ACN 007 528 207 P/L (in Liq) v Bird Cameron & Ors No. Scciv-99-1392

[2001] SASC 247

ACN 007 528 207 PTY LTD (IN LIQUIDATION)  v  BIRD CAMERON AND OTHERS
[2001] SASC 247

Civil

1. BLEBY J. The plaintiff, formerly known as Warlan Pty Ltd, commenced this action in the Federal Court of Australia.  The proceedings were subsequently transferred to this Court.  In essence, the plaintiff sues the defendants, a firm of chartered accountants, arising out of two transactions involving the sale of shares in the company.  It is not necessary to recite the details in the Statement of Claim.  It is sufficient to say that in relation to each of the transactions, the plaintiff alleges a breach of s 129 of the then Companies Code or s 205 of the Corporations Law, as the case may be, a breach of duty of care and of the firm’s retainer, breach of fiduciary duty, aiding and abetting a breach of the statutory duties of the directors of the company and, in one case, damages for misrepresentation.

2. The defendants have joined a firm of solicitors as third party to the proceedings claiming indemnity or contribution in respect of the plaintiff’s claim.

3. A separate action by some of the company’s former shareholders was also commenced and has also been transferred to this Court.  Save in one respect to be mentioned, I am not concerned with those proceedings in relation to the determination of this present application.

4. The plaintiff has sued the firm in its registered name, asserting that the proprietors of the business name carried on the business.  It has also sued BPM Pty Ltd as proprietor of the business, the executrix of the estate of one of the alleged partners and another company, Birdanco Nominees Pty Ltd, said to have “taken over” the obligation, including the liabilities, of BPM Pty Ltd.  It seems tolerably clear that the action cannot succeed against all defendants, even if it succeeds against one.

5. At all material times the defendants were insured by HIH Casualty and General Insurance Limited (HIH), and their defence was being conducted on behalf of that insurer.  On 15 March 2001 HIH was placed in provisional liquidation.  With that, the prospect of the defendants now being provided with indemnity by HIH is extremely remote.  They are now conducting the action themselves.

6. By application dated 21 June 2001 the defendants seek an order for security for costs against the plaintiff.  They also seek the provision of documents and information designed to show the relationship between the plaintiff and GIO Finance Ltd (GIO), which the defendants have reason to believe might be financing the plaintiff’s action.

7. At the hearing of the application the plaintiff conceded that the defendants were entitled to an order for security for costs.  The only arguments were as to the amount of the security and the means by which it should be provided.  The plaintiff also objected to supplying the documents and other information sought by the defendants.

8. The latter application can be shortly disposed of.  By its concession that the defendants are entitled to an order for security, the plaintiff has effectively admitted that it is unable to pay any costs which may be awarded against the plaintiff.  It has made apparently bona fide claims against the defendants.  Whether it is being supported by GIO in those endeavours, and if so, to what extent, ceases to be a material question.  The request for documents and information could only be relevant to establish the plaintiff’s inability to pay the defendants’ costs.  The only purpose in persisting with the application would be to obtain information which is relevant neither to the principal proceedings nor to the present application.  That application must be refused.

9. As between the plaintiff and the defendants, the pleadings are closed, all necessary interlocutory applications have been disposed of, and the plaintiff asserts that it is ready for trial.  There have been some delays caused by the defendants, since the collapse of HIH, now seeking to join additional third parties.

10. The plaintiff does not complain of delay on the part of the defendants in bringing the application.  It does argue, however, that the amount ordered for security for costs should cover no more than the reasonable costs of the defendant to be incurred between now and the end of the first day of the trial when, if necessary, a further application can be made.  I agree that that is the appropriate basis on which any order for security should be made.  It would be unfair to saddle the plaintiff with an order for security for the substantial amount of costs which have no doubt already been incurred to this stage of the proceedings, when the application was not brought until June this year.

11. The defendant has given a broad estimate of its costs with a singular lack of particularity.  It describes its pre‑trial preparation as “finalising witness statements, discovery and inspection issues between defendants and third parties, correspondence between solicitors, proofing and meetings with witnesses, delivery of briefs, conferences with counsel”, and provides an estimate for that work, as described, of between $20,000 and $50,000.  Usually, one would expect an estimate of future costs to be set out in the form of a short estimated bill of costs, but in this case no greater particularity has been given than that to which I have referred.  The other observation that needs to be made about that aspect of the estimate is that it includes work in respect of outstanding proceedings with the third parties, for which the defendants are not entitled to any security from the plaintiff.

12. The defendants also indicate that the witness costs “of travelling from Western Australia and accommodation in Adelaide” for two witnesses as being between $1,000 and $2,000 each.  They claim fees of two experts to prepare for and appear at trial, estimated at $3,000 ‑ $6,000.  Given the length of trial, there would be many days, if not weeks, before such witnesses would be required by the defendant after the commencement of the trial.  There is also no apparent justification for bringing the other two witnesses from Western Australia before the trial.  I therefore ignore those components for present purposes.

13. A similar application for security has also been made by the defendants against the plaintiffs in the other proceedings to which I earlier referred.  That application is part‑heard, and is being pursued at the same time as this one.  Exactly the same estimate is made in respect of those proceedings, which plainly suggests a duplication in the estimate.  As the actions are likely to be heard together, there is no justification for doubling the estimate.

14. At the hearing, Mr Heinrich, for the defendants, sought an order in the sum of $50,000, being the maximum estimated for the solicitors’ future pre‑trial costs.  As I have said, the estimate for that item is flawed by inclusion, in general terms, of what I consider are likely to be significant further costs in relation to the third party proceedings, for which the plaintiff cannot be responsible.  The estimate is also flawed when it is merely reproduced in identical form in support of a similar application in the other proceedings.  For those reasons, and given its lack of detail, I can place little or no weight on it.

15. The plaintiff has offered to provide security in the sum of $40,000.  I cannot be satisfied that any greater sum is necessary, and there will be an order to that effect.

16. The defendants seek that the sum be paid into court.  That is one way of providing security.  It is not the only way.  An offer by directors of a company to guarantee an order for costs payable by the company may be considered as to its adequacy, although it may not provide a conclusive answer to the plaintiff: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 202 ‑ 204.

17. In this case the plaintiff has tendered a guarantee under seal of GIO.  That is a company limited by shares.  Its ultimate holding company is AMP Ltd, a well‑known public company.  It has a paid up capital of $110,000,000.  It carries on business as a finance company.  It has a loan programme known as a commercial paper programme in the sum of $500,000,000 and has a credit rating issued by Standard and Poors Corporation of BBB/Stable A-3.  I am satisfied that the guarantee is offered by substantial entity.  As was said by King CJ in Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180 at 189:

    “In considering security for costs the court ought to try to do justice as between the parties.  The court should protect a defendant against the loss which may result from inability to recover costs by reason of the impecuniosity of the plaintiff but should not go further than is reasonably necessary for that purpose.”

18. In my opinion, the guarantee that is offered is adequate in all the circumstances.  Should the ultimate ownership or financial circumstances of GIO change, then the defendants can always apply for a review of the order.

19. There will therefore be an order that the plaintiff provide within 14 days of the date of this order security for the defendants’ costs in the sum of $40,000 by way of guarantee under seal from GIO Finance Ltd in the form exhibited to the affidavit of Richard Keith Beissel sworn the 6^th day of July 2001.  The application made in paragraph 1 of the defendants’ application filed on 21 June 2001 is dismissed.  I will hear the parties as to the costs of this order.