Western Export Services Inc v Jireh International Pty Limited

Civil Procedure Act 2005 LEGISLATION CITED : Corporations Act 2001 (Cth) Legal Profession Act 2004 Uniform Civil Procedure Rules 2005

Browne v Dunn (1893) 6 R 67 Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 Demag-Lauchhammer Maschinenbau Und Stahlbau GmbH v John Holland (Constructions) Pty Ltd [1966] 2 NSWR 3 Fat-sel Pty Ltd v Brambles Holdings Ltd (1985) ATPR 40-544 Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 CASES CITED : Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Merribee Pastoral Industries Pty Limited v Australia and New Zealand Banking Group Limited (1998) 193 CLR 502 Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd (2007) 65 ACSR 383 Reches Pty Ltd v Tadiran Ltd (1998) 85 FCR 514 Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 Sharjade v Darwinia Estate [2006] NSWSC 708

PARTIES : Western Export Services Inc (Plaintiff) Jireh International Pty Limited (Defendant)

COUNSEL : P Gray SC (Plaintiff) D J Higgs SC, T Maltz (Defendant)

SOLICITORS : Koffels Pty Limited (Plaintiff) Coleman & Greig Solicitors (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4309/2004 WESTERN EXPORT SERVICES INC v JIREH INTERNATIONAL PTY LIMITED JUDGMENT 1 HER HONOUR: This is an application for security for costs.

2 The defendant, Jireh International Pty Limited (Jireh), seeks an order that the plaintiff, Western Export Services Inc (WES), provide security for the costs Jireh will incur in defending the proceedings in the amount of not less than $700,000.

3 WES contends that there should be no order for security on numerous grounds including: - (i) Jireh did not bring the claim for security promptly, (ii) Jireh has otherwise delayed unreasonably with respect to interlocutory steps in the proceedings particularly concerning discovery, and thus should not have the benefit of the exercise of discretion in its favour, (iii) WES's claim is a strong one whereas Jireh's cross-claim is not made bona fide and lacks any merit, (iv) Jireh's conduct as a serial "contract breaker" caused WES's impecuniosity, (v) the effect of the order for security will be to stultify the proceedings, (vi) Jireh is a large company and WES small, (vii) Jireh is using the motion for security to deny WES the right to litigate and thus the motion is oppressive, and (viii) the two directors and shareholders of WES have offered undertakings with respect to Jireh's costs up to the amount of $200,000 each (being undertakings the Court would find enforceable against them in Colorado, USA) which is sufficient security.

4 Further and alternatively, WES contends that Jireh's estimate of recoverable costs is excessive on numerous grounds including that the estimates on behalf of Jireh: - (i) assume the proceedings are far more complex than warranted, (ii) allow for an unreasonably large team of lawyers (including two junior counsel), (iii) allow an unreasonable number of hours for many tasks, (iv) include a cross-claim that should be excluded, (v) assume a total hearing length of 15 days when 10 would suffice, and (vi) do not allow for the likely contraction of the case by reason of simplification of the outstanding discovery and the appointment of a single expert on quantum issues. WES also contends that if any order for security is to be made it should be staged (which Jireh accepts).

5 A number of facts were not in dispute. WES is a company incorporated in Colorado, USA. WES is impecunious in the sense that it would not be able to satisfy an order for costs in Jireh's favour. Two people, Steven Meier and David Cisneros, own the shares in WES and stand to benefit from the litigation if successful. WES, Mr Meier and Mr Cisneros do not have any assets in Australia. WES's claim against Jireh has not yet been quantified (as it is dependent on discovery being finalised) but involves a large sum of money, possibly in excess of $30 million. Jireh accepted that WES's claim was made bona fide.

6 WES filed its statement of claim on 4 August 2004. WES claimed that it entered into an agreement with Jireh on 19 March 1996. The agreement related to Jireh's desire to obtain the right from Gloria Jean's Gourmet Coffees Franchising Corp to become the Gloria Jean's Gourmet Coffees Master Franchisee for Australia, including the right to operate and franchise Gloria Jean's Gourmet Coffees Stores, to import and supply products to those stores, and to establish Australia as a regional supplier of Gloria Jean's coffees, teas and accessories. WES would provide contract negotiation assistance, logistical support and expert services to Jireh on specified terms and conditions.

7 The agreement asserted by WES contained terms about various commissions Jireh would pay WES. Under cl 2 Jireh was to pay WES a commission of 5% of the ex-factory price of Gloria Jean's products supplied and exported from the USA to Jireh. Under cl 3 Jireh was to pay WES 5% of the ex-factory price of all coffees, teas and other products sold by Jireh to Gloria Jean's Gourmet Coffees Stores in Australia and elsewhere not supplied under cl 2. WES claims that, in breach of cll 2 and 3 of the agreement, Jireh has not paid all of the amounts owing by way of commissions. In respect of these breaches WES claims damages and an associated declaration relating to its rights under the agreement. The agreement also contained a term (cl 5) in respect of which WES seeks a separate declaration to the effect that, upon the sale or transfer of any property, asset or other interest of Jireh, Jireh is liable to pay WES an amount equivalent to 4% of the sale price of such property, asset or other interest.

8 By a defence filed on 2 December 2004, Jireh denied WES's claims. Jireh contends that the document dated 19 March 2006 is not a contract, was uncertain and unable to constitute a contract, was unsupported by consideration, and was not entered into by WES but by Mr Meier and Mr Cisneros in their personal capacities. Further, and in the alternative, if the document constituted a contract its term was for a period of six months only under cl 7, cl 2 was abandoned by conduct or terminated by Jireh or by agreement, and that conditions precedent to any entitlement to commissions under cl 2 or to any amount under cl 5 were not fulfilled, thereby disentitling WES from making any claim.

9 The proceedings have been subject to numerous mentions and directions about a variety of interlocutory issues from 22 February 2005. An abridged procedural chronology prepared by WES discloses some 29 mentions excluding the hearing over three days of this motion for security. It is not necessary to record all or even most of those events other than to note that many of the mentions involved issues of the adequacy and timeliness of Jireh's discovery that have not been fully resolved to date.

10 On 22 November 2005 Mr Gambin, the solicitor with carriage of the matter for Jireh at that time, wrote to WES's solicitors referring to the substantial costs of the proceedings and requesting information about WES's financial circumstances so that Jireh could form a view about WES's ability to meet a costs order in the event that Jireh was successful and a costs order made against WES. Mr Gambin requested this information within 7 days due to the rapidly escalating costs of the matter. The letter concluded with the observation that a failure to provide the information or the provision of information that did not support the ability of WES to meet a costs order of the magnitude likely in a matter such as the present may result in Jireh making an application for security for costs. Mr Neggo, the solicitor with carriage of the matter for WES at that time, responded by letter dated 28 November 2005 about the outstanding discovery issues for both parties and to the effect that he had sought instructions on the request for financial information and would endeavour to respond by the end of the week. Jireh's solicitors followed up their letter with another request for financial information on 1 March 2006, again referring to the fact that Jireh may be forced to file a motion seeking security if appropriate consent orders about the provision of security could not be negotiated.

11 Further mentions and directions ensued, many relating to the issue of discovery. WES's solicitors did not respond to the request for financial information (Mr Neggo having handed the file over to Mr Collins in the interim). On 24 May 2006 Jireh filed a motion seeking an order for security. Jireh amended this motion on 2 June 2006 by adding a further order for leave to file a cross-claim (a draft cross-claim having been served in February 2006). Numerous further mentions followed where many issues arose with respect to (amongst other things) discovery and the appointment of a single expert to deal with quantum issues. Jireh's motion for security was listed for hearing on 12 April 2007. Gzell J adjourned the motion for hearing by the Registrar with WES's motion for a single expert in June 2007.

12 Jireh filed its cross-claim pursuant to leave on 24 April 2007. The cross-defendants were WES, Mr Meier and Mr Cisneros. In the cross-claim Jireh seeks declarations that the alleged 1996 agreement is void, an order setting that alleged agreement aside, alternatively, an order for rectification of the alleged 1996 agreement, and equitable compensation (or an account of profits or restitution) from WES for breach of an alleged fiduciary duty owed by WES to Jireh or by Mr Meier and Mr Cisneros to Jireh.

13 The basis of the alleged fiduciary duty is that Jireh contends that Mr Meier and Mr Cisneros represented that they were current or former lawyers who would act as legal advisers to Jireh in relation to various agreements including the alleged 1996 agreement and in fact provided such legal services and business advice causing (amongst other things) Jireh to enter into the alleged 1996 agreement.

14 The basis of the proposed rectification is communications leading up to the signing of the document on 19 March 1996, in particular relating to a common intention with respect to the operation of cl 7 (a clause providing for a meeting within 6 months to "review the business of the parties under the terms of this Agreement to determine if the compensation established herein is fair and reasonable based on mutually agreeable factors for the venture"). The proposed rectification is that cl 7 include additional words at the end or a new cl 8 reading "This agreement does not become operational or binding until a further negotiation between the parties concerning the compensation amounts in this agreement is concluded successfully in accordance with clause 7".

15 The cross-defendants denied the principal allegations in the cross-claim by defences filed on 3 July 2007. Amongst other things, the cross-defendants plead that Jireh had independent legal advice from its own lawyers, Mallesons Stephen Jaques, at all relevant times. In response the cross-defendants also plead estoppel, laches and affirmation of the 1996 agreement.

16 The motions were not heard by the Registrar in June 2007 but were referred for hearing by an Associate Justice.

17 In the meantime WES was also proposing to amend its statement of claim. Initially Jireh did not consent to the proposed amendments. WES filed a motion seeking leave to amend the statement of claim. This was resolved by consent on 3 August 2007. WES filed and served the amended statement of claim on 9 August 2007. The amended statement of claim adds allegations about the terms of the 1996 agreement (including a term of trade with respect to the timing of payments and an implied term of good faith) and breaches of those terms. It also adds an alternative claim that WES and Jireh entered into a contract pursuant to which Jireh would pay certain commissions to WES, being a contract made partly orally, partly in writing, and partly by conduct. The amended statement of claim alleges that Jireh repudiated the 1996 agreement or the contract. It also claims that Jireh is estopped from denying the validity of the 1996 agreement and the contract. Finally, the amended statement of claim adds a claim in restitution on the basis that Jireh has been unjustly enriched at the expense of WES.

18 Jireh has not yet filed and served a defence to the amended statement of claim.

19 On 9 July 2007 (after it had received a draft of the proposed amendments to the statement of claim) Jireh requested further and better particulars. WES answered this request on 29 December 2007. Jireh requested more particulars on 6 February 2008. At a mention on 12 February 2008 directions were made including the listing for hearing of Jireh's motion for security on 22 April 2008. WES answered Jireh's second request for particulars of the amended statement of claim on 19 March 2008. On 22 April 2008 the hearing of the motion for security was adjourned. The motion was listed for mention on 1 May 2008. Also on 22 April 2008 Jireh made its third request for particulars of the amended statement of claim.

20 On 1 May 2008 Jireh's motion for security was fixed for hearing on 12 and 13 June 2008.

21 On 19 May 2008 the Court notified the parties of a change to the hearing date to 29 - 30 May 2008.

22 Numerous other issues were dealt with at the many directions hearings since the commencement of these proceedings. Amongst other things, outstanding issues include WES's application for the appointment of a single expert on quantum, Jireh's application relating to further and better particulars of the amended statement of claim, and the completion of discovery.

23 Jireh's application is founded on Pt 42 r 21(1)(d) of the Uniform Civil Procedure Rules 2005 (UCPR) and s 1335(1) of the Corporations Act 2001 (Cth).

24 UCPR r 42.21(1)(d) is in the following terms: If, in any proceedings, it appears to the court on the application of a defendant: … (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, …

the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given.

25 Section 1335(1) of the Corporations Act provides: 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.

26 There was no dispute between the parties with respect to the relevant principles guiding the exercise of discretion to order an impecunious corporate plaintiff to give security for costs.

27 The purpose of the discretion is essentially protective, to ensure that the important compensatory function of the usual order as to costs (namely, that the unsuccessful party should pay the costs of the successful party) is not undermined (Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at [35]). That purpose does not mean that there is a predisposition to order security in favour of or against one or other party, with the scope of the discretion routinely described as wide and dependent on all relevant circumstances, requiring "a balance between ensuring that adequate and fair protection is provided to the other party, and avoiding injustice to impecunious companies by unnecessarily shutting them out or prejudicing them in the conduct of litigation" (Buckley v Bennell Design & Construction Pty Ltd (1974) 1 ACLR 301 at 304).

28 Factors relevant to the exercise of discretion have been identified on numerous occasions. In Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 512 - 515 French J identified four factors of primary importance (whether the order will frustrate the plaintiff's claim, whether the claim was made bona fide and its merits, the cause of the plaintiff's impecuniosity, and delay). Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196F - 198C identified the applicable principles as follows (excluding quotes and citations): The law is now settled that the discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security… Notwithstanding the broad unfettered discretion with which the Court approaches an application for security for costs, there are a number of well established guidelines which the court typically takes into account in determining any such application. They are: 1 That such applications should be brought promptly. This is a principle of longstanding… 2 That regard is to be had to the strength and bona fides of the applicant's case are relevant considerations…As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with a reasonable prospect of success. 3 Whether the applicant's impecuniosity was caused by the respondent's conduct subject of the claim… 4 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… 5 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… 6 An issue related to the last guideline is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking… 7 Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate…

29 The discretion does not begin and end with the circumstances of the impecunious company that wishes to litigate a claim. Many decisions identify the relevance of the position of those who stand behind the company and stand to benefit if it is successful in the litigation. Beazley J considered many of these decisions in KP Cable at 203 - 204 concluding that: …the offer of security by way of a guarantee from the directors or shareholders or other persons interested in the outcome of the litigation was a factor, which could be decisive in a given case, to be considered in determining whether any other form of order for security for costs should be made.

30 Austin J in Morningstar at [83] considered it: …unrealistic for the court to decline to order security on the ground that to do so would stultify the litigation, if it took into account only the financial ability of the plaintiff, and disregarded the financial ability of those who would benefit from the plaintiff's success and who would therefore have an economic incentive to bear the burden of a security order. More broadly, it is fair for the courts to proceed on a basis which reflects the proposition that those who seek to benefit from litigation should bear the risks and burdens that the process entails.

32 Einstein J considered decisions dealing with the issue of delay in the making of an application for security in Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [69] - [81] concluding: Ultimately it seems to me that in the context of the broad discretion and consistently with the approach referred to in the above authorities, delay is best regarded simply as a factor whose consequences are to be weighed in the balance in determining what is just between the parties…The Court, in approaching delay as a discretionary factor, looks at the length of the delay and the nature of the acts done during the interval. If a company has suffered no real relevant prejudice in the sense of expenditure of its own funds or the incurring of liabilities in relation to the litigation in the period until the application for security for costs, the significance of delay reduces or may substantially disappear.

33 Many decisions refer to potential difficulties in assessing the merits of a plaintiff's claim. For example Basten JA said: …the assessment of merit in complex commercial litigation is often difficult to undertake on a useful basis in a preliminary way ( Pioneer Park Pty Ltd (in liq) v Australia and New Zealand Banking Group Ltd (2007) 65 ACSR 383 at [45]. See also the observations in Morningstar at [37]).

34 In the context of claims for damages for breach of trade practices legislation Beaumont J made the following observation about the cause of the plaintiff's impecuniosity: …it is one thing to refuse security where the party claiming relief can show that the party sued brought about the impecunious party's insolvency by causing him to act to his detriment and to lose funds in that connection; it is a different thing where… the applicant has not thrown away funds in reliance on the respondent's conduct but rather seeks to recover profits which the respondent's representations are alleged to have led it to expect to earn in the future. In the latter class of case the respondent's conduct may not have improved the applicant's financial position but, in contrast to the former class of case, the conduct complained of has not worsened the applicant's financial condition (Fat-sel Pty Ltd v Brambles Holdings Ltd (1985) ATPR 40-544 at 46428).

35 In Reches Pty Ltd v Tadiran Ltd (1998) 85 FCR 514 at 523 Lehane J made the following observation about the issue of causation in the context of an application for security for costs: Where, however, liability is strongly in dispute and where those who stand to benefit, should the applicant succeed, are in a position to provide security, the importance of that matter, as a discretionary consideration, is I think significantly diminished.

36 Basten JA made the following comment about oppression in Pioneer Park: There may be rare cases in which it can be established that an application for security is brought for improper purposes: such conduct could no doubt be described as "oppressive". On the other hand, from the respondent's point of view the question is not whether an impecunious corporate appellant has a "right to litigate" but rather who should be required to bear the costs of the litigation if the appellant is unsuccessful…

…it might be seen as oppressive to allow a large corporate defendant to obtain an order for security for costs which would be likely to stifle the litigation in circumstances where it could be seen that the claim had potential merit and that the quantum of costs would in any event be a relatively insignificant amount for the corporate defendant, though beyond the capacity of the corporate plaintiff to pay. To order security in such circumstances may constitute a form of "oppression" ( Pioneer Park at [55] - [56]).

37 As to the amount of security, Basten JA said: …it is usual to fix an amount by way of security which is below the applicant's estimation, so as not to impose an undue burden on the corporate appellant or plaintiff and so that the applicant will bear the risk of over-estimation ( Pioneer Park at [66]).

38 Jireh relied on affidavits of Paul Gambin, Stephen Booth and Suzanne Ward.

39 Mr Gambin has been a solicitor since 1977 practising exclusively in commercial litigation. He was the partner of the firm of solicitors engaged by Jireh to represent it in these proceedings. Mr Gambin said that he became aware of the magnitude of the likely costs of the proceedings only after he had substantially commenced the discovery process. This prompted his letter of 22 November 2005 to the solicitors for WES. Mr Gambin considered that, before then, it was impossible to estimate with any reliability the costs Jireh would be likely to incur in defending the proceedings. Mr Gambin sent a follow up letter on 1 March 2006 when he did not receive the information requested.

40 Mr Gambin prepared a table setting out his estimates of the steps involved in bringing the matter to completion, the legal personnel involved in carrying out those steps, the hours the steps would take, the costs involved (based on identified charges per hour) and the total costs overall. This table was premised on a team of lawyers being involved in different aspects of the preparation of the matter for hearing to different extents with different charge rates (senior counsel, an experienced junior counsel, a less experienced junior counsel, a partner, a junior solicitor, and a paralegal). Mr Gambin treated the matter as involving both the statement of claim (not amended at the time he prepared his affidavit) and the cross-claim. In Mr Gambin's view the cross-claim would not add materially to the costs due to the overlap between the evidence relevant to the statement of claim and the cross-claim. On this basis Mr Gambin estimated that Jireh would incur solicitor-client costs of about $1.71 million in defending the proceedings. He considered that this would be reduced on assessment (see s 364 of the Legal Profession Act 2004 on the approach to assessment of costs) to two thirds or about $1.1 million. Mr Gambin's figures include GST.

41 Mr Gambin rejected the criticisms of his approach and dealt with other issues raised by the (then) solicitor with the carriage of the matter for WES (Mr Collins). Mr Gambin explained his reasons for treating the proceedings as raising potentially complex issues about contract formation and terms. He identified concerns over the appointment of a single expert and observed that, in a case such as the present, such appointment was likely to increase rather than decrease the costs of both parties (with Mr Gambin anticipating a real dispute about quantum with the consequence that both parties would be likely to retain their own experts to assist in any event). Mr Gambin rejected the allegations about inadequate and untimely discovery on the basis that Jireh's discovery had been extensive (involving some 15,000 documents) and required substantial time and effort with the delay being, at least in part, the responsibility of WES's solicitors (with Mr Collins having taken over the file from Mr Neggo). Mr Gambin also noted that, between November 2005 and February 2007 Jireh had incurred some $284,000 in legal costs.

42 Ms Ward is a solicitor who specialises in legal costing. Ms Ward conferred with Mr Gambin, reviewed the pleadings, Jireh's solicitors' matter transaction report, the observations to counsel, an advice on evidence, the 1996 agreement, and Jireh's solicitors' file (22 lever arch folders). Ms Ward developed her own schedule of the steps necessary with respect to the future conduct of the litigation. Based on her expertise and experience Ms Ward considered Mr Gambin's estimate of the hours likely to be involved reasonable but thought his rates were unlikely to be allowed on assessment. Ms Ward reduced Mr Gambin's rates to those she considered recoverable as fair and reasonable. On this basis Ms Ward estimated solicitor-client costs of about $1.1 million. Ms Ward applied a one third reduction to that total concluding that if an order for costs were made in Jireh's favour it would recover about $790,000 for future costs and disbursements (a figure that does not take account of the amended statement of claim). In a subsequent affidavit Ms Ward expressed her view that the appointment of a single expert would significantly reduce the costs likely to be incurred by both parties with respect to these proceedings. Ms Ward, in a further report, also replied to evidence adduced by WES from another solicitor with expertise in legal costing (Ross Nicholas). Ms Ward noted that she was instructed the cross-claim was based on the same transaction as the amended statement of claim. Hence, it was essentially defensive in nature. Therefore, Ms Ward did not agree that security should not extend to the cross-claim. Ms Ward's figures were all exclusive of GST.

43 In cross-examination Ms Ward confirmed that she had not been asked to assume the reasonableness of Mr Gambin's estimated hours. She saw nothing that made her think those hours were incorrect, unfair or unreasonable. This was part of the reason Ms Ward broke down Mr Gambin's steps into a different structure. Ms Ward agreed she assumed that the complexity of the matter justified the use of two junior counsel and a senior counsel at the hearing. However, Ms Ward did not consider two junior counsel unreasonable given the complexity of the issues involved and the low rate for the less experienced junior counsel (being less than that for a junior solicitor). She also placed some weight on the notion of parity (assuming that WES would be similarly represented at the hearing). In her view the issue that caused a problem on assessment was duplication and not the involvement of lawyers with different levels of experience. Overall she acknowledged that Mr Gambin's estimates of hours were at the outer end of the range of reasonableness. Further, that the time periods for solicitors in the immediate run up to the hearing substantially exceeded what she considered to be a rule of thumb (that is, an allowance of half a day's work for each day of the hearing). She assumed that could be justified but accepted that it too would be "tops".

44 Mr Booth has been a solicitor since 1981 with a focus on commercial litigation since 1990. He took over the file from Mr Gambin in May 2007. Mr Booth considered Mr Gambin's estimates, as moderated by Ms Ward, to be reasonable when made. Mr Booth noted that the amended statement of claim involved broader issues because the amendments alleged a contract arising from facts and circumstances other than the signing of the 1996 document. Mr Booth considered it difficult to put any precise estimate on the increased costs but broadly considered that the amendments to the statement of claim may increase the costs overall by about 20%. In cross-examination Mr Booth said preparation of witness statements had started. Excluding experts, Jireh proposed to call four substantial and five lesser (in terms of volume of material) witnesses. Preparing the witness statements was difficult and time consuming because the witnesses had to go through the core documents relating to their role (about three folders for each substantial witness) spanning a period from 1995 to about 2004. Mr Booth considered that, currently, about 75 to 80% of solicitor-client costs could usually be recovered on a cost assessment. When questioned about the gain said to have been derived by the cross-defendants in the cross-claim Mr Booth described his understanding of the cross-claim as essentially involving a set-off against WES's claim with the gain being, in effect, entry into the 1996 agreement.

45 WES mainly relied on affidavits of Jeffrey Collins, Ross Nicholas, Ross Koffel and Michael Rivera.

46 Mr Collins is a solicitor. At the time of his first affidavit (30 August 2006) he had nearly seven years' litigation experience and had recently taken over the file from another solicitor. Mr Collins considered the proceedings relatively straightforward. In his view a number of aspects of Mr Gambin's approach were unreasonable. Mr Collins rejected any need for three counsel. He thought the hearing would involve 10 not 15 days as Mr Gambin estimated. He did not accept that there was anything particularly complicated about the discovery or preparation of statements. Nor did he accept any necessary interlocutory applications. He described the time allowed for preparation in the lead up to the hearing as excessive and unjustified. Mr Collins thought the cross-claim significantly expanded the scope of the dispute. Based on his adjustments of Mr Gambin's table Mr Collins estimated Jireh's solicitor-client costs of about $416,000. Mr Collins then reduced these costs by one third to $270,000 as an estimate of Jireh's likely recoverable costs.

47 Mr Collins' affidavit also annexed documents received from WES, Mr Meier and Mr Cisneros. The documents from WES disclosed that it had provided a modest annual income to Mr Meier and Mr Cisneros. Mr Collins was instructed that the directors would be able to borrow about US $300,000 to fund the litigation. Mr Collins referred to Jireh's delay in making the application, the strength of WES's claim, the loss of expected income from the commissions payable compared to the growth and success of Jireh, and his belief that an order for security in the amount of $1.1 million would prevent WES from pursuing the ligation. Mr Collins also referred to the willingness of Mr Meier and Mr Cisneros to give undertakings to be 50% liable for any adverse costs order up to an amount of $100,000.

48 In his second affidavit Mr Collins (amongst other things) referred to the reduction in costs that would result from the appointment of a single expert. He also gave details of outstanding discovery issues including requests for a summary of invoices that was holding up progress on quantum issues.

49 Mr Collins prepared a third affidavit in which he annexed financial documents from Mr Meier and Mr Cisneros including tax returns and a summary statement by them of their assets and liabilities as at 21 December 2006. According to Mr Meier his net worth was $1,239,909. According to Mr Cisneros his net worth was $662,200.

50 In cross-examination Mr Collins confirmed that WES's claim, although unquantified, involved a substantial amount of money and potentially more than $30 million. Further, Mr Cisneros travelled the world in connection with his business activities (including at least one visit to Australia during the course of these proceedings). Both Mr Meier and Mr Cisneros had interests in a number of companies. Mr Collins had no knowledge of the details underlying the statements of assets and liabilities annexed to his affidavit. He had asked Mr Meier and Mr Cisneros to prepare the summary statement and they had done so. He said that nothing in his dealings with them had led him to believe to the contrary of what he had been informed despite his lack of knowledge of their precise financial arrangements.

51 With respect to his criticisms of Mr Gambin's costs estimate, Mr Collins accepted that the proceedings involved numerous dealings between the parties over a 10 year period. He accepted that there had been many interlocutory applications but he thought they would be subject to discrete costs orders. He also acknowledged that running litigation such as the present case usually involved putting together a team of lawyers of different levels of experience.

52 Mr Nicholas is a solicitor specialising in legal costing. In his first affidavit, Mr Nicholas did not accept Mr Gambin's rates as reasonable (in common with Ms Ward). He also considered that the disagreement about the cross-claim made an estimate extremely difficult but said he thought Mr Collins' approach to be "more thorough, more considered and…more reliable" than Mr Gambin's. He also noted that GST should not be included as it was recoverable as an input tax credit (a position also adopted by Ms Ward). In his second affidavit Mr Nicholas reviewed Ms Ward's analysis. Mr Nicholas was not cross-examined. The common position of the parties, however, was that the nature of the material traversed in chief and in reply made Browne v Dunn (Browne v Dunn (1893) 6 R 67) inapplicable.

53 Mr Rivera is a solicitor who originally assisted Mr Collins and then took the carriage of the matter under Mr Koffel's supervision in October 2007. In his first affidavit Mr Rivera traversed a substantial amount of material concerning difficulties in obtaining adequate discovery from Jireh.

54 Mr Rivera prepared a second affidavit. In this affidavit he provided material and opinions said to evidence the lack of merit of Jireh's cross-claim. This material was admitted on the agreed basis that no adverse inference could be drawn against Jireh for not responding to any evidence relating to the defence and cross-claim not being made bona fide. He also annexed numerous documents said to evidence the size and success of Jireh compared to the financial position of WES. He annexed income statements from WES showing (amongst other things) a marked increase in expenditure on legal costs from around $5000 per year before 2004 to some $54,000 in 2005 and $108,000 in 2006. With respect to WES's financial position, Mr Rivera annexed profit and loss statements showing what he described as modest but stable profits. According to Mr Rivera his instructions were that all profits of WES were being used to pay their own litigation costs. Over the last year or so (the affidavit having been sworn on 22 April 2008) Mr Meier told Mr Rivera WES had spent over $240,000 in legal costs on this matter. Mr Meier and Mr Cisneros have also been accessing lines of credit secured against their homes to pay their legal costs. WES has a line of credit but its use is restricted to trading purposes.

55 Mr Rivera's second affidavit also provided more information about the financial position of Mr Meier and Mr Cisneros. Mr Rivera was instructed that neither were in a position to offer much more than the undertakings of $100,000 already provided (and formalised on 30 October 2007) as both made a modest salary from WES and the other companies in which they had interests. Mr Rivera said he was instructed that those other companies do not have significant assets or real marketable value. Further, that the financial position of Mr Meier and Mr Cisneros had not significantly changed since December 2006. Mr Rivera was instructed that if both Mr Meier and Mr Cisneros reserve funds for their undertakings up to $100,000, exhaust their lines of credit available and their personal savings, as well as borrowing a further US $100,000 secured against office premises they would have approximately US $380,000 of available funds for the litigation. Mr Rivera, however, estimated that their legal costs would exceed this amount. Mr Rivera also annexed additional material that he relied on to establish that WES's inability to meet Jireh's costs was caused by Jireh's conduct in breaching and repudiating the 1996 agreement. Finally, he annexed an opinion from Colorado lawyers to the effect that, although no bilateral or multilateral treaty or convention operated on reciprocal recognition of judgments, the common law doctrine of enforceability provided the underlying authority for enforceability of a foreign judgment in Colorado. The opinion concluded that a judgment based on the undertakings of Mr Meier and Mr Cisneros would be enforceable in Colorado subject to a series of assumptions.

56 Mr Rivera provided a third affidavit on the first day of the hearing (29 May 2008). In this affidavit, amongst other things, Mr Rivera annexed an updated summary statement of assets and liabilities from Mr Meier. This disclosed a number of changes in Mr Meier's financial position resulting in a net worth as at 31 December 2007 of $1,377,479. Mr Rivera had also received instructions that Mr Meier and Mr Cisneros were each willing to increase their personal undertakings to $200,000. Mr Rivera, finally, annexed a copy of a document produced under subpoena by Jireh's auditors, being a summary sales statement (being the type of sales information that WES sought Jireh to produce but had not yet been produced in discovery).

57 Mr Koffel's affidavit dealt with the cross-claim and amended statement of claim. Mr Koffel has been a solicitor since 1971. Mr Koffel considered it impossible to know whether the cross-claim would add materially to the costs or not. He thought the amended statement of claim unlikely to do so. Mr Booth's estimate of a 20% increase in costs was unjustified. In cross-examination Mr Koffel confirmed his understanding that no person other than Mr Meier and Mr Cisneros had any beneficial interest in WES. In cross-examination Mr Koffel said that he was in regular contact with Mr Meier and Mr Cisneros. He said they had intended to put on original material from Mr Meier and Mr Cisneros about their financial positions (rather than annexing documents to affidavits prepared on the basis of information and belief) but the matter had been brought on early. Mr Koffel did not know that the matter had been listed for hearing on 22 April 2008 at which time senior counsel attended for WES but the hearing was adjourned. He accepted, however, that WES had plenty of time to file and serve evidence having been aware for at least 12 months that the financial worth of Mr Meier and Mr Cisneros was relevant to the motion for security. They had decided the form of the evidence was suitable and the net worth of Mr Meier and Mr Cisneros clear. He confirmed that neither had any assets within the jurisdiction. Over the weekend he had contacted his clients and obtained instructions to the effect that neither would take the points identified as assumptions by the Colorado lawyers in the event of enforcement proceedings by Jireh on the undertakings.

58 Mr Koffel agreed that it was common to put together a team of lawyers for a matter such as the present. In his experience about two thirds to three quarters of solicitor-clients costs tended to be recovered under the current system of assessment. Presently WES had a single senior counsel but no junior counsel.

59 As Jireh submitted the evidence established (and WES did not dispute) that WES was impecunious in the sense that it could not meet Jireh's costs irrespective of the large differences in estimates between the solicitors. Accordingly, the broad discretion with respect to security is enlivened under both s 1335(1) and UCPR r 42.21(1)(d). Further, "the inability of the plaintiff to meet the costs of the successful defendant, being the occasion for invoking the exercise of discretion, is likely to play an important if not decisive role" (Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470). Other factors are also relevant.

60 First, the issue of delay. WES put its case with respect to this issue in two ways - delay relating to the application for security and delay in the progress of the proceedings (pointing, in particular, to the outstanding disputes relating to Jireh's discovery and requests for particulars).

61 Months undoubtedly passed between the commencement of the proceedings (August 2004) and the first request for financial information in the context of a possible application for security (November 2005) and the subsequent filing of the motion seeking the order for security (May 2006). AS WES submitted "the degree of expedition with which the respective parties have approached the proceedings" is relevant to the weighing of the dictates of justice in making any order or direction for the management of proceedings (s 58(2)(b)(ii) of the Civil Procedure Act 2005). However, the delay before the making of the application for security was not unreasonable in the circumstances. Jireh filed its defence in December 2004. As Mr Gambin said both parties apparently had difficulties with discovery in 2005 and some part of the delay in resolving them resulted from the handover from one solicitor to another in the office of WES's solicitors. All of the indications are that discovery in this matter (as is not uncommon) involved a "moving feast" (as Mr Gambin put it) for a significant period. Jireh has clearly committed significant time and resources to discovery despite the fact that, as Mr Booth readily conceded, more remained to be done. Mr Gambin's view that costs could not be reliably estimated before about March 2006 given the state of discovery was reasonable in these circumstances.

62 It is also relevant that WES amended its statement of claim well after the first request for financial information (in August 2007) and a defence has not yet been filed, I infer, due to the outstanding question of particulars. Jireh accepted that costs incurred before November 2005 should be excluded from any order for security (this being the basis of the various estimates identified above). From November 2005 WES was on express notice of the prospect of an application for security. It provided no financial information in response to Mr Gambin's request or follow up letter in March 2006 (a fact presumably also related to the handover of the file from one solicitor to another). In all of these circumstances I do not consider the delay in the making of the application for security has materially prejudiced WES or precludes the making of an order for security in Jireh's favour.

63 Similar considerations apply to the other way in which WES made its case about delay. Again, there has undoubtedly been substantial delay in the progress of these proceedings, involving a very large number of directions hearings and repeated breaches of timetables, particularly relating to discovery. However, as Jireh submitted, there has been no adverse finding or costs order against it in this regard. The discovery process has been difficult and time consuming but, ultimately, has been and continues to be resolved through largely consensual arrangements. The evidence discloses these repeated difficulties but does not lead to any inference other than that the matter generally, and discovery in particular, has turned out to be significantly more difficult and time consuming than Jireh's solicitors anticipated. Both sides have also experienced at least one file handover, a fact that has presumably contributed to the problem to some extent. I do not accept that the evidence discloses that Jireh has conducted itself in such a way as to preclude or restrict its capacity to obtain a discretionary remedy in its favour.

64 Secondly, the merits or strength of WES's claim and the alleged lack of merits of the cross-claim. This is a case where liability is strongly in dispute based on numerous issues (including contract formation, uncertainty and associated unenforceability, and construction of terms, particularly the operation of cl 7).

65 Contrary to WES's evidence I do not see this as a straightforward case. The 1996 agreement raises several issues of construction. The relationship between the parties spans about 10 years. WES's decision (no doubt well founded) to amend its statement of claim some two years after filing the original statement of claim suggests that the resolution of the rights and obligations of these parties will involve considerably more than merely looking at the 1996 agreement and a limited number of documents leading up to it. The claim is also potentially large (up to or in excess of $30 million). All of these factors support Jireh's characterisation of these proceedings as a relatively complex commercial cause where liability and quantum will be rigorously contested. The documents relied on by WES (essentially transaction documents after 19 March 1996 and a reference to the view of a solicitor from Mallesons Stephen Jaques that the 1996 agreement is enforceable) does not lead to an inference that the case is straightforward or Jireh's defence untenable. As Kirby J observed in Merribee Pastoral Industries Pty Limited v Australia and New Zealand Banking Group Limited (1998) 193 CLR 502 at 515: …the real merits of a case might not emerge until the final hearing or might not sufficiently emerge in the necessarily brief proceedings typically involved in an application for security for costs. Furthermore, if a party asserts that its opponent's proceedings are manifestly lacking in legal merit, other remedies are available to it to protect it from needless vexation.

66 Consistent with Jireh's submissions, this is a case where the acknowledgment that WES's case is made bona fide is as far as the merits issue should properly be taken.

67 The issues arising with respect to the cross-claim fall into a similar category. The material relied on by WES to undermine the merits of the cross-claim does not have that effect. Mr Meier and Mr Cisneros apparently are both legally qualified. The role of Jireh's solicitors may well have been limited to documents other than the 1996 agreement (specifically, the master franchise agreement with Gloria Jean's). Resolution of the competing characterisations of the facts will have to await the final hearing. The material presently available does not lead to the conclusion that the cross-claim is obviously untenable or doomed to fail.

68 Thirdly, the alleged status of Jireh as a serial "contract breaker" which has caused WES's impecuniosity. One difficulty with this argument, as Jireh submitted, is that it depends on accepting the validity of WES's claim and its entitlement to ongoing commissions from Jireh in accordance with WES's views about the status and terms of the 1996 agreement. Another is that the available evidence indicates that WES never held any substantial assets and only ever generated a modest income for Mr Meier and Mr Cisneros. The evidence about WES's projected financial position is based on the belief of WES's solicitors from information provided by Mr Meier and Mr Cisneros. The information they provided contains numerous untested (and, given the form of the evidence, inscrutable) assumptions about sales figures and numbers of stores. The caution expressed in Fat-sel about claimed impecuniosity based on expectations of future earnings is particularly apt in a case such as the present. WES bore the evidentiary onus of establishing this issue of causation. I am not persuaded that Jireh's conduct is the cause of WES's impecuniosity on the unsatisfactory state of the evidence on behalf of WES (a matter discussed further below).

69 Fourthly, WES's claim that the effect of an order for security will be to stultify the proceedings.

70 Jireh submitted that the evidence with respect to this issue was unsatisfactory. Neither of WES's principals, Mr Meier and Mr Cisneros, provided sworn testimony about their financial position. All of the primary information had been provided through documents (not only tax returns and financial statements but also unsupported summary statements of assets and liabilities of Mr Meier and Mr Cisneros). All of the critical secondary information about the effect of the making of any order for security on the financial position of Mr Meier and Mr Cisneros and their capacity to maintain the proceedings was through the information provided to and the belief of WES's solicitors. The information and belief could not be effectively tested through cross-examination. On its face the information disclosed that Mr Meier and Mr Cisneros have interests in numerous companies and complicated financial arrangements. Anomalies were also apparent on comparing Mr Meier's summary statement of assets and liabilities between 2006 and 2007. If WES wanted to establish that the making of an order for security would stultify the proceedings then there was an obligation to provide reliable and testable evidence to enable that finding to be made. Given the capacity for evidence to be given by video link and the fact that Mr Cisneros travelled the world in connection with various business interests, the fact that the principals of WES resided in the USA was no excuse. In any event, given the size of the potential claim (over $30 million) it would be surprising if the effect of the making of an order for security were the abandonment of the proceedings as claimed.

71 WES submitted that Jireh's submissions on this issue were overstated. No complaint had been made about the form of the evidence before the hearing. The affidavits from WES's solicitors annexed documents capable of being relied on (such as tax returns and financial statements).

72 I consider Jireh's submissions on this issue persuasive. Although Mr Koffel referred to an intention to obtain evidence directly from Mr Meier and Mr Cisneros before the hearing, Mr Koffel was not aware that the motion for security had been listed for hearing on 22 April 2008. The inference that must be drawn on the evidence is that the solicitors for WES were aware that the financial positions of Mr Meier and Mr Cisneros were relevant to the issue of security and made a forensic decision to rely on the provision of documents and the statements of solicitors on information and belief. The nature of the information disclosed by the documents and the statements based on belief had the practical consequence of immunising the financial information from any effective review. Further, and as Jireh submitted, the complexity of the financial arrangements and the lack of supporting information for the summary statements of assets and liabilities raised numerous questions that remained unanswered. This is not to suggest that the questions cannot be answered. It is merely to recognise that WES, Mr Meier and Mr Cisneros had to establish the claim of stultification and their evidence in form and substance was inadequate for that purpose.

73 A few examples (mostly pointed out by Jireh) will suffice.

74 As noted, Mr Meier and Mr Cisneros both provided summary statements of their assets and liabilities. According to Mr Rivera, Mr Meier instructed him as at 22 April 2008 that his personal assets and liabilities statement had not changed significantly since December 2006. Mr Rivera prepared a later affidavit, on 29 May 2008, annexing an updated statement from Mr Meier as at December 2007. There are significant differences between the two statements. In both statements a major asset is real estate. The values placed on the real estate in both statements apparently emanate from Mr Meier and are unsupported by any valuations. The value of the real estate has decreased from $885,000 to $580,000 without explanation. If that decrease is put to one side Mr Meier's net financial position between December 2006 and December 2007 appears to have improved by some $442,570 (to $1,682,479). This was during a period when WES was incurring substantial legal fees. According to Mr Rivera's instructions, Mr Meier and Mr Cisneros had to fund payment of these fees. Because of the unexplained decrease in the value of real estate Mr Meier's financial position improved to a lesser extent (by about $137,570).

75 On 22 April 2008 Mr Meier and Mr Cisneros instructed Mr Rivera that because they made a modest salary from their business interests and investments they were not in a position to offer much over the personal undertakings dated 30 October 2007 (capped in the amount of $100,000 each). On 29 May 2008, without explanation about the source of the funds or some change in circumstances, both Mr Meier and Mr Cisneros increased their personal undertakings to $200,000.

76 The financial documents annexed to the affidavits show that Mr Meier and Mr Cisneros have interests in a number of companies (in substance, companies they own). However, apart from vague statements on information and belief about the activities of those companies from Mr Rivera there was little information available about the assets of these companies. As with the real estate, Mr Meier and Mr Cisneros were the source of the value of the shares in these companies.

77 Mr Meier receives not insignificant income from investments and activities outside the USA. The sources and nature of those activities is unknown. Mr Meier also disclosed interests in various tax shelters the nature of which remains unknown. Mr Meier has dealings in a swap fund. Mr Cisneros made a large capital gain in 2005 the source of which is not known. Mr Cisneros also earns income from foreign countries.

78 These matters all support Jireh's submission that the available information indicates that Mr Meier and Mr Cisneros are sophisticated commercial people with complex financial arrangements. These facts mean that the provision of information about their net financial position and capacities in a form capable of being tested was particularly important. Evidence has not been adduced in that form. The evidence adduced raises unanswered questions about their net financial positions, their capacities to access funds, and the true effect of the making of any order for security on their capacity to finance these proceedings.

79 Fifthly, the issue of oppression (to which the evidence about the respective size and success of Jireh and WES relates). The claim that the notice of motion is oppressive largely depends on the acceptance of the stultification argument. For the reasons given above I do not consider that WES, Mr Meier and Mr Cisneros have established that the making of an order for security will have the effect claimed. Otherwise the argument about oppression appears to relate to the relative size of Jireh and WES and the amount of security in issue. The fact that Jireh may be more successful than WES should not deprive Jireh from an order for security if otherwise appropriate. WES (on the evidence) has always been a relatively small commercial enterprise. I do not consider the relative size of the two entities a factor that can be given significant weight in the exercise of discretion. I deal with the issue of the amount of security separately.

80 Sixthly, Mr Meier and Mr Cisneros have offered personal undertakings to secure an adverse costs order up to the amount of $200,000 each. Issues arise about these undertakings separate from the amount of security. Jireh submitted that decisions about the worth of personal undertakings were in a context of undertakings to pay all of the costs of the defendant if so ordered. Mr Meier and Mr Cisneros had not made any such offer but, instead, had belatedly increased their offers by 100% on the first day of the hearing. Further, in the event a costs order is made in its favour, Jireh should not be forced to litigate in Colorado to enforce the undertakings. Security in the jurisdiction should be provided. Although Mr Meier and Mr Cisneros had offered not to take any point about the various assumptions underpinning the advice of the lawyers from Colordao about enforceability, the offer was made belatedly and could not extend to one of the assumptions (namely, enforcement not being repugnant to public policy). WES submitted that the personal undertakings were adequate as they would be enforceable in Colorado against Mr Meier and Mr Cisneros. Provision of security in the jurisdiction would inevitably involve cash as neither Mr Meier nor Mr Cisneros had any assets in the jurisdiction. The evidence showed that Mr Meier and Mr Cisneros did not have access to the cash that would be required (on any view about the amount of security that would be sufficient).

81 Part of the difficulty with the arguments on behalf of WES on this issue is the unsatisfactory nature of the evidence from Mr Meier and Mr Cisneros about their financial positions. Given the form and nature of the evidence I am not satisfied an inference is warranted that the effect of an order for security within the range ultimately apparent from the competing submissions (between $400,000 and $700,000) will be to stultify the proceedings. Further, it is common ground that there is no arrangement between Australia and the USA that would require a Colorado Court to recognise a judgement against WES and the associated personal undertakings. Instead, according to the expert opinion about Colorado law, Jireh would have to rely on Colorado case law to the effect that the relevant statute "does not prevent the recognition of a foreign judgment by a Colorado court and a foreign judgment may be recognised under the common law doctrine of comity". One of the assumptions on which the opinion of the Colorado lawyers was based was that the claim for relief on which the judgment is based is not repugnant to public policy. Another was that the statutory procedures in Colorado for enforcement of a foreign judgment, including filing of the necessary papers and payment of fees, are followed. Although Jireh raised a concern about the public policy issue (simply on the basis that the issue had not been explored at all) its submission that it should not be forced to commence proceedings on personal undertakings with respect to costs is persuasive in all of the circumstances of this case. The undertakings, in the circumstances, are not an adequate or effective substitute for security.

82 I am satisfied on the evidence that Jireh has a strong case for an order for security. WES has made a claim against Jireh, presently unquantified but undoubtedly for a large sum of money. The proceedings involve a relatively complex commercial cause. Whatever view is taken of the evidence about the amount of security (discussed below) Jireh will incur substantial legal costs in defending the proceedings. WES does not have the capacity to meet an adverse costs order if Jireh is ultimately successful. The only two people who stand to benefit from the prosecution of the claim are Mr Meier and Mr Cisneros. The form and nature of the evidence about their financial position was inadequate. It did not persuade me that the making of an order for security would stultify the proceedings. In my view the making of an order for security to ensure adequate and fair protection to Jireh outweighs any possible hardship that WES, Mr Meier and Mr Cisneros may suffer by having to provide sufficient security in an acceptable form (namely, a form that does not require Jireh to undertake enforcement proceedings for its costs against Mr Meier and Mr Cisneros in Colorado). I do not consider such an order will work any injustice as the evidence does not satisfactorily establish that WES will be unnecessarily shut out or prejudiced in the conduct of litigation.

83 A substantial amount of the evidence concerned the amount of security that should be ordered (if any order were to be made at all). A number of guiding principles emerge from the decisions. Security is intended to be sufficient but need not be a complete indemnity. The Court is not bound to accept the defendant's estimate even if unchallenged. The risks of an overestimate should generally be borne by the defendant. Security can be staged if appropriate but: What the Court is required to do is to assess the likely amount of costs that will be incurred until the conclusion of the hearing, and to order security for that amount (or for such proportion thereof as is likely to be recoverable on assessment). Whilst liberty to apply may properly be reserved, that should be utilised to cover cases where, because of changes in the nature or complexity of the litigation, some revision is required to the estimates that had been given and accepted. It is not, in my view, appropriate simply to defer an essential part of the Court's task by the mechanism of reserving liberty to apply. All that does is put off the debate to another day ( Sharjade v Darwinia Estate [2006] NSWSC 708 at [51]).

84 The issue of the amount of security considered sufficient in this matter does not turn on the credit of any witness. I accept that the solicitors involved in the estimating process have done the best they can at the time they made the estimates. This is so irrespective of the fact that the estimates of Mr Gambin and Mr Collins were irreconcilable.

85 With the benefit of hindsight and on the basis of the information currently available, I consider the general approach of Jireh's solicitors to the likely complexity of the preparation and hearing of this matter more realistic than that advanced for WES. It follows that I prefer the overall approach of Mr Gambin, Mr Booth and Ms Ward to that of Mr Collins and Mr Nicholas because the latter assumed the proceedings would be straightforward. I am supported in this conclusion because the evidence about the costs WES itself has incurred in bringing these proceedings indicates that WES's costs have materially exceeded Mr Collin's estimates and seem comparable to those of Ms Ward (whatever way in which that evidence is treated).

86 I accept the rates proposed by Ms Ward. I do not accept WES's submission that Ms Ward simply assumed that the hours proposed by Mr Gambin were correct. Ms Ward's evidence disclosed a more critical approach to Mr Gambin's estimated hours than mere acceptance of each and every assumption on which her instructions were based. Nevertheless there were areas identified by WES where I consider the risk of an overestimate should be borne by Jireh. Otherwise (subject to specific issues addressed below) I consider Ms Ward's estimates reasonable overall on the basis of the information presently available. For example, the hours for preparation of affidavits of lay witnesses was based on five substantial affidavits when, in fact, there will be four substantial affidavits and five additional lesser affidavits. The hours estimated in total are reasonable. It must also be taken into account that the hours for interlocutory motions (for which Mr Collins made no allowance) are likely to involve an underestimate given the length of the hearing for this notice of motion and the motions that remain outstanding. Before identifying the specific areas of concern in the costs estimate I deal with four issues WES raised.

87 First, I do not consider the allowance for a second junior counsel in preparation unreasonable in circumstances where the applicable rate per hour is materially less than that of a junior solicitor and the tasks allocated do not appear to involve unnecessary duplication. The fact that WES has presently elected to construct a smaller team (with more direct involvement of senior counsel at this stage thereby likely) does not undermine the reasonableness of Jireh's approach to this issue. As Ms Ward said, the real issue on assessment is not having a team in place but duplication. Ms Ward made a substantial deduction from Mr Gambin's estimates relating to case management by senior counsel and the partner at Jireh's solicitors that I adopt in this regard.

88 Secondly, I accept that it is possible that a single expert may be appointed on quantum issues either sooner or later. I also accept Ms Ward's evidence that, if appointed sooner, there is likely to be a significant cost saving. However, the issue of the appointment of a single expert has not yet been determined. Jireh opposes that course. Whether its grounds for so doing carry weight cannot presently be assessed. If a single expert is appointed, WES's position is protected by liberty to apply to deal with this (and any other) material change in circumstances relevant to the issue of costs. As matters presently stand Jireh's allowance for two experts is fair and reasonable.

89 Thirdly, I accept that, as a matter of principle, WES should not have to provide security for offensive claims. The cross-claim in this case raises a number of issues that are not readily able to be resolved at this stage. Nevertheless it is clear that the cross-claim arises from the same transaction as the statement of claim. Although it joins two new parties, those parties are Mr Meier and Mr Cisneros, the principals of WES. Their evidence would be critical to the resolution of the issues in Jireh's defence. Mr Booth conceived of the cross-claim in purely defensive terms, namely, as a form of set off against WES's claims. On this basis the situation is one concerning "different aspects of one transaction" (Demag-Lauchhammer Maschinenbau Und Stahlbau GmbH v John Holland (Constructions) Pty Ltd [1966] 2 NSWR 3 at 7). Accordingly, I prefer the view that the cross-claim is likely to add little in the way of costs to Jireh's defence of the proceedings.

90 Fourthly, WES amended its statement of claim. The amendments to the statement of claim broaden the scope of the dispute because of the importance, in the amendments, of conduct after 19 March 2006 to questions of quantum, contract formation and terms. None of the estimates build in the additional costs of the amended statement of claim. Mr Booth's estimate of an additional 20%, as Mr Koffel correctly indicated, is difficult to assess. Nevertheless I am satisfied that the amended statement of claim will add materially to the costs even if not to the extent of an additional 20% as estimated by Mr Booth. I have taken into account this fact when addressing the overall reasonableness of Mr Gambin's estimates, as modified by Ms Ward.

91 Although I consider the allowance of 50 hours each for the selection of experts by junior counsel and the partner excessive it is apparent that Ms Ward has picked up the incorrect number of hours for the two junior counsel (90 hours instead of 130 hours for junior counsel 1 and 40 hours instead of 80 hours for junior counsel 2). The result is that deducting 50% of the time for selection of experts does not lead to a lesser figure than allowed by Ms Ward once the correct hours are otherwise included. Ms Ward's figure of $140,750 for the preparation of all expert reports is fair and reasonable overall and I adopt it.

92 The time allowed for preparation by solicitors in the month before the hearing far exceeded Ms Ward's rule of thumb of a half a day's preparation for each day in Court. On the basis of a hearing of 15 days (as to which, see below) I consider that I should reduce the hours allowed to Ms Ward's rule of thumb (that is, 60 hours each for the solicitors and paralegal). On this basis this phase of the hearing should be reduced to about $200,000. I accept her approach to the preparation by counsel in the four weeks before the hearing.

93 I accept that the estimate of the length of the hearing may be affected by numerous circumstances including the appointment of a single expert. Doing the best I can at this stage I consider it unlikely that the hearing will be completed within 10 days. Given the nature and range of the issues in dispute and the time period they span, Mr Gambin's initial estimate of 15 days, in my view, is fair and reasonable. I do not consider any allowance should be made for the third counsel at the hearing. The allowance for the paralegal should be removed also given the full time attendance of a partner and junior solicitor provided for in the estimate. Adopting Ms Ward's rates this reduces the estimate for the hearing phase to $174,000.

94 I accept Ms Ward's evidence about reducing the entire estimate by one third in order to reflect the difference between solicitor-client costs and costs recoverable on assessment. Taken with the other amendments made above this reduction (particularly when considered with the evidence about recovery generally being more in a range of 66 to 80%) addresses any risks of an over estimate inherent in Ms Ward's acknowledgment that the hours involved were at the outer end of the range. The reduction by one third and amendments lead to the following estimates of likely recoverable costs in accordance with Mr Gambin's paragraph numbers:

Para 30 (discovery review) $34,999 Para 31 (discovery analysis) $54,444 Para 32 (Ringtail) $13,933 Para 33 (case management) $70,499 Para 34 (SC and partner management) $20,399 Para 35 (interlocutory motions) $62,083 Para 36 (lay affidavits) $113,749 Para 37 (experts) $93,833 Para 39 (hearing preparation) $133,333 Para 39 (hearing) $115,999 Total costs recoverable $713,271 (say $700,00)

95 This analysis discloses that the approach adopted by Ms Ward and in Jireh's submissions (for security in the order of $700,000) is fair and reasonable and strikes a proper balance between the competing interests of the parties relevant to the purpose of an order for security.

96 Both parties accepted that any order for security could (and, properly, should) be staged. I agree. This will ameliorate unnecessary hardship to WES, Mr Meier and Mr Cisneros. Various suggestions were made about the possible staging. I consider Jireh's approach the most appropriate. That approach involved two stages (all steps up to four weeks before the hearing as stage one and four weeks before the hearing to the end of the hearing as stage two). On the basis of the breakdown above that would involve WES providing security in an appropriate form (by way of bond or bank guarantee or other security within the jurisdiction) in the amount of $450,000 within some suitable time period and a further $250,000 not less than 28 days before the hearing.

97 I propose to adjourn the proceedings for mention within the next 14 days on a convenient date at which time final orders can be made consistent with my conclusion that WES should provide security for Jireh's costs in the amount of $700,000 in two stages ($450,000 within some suitable time period and a further $250,000 not less than 28 days before the hearing). The orders should also provide for liberty to apply. The orders should deal with the costs of the motion if they can be agreed. If not, costs will be heard and determined on that day.

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