed on 31 January this year. The notice of motion identified the applicants as WA, WY and DPI. But there appears to have been some confusion about DPI's position.
The notice of motion was filed by Mr Adelstein but he did not in fact enter an appearance for DPI until somewhat later (see [47] above). In the written submissions in support of the application, which were prepared in advance of the hearing by Mr Adelstein, he stated that DPI's application for security was conditional on it being joined as the fourth defendant. In fact, the Court record shows DPI as having been joined as fourth defendant in accordance with the amended statement of claim filed in December 2019. Lindsay J's earlier order joining Mrs Leishman as fourth defendant (which may be the source of the confusion) has been superseded.
Union Steel's submissions in response pointed out that DPI had already been joined as a defendant, and argued that it should not receive an order for security in its favour. There was no further reference to the point in the written submissions in reply. When counsel appeared on the hearing of the application, she announced her appearance for WA and WY only. I have proceeded on the basis that they are the applicants in the motion and I have ignored the reference in the notice of motion to DPI.
The application sought security in the amount of $111,100. In support of the application, Mr Adelstein filed an affidavit dated 31 January 2020. In that affidavit, he set out his experience as a solicitor (which is considerable). He provided his estimate of the likely costs and disbursements of the proceedings, together with an estimate of counsel's fees from Ms Castle, who later appeared on the application.
Objection was taken by counsel for Union Steel to parts of Mr Adelstein's evidence, essentially on the ground that the estimates provided lacked supporting details and explanations. I dealt with a similar objection to evidence of this type in an earlier security for costs application: Australian Worldwide Pty Ltd v AW Exports Pty Ltd [2018] NSWSC 1632 at [64]-[74]. The approach I took in that case was not questioned in the present application and I followed it here as well.
In summary, while I accept that in an application of this sort the Court determines the amount of security to be provided using a broad brush, evidence as to quantum from a solicitor or costs consultant is strictly speaking opinion evidence. If objected to, it must be shown by the party propounding it to satisfy the requirements of the Evidence Act 1995 (NSW), s 79 and in particular the requirements identified in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; see also Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588.
While it may not be necessary for a solicitor or consultant offering such an opinion to set out the reasoning in support of it in full detail, there must be some minimal explanation of how the estimate has been arrived at. At the same time, the admissibility of a quantum opinion may not be crucial. The Court is entitled to make its own estimate of the likely cost, based on an opinion (or the Court's own assessment) of what will be involved in the conduct of the proceedings.
Applying these principles, I rejected Mr Adelstein's quantum opinion. I considered that there was insufficient explanation for how it had been calculated. But I thought Ms Castle's fee estimate was on the other side of the line. It was at least clear that it was calculated, at specified fee rates, by reference to a hearing lasting for 10 days, and I was prepared to accept that that time estimate was the product of Ms Castle's experience. The fee estimate was $80,000. Of course, all I was deciding at that point was that the 10 day estimate was admissible. Whether I would ultimately adopt it was another matter.
There was no dispute that Union Steel would be unable to meet WA and WY's costs if they were successful in defending the claim. In fact, as will be seen, Union Steel has no assets at all of its own (apart from its claims in these proceedings).
Counsel for Union Steel accepted that this circumstance not only satisfied the precondition for making an order for security, but was a factor in favour of doing so. Counsel however advanced four factors as counting against an order for security. I will deal with these in turn.
[4]
Delay in making application
Counsel for Union Steel submitted that there had been significant delay in bringing the current application for security to hearing. Counsel pointed out, in particular, that WA and WY were party to the previous application for security which was dismissed in April 2019.
In one of his affidavits, Mr Dimitriou addressed the reasons for the dismissal of the earlier security motion. He stated that he was unable to attend the hearing on 3 April because of an urgent medical problem. He had sent an email to the Registrar advising this, and had also "arranged" with the solicitor for Union Steel to have the matter stood over, but this was to no avail. He also stated that he made arrangements with the solicitor who he was intending to retain in the proceedings in due course to "race over to the court" but by then it was too late.
Counsel for WA and WY acknowledged that there had been some delay, but submitted that it had to be seen in context. Counsel pointed out that Union Steel had amended, or foreshadowed the amendment of, its statement of claim more than once over the period. The progress of the proceedings had also been delayed by the refinancing transaction (which, as already noted, WA and WY denied any knowledge of or involvement in). There had also been delays as a result of the interlocutory applications in which Mrs Leishman was involved. Counsel also referred generally to the difficulties created by the Covid-19 crisis.
In my view, the relevant date for assessing any delay is the date of filing of the notice of motion, namely 31 January 2020. The application took a long time to come to hearing, but I do not think that can be blamed on WA and WY. Thus the difficulties created by the Covid-19 pandemic from March this year onwards are not relevant.
But there was clearly a delay before filing the notice of motion on 31 January. It was suggested in Mr Dimitriou's affidavit (albeit in a passage not formally read) that the Registrar dismissed the earlier application because it was premature, no defence having been filed and the issues in the proceedings therefore not being identified. Even if that is the correct way of looking at it, seven months elapsed between the filing of the defence on 30 April and the filing of the security application the following 31 January.
Even if Mr Dimitriou's explanation for what happened on 3 April 2019 is correct, there was no explanation for the subsequent seven month delay. In particular, there was no explanation for the failure to make the application within the time limit fixed by Kunc J on 14 August (see [29] above). I think the delay is particularly significant given that right up until November WA and WY had submitted to directions requiring them to amend their defence and file their affidavit evidence in response to Union Steel's claim.
Delay in bringing the application is therefore established. In my view it is a lengthy one for proceedings of this type. It is unexplained. This is a relevant factor to take into account. I will return to it, along with other relevant factors, when considering my conclusion below.
[5]
Stultification
As already noted, there was no dispute that Union Steel lacked the resources to meet WA and WY's costs of the proceedings. Counsel for Union Steel contended that an order for security would stultify the proceedings. Counsel accepted that in order to make this out, the onus lay on Union Steel to show that those who stood behind the litigation and stood to benefit from it were also without means: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4.
Ms Huybers' financial position and the payment of Union Steel's costs were addressed in affidavits sworn on 14 July by Ms Huybers, just before the scheduled hearing on 17 July. Following the adjournment, supplementary affidavits were sworn by Ms Huybers and by Union Steel's solicitor Mr Kekatos on 6 August. Again this was just before the resumed hearing on 7 August.
In her July affidavit, Ms Huybers stated that she was owed about $1.8 million by Mr Dimitriou as a result of a judgment against him in other proceedings which she has been attempting to enforce since 2012. She claimed that the cost of the litigation had left her destitute. She stated that she owned no real property and her only substantial asset was a car worth about $10,000. She held only $500 in her bank account. She was living on JobSeeker payments from Centrelink.
Ms Huybers stated that she was "unable to fund this litigation on my own" and if security were ordered she would have to abandon the litigation. The only information in the affidavit about how she was funding the litigation was that Ms Huybers stated that she had obtained agreement from her ex-husband, David Huybers, to pay for counsel's fees for the motions which were to be heard on 17 July.
In Ms Huybers' August 2020 affidavit she expanded on her arrangement with Mr Huybers. She stated that in March 2020 she asked him for help, and he replied:
I'll lend you the money again, but you have to pay me back on recovery. But … we need to end it this time and get a Senior Counsel involved. I will fund the Senior Counsel and Counsel.
According to Ms Huybers, shortly after the conversation with Mr Huybers she spoke with her solicitor, Mr Kekatos:
Ms Huybers: David said he will pay for Counsel, Senior Counsel and you to end these matters once and for all.
Mr Kekatos: I can carry Union Steel only for costs incurred after the motion is heard.
Ms Huybers stated that funds lent by Mr Huybers (presumably, after March) would only cover her costs up to the end of the security for costs application. She stated that he would not lend her the money should a security for costs order be made against Union Steel and the proceedings would have to be discontinued. If the application were dismissed, she would approach Mr Huybers for a loan to pay for counsel's fees and disbursements. She agreed to be personally liable for any costs awarded against Union Steel.
Mr Kekatos in his affidavit stated that he was retained to act for Union Steel in November 2018. Fee invoices were to be issued at his discretion but once issued were to be payable.
Mr Kekatos stated that Ms Huybers started experiencing financial problems "in or around early 2019". He said that after raising the issue of payment with Ms Huybers in June 2020 he had the following conversation with Mr Huybers in early June:
Mr Kekatos: David, Susan tells me that you are going to lend her money to pay my bills and fund Counsel and Senior Counsel. Do you know that there is a security for cost motion to be heard on July 2020.
Mr Huybers: Yes I know, I will only lend Susan money for your costs until the end of the motion hearing. Thereafter, I will only lend her money for Counsel.
…
I will not lend money to Susan for the Security for Costs. I will only be lending her money for Senior Counsel and Junior Counsel, and to pay some of your outstanding fees…
Mr Kekatos stated that he had been informed by Ms Huybers that Mr Huybers would pay for ongoing counsel's fees. Mr Kekatos stated that he had agreed to continue to act for Union Steel and bill for his professional services, on the basis that he would not enforce payment until after the conclusion of the hearing. Mr Kekatos said that he agreed to undertake this arrangement because of his long-standing professional relationship with Ms Huybers.
According to Mr Kekatos, invoices totalling $92,822 had been issued in the proceedings. Of this, $74,490 had been paid. Ms Huybers had paid $14,490 herself and Mr Huybers had paid $60,000 by way of loan to Ms Huybers. Documents later produced under a notice to produce confirm that $74,490 had been paid on Mr Kekatos' invoices as at August 2020, most of this having been paid in July.
Counsel for WA and WY criticised Union Steel's evidence on this issue. Counsel pointed out that the 6 August affidavits came just before the hearing, at a time when deficiencies in the earlier evidence had been identified by submissions, and too late for meaningful response. The documents, counsel submitted, raised further unanswered questions. Counsel submitted that the weight of the evidence was affected by these factors. There is some force in these submissions.
Counsel also suggested that Mr Kekatos might stand to benefit from the litigation. In this regard, counsel referred to my decision in Longjing Pty Ltd v Perpetual Nominees Ltd [2017] NSWSC 1690. In that case, the solicitors for an impecunious corporate plaintiff were conducting the litigation on a speculative basis. They were not prepared to fund security for the defendants and the argument was that security should be refused because it would stultify the proceedings.
I found that the solicitors were standing behind, and stood to benefit from, the litigation. I concluded that the requirement of demonstrating that the solicitors were "without means" was not satisfied and their unwillingness to fund the security did not result in stultification, in the relevant sense.
But in Longjing the solicitors were already creditors of the corporate plaintiff as a result of having acted for it in earlier unrelated litigation. Also, the terms of the solicitors' retainer were in evidence. They showed that, contrary to the usual position where solicitors, once retained, are obliged to conduct litigation to its conclusion, Longjing's solicitors were entitled to withdraw at any time, thus in effect giving them control over the conduct of the litigation.
In the present case, Mr Kekatos may have agreed to "carry" the remaining costs of the litigation through to completion on a speculative basis, but it was not clear from the evidence whether he had the sort of control over the ongoing conduct of the litigation which the solicitors had in Longjing. More importantly, there is nothing to suggest that Mr Kekatos was owed any money by Ms Huybers before he started acting for her in the proceedings.
Counsel for Union Steel also contended that the delay in bringing the application was relevant to assessing Mr Kekatos' position. Counsel observed that he might have decided to carry the cost of acting for Ms Huybers on the assumption that no security would be sought.
While at first sight there appears to be something in counsel's point, there was no evidence from Mr Kekatos that he would not have incurred his costs commitments but for the delay in bringing the present application. It may be that such evidence would be essential to sustain the point. In the end, I do not need to decide the question. I am not satisfied that Mr Kekatos is a person who is relevantly standing behind, or standing to benefit from, the litigation.
But this is not the end of the stultification question. In Longjing at [50]-[74] I pointed out the questions which can arise where an obviously impecunious corporate plaintiff is able to obtain representation to bring a commercial claim but, when faced with an application for security, argues that the claim will be stultified. I said that in such a case it should be incumbent on the plaintiff to provide full disclosure of what its funding arrangements are and how its costs are going to be funded to completion. There may be no point in letting the case go on without security if it could collapse later for lack of funding. More broadly, the court may be reluctant to allow those who stand behind the plaintiff to choose to fund the plaintiff's legal costs but not the defendant's.
Union Steel's evidence on this point has its difficulties. The arrangements with Mr Huybers are opaque. It is not clear what actual commitment, if any, he has made to lend her the money to meet future costs. And while Mr Huybers is clearly unwilling to lend Ms Huybers money for security, there is no reason to think he would be financially unable to do so if that was absolutely necessary to keep the proceedings going.
Taking the evidence as a whole, I am not satisfied that Union Steel has established that if security were ordered the proceedings would necessarily be stultified. I suspect that some security, at least, could probably be provided as the price for continuing with the claim. On the evidence it is impossible to say how much could be made available, but if there is some limit I think that was for Union Steel to prove.
In passing, I should note a further area of debate between the parties. Counsel for Union Steel referred to Ms Huybers' agreement to be jointly and severally liable with Union Steel for any costs awarded against it. Counsel submitted that once this agreement was given, the purpose of requiring security was satisfied, and the application should be refused whether or not Ms Huybers was in a position to meet those costs. Counsel for WA and WY, on the other hand, submitted that this was not a complete answer to the application and, should I conclude that Ms Huybers lacked any financial resources, it should not dissuade me from granting security.
The parties' respective positions reflect a difference of approach exemplified by the judgment of Basten JA in Jazabas Pty Ltd v Haddad [2007] NSWCA 276 on the one hand, and that of Callaway JA in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 on the other. I discussed the state of authority in Woolworths Limited v About Life Pty Ltd (No 2) [2018] NSWSC 1340 at [36]-[49]. As I am not satisfied that an order for security would stultify Union Steel's claim in the proceedings, I do not need to go into the debate any further for the purposes of this application.
[6]
Cause of impecuniosity
I have already referred to the accepted fact that Union Steel's sole asset was the Kelso property. The net proceeds of the sale of the property amounted to $2.6 million. Union Steel is claiming that it was wrongfully deprived of those funds by Mr Dimitriou, acting on behalf of WA and WY.
It follows that, as counsel for Union Steel submitted, its impecuniosity is the result of the wrongful conduct alleged against WA and WY in these proceedings. I will consider the significance of this, along with other relevant factors, in my conclusion below.
[7]
Strength of plaintiff's case
Counsel for Union Steel argued that it had an apparently strong case in the proceedings. In support of that contention, counsel for Union Steel relied on affidavit evidence from Ms Huybers outlining the claim. In response, counsel for WA and WY relied on affidavit evidence from Mr Dimitriou and Mr Nehme.
The parties agreed that this evidence should be received on a limited basis. They accepted that the Court could not be expected to make findings on the facts in issue. Rather, the evidence was led to show what the parties' cases would be at trial.
Union Steel was incorporated in September 2011. ASIC search records show that from the outset Ms Huybers was recorded as a director and the sole shareholder.
According to Ms Huybers' affidavit, Union Steel was incorporated as a special purpose vehicle to assist her brother, Neil Arnott, to obtain a business loan. At the time Mr Dimitriou was advising Mr Arnott. Ms Huybers was appointed as the director because, on her evidence, her brother had a "bad credit rating". Her evidence is that she did not "completely understand the arrangement".
According to Ms Huybers, she was later left to service the loan when it became apparent that her brother could no longer meet the loan repayments. Mr Dimitriou said that there were "deals" he could get her involved in and he would make her the money to pay off the loan.
Ms Huybers stated that Mr Dimitriou acted as her advisor and accountant from September 2011 until April 2015. She left "compliance" and accounting matters to him.
A man called Giovanni Spada is recorded by ASIC as having been a director of Union Steel, alongside Ms Huybers, between August 2012 and March 2014. According to Ms Huybers she never agreed to his appointment and it is unclear whether she even knew of it.
The purchase of the Kelso property by Union Steel was completed in October 2012. The purchase price was $1.788 million. The purchase was apparently funded in part with a loan of approximately $1 million from a company called Baccus Investments Limited ("Baccus") which was given a registered mortgage over the property.
It is not clear from the limited documentary evidence, concerning the settlement of the purchase, where Union Steel obtained the remaining $800,000 or so needed to acquire the Kelso property. Mr Dimitriou asserted that DPI advanced the remaining sums, and quoted from an email which he said he had received from Mr Spada confirming that. Ms Huybers did not address the question in her affidavit.
In evidence are financial statements for Union Steel for the 2012-2013 financial year. The balance sheet recorded the company as having no current assets and one fixed asset, being the Kelso property, recorded as $1.862 million. The other assets consisted of a loan to Mr Arnott of $244,000 (together debits and credits referring to a trust account which are not explained but which effectively cancelled each other out).
Current liabilities recorded a "Loan from DPI" for $61,800. Under the long-term liabilities were recorded:
1. Director's Loan: -$107,863
2. Loan from Susan Huybers: $340,000
3. UNKNOWN: $761,868
4. USI Loan: -$202,238
5. Baccus Loan: $1,020,000
The net assets were recorded as $209,000. Current year earnings were shown as $210,000. The company's income statement recorded rental income of $321,000 and expenses as $111,000 (this included $51,000 in interest).
Ms Huybers alleged (although clearly not from direct knowledge) that Mr Dimitriou attended the settlement of sale of the Kelso property, collected the net proceeds of $2.6 million and deposited them (plus an additional $300,000) into USI's bank account. I have already noted that it is admitted on the pleadings that this was the source of the $1.07 million paid to discharge the Leishmans' existing mortgage over the Memorial Drive property.
The sale of the Kelso property and the dispersal of the proceeds appear to have left Union Steel with no other assets. The company was deregistered in February 2015. It was not until 4 December 2018, shortly before these proceedings were begun, that it was re-registered.
Ms Huybers deposed that she was unaware of the sale of the Kelso property when contracts were exchanged in May 2014. She only learned of it in June 2014 at Mr Dimitirou's office when, by chance, she saw a facsimile referring to the transaction. Ms Huybers stated that she "confronted" Mr Dimitriou about the sale but provided no detail about what she said or what his reaction was.
Ms Huybers did not mention having taken any steps to monitor the completion of the sale. All her affidavit stated was that she did not know of the misappropriation of the proceeds until she read the December 2016 judgment of Sackar J (see [6] above). Nor was there any explanation for the delay of almost two years before Union Steel was reinstated and these proceedings were begun.
Mr Dimitriou in his affidavit stated that neither Ms Huybers nor her brother (nor Mr Spada) contributed anything to the purchase of the Kelso Property. He said that Ms Huybers and Mr Spada just lent their names as directors of Union Steel and were paid, respectively, $100,000 and $25,000 for doing so. Mr Dimitriou did not explain why, if so, Ms Huybers was made the sole shareholder of Union Steel. Nor did he explain why Ms Huybers was shown as being owed $330,000 in the 2012-2013 accounts. Ms Huybers denied that she had been paid $100,000 for acting as director.
In further affidavits concerning the refinancing of the Memorial Drive Property, Mr Nehme and Mr Dimitriou repeated the substance of the affidavits filed from them in response to Rein J's orders in October 2019. They denied any knowledge of, or benefit from, the refinancing transaction.
Counsel for WA and WY submitted that there were unanswered questions about Union Steel's claim. Counsel pointed out that, on Ms Huybers' own evidence, she took no action to vindicate Union Steel's rights despite being involved in other litigation against Mr Dimitriou in which she alleged he had behaved dishonestly. Nor did it appear to be suggested that Ms Huybers herself had provided the monies used to purchase the Kelso property.
Counsel suggested that on a final hearing there was a real likelihood that the Court would accept Mr Dimitriou's evidence that Ms Huybers had been nothing more than a paid director of Union Steel. Counsel suggested that if anyone had any right to complain about the where the proceeds of the Kelso property had gone, it was those who had invested the money in the purchase of the property in the first place. There appeared to be no real suggestion that any of that money came from Ms Huybers.
The difficulty with these submissions is that they do not provide an answer to the claim by Union Steel to recover the monies in question. There is no doubt that Union Steel was the legal owner of the land. Thus the proceeds of the sale, after paying out the mortgage, were Union Steel's legal property.
If Ms Huybers simply acted as a director on Mr Dimitriou's instructions, that may make the present claim an opportunistic one. But it does not affect Union Steel's rights with respect to those proceeds. And if it be the case that, should Union Steel recover any monies, it will be obliged to account to third parties who provided money for the purchase, then that is not a defence to an action by Union Steel for recovery of those monies from WA and WY.
It is not, of course, possible to reach any conclusion, even on a prima facie basis, about whether WA and WY were implicated in the refinancing transaction. But even if the transaction was a fraud on them as Mr Nehme says, that would not necessarily give them a defence to the proceedings. If the proceeds of the Kelso property were indeed misappropriated by Mr Dimitriou, then it is difficult to see what defence WA and WY would have to the claim made against them for that benefit of the equitable mortgage (or any asset into which that can be traced following the refinancing transaction) is held for the benefit of Union Steel. WA and WY have had ample opportunity to propound an affirmative defence to the claim or a cross-claim, and they have not done so.
[8]
Conclusion
As I have already indicated, the evidence in support of Union Steel's contention that an order for security would stultify its claim in the proceedings is not impressive. And while it may be accepted that the payment of the monies has rendered Union Steel impecunious, I am not sure that in the absence of evidence that the proceedings would otherwise be stultified, this is of itself a sufficient reason for an order for security.
Similarly, I am not sure that the mere fact that the claim is a strong one is sufficient, if stultification is not established. Once it is established, or admitted, that the plaintiff's claim is an arguable one being made in good faith, then the strength of the claim is usually seen as irrelevant: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 198. In Grandview Ausbuilder Pty Ltd v Budget Demolitions & Excavations Pty Ltd [2020] NSWSC 343 at [38] I said:
In the present case I have not been satisfied that the claim will be stultified if security is ordered. I do not think that this conclusion can be side stepped by showing that it is a strong claim. There is no public interest in a claim being brought as such. This is commercial litigation which is about money. The court grants security in such cases because, as a general rule, the court considers that it is wrong for those who stand behind a company and will benefit from the litigation to be able to conduct the litigation without any financial risk. This has nothing to do with the strength of the claim.
But I think this case is different. It is not so much a question of the strength of Union Steel's claim as the existence of a defence. in the present case, I am simply not satisfied that WA and WY have a viable defence. For reasons I have given, I rejected most of the evidence in support of the estimate of costs. That would not be an obstacle to the Court making some sort of assessment itself if it were clear that there was a substantial defence. But if there is, I do not know what that defence is and it has not been articulated.
This conclusion is reinforced by practical considerations. The evidence of quantum (to the extent admissible) goes back to January this year. There is no updating evidence. Were I to award security I would have no idea what the right figure would be. With respect, I do not think Ms Castle's estimate of a 10 day trial provides any real guidance. At present I do not even know what the issues between the parties, if any, would be.
I have considered whether I should adjourn the application to see what issues emerge from the recently amended statement of claim. I could also award some small amount of security now to cover procedural steps until the issues are defined, and grant liberty to apply for more security if that becomes necessary. But I think the procedural history militates against this.
WA and WY have already made one unsuccessful application for security. They did not take up the opportunity offered in the directions made by Kunc J last year. It is true that the proceedings have followed a tortuous history. But I do not think that can fairly be blamed on Union Steel. Much of it is attributable to the effect of the refinancing transaction. WA and WY were also guilty of numerous defaults in compliance with directions for the filing of their defences and evidence.
WA and WY have had ample opportunity to present their case for security. The case that they have presented is not persuasive. There is no reason to prolong the uncertainty further by allowing them a further opportunity.
[9]
Orders
For these reasons, I consider that the application for security should be refused.
I see no reason why the general costs of the security motion, on the ordinary basis, should not follow the event. But I understand that WA and WY may seek orders in their favour for the costs thrown away as a result of the adjournment of the motion hearing on 17 July. If there is a dispute about this, the parties will have leave to make any applications they wish.
The orders of the Court on the notice of motion dated 31 January 2020 are:
Order that the motion be dismissed.
Grant leave to the parties to apply with respect to the costs of the motion, such liberty to be exercised by approaching my Associate within 14 days of the date of this judgment.
[10]
Amendments
13 August 2021 - make minor typographical amendments
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Decision last updated: 13 August 2021