Australian Money Exchange Pty Ltd (in liq) v Llewellyn; Keybridge Capital Limited v Llewellyn (No 2)
[2024] VSC 207
•30 April 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 02922
| AUSTRALIAN MONEY EXCHANGE PTY LTD (IN LIQUIDATION) ACN 090 388 257 | Plaintiff |
| -and- | |
| PR FINANCE GROUP LIMITED (IN LIQUIDATION) ACN 109 299 390 | Second Plaintiff |
| v | |
| JONATHAN HUW ELFYD LLEWELLYN AND OTHERS (in accordance with the Schedule) | Defendant |
S ECI 2019 03619
| KEYBRIDGE CAPITAL LIMITED (ACN 088 267 190) | First Plaintiff |
| -and- | |
| MB FINANCE PTY LTD (ACN 123 051 730) | Second Plaintiff |
| v | |
| PETER ELFYD LLEWELLYN (and Others according to the Schedule) | Defendant |
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JUDGE: | DELANY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 17 April 2024 |
DATE OF RULING: | 30 April 2024 |
CASE MAY BE CITED AS: | Australian Money Exchange Pty Ltd (in liq) & Anor v Llewellyn & Ors; Keybridge Capital Limited & Anor v Llewellyn & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 207 |
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PRACTICE AND PROCEDURE — Security for costs – Corporate guarantees in place as security for costs – Evidence of financial volatility, two winding up applications and considerable litigation concerning guarantor – Listing of guarantor on ASX suspended – Lack of confidence existing security will respond if called on – Existing form of security inadequate – Security to be provided in form of bank guarantee – Existing security inadequate for past costs – Bank guarantee to cover past and future costs.
PRACTICE AND PROCEDURE – Self-executing orders – History of non-compliance – Trial imminent – Risk to trial date if non-compliance with interlocutory steps – Civil Procedure Act 2010 (Vic), ss 7-9, 25, 51.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mark Robins KC with Joshua Forrest | P&B Law |
| For the Fourth Defendant (S ECI 2019 03619) / Fifth Defendant (S ECI 2019 02922) | Paul Liondas SC with Vicki Bell | CJM Law |
| For the Seventh Defendant (S ECI 2019 02922) | Jennifer Collins | Clyde & Co |
HIS HONOUR:
These reasons concern applications by the seventh defendant in S ECI 2019 02922 (‘Lloyds’) and the fourth defendant in S ECI 2019 03619 and fifth defendant in S ECI 2019 02922 (‘Mr James’) for security for costs against the plaintiffs in the respective proceedings. They also concern applications by those parties that the proceedings be dismissed for want of prosecution and in the alternative for self-executing orders in respect of steps to be taken by the plaintiffs.
The plaintiffs opposed the security for costs orders. They opposed leave being given to amend the summonses.
My ruling dated 11 October 2023[1] sets out the background to the proceedings including detailing previous extensive delays on the part of the plaintiffs in prosecuting the proceedings to trial.
[1]Australian Money Exchange Pty Ltd (in liq) v Llewellyn; Keybridge Capital Ltd v Llewellyn [2023] VSC 601.
Pursuant to an Order made on 2 February 2024 in proceeding 2922 (which stands as an order in proceeding 3619), the proceedings are listed for trial commencing on 7 May 2024 on an estimate of 10 days. The plaintiffs failed to file and serve the Court Book in accordance with that Order. They also failed to exchange lists of objections to evidence in accordance with that Order.
On 16 April 2024, the plaintiffs’ then solicitors, Allen & Overy, filed notices of ceasing to act for the plaintiffs in the two proceedings. They did so pursuant to rule 20.01 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (the ‘Rules’) with leave granted by me earlier that day.
Following Allen & Overy ceasing to act, Mr James and Lloyds provided the Court with proposed amended summonses. The amended applications sought orders the proceedings be dismissed or struck out for want of prosecution. Alternatively, Mr James’ proposed amended applications sought orders that the due date under the February 2024 pre-trial orders for the court book to be filed be extended from 16 April 2024 to 19 April 2024 and that if those orders were not complied with, the proceedings stand dismissed pursuant to s 51 of the Civil Procedure Act 2010 (Vic) (the ‘CPA’).
On 17 April 2024 the plaintiffs appointed new solicitors. At the hearing the relief sought by Lloyds and Mr James was opposed by the plaintiffs.
At the conclusion of the hearing I informed the parties I proposed to order:
(1)Keybridge is to provide security for Lloyds’ costs in the form of a bank guarantee in the amount of $1,004,907.15 as specified in Lloyds’ summons and referred to in the Affidavit of Ms Janelle Barron dated 8 April 2024.
(2)Keybridge is to provide security for Mr James’ costs in the form of a bank guarantee in the amount of $495,799.88 in proceeding 2922 and $333,477.88 in proceeding 3619, being 65% of the solicitor/client costs and disbursements referred to in the Affidavit of Mr Jake Jeong dated 15 April 2024.
(3)The security in the form of bank guarantees referred to above is to be provided by no later than 2:00 pm on Monday 21 April 2024.
(4)The time for the plaintiffs to provide their lists of any objections to evidence (and brief reasons for the objections) as per order 17 made 2 February 2024 is extended to 4:00 pm Friday 19 April 2024.
(5)The time for the plaintiffs to file and serve the court book as per order 16 made 2 February 2024 is extended to 12 noon on Monday 21 April 2024.
(6)The time for the defendants to file and serve their opening submissions is extended to 2 May 2024.
(7)In the event of non-compliance by the plaintiffs with the payment of security or any of the orders made 2 February 2024 as amended, the proceedings are dismissed.
(8)The plaintiffs are to pay the costs of Mr James and Lloyds of the hearing on 17 April 2024 and of and incidental to the summonses dated 12 April 2024, 15 April 2024 and 16 April 2024 and the amended summonses dated 16 April 2024.
I announced my decision in advance of my reasons, given the proximity of the trial date and the need for the parties to take steps promptly to give effect to that decision. In advance of my reasons, an authenticated form of order giving effect to my decision was issued. Reflecting agreement reached between the parties following the hearing, the authenticated order provides for the provision of security by payment into Court rather than by the provision of bank guarantees.
In addition to the matters dealt with in the orders there remains an outstanding issue concerning access by Mr James and Lloyds to a document over which the plaintiffs claim legal professional privilege. Arrangements have been made for that issue to be separately determined.
Existing security for costs arrangements
On 11 October 2023, I ruled that as a condition of the proceedings going forward, Keybridge Capital Limited (‘Keybridge’) was to provide an undertaking to the Court in each of the proceedings to pay the defendants’ costs, including reserved costs, if ordered to do so. I ruled that if the required undertakings were not given in either proceeding by the specified date, then that proceeding or both proceedings, as the case may be, would stand dismissed for want of prosecution.
On 11 October 2023, I made an Order in each of the proceedings giving effect to my ruling. In accordance with those Orders, on 20 October 2023, Allen & Overy sent a letter to the Court providing an undertaking that:
(a) in proceeding 2922, Keybridge, a related company of the first and second plaintiffs in proceeding 2922, would pay the costs of the defendants to proceeding 2922 (relevantly Mr James and Lloyds) in the event that the first and second plaintiffs fail to obtain judgment in their favour or the court otherwise orders;
(b) in proceeding 3619, Keybridge, the first plaintiff, would pay the costs of the defendants to proceeding 3619 (relevantly Mr James) in the event that it and the second plaintiff fail to obtain judgment in their favour or the court otherwise orders (collectively, ‘the undertakings’).
The security for costs applications
Lloyds’ application
By summons dated 12 April 2024 in proceeding 2922 Lloyds applied for security for costs in the amount of $1,051,626.28, or such other amount as the Court directs, such security to be given by payment of the sum ordered into Court within 7 days. In the event security is not given, the proceeding as against Lloyds is dismissed. Lloyds sought an order that the plaintiffs pay Lloyds' costs and such other order as the Court sees fit.
Lloyds also sought an order pursuant to rule 29.08 of the Rules that the plaintiffs provide discovery of the ‘MK File Note’, a document over which the plaintiffs claim legal professional privilege. Lloyds relies on the Affidavit of Janelle Barron dated 8 April 2024 concerning this issue.
Lloyds’ amended application
Lloyds applied to amend its application to seek the following relief:
(a) Pursuant to the Court’s inherent jurisdiction and/or section 51 of the CPA, that the matter be dismissed, alternatively, struck out for want of prosecution.
(b) In the event that:
(i) this Order; and
(ii) the Court’s orders dated 2 February 2024,
(the Relevant Orders)
are not complied with in their entirety by the plaintiffs (by doing the things required by each paragraph of the Relevant Orders by the times specified within the Relevant Orders):
(iii) then this proceeding shall stand dismissed; and
(iv) the plaintiffs pay Lloyds’ costs of this proceeding on an indemnity basis.
In the alternative, Lloyds sought the security for costs orders at paragraph 13 above, with the form of security to be in the form of a bank guarantee.
Lloyds relied on the following evidence:
(a) Affidavit of Janelle Barron dated 14 February 2023;
(b) Affidavit of Janelle Barron dated 24 May 2023;
(c) Affidavit of Janelle Barron dated 9 August 2023;
(d) Affidavit of Janelle Barron dated 8 April 2024; and
(e) Affidavit of Janelle Barron dated 16 April 2024.
Mr James’ application
Mr James made an application for security for costs in each of the proceedings.
By summons dated 15 April 2024 in proceeding 3619 Mr James applied for orders that:
(a) Within 7 days, the plaintiffs give security to Kent James by way of payment of funds into Court in the sum of $375,000 for Kent James’s costs of this proceeding up to and including trial, or in such other manner and time as the Court directs. If that Order is not complied with in its entirety, the proceeding shall stand dismissed as against Mr James.
(b) Mr James sought an order the plaintiffs pay his costs of the application and such other order as the Court sees fit.
By summons dated 15 April 2024 in proceeding 2922 Mr James applied for orders to similar effect, seeking security for costs in the sum of $525,000.
Mr James’ amended applications
Mr James applied to amend his applications to seek the following relief in both proceedings:
(a) The proceeding be dismissed for want of prosecution pursuant to the Court’s inherent jurisdiction.
(b) Alternatively, the date and time for compliance with paragraph 16 of the Orders made on 2 February 2024 be varied to 10:00 am on Friday, 19 April 2024.
(c) If that paragraph is not complied with in its entirety, the proceedings shall stand dismissed pursuant to section 51 of the CPA.
Mr James relies on the following evidence:
(a) Affidavit of Jake Jeong dated 28 February 2023;
(b) Affidavit of Jake Jeong dated 24 May 2023;
(c) Affidavit of Jake Jeong dated 28 June 2023;
(d) Affidavit of Jake Jeong dated 28 July 2023; and
(e) Affidavit of Jake Jeong dated 15 April 2024.
The defendants’ evidence concerning the solvency of Keybridge
The real issue concerning security for costs is whether the undertakings provided by Keybridge on 20 October 2023 no longer provide a sufficient form of security for the costs of Mr James and Lloyds.
The applicants for security contended the Keybridge guarantees are no longer an appropriate form of security, having regard to the solvency concerns detailed in the Affidavit of Janelle Barron dated 8 April 2024 summarised below.
Firstly, on 1 March 2024, the ASX suspended Keybridge from trading under Listing Rule 17.3, pending response to ASX’s queries in relation to Keybridge’s half year accounts lodged on 29 February 2024.
Secondly, Keybridge’s net asset position has decreased from $17.685 million in December 2023 (announced on 22 January 2024) to $12.827 million in February 2024 (announced on 29 February 2024).
Thirdly, Keybridge is currently exposed to a number of litigation liabilities and adverse judgments. Those exposures include:
(a) an order against Keybridge requiring it to pay $500,000 into court as security for costs in litigation against Ben, Nathan and Grenville Thynne;
(b) an ongoing contested costs dispute following litigation against Bell Potter (Keybridge Capital Ltd v Bell Potter Securities Ltd [2022] NSWSC 1022);
(c) a claim against it by a former Keybridge director for indemnity for his legal costs;
(d) an order requiring Keybridge to pay E&P Investments Limited's costs for a declaratory action in the NSW Supreme Court;
(e) an ongoing claim against former directors of Ragusa Minerals Limited over the acquisition of Aurora Funds Management Limited;
(f) ongoing litigation (Muller v Bartlett) that Keybridge lost and was ordered to pay costs;
(g) an order against Keybridge requiring it to pay costs in respect of litigation it lost against WAM Active Limited;
(h) proceedings to which Keybridge has newly been joined in New York relating to a claim for loan shortfall monies; and
(i) recently launched proceedings against Republic Financial Holdings Limited to recover monies in relation to a loan facility.
On 26 February 2024, ASIC published a Notice of Application for Winding Up Order issued by WAM Active Limited against Keybridge.
On 8 March 2024, ASIC published a Notice of Application for Winding Up Order issued by Bell Potter Securities against Keybridge.
In the course of the hearing, Mr James referred to evidence of the volatility of the financial position of Keybridge. In terms of its recent past profit and loss history, Mr James referred to net loss amounts for a number of recent financial years:
(a) FY19 ($3,608,530);
(b) FY20 ($3,237,687);
(c) FY22 ($753,237);
(d) FY23 ($8,947,383).
The exhibits to Ms Barron’s Affidavit include the Keybridge balance sheet reporting net assets of $13 million as at 30 June 2022 and net assets of $4.175 million as at 30 June 2023, almost a $10 million turnaround.
On 1 March 2024, Keybridge’s listing on the ASX was suspended. Its listing continues to be suspended. The applicants first sought an explanation on 5 April 2024 but it was not until 16 April 2024 when Mr Nicholas Bolton made his affidavit in response to these applications that for the first time an explanation was provided. When the explanation came, the explanation as to why the listing was suspended and why Keybridge’s shares continue to be suspended fell well short of a satisfactory or a detailed explanation.
Plaintiffs’ evidence and submissions
The plaintiffs submitted the essential question is whether Keybridge has insufficient assets to honour the existing undertaking to pay the defendants’ costs if they ultimately succeed in the proceeding. The defendants bear the burden of proof in that regard and must discharge it with ‘credible testimony’.
Where the risk is said to arise because a plaintiff is impecunious, the onus remains on the defendant to establish that impecuniosity, even where proof of an applicant’s ability to satisfy a costs order lies in their own hands.[2]
[2]Australian Dream Homes Pty Ltd v Stojanovski [2016] VSCA 38 at [40], [42] (Santamaria and McLeish JJA).
An application for security for costs must be brought promptly and not, as here, on the eve of trial. Unless the delay is adequately explained, the application should be refused.[3] Even if there is an adequate explanation for delay the defendant should not be given security in relation to past costs incurred.[4] So, for example, in Christou v Stanton Partners Australasia Pty Ltd,[5] nine months’ delay was considered sufficient to refuse security for costs for that period.
[3]Smail v Burton [1975] VR 776 at 779 (Full Court).
[4]See Southern Cross Exploration NL and Others v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 (NSW CA) at 125D.
[5][2011] WASCA 176.
The plaintiffs submit there is no ‘credible testimony’ establishing any real risk that Keybridge will be unable to honour its undertakings. Keybridge has established that is the case by reference to current audited financials, assets showing that there is no risk that any costs order in favour of the defendants will go unmet as explained in the Affidavit of Nicholas Bolton dated 16 April 2024. The critical evidence is the most recent Keybridge audited accounts as at 29 February 2024. These relevantly show:
(a) Half yearly profit to 31 December 2023 was $8,650,727;
(b) Net assets at 31 December 2023 were $12,826,821;
(c) Cash and cash equivalents at the end of the financial half-year 31 December 2023 were $8,130,278.
Each of the above figures represents a significant improvement relative to the previous years’ financials. There is thus no basis for the suggestion that Keybridge’s financial position has ‘significantly deteriorated’, such as to call its undertakings into question. It remains comfortably capable of meeting adverse costs orders, even in the total excessive amount now sought by way of further security.
Keybridge submitted Mr Bolton satisfactorily addresses the various matters raised by Ms Barron’s 8 April 2024 Affidavit. He gave evidence that:
(a) The Bell Potter Securities winding-up proceeding was dismissed by consent.
(b) The WAM Active Limited was brought by a hostile 45% shareholder of Keybridge based on a satisfied statutory demand while the costs orders underlying it are being assessed in the Federal Court system. No winding up order is likely.
(c) The ASX suspension does not relate to any concerns as to Keybridge’s underlying financial position described in its accounts.
(d) The costs dispute with Macpherson Kelley has been settled to Keybridge’s satisfaction.
(e) Whilst Australian Money Exchange Pty Ltd is self-evidently in liquidation and is clearly insolvent, that issue was resolved by the judgment of 11 October 2023 and the written undertakings previously provided by Keybridge.
Consideration: security for costs
In light of my previous order, no threshold issue arises about whether security for costs should be ordered in favour of both Lloyds and Mr James in proceeding 2922 and Mr James proceeding 3619.
If I am wrong and it is necessary to revisit the entitlement of the applicants to security, in proceeding 2922, both plaintiff companies are in liquidation. In those circumstances, the jurisdiction in section 1335 of the Corporations Act 2001 (Cth) (‘Corporations Act’) is enlivened. In proceeding 3619, pursuant to rule 62.02 of the Rules and in the inherent jurisdiction of the Court, the threshold sufficient to provide the jurisdictional basis for an order for security for costs is quite low. As described in Livingspring Pty Ltd v Kliger Partners:[6]
The phrase “reason to believe” is the touchstone of jurisdiction. It requires a rational basis for the belief — and no more. The wording adopted may be contrasted with other familiar formulations such as “if the court is satisfied that” or “if in the view of the court it is likely that”. The section requires the making of a judgment, a risk assessment: is there a risk that the corporation will be unable to pay? (It adds nothing, in our view, to say that it must be a “real risk”.) A risk assessment is, of necessity, imprecise. The section calls for a practical, commonsense approach to the examination of the corporation’s financial affairs.
It may be said, with justification, that this is a low threshold. But the test simply reflects the policy of the provision, which is to protect a defendant against the risk of the plaintiff corporation’s impecuniosity. The provision equips the court with the means to require that the defendant be secured against that risk.
[6]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, [15]-[16] (‘Livingspring’) (citations omitted).
In relation to proceeding 3619, the evidence relied on by Mr James, who also placed reliance on the evidence in Ms Barron’s 8 April 2024 Affidavit establishes the burden to which the Court of Appeal referred in Livingspring[7] is satisfied. In those circumstances, security for costs is appropriately ordered pursuant to rule 62.02 of the Rules, section 1335 of the Corporations Act and the inherent jurisdiction of the Court.
[7](2008) 20 VR 377.
The issue of substance concerns the adequacy or otherwise of the existing security for costs in the form in which it has been provided. There is a subsidiary issue concerning quantum and whether security, if ordered, should include security for past costs.
Mr James referred to various authorities, extracts from two of which appear below, in support of his submission that the existing form of security is inadequate and that orders should be made for security in the form of cash or a bank guarantee:
(a)DIF III Global Co-Investment Fund, L.P & Anor v BBLP LLC & Ors:[8]
[8][2016] VSC 401, [38]-[40] (citations omitted).
Third, a plaintiff is entitled to put forward security in a form least disadvantageous to it. Where a plaintiff puts forward security in a form other than payment into court or a bank guarantee from an Australian bank, the central inquiry is whether the proposed form of security is adequate to achieve its object as security; namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff. The fact that some delay may be involved in accessing that security is, while relevant, not decisive.
Fourth, a plaintiff proposing security bears a ‘practical onus’ of satisfying the Court that the proposed security will not impose an ‘unacceptable disadvantage’ on the defendant. Where that onus is satisfied, the Court should ordinarily order security in that form.
Drawing these threads together, in exercising its broad discretion as to the form of security for costs in the relevant security circumstances, the Court will usually apply the following principles:
(1) the plaintiff is entitled to propose security in a form least disadvantageous to it;
(2) the plaintiff bears a ‘practical onus’ of establishing that the proposed security is adequate and does not impose an ‘unacceptable disadvantage’ on the defendant;
(3) in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and
(4) based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.
(b)Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd:[9]
The authorities do not preclude an order that security for costs be in the form of a personal undertaking by a third party other than a financial institution. However, where the court has a choice between security in that form and security in a liquid form that enables funds to be accessed with minimum risk that litigation may be required to enforce the security, ordinarily the court should prefer the liquid form. The need to prefer the liquid form where a choice is available has become more acute since the commencement of the CPA because:
(a) section 8(1) requires a court to seek to give effect to the overarching purpose in the exercise of any of its powers;
(b) section 7(1) provides that the overarching purpose is ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’;
(c) section 9(1) provides that in making an order in a civil proceeding, a court must further the overarching purpose by having regard to a number of objects, including: the efficient conduct of the business of the court (s 9(1)(c)); the efficient use of judicial resources (s 9(1)(d)); and the timely determination of the civil proceeding (s 9(1)(f)); and
(d) a form of security for costs which does not provide a fund which can be accessed without the cooperation of the opposing party or a person who is connected to that party — and may require the commencement of proceedings to enforce it — has the potential to undermine the overarching purpose. This is because that form of security can give rise to satellite proceedings and additional delay and costs. Such satellite proceedings are contrary to the principle of finality in litigation.
[9][2017] VSCA 293, [58] (‘Trailer Trash’) (citations omitted).
Where security has been provided by way of corporate guarantee from the plaintiff’s parent entity, it is open to the defendant to seek a revised form of security if the financial circumstances of the parent entity change.[10] In Everest Colonial Pty Ltd Ice Creameries of Australia Pty Ltd,[11] Goldberg J found an offer of a parent company guarantee by way of security was insufficient because there was controversy about the financial position of the parent entity. Bruce Pie & Sons Pty Ltd v R H Mainwaring, English & Peldan[12] and Ipex ITG Pty Ltd v Melbourne Water Corporation (No 4)[13] are examples of cases where a plaintiff has been ordered to provide better security where security for costs was originally provided in a form which had depreciated.
[10]See, eg, ACN 007 528 207 P/L (in liq) v Cameron (2001) 214 LSJS 421.
[11]Unreported, Federal Court of Australia, 27 March 1997.
[12][1985] 1 Qd R 401 (see in particular at 402-403) (‘Bruce Pie’).
[13][2008] VSC 497 (‘Ipex’).
There are a number of reasons why I consider the existing form of security is not adequate to achieve its object as security, namely to provide a fund against which the successful defendants can readily enforce an order for costs. It is also the case if an order is made that there may be delays and possibly satellite litigation required before the defendants can actually access the security.
Firstly, the applicants have provided evidence of judgments against Keybridge in other litigation which earlier were unsatisfied but according to the evidence of Mr Bolton have now been satisfied by Keybridge.
Secondly, there is evidence of two winding up petitions against Keybridge by both Bell Potter Securities and WAM Active Limited. These have been satisfied, but while to have one winding up petition issued against a listed company might be described as unfortunate, to have two in a short space of time, and recently, gives me very serious concern as to the financial position of Keybridge, notwithstanding its audited accounts.
The first and second matters provide no confidence that Keybridge is a corporation that has arrangements in place to pay its debts as and when they fall due and that there will be no delays in responding to costs orders that may be made in the future. The risk of satellite litigation, the prospect of which is inimical to the objects of the CPA, is shown to be real if the form of security remains only in the form of the guarantees. In light of the financial volatility of Keybridge, the Court can have no confidence, despite its ostensibly healthy position as per the December 2023 audited accounts, that, if called upon to honour the guarantees in the future, Keybridge will be in a position to do so.
Thirdly, while the December 2023 audited accounts on their face provide comfort, they cannot be viewed in isolation from other evidence concerning Keybridge’s financials. Keybridge made significant losses in each of the 2019, 2020, 2022 and 2023 financial years. In the recent past, it had a $10 million change in its net asset position between one financial year and the next.
The audited accounts represent a snapshot in time, but the history of the financial position of Keybridge as reflected in its profit and loss accounts is one of volatility. The volatility evidenced from a comparison between the net assets of Keybridge as at 30 June 2022 and 30 June 2023 is mirrored in a much more compressed time frame by the different versions of its accounts as at 31 December 2023 prior to filing of the audited accounts. Recent financial filings show huge fluctuations in reports to the market over days only:
These matters show the volatile financial position of Keybridge such that it is unwise to place too much reliance on audited accounts as at a point it time. The financial position of the company can clearly change both quickly and dramatically. Security for costs is about security to meet a costs order in the future. The volatility of the financial past provides no basis for optimism that will be the case if the guarantees are later required to be called on.
Fourthly, there is a real basis for concern that if guarantees are called or that Keybridge, which as recorded in its 2023 accounts is involved in a large number of ongoing litigious disputes, will respond when called upon to meet demands in an orderly and efficient manner, without the need for satellite litigation. The recent history of the statutory demands gives rise to real concerns about the attitude taken by Keybridge to such matters, with demands made and then apparently compromised. Why, it may be asked rhetorically, should a different approach be expected if demand is made on the guarantees.
Fifthly, there is a material risk of competition between creditors ‘internal’ to Keybridge and those external to it such as the defendants, should the guarantees be called on in the future.
The recent reported profitability turn around in Keybridge’s financial fortunes appears to have depended on the intervention of its directors, but that intervention has come with a price tag. Keybridge’s 29 February 2024 announcement states:
The Company sold its position in the Magellan Global Fund Options (ASX: MGFO) for $17.8 million. Keybridge notes that it was only able to generate the super profits achieved on the MGFO transaction because of funding provided to the Company personally by its directors… To facilitate the trade, Keybridge and its Managing Director, Nicholas Bolton, agreed to enter a Standstill Agreement with Magellan Financial Group Limited (ASX: MFG), limiting future dealings in MFG and its related entities for a period of two (2) years.
Keybridge has agreed to pay Mr Bolton $4.3 million at the end of the two-year period as consideration for the Standstill Agreement. It is unclear whether that agreement is secured. If it is not, it represents a significant financial obligation that could in the future compete with any call on the guarantees. It represents a financial obligation to one of the directors of Keybridge.
Sixthly, what the financial position of Keybridge will be in the future is uncertain, highlighted by the nature of its business activities. Keybridge’s assets include a range of complex investments, including cryptocurrencies and investments in complex debt arrangements, which appear to be susceptible to fluctuation.
Seventhly, Keybridge’s track record in these proceedings gives no confidence it will pay costs in the future if required to do so. Keybridge has failed to pay costs to the defendants pursuant to an Order made on 11 October 2023 that the costs of Mr James and Lloyds in respect of their applications for dismissal for want of prosecution be paid forthwith. Ms Barron exhibits correspondence between her firm and the plaintiffs’ solicitors at the time, Allen & Overy, from 16 October 2023 to March 2024 seeking that costs in the sum of $30,619.80 be paid. As at the date of affirming her affidavit, Ms Barron had not heard from the plaintiffs as to when those costs would be paid.
Eighthly, once again, the plaintiffs, who have conducted the case with extensive delays detailed in my earlier ruling, have changed solicitors. After I granted leave on 16 April 2024, Allen & Overy filed notices of ceasing to act for the plaintiffs in both proceedings. On 17 April 2024, the plaintiffs filed a notice of appointment of solicitors in each of the proceedings appointing P&B Law as their solicitors. The appointment of P&B Law marks the fifth firm of solicitors that has represented the plaintiffs since the proceedings were commenced. The latest change of solicitors was not an orderly change of solicitors, one firm went off the record before the other was appointed.
Experience suggests and the evidence shows some of these changes have been as a result of the failure by Keybridge to satisfy the financial requests of the solicitors retained to conduct the litigation. One of its recent disputes reported on in the audited accounts to which Mr Bolton referred in his affidavit involves a financial dispute with Macpherson Kelley, a law firm who previously acted for the company. If Keybridge will not pay its own lawyers in a timely manner, what hope is there, it might be said, for an opposing party seeking to enforce a guarantee.
The conduct of these proceedings by or on behalf of Keybridge has been both dilatory and chaotic. Security was appropriately ordered last October. What has occurred since concerning Keybridge’s financial position, as detailed in Ms Barron’s affidavit, though ‘explained away’ by Mr Bolton, provides no confidence that Keybridge will be able to pay, and indeed, will take any steps to pay the costs of Lloyds and Mr James in the future if ordered to do so.
For the reasons set out above this is an appropriate case to require the parent company Keybridge to provide security in the form of a bank guarantee, or, as the parties agreed after the hearing, in the form of cash.
The appropriate exercise of discretion in this case is to order security in the form of bank guarantees by Keybridge in favour of Mr James and Lloyds for their costs of the proceeding. The security to be provided is to be provided because existing security for costs previously ordered is inadequate. In those circumstances, consistent with the approach adopted in Bruce Pie[14] and Ipex,[15] because the security to be provided earlier is now inadequate, the security to be provided is to include security for past costs. No issue of delay arises.
[14][1985] 1 Qd R 401.
[15][2008] VSC 497.
The provision of bank guarantees will not impose a significant cost burden on Keybridge but it will ensure certainty for the parties in whose favour security has been ordered that if the plaintiffs fail, those parties will recover their costs up to the limit of the bank guarantees. The same can be said for the form of security ordered following agreement between the parties, being the payment of funds into court.
Due to the need to progress the pre-trial steps and the proximity of the trial date it is imperative that the security to be provided be provided expeditiously.
Quantum
The applicants sought the following amounts by way of security:
(a) Mr James: $525,000 in proceeding 2922 and $375,000 in proceeding 3619; and
(b) Lloyds: $1,051,626.28 in proceeding 2922.
In support of these amounts, Mr James relied on the Affidavit of Jake Jeong dated 15 April 2024. Mr Jeong gave evidence that:
(a) Mr James has incurred $757,017 (exclusive of GST) defending the proceedings since they were issued;
(b) Mr Jeong estimates Mr James will incur $570,520 in future costs from now defending the proceedings to and including trial; and
(c) The estimated total actual costs to be incurred by Mr James defending the two proceedings is $1,327,537 excluding GST.
Mr James submits and Mr Jeong’s evidence is that should the plaintiffs be unsuccessful in the proceedings, Mr James would be entitled to a costs order on a standard basis, estimated at 65% of the solicitors' fees and 100% of disbursements, totalling approximately $995,804 (excluding GST). After applying a 10% discount on that amount, Mr James seeks security of $900,000 apportioned approximately between the two proceedings as follows:
(a) Proceeding 2922 - $525,000; and
(b) Proceeding 3619 - $375,000.
The grounds on which Lloyds seeks security in the sum of $1,051,626.28 is set out in the Affidavit of Ms Barron dated 8 April 2024 as is detailed in a spreadsheet exhibited to that affidavit. In summary:
(a) Lloyds has incurred $663,961.95 in legal fees and $330,962.59 in disbursements (exclusive of GST) defending the proceedings since they were issued in June 2019, totalling $1,026,354, together with the estimated costs of these applications of $31,430;
(b) Ms Barron estimates Lloyds will incur $519,657 in complying with the current orders and defending proceeding 2922 to the conclusion of the 10 day hearing;
(c) Based on those figures, Ms Barron estimates that Lloyds’ total legal costs to the conclusion of the trial will be $1,577,441 (exclusive of GST).
Lloyds sought $1,051,626.28 which Counsel clarified at the hearing represents 65% of Lloyds’ estimated legal costs to the conclusion of trial.
At the hearing of the applications it was not significantly in contest between the parties that 65% of the total solicitor client costs was a reasonable basis on which party/party costs could be assessed for the purpose of determining the amount of security to be provided.
Although the plaintiffs submitted there should be evidence of a costs consultant in support of the amount of security to be provided and that the evidence of Mr Jeong and Ms Barron concerning quantum does not provide a proper basis upon which to proceed, I do not agree. I have no reason to doubt either the accuracy of the evidence concerning past costs or that both practitioners have a reasonable basis, and appropriate experience and familiarity with the proceedings to underpin their estimates of future costs.
As the Court of Appeal stated in Trailer Trash:[16]
In determining a sufficient amount for security for costs, the court does not undertake precise mathematical calculations. Rather, it adopts a ‘broad brush’ approach involving ‘guesstimates as much as estimates’. However, the broad brush approach does not involve an abstract process. It must have an evidentiary basis. The court must have regard to the evidence adduced by the parties as to quantum — whether in the form of an affidavit by an experienced litigation lawyer or an expert report by a costs consultant — although it is not bound by the parties’ estimates.
[16][2017] VSCA 293.
While not bound by the solicitors’ estimates, in this case I consider they provide an appropriate basis on which to proceed.
I consider a 65% assessment should be applied across the board to solicitors’ fees and Counsel’s fees in calculating security. In respect of Lloyds, the plaintiffs are to pay security amounting to 65% of the costs outlined in the spreadsheet exhibited to Ms Barron's Affidavit dated 8 April 2024, but not including the costs of this application. In respect of Mr James, the plaintiffs are to pay security amounting to 65% of the costs outlined in Mr Jeong’s affidavit, including 65% of Counsel’s fees rather than 100% of disbursements referred to by Mr Jeong.
Self-executing orders in the event of non-compliance
Following Allen & Overy ceasing to act for the plaintiffs, Mr James and Lloyds sought to amend their respective applications to seek orders that I dismiss the proceedings for want of prosecution, or in the alternative orders that if the existing pre-trial orders are not complied with or if orders amended are not complied with, the proceedings be dismissed.
As acknowledged in the written submissions filed on behalf of Lloyds, in my previous ruling I set out the basis on which dismissal for want of prosecution could be ordered. It is unnecessary to repeat those authorities or statements of principle.
Notwithstanding the delay occasioned by the plaintiffs, the multiple new firms of solicitors engaged by the plaintiffs and the pre-trial steps that have not been complied with, I do not propose to order the dismissal of the proceedings for want of prosecution.
The trial is to take place in approximately three weeks. The pre-trial orders made on 2 February 2024 in each of the proceedings require the parties to take various pre-trial steps between now and the trial date, including the preparation and filing of a court book (outstanding at the time of hearing), lists of objections (outstanding at the time of hearing), the preparation of a bundle of authorities and written opening submissions. At the hearing, the plaintiffs’ new solicitors said the court book would be filed in 7 days but no detail was provided in the form of evidence explaining past delays or providing an explanation as to why a further 7 days was needed.
The plaintiffs’ delays are inconsistent with the overarching obligation to minimise delay.[17] There is a history of delays set out in my 11 October 2023 ruling. Consistent with the overarching obligation and in the furtherance of the overarching purpose in sections 7-9 of the CPA, I will make the self-executing order sought by the applicants.
[17]S 25, CPA.
I will order that if the plaintiffs do not comply with the requirement to provide security by the time required, the proceeding will be dismissed. If there is non-compliance by the plaintiffs with other orders in the lead up to trial, the proceeding will be dismissed.
Costs
Mr James and Lloyds have been successful in the contested aspects of these applications.
The plaintiffs are to pay the defendants’ costs of and incidental to the applications the subject of this ruling as provided for in the authenticated order already made.
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SCHEDULE OF PARTIES
| S ECI 2019 02922 | |
| AUSTRALIAN MONEY EXCHANGE PTY LTD (IN LIQUIDATION) (ACN 090 388 257) | First Plaintiff |
| and | |
| PR FINANCE GROUP LTD (IN LIQUIDATION) (ACN 109 299 390) | Second Plaintiff |
| and | |
| JONATHON HUW ELFYD LLEWELLYN | First Defendant |
| and | |
| CAMERON ROSS JAMES | Second Defendant |
| and | |
| PETER ELFYD LLEWELLYN | Third Defendant |
| and | |
| RODERICK WICKHAM JAMES | Fourth Defendant |
| and | |
| KENT BRUCE JAMES | Fifth Defendant |
| and | |
| RONALD FRANCIS TONG | Sixth Defendant |
| and | |
| THE UNDERWRITING MEMBERS OF LLOYD’S SYNDICATE 2468 FOR THE 2012 YEAR OF ACCOUNT SUBSCRIBING TO THE POLICY LAUDO-0000000477 | Seventh Defendant |
| S ECI 2019 03619 | |
| KEYBRIDGE CAPITAL LIMITED (ACN 088 267 190) | First Plaintiff |
| and | |
| MB FINANCE PTY LTD (ACN 123 051 730) | Second Plaintiff |
| and | |
| PETER ELFYD LLEWELLYN | First Defendant |
| and | |
| RODERICK WICKHAM JAMES | Second Defendant |
| and | |
| RONALD FRANCIS TONG | Third Defendant |
| and | |
| KENT BRUCE JAMES | Fourth Defendant |
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