Broadway Plaza Investments v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd

Case •

[2019] NSWSC 1082

•

22 August 2019

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Broadway Plaza Investments v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1082
Hearing dates: 4 July 2019; 12 August 2019
Decision date: 22 August 2019
Jurisdiction:Equity
Before: Ward CJ in Eq
Decision:

1.   Order that the leave granted on 9 May 2019 to the plaintiff (Sayour Holdings Pty Ltd) to file the first cross-claim in the name of Combined Projects (Arncliffe) Pty Ltd be set aside, upon the expiry of 28 days from the date of these orders unless, within that time period, the plaintiff:
(a)   provides an undertaking in the form of Annexure A to the notice of motion filed 7 June 2019 by the second and third defendants to the Arncliffe proceedings (2017/00180712); and
(b)   provides security for that undertaking in the amount of $2 million for the costs of the respective cross-defendants to the first cross-claim, by way of payment into Court or unconditional bank guarantee in a form acceptable to the cross-defendants or otherwise as ordered by the Court.
2.   Order the plaintiff to pay the second and third defendants’ costs of the notice of motion filed 7 June 2019 in the Arncliffe proceedings.
3.   Otherwise, dismiss the notices of motion that were before the Court for hearing on 4 July 2019 and 12 August 2019, with costs of those motions to be costs in the cause.

Catchwords: CIVIL PROCEDURE – interlocutory applications – application for secured undertakings as to costs of the derivative suit in one proceeding – in the alternative applications for security for costs in one or both of the respective proceedings – pursuant to ss 237 and 242, 1335(1) of the Corporations Act 2001 (Cth) and/or r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) and/or the Court’s inherent jurisdiction
Legislation Cited: Civil Procedure Act 2005 (NSW), s 3(1)
Corporations Act 2001 (Cth), ss 237, 242, 247A, 1317H, 1335, Pt 2F.1A
Property, Stock and Business Agents Act 2002 (NSW), s 55A
Uniform Civil Procedure Rules 2005 (NSW), r 42.21
Cases Cited: Allstate Life Insurance Co v ANZ Banking Group Limited (1995) 134 ALR 187; [1995] FCA 1778
Armstrong Scalisi Holdings Pty Ltd v Piscopo (Trustee), in the matter of Collins [2017] FCA 423
Beach Petroleum NL v Johnson (1992) 7 ACSR 203
Beale v Trinkler [2010] NSWSC 246
Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399
Blakeney v Blakeney [2016] WASCA 76; 113 ACSR 398
Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2019] NSWSC 410
Brundza v Robbie & Co (No 2) (1952) 88 CLR 171; [1952] HCA 49
Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301
Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187
Chocron v Onkoud [2018] NSWSC 1205
Cody v Live Board Holdings Pty Ltd (No 2) [2017] NSWSC 308
Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd [1999] NSWCA 16
Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480
Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65; (2014) 98 ACSR 301
Dalma Formwork Pty Ltd (Administrator Appointed) v Concrete Constructions Group Ltd [1998] NSWSC 472
Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; 58 ACSR 705
Epping Plaza Fresh Fruit and Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191; [1999] VSCA 43
Farrell v Gray [2009] NSWSC 1297
Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; 53 ACSR 732
Funds First Pty Ltd v Owners Corporation Strata Plan 66609 (No. 2) [2008] NSWSC 428
Green (as liquidator of Armico Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; 67 ACSR 105
Griffith v John Fairfax Publications Pty Ltd [2009] NSWSC 100
HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744
In re Metropolitan Amalgamated Estates Ltd; Fairweather v The Company [1912] 2 Ch 497
In the matter of Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611
In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1070
In the Matter of Felan’s Fisheries Pty Limited [2016] NSWSC 1351
In the matter of Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260
In the matter of Wan Jia (Australia) International Development Pty Ltd [2012] NSWSC 1007
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609
Investmentsource v Knox Street Apartments Pty Ltd (2002) 56 NSWLR 27
Jazabas Pty Ltd v Haddad [2007] NSWCA 291; 65 ACSR 276
Johnes v Claughton (1822) 37 ER 966
Kardos v Sarbutt (No. 2) [2006] NSWCA 206
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
Kroehn v Kroehn (1912) 15 CLR 137; [1912] HCA 45
Langton v Langton (1855) 44 ER 12
Litmus Australia Pty Ltd (in liq) v Canty [2007] NSWSC 670
Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302
Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93
LSKF Holdings Pty Ltd v Shield Lifestone Holdings Pty Ltd [2018] NSWCA 109
Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132
Meekin Enterprises v Gersbach (Supreme Court (NSW), McLelland CJ in Eq, 6 August 1997, unrep)
Modakboard Australia Pty Ltd v Matthew Howard Brady [2018] NSWSC 399
Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385
Ninan v St George Bank Ltd [2012] FCA 905; (2012) 294 ALR 190
Old v Hodgkinson; Old v McInnes [2009] NSWSC 1160
Ollerenshaw v The Uniting Church in Australia Property Trust (NSW) [2017] NSWSC 1637
Pacific Acceptance Corporation Limited v Forsyth (No 2) (1967) 85 WN (Pt 1) (NSW) 715
Peile v Nobel (Australasia) Pty Ltd [1966] VR 433
Porter v Gordian Runoff Limited [2004] NSWCA 171
Prynew Pty Limited v Nemeth [2010] NSWCA 94
PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 102 ALR 321
Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114
Stanley v Phillips (1966) 115 CLR 470
Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317
Sumpter v Hedges [1898] 1 QB 673
Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289
Sydney Water Corporation v Makucha [2010] NSWSC 114
Tatham v Parker (1853) 65 ER 221
The Owners – Strata Plan 87265 v Saaib [2019] NSWSC 289
Tyneside Property Management Pty Limited v Hammersmith Management Pty Ltd [2013] NSWCA 404
Vertical Australia Pty Ltd v Air Company Vertical-T LLC; Air Company Vertical-T LLC v Vertical Australia Pty Ltd [2012] NSWSC 719
Wallersteiner v Moir (No 2) [1975] QB 373
Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 12 ACSR 1
Westpac Banking Corporation v Southern Environmental Services Pty Ltd [2017] NSWSC 626
Winnote Pty Ltd (in liq) v Page (2005) 64 NSWLR 244; [2005] NSWCA 362
Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245
Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570
Category:Procedural and other rulings
Parties:

Broadway Plaza proceedings 2016/00282940

 

Broadway Plaza Investments Pty Ltd (Plaintiff/Cross-Defendant to Second Cross-claim/First Cross-Defendant to Fifth Cross-Claim)
Broadway Plaza Pty Ltd (Defendant/Cross-Claimant on First, Second and Fifth Cross-claims)
Fouad Deiri (Third Cross-Defendant to Fifth Cross-Claim)
Deiri Nominees Pty Ltd (Fourth Cross Defendant to Fifth Cross-Claim)
Combined Projects (Gibbons) Pty Ltd (Fifth Cross-Defendant to Fifth Cross-Claim)
Combined Property Investments Pty Ltd (Sixth Cross-Defendant to Fifth Cross-Claim)
Combined Projects (Redfern) Pty Ltd (Seventh Cross-Defendant to Fifth Cross-Claim)
Combined Projects Holdings Pty Ltd (Eighth Cross-Defendant to Fifth Cross-Claim)
Deicorp Pty Ltd (Tenth Cross-Defendant to Fifth Cross-Claim; Cross-Claimant to Sixth Cross-Claim)
Combined Projects (Arncliffe) Pty Ltd (Eleventh Cross-Defendant to Fifth Cross-Claim)
HWL Ebsworth (First Cross-Defendant to Fourth Cross-Claim)

 

Arncliffe proceedings 2017/00180712

  Sayour Holdings Pty Ltd atf Sayour 2 Family Trust (Plaintiff)
Combined Projects (Arncliffe) Pty Ltd (First Defendant/Cross-Claimant to First Cross-Claim)
Deiri Nominees Pty Ltd (Second Defendant/Second Cross-Defendant to First Cross-Claim)
Fouad Deiri (Third Defendant/First Cross-Defendant to First Cross-Claim)
Konstructions Pty Ltd (Third Cross-Defendant to First Cross-Claim)
Zapphire Investments Pty Ltd (Fourth Cross-defendant to First Cross-Claim)
Deicorp Properties Pty Ltd (Fifth Defendant to First Cross-Claim)
Deicorp Constructions Pty Ltd (Sixth Cross-defendant to First Cross-Claim)
Representation:

Counsel:

 

Broadway Plaza proceedings 2016/00282940

 

CN Bova with B Michael (Plaintiff/First, Third and Fourth Cross-Defendants to Fifth Cross-Claim)
D Smallbone with JP Gatland (Defendant/Cross-Claimant on First, Second and Fifth Cross-Claims/Cross-Defendant to Third Cross-Claim)
V Bedrossian (Fifth to Eighth and Tenth to Eleventh Cross-Defendants to Fifth Cross-Claim)

 

Arncliffe proceedings 2017/00180712

 

D Smallbone with J Wheeldon (Plaintiff and First Cross-Claimant to First Cross/Claim and Cross-Claimant to Second Cross-Claim)
V Bedrossian (First Defendant and Fifth and Sixth Cross-Defendants to First Cross-Claim)
CN Bova with B Michael (First and Second Cross-Defendants to First Cross-Claim)
AMB Cornish (Fourth Cross-Defendant to First Cross-Claim)
G Thomas (Third Cross-Defendant to First Cross-Claim)

 

Solicitors:

 

Broadway Plaza proceedings 2016/00282940

 

Cornwalls (Plaintiff)
Adams Lawyers (Defendant)
Russells Sydney Partners (Fourth Cross-Defendant to Fifth Cross-Claim)
Kreisson Legal Pty Ltd (Fifth, Sixth, Seventh, Eighth, Tenth and Eleventh Cross-Defendants to Fifth Cross- Claim)

 

Arncliffe proceedings 2017/0018072

  Adams Lawyers (Plaintiff and Cross-Claimant to First Cross-Claim)
Cornwalls (Second and Third Defendants/First and Second Cross-Defendants to First Cross-Claim)
Jordan Djundja Lawyers (Third Cross-Defendant to First Cross-Claim)
Hajje Solicitors (Fourth Cross-Defendant to First Cross-Claim)
Construction Legal Pty Ltd (Fifth Cross-Defendant to First Cross-Claim)
Kreisson Legal Pty Ltd (Sixth Cross-Defendant to Fifth Cross- Claim)
File Number(s): 2016/00282940; 2017/00180712
Publication restriction: Nil

Judgment

  1. HER HONOUR: Before me for hearing on 4 July 2019 and 12 August 2019 were interlocutory applications brought in two sets of proceedings which have been the subject of case management by me for most of this year and which are listed together for hearing before Slattery J to commence in November this year. The applications concern the provision of a secured undertaking in relation to the costs of the proceedings (sought in relation to the bringing of a derivative suit, by way of cross-claim, in one of the two sets of proceedings) and further or in the alternative for the provision of security for costs in one or both of the respective proceedings.

Background

  1. The underlying disputes between the parties, and the background to the respective applications now before me, were considered in my earlier interlocutory decision relating to subpoenas that had been issued in the Broadway proceedings (see Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2019] NSWSC 410) but it is convenient here by way of summary to reprise that background.

  2. There are two sets of proceedings: the Broadway proceedings (2016/00282940) and the Arncliffe proceedings (2017/00180712).

Broadway proceedings

  1. The Broadway proceedings arise out of a dissolved partnership (the Broadway partnership) between the plaintiff, Broadway Plaza Investments Pty Ltd (Investments), and the defendant, Broadway Plaza Pty Ltd (Plaza), for the development (the Broadway development) of a property in Punchbowl (the Punchbowl Property).

  2. Investments is a company the shares in which are held by Deiri Nominees, which forms part of a group of construction and development companies (the Deiri Group) run by Mr Fouad Deiri (Mr Deiri). Mr Deiri is the director of Investments.

  3. Plaza is a company the shares in which are held by Sayour Holdings Pty Ltd (Sayour Holdings), a company of which Mr Moustafa Sayour (Mr Sayour) is the sole shareholder and director. Mr Sayour was the sole director of Plaza until March 2018 and remains a director of the company.

  4. The Broadway partnership was formed on or about 27 December 2011 for the purposes of development of the Punchbowl Property into a shopping centre and residential apartments. There was no written partnership agreement. Investments was to manage the design and construction of a shopping centre and residential apartments; and Plaza was to manage the leasing of the centre. Profits were to be split equally. The builder for the project was Deicorp Pty Ltd (Deicorp), of which company Mr Deiri was the sole director and Deiri Nominees was the sole shareholder. Mr Deiri’s principal dealings with Plaza throughout the partnership were through Mr Sayour’s son, the late Jamil Sayour.

  5. On 15 February 2012, a loan to finance the car park and shopping centre was executed with the Commonwealth Bank of Australia (CBA) in the amount of $45.6 million. On 20 June 2013, this loan was reinstated as an investment facility and the balance of the loan became part of a separate facility. Construction of the retail shopping centre on the Punchbowl Property was completed in December 2013. The residential apartments were sold in November 2014. Following the sale, the remaining loan to CBA was repaid. From November 2014 to January 2015, a surplus of approximately $18.69 million was distributed to Investments and Plaza. (Investments says that these distributions were made in accordance with Jamil Sayour’s instructions.)

  6. Jamil Sayour died in October 2015. In November 2015, after the discovery by Mr Sayour of various matters in relation to the partnership, Mr Sayour asserted to Mr Deiri that Plaza did not receive its share of the partnership profits and that Jamil Sayour had no authority to distribute any partnership moneys. (In my previous judgment, I referred to the filing by Mr Sayour of affidavits in the proceedings in which he deposes to his discovery of what he maintains are frauds against Plaza and the Sayour Family Trust, namely his affidavits sworn 27 October 2016 and 25 October 2017. Those affidavits were not read on the current applications but I do not understand it to be in dispute, and there was reference to this in submissions, that the allegations made in the Broadway proceedings include allegations of forgeries and fraud.)

  7. On 21 September 2016, Investments dissolved the partnership and commenced the Broadway proceedings, seeking (among other relief) orders: that the Broadway partnership be wound up; that a receiver be appointed; and that an account be taken. Thus, the proceedings commenced (and Counsel for Investments maintains they still continue) as proceedings for the taking of partnership accounts. On 29 September 2016, Hallen J made a declaration as to the dissolution of the Broadway partnership and orders were made appointing a receiver (Mr Lord) to the Broadway partnership’s assets and undertaking and for partnership accounts to be taken.

  8. The only assets of the Broadway partnership were the shopping centre and its associated assets. The sale of the shopping centre was settled on 30 March 2017 for $41.2 million. The receiver paid out $34.3 million under the loan to CBA; and, according to CBA, nothing is presently owing to it. Therefore, the Broadway proceedings are in effect spent as far as the initial relief sought by Investments is concerned. The receiver currently holds approximately $5 million of partnership funds.

  9. The remaining issues in the Broadway proceedings relate to the various cross-claims that have been filed in those proceedings.

  10. The first cross-claim was filed on 12 October 2017 by Plaza against CBA and Investments, seeking $108,252.788 from CBA. In this cross-claim, Plaza alleges that CBA breached its mandate and is liable in respect of forged signatures on facility agreements which funded the Broadway development and cheques drawn on the partnership bank account with CBA (the CBA partnership account).

  11. The second cross-claim was filed on 4 June 2018 by Plaza against Investments, seeking $35.76 million plus interest of $504,000 per month. Plaza alleges that Investments has not paid the sum of $6 million in consideration for the purchase by Investments of Plaza’s 50% interest in the Punchbowl Property nor a further sum of $2 million pursuant to a further contract.

  12. The third cross-claim was filed on 13 June 2018 by Investments against Plaza. Investments seeks, among other things, rectification of the contract of sale the subject of the second cross-claim and alleges breach by Plaza of a separate agreement governing the arrangements for the purchase price of the Punchbowl Property and the question of interest, as well as breach of fiduciary duty and unconscionable conduct.

  13. The fourth cross-claim was filed on 28 June 2018 by Investments against the partners of HWL Ebsworth (HWLE), the lawyers who acted for Investments in relation to the contract for sale the subject of the second cross-claim. In the alternative to the third cross-claim, Investments alleges that if (which is denied) it is liable to Plaza in respect of the claim made in the second cross-claim, then HWLE is liable to Investments in respect of that liability.

  14. The fifth cross-claim was filed on 22 August 2018 by Plaza against eleven cross-defendants, including: Investments (the first cross-defendant), Mr Deiri (the third cross-defendant), Deiri Nominees (the fourth cross-defendant), and a number of Deicorp Group entities (the fifth to eighth and tenth to eleventh cross-defendants, to which I will refer collectively, unless the context otherwise requires, as the Deicorp Entities – i.e., Combined Projects (Gibbons) Pty Ltd as the fifth cross-defendant; Combined Property Investments Pty Ltd as the sixth cross-defendant; Combined Projects (Redfern) Pty Ltd as the seventh cross-defendant; Combined Projects Holdings Pty Ltd as the eighth cross-defendant; Deicorp as the tenth cross-defendant and Combined Projects (Arncliffe) Pty Ltd (Combined Projects Arncliffe) as the eleventh cross-defendant). Plaza alleges that payments made by the partnership to the builder for the development, Deicorp, were not liable to be paid for various reasons, including a failure to issue payment certificates and invalid variations under the construction contracts. Plaza further alleges that certain payments by Investments or by certain of the Deicorp Entities to Jamil Sayour (the making of which it is alleged were not disclosed to Plaza) constituted bribes and that, by virtue of those bribes (and the alleged non-disclosures), Jamil Sayour was induced to act in certain ways to the detriment of Plaza (including: to place his own signature on cheques drawing funds from the CBA joint partnership account; to forge Mr Sayour’s signature on cheques drawing funds from that account; and failing to disclose a lower construction quote for the development). It is alleged that each of the first, fourth to eighth and tenth cross-defendants has received a benefit as a result of the alleged bribes and breaches of fiduciary duty by the first and third cross-defendants (“comprised in their conduct in participating in the alleged bribes and non-disclosures”) and that the first, third to seventh, tenth and eleventh cross-defendants “by the said bribes paid by each, and by each of them not disclosing the same to Plaza, acted in concert to secure a mutual benefit, namely the enrichment of the Deicorp Group of companies” by the several payments alleged. Plaza seeks declaratory and other relief, including (under the heading “[r]ecovery of money allegedly improperly paid to Jamil Sayour”) equitable compensation.

  15. In their respective defences to the fifth cross-claim (filed on 22 February 2019), Deiri Nominees (whose defence is a joint defence with Mr Deiri and Investments) and the Deicorp Entities each admit to various alleged payments (although they deny that the payments constituted bribes and they deny the claims for relief made against them).

  1. Finally, the sixth cross-claim was filed on 22 February 2019 by the builder, Deicorp, against Investments and Plaza pleading a quantum meruit claim in the event that Plaza were to succeed on the allegations in its fifth cross-claim that payments made to Deicorp were not liable to be paid pursuant to the construction contracts.

Arncliffe proceedings

  1. The second set of proceedings, the Arncliffe proceedings (2017/00180712), relates to dealings between Mr Deiri and the late Jamil Sayour in relation to another development, this development being in Arncliffe.

  2. In January 2014, Combined Projects Arncliffe (i.e., the eleventh cross-defendant in the Broadway proceedings) was incorporated (with two shareholders, Deiri Nominees and Sayour Holdings) to develop a property at Arncliffe (the Arncliffe Property) into some 234 residential apartments and six retail shops. Mr Deiri is the sole director of Combined Projects Arncliffe. His dealings with Sayour Holdings, up to the time of Jamil Sayour’s death, were all through Jamil Sayour. Mr Deiri and his companies performed the construction work in relation to the development. The development is complete and the sale of the last of the residential apartments settled on 11 February 2019.

  3. In 2017, Sayour Holdings (as trustee for the Sayour 2 Family Trust) commenced the Arncliffe proceedings against Combined Projects Arncliffe, Deiri Nominees and Mr Deiri. The proceedings were commenced by way of originating process in the Corporations List. Relief was sought by Sayour Holdings (as 50% shareholder of Combined Projects Arncliffe) to redress the alleged oppressive conduct of the company’s affairs by Deiri Nominees (the other 50% shareholder) and Mr Deiri (the sole director of Combined Projects Arncliffe) and alleged breaches of director’s duties by Mr Deiri. Sayour Holdings sought relief pursuant to s 247A of the Corporations Act 2001 (Cth) (Corporations Act) for access to Combined Projects Arncliffe’s books and to appoint a director to its board.

  4. On 28 February 2019, Parker J ordered that the Arncliffe proceedings be heard together with the Broadway proceedings and referred each of the proceedings to me for case management, fixing the proceedings for hearing, commencing 4 November 2019 for six weeks. From 18 March 2019, I have case managed the respective proceedings. On 19 March 2019, I made orders for the service of evidence in the proceedings.

  5. On 9 May 2019, by consent (and without debate as to the factual premise for those orders – the relevance of which will shortly become apparent), I made orders in the Arncliffe proceedings granting leave for the filing by Sayour Holdings, in the name of the company, Combined Projects Arncliffe, of a cross-claim in the proceedings in the form that had been provided to the defendants on 7-9 May 2019. (Leave for the bringing of a derivative suit is of course required pursuant to s 237 of the Corporations Act. However, as I have referred to in a separate judgment to be published today in those proceedings – In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1070, the orders made were not expressed to be pursuant to s 237 of the Corporations Act and there was no consideration on that occasion of the matters required for an order to be made under that section.) The notation to the orders made on that occasion made clear that the leave granted for the filing of the cross-claim was without prejudice to the defendants’ ability to contend that leave to bring proceedings on behalf of Combined Projects Arncliffe (i.e., derivative proceedings) should not be granted without the appropriate undertakings.

  6. On 10 May 2019, pursuant to those orders, Sayour Holdings filed in the name of Combined Projects Arncliffe an amended statement of first cross-claim, bringing claims against the following parties: Mr Deiri and Deiri Nominees (the first and second cross-defendants); Konstructions Pty Ltd (the third cross-defendant) (Konstructions); Zapphire Investments Pty Ltd (the fourth cross-defendant) (Zapphire); Deicorp Properties Pty Ltd (Deicorp Properties) and Deicorp Constructions Pty Ltd (Deicorp Constructions) (the fifth and sixth cross-defendants, respectively).

  7. The relief sought in the name of Combined Projects Arncliffe in the first cross-claim in the Arncliffe proceedings includes relief relating to a Development Management Agreement dated 24 March 2016 between Combined Projects Arncliffe and Deiri Nominees as trustee for the F Deiri Family Trust (which it is alleged is void and of no effect) (including a trust claim and other claims relating to payments of $7,239,425.44 and $723,942.54 paid to Deiri Nominees on about 3 and 17 April 2018, respectively); a sum of $7,920,000 paid to Konstructions on about 29 March 2018 and a sum of $7,898,000 paid to Zapphire, as trustee for the Zapphire Investments Family Trust also on or about 29 March 2018 (those payments being the subject of allegations under the heading “the purported Site Identification Fee”); a payment of $5,299,704.23 paid to or for the benefit of Deiri Nominees on or about 28 February 2018; claims for equitable compensation or orders for compensation pursuant to s 1317H of the Corporations Act against the first defendant (Mr Deiri) and other relief against the fifth and sixth defendants.

  8. Each of the cross-defendants to the first cross-claim has now filed a defence to that cross-claim (although Konstructions has foreshadowed an application to amend its defence; and there was objection to the (belated) filing of the defence by Deiri Nominees and Mr Deiri, which is the subject of my separate judgment in the Arncliffe proceedings today). Complaint was made on the present applications by Sayour Holdings as to the defences filed for Konstructions and Zapphire (i.e., whether they are “real” defences or in substance seeking to propound principal claims by those parties; or are tenable defences), to which I will return in due course.

  9. In the Arncliffe proceedings, Sayour Holdings has proffered an undertaking in support of its derivative action to the effect that it will bear the costs of Combined Projects Arncliffe in prosecuting the first cross-claim and that it will indemnify Combined Projects Arncliffe for any costs of the first cross-claim that Combined Projects Arncliffe is ordered to pay. It proposes to secure that undertaking by Plaza giving a charge over Plaza’s 50% share of the partnership funds held by the receiver in the Broadway proceedings. I was informed by Counsel that that share is now in the order of between $2.3 and $2.5 million.

  10. Deiri Nominees, Mr Deiri and Investments oppose security for the undertaking being provided by way of a charge over the funds held by the receiver appointed in the Broadway proceedings (Mr Lord). They say that the funds held by the receiver have to date served as de facto security for their costs in the Broadway proceedings, since any award of costs against Plaza in those proceedings could be satisfied from Plaza’s share of those partnership funds. They contend that Sayour Holdings should not now be permitted to charge that fund because that would deprive the defendants to the Broadway proceedings of that security. Rather, they say that Sayour Holdings should be required to secure the undertaking by way of payment into Court or unconditional bank guarantee. In the alternative, they say that security should be provided for their costs in the Broadway proceedings.

  11. It is relevant in this context also to note that complaint is made by Sayour Holdings as to the multiplicity of representation across the two sets of proceedings for the various entities comprising or associated with the Deiri Group. Investments, Deiri and Deiri Nominees are jointly represented by one firm of solicitors (Cornwalls Solicitors) and have briefed Senior Counsel and two junior Counsel (Mr Hutley SC, Mr Bova and Mr Michael) to appear at the final hearing; the Deicorp Entities have briefed another firm of solicitors (Kreisson Pty Ltd) and will be represented by Mr Bedrossian of Counsel at the hearing; Deicorp Properties (the fifth cross-defendant in the Arncliffe proceedings) is represented by a third set of solicitors (Construction Legal Pty Limited) and will also be represented by Mr Bedrossian at the hearing. Each of Konstructions and Zapphire is separately represented by solicitors and will be retaining Counsel for the hearing (Mr Sirtes SC and Mr Cornish for Zapphire; Junior Counsel yet to be retained for Konstructions – its previous Counsel no longer acting in the matter).

Present applications

  1. The various applications now before me are as follows:

  1. an application by notice of motion filed 7 June 2019 by Investments, Mr Deiri and Deiri Nominees in the Broadway Proceedings seeking orders pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and/or s 1335(1) of the Corporations Act and/or the Court’s inherent jurisdiction for security for costs;

  2. an application by notice of motion filed 7 June 2019 by Deiri Nominees and Mr Deiri in the Arncliffe proceedings seeking, in effect, orders for the provision by Sayour Holdings of an undertaking as to the costs of the proceedings and provision of security for that undertaking (and for an amount for the likely costs of the other cross-defendants to the first cross-claim); and further or in the alternative, orders pursuant to r 42.21 of the UCPR and/or s 1335(1) of the Corporations Act and/or the Court’s inherent jurisdiction for security for their costs of the proceedings;

  3. an application by notice of motion filed 11 June 2019 by the fifth to eighth and tenth and eleventh cross-defendants (the Deiri Entities, Deicorp and Combined Projects Arncliffe) in the Broadway proceedings and Deicorp Constructions in the Arncliffe proceedings seeking orders in the respective proceedings pursuant to r 42.21 of the UCPR or in the alternative s 1335(1) of the Corporations Act and/or in the Court’s inherent jurisdiction for security for costs;

  4. an application by notice of motion filed 7 June 2019 by Deicorp in the Arncliffe proceedings seeking orders pursuant to r 42.21 of the UCPR and/or s 1335(1) of the Corporations Act and/or the Court’s inherent jurisdiction for security for its costs;

  5. an application by notice of motion filed 26 June 2019 by Konstructions in the Arncliffe proceedings seeking orders pursuant to r 42.21 of the UCPR and/or s 1335(1) of the Corporations Act and/or in the Court’s inherent jurisdiction for security for its costs; and

  6. an application by notice of motion filed 1 July 2019 by Zapphire in the Arncliffe proceedings seeking the provision of an undertaking in the same terms as that sought by Deiri Nominees and Mr Deiri (in (ii) above) save in its favour and security for that undertaking so far as it relates to Zapphire; and in the alternative, orders pursuant to r 42.21 of the UCPR and/or s 1335(1) of the Corporations Act and/or in the Court’s inherent jurisdiction for security for costs.

  1. The sums sought to be provided by way of either security for the undertaking as to the company’s costs sought in relation to the leave to bring derivative proceedings or security for costs, as the case may be, by the applicants on the respective notices of motion as set out above (as amended in oral submissions in some cases) are as follows:

  1. by Investments, Mr Deiri and Deiri Nominees in the Broadway proceedings, the sum of $2,526,640.90 by way of security for costs;

  2. by Deiri Nominees and Mr Deiri in the Arncliffe proceedings, the sum of $753,825 (plus an amount for the likely costs of the other cross-defendants) by way of security for the undertaking sought in respect of the grant of leave for the derivative proceedings; or $753,825 by way of security for costs;

  3. by the fifth-eighth and tenth and eleventh cross-defendants (the Deiri Entities, Deicorp and Combined Projects Arncliffe) in the Broadway proceedings, the sum of $770,000 (by way of security for their costs and for Deicorp’s costs of the sixth cross-claim); and by Deicorp Construction, the sum of $440,000 by way of security for its costs in the Arncliffe proceedings;

  4. by Deicorp the sum of $191,358.75 in the Arncliffe proceedings by way of security for its costs;

  5. by Konstructions the sum of $358,950 by way of security for its costs in the Arncliffe proceedings; and

  6. by Zapphire the sum of $631,818 in the Arncliffe proceedings by way of security for the undertaking sought by it in relation to the bringing of the derivative suit (though it is to be noted that it is not a member of the company in whose name the derivative suit is to be brought) or as security for its costs.

Relevant principles

  1. Conceptually, there are two separate kinds of applications here brought: applications for secured undertakings as to costs of the derivative suit being brought by Sayour Holdings in the name of Combined Projects Arncliffe; and conventional security for costs applications.

  2. As to the former, in determining whether to grant leave to bring proceedings in the name of a company, one factor to be taken into account is whether it is in the best interests of the company that the applicant be granted leave (see s 237(2)(c) of the Corporations Act). In that context it is relevant to take into account whether the company would be prejudiced by being exposed to the costs and expenses of litigation and the risk of an adverse costs order (see, for example, Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480 (Cooper v Myrtace Consulting)).

  3. Reference was also made on the current application to what has been said in that regard in Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; 53 ACSR 732 (Fiduciary v Morningstar Research) at [47]-[51]; Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; 58 ACSR 705 (Ehsman v Nutectime) at [62]; In the matter of Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 at [31]-[33]; and Blakeney v Blakeney [2016] WASCA 76; 113 ACSR 398 at [55]-[68].

  4. As was stated by Austin J in Fiduciary v Morningstar Research (at [51]):

[T]here is a balance to be struck between the prejudice that the company will suffer if claims are pressed unsuccessfully on its behalf and there is an adverse costs order, and the advantage that it will gain, indirectly for the benefit of its shareholders, if the claims are successful: see McLean v Lake Como Venture Pty Ltd [2003] QSC 562 at [7]. Sometimes satisfaction of the “serious question to be tried” criterion will lead readily to the conclusion that the applicant should be permitted to assert the company's claims on its behalf. But where, as here, the assertion of those claims is simply a manifestation of aspects of the overall dispute between the parties, it will often be appropriate for the court to address the question of costs in the event that the claims fail. A suitable way of doing so, addressed during the hearing of the present application, is to grant leave on terms that the applicant is responsible for the costs ordered against the company, and undertakes not to seek contribution or indemnity from the company.

  1. Further, in Inthe matter of Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260, Black J (at [31]) said that the case law emphasises the importance of an indemnity as a means of addressing the risk of prejudice to the companies from the commencement of the proceedings, should they ultimately prove to be unsuccessful, and the risk of exposure to costs and expenses of litigation including costs orders. His Honour cited the observations by Austin J (at [108]) in Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 that:

One of the issues for the court to consider is whether the company would be prejudiced by being exposed to the costs and expenses of litigation and the risk of an adverse costs order. That problem is often addressed by the court making a conditional order, by which the granting of leave is conditional upon the applicant undertaking to the court to pay and bear and indemnify the company against all costs, charges and expenses of and incidental to the bringing and continuation of the derivative claims for which leave is granted: see, for example, Gerard Cassegrain & Co Pty Ltd v Cassegrain [2010] NSWSC 91. …

  1. Pursuant to s 242 of the Corporations Act, there is power to make any order considered appropriate as to the costs of persons applying for or granted leave under s 237, including indemnification of costs.

  2. In Ehsman v Nutectime International, Austin J (at [62]) said:

Section 242 permits the court to make any orders it considers appropriate about the costs of various persons, including the company, in relation to proceedings brought with leave under s 237 (see Fiduciary Ltd v Morningstar Research Pty Ltd (2005) 53 ACSR 732, at [56]). In such a case as the present, where the company is essentially a vehicle to pursue the commercial interests of four parties, one of whom is at odds with the other three, who oppose the bringing of derivative claims, and the plaintiff wishes to combine derivative claims with personal claims largely arising out of the same facts, it seems to me appropriate to require the plaintiff to indemnify the company in respect of costs it may incur, either directly or by virtue of a court order against it, with respect to the pursuit of the derivative claims. If the indemnity were not given, the other three directors would as a practical matter be required to bear the burden of 65% of the company's costs of pursuing derivative claims which they do not want it to pursue. …

  1. As to the applicable principles governing security for costs, the discretion to order security against a corporate plaintiff (or entity in the position of plaintiff) is enlivened where there is credible evidence that establishes that “there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff … will be unable to pay” the costs of the defendant if ordered to do so (see Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205 (Von Doussa J); r 42.21(1)(d) of the UCPR). The test is commonly described as an “undemanding test” (see HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87 at [6], [17]).

  2. In determining, once the threshold question has been answered in the affirmative, whether in the exercise of discretion to make an order for security for costs, there is a range of factors are relevant to take into account (see r 42.21(1A)). I consider these factors in due course.

Submissions for Investments, Deiri Nominees and Mr Deiri

  1. The principal relief here claimed by Deiri Nominees and Mr Deiri is the making of orders in the Arncliffe proceedings to the effect that Sayour Holdings provide an undertaking in respect of its derivative action in a specified form (drafted along the lines of undertakings required in Fiduciary v Morningstar Research), together with security for that undertaking in the amount of $753,825 plus an amount for the likely costs of the other cross-defendants to the first cross-claim. Alternatively, they seek security for their costs of the first cross-claim.

  2. Additionally, by separate notice of motion (and because Plaza now proposes to charge its interest in the partnership funds held by the receiver in the Broadway proceedings), Investments, Mr Deiri and Deiri Nominees, as cross-defendants in the Broadway proceedings, seek security for their costs in those proceedings but they press that application only if the means put forward by Sayour Holdings by which the undertakings proffered in connection with the derivative proceedings are to be secured (i.e., a charge over its share of the partnership funds held by the receiver) is accepted. In other words, whether their security for costs application in the Broadway proceedings is pressed depends on the outcome of the application in the Arncliffe proceedings as to the form of the security to be provided for, what I will refer to as, the derivative suit undertaking.

  1. It is noted that leave granted to Sayour Holdings on 9 May 2019 to file the first cross-claim in the name of Combined Projects Arncliffe was expressly made subject to resolution of the appropriate undertakings, if any, that should be given by it. It is submitted that it would not be in Combined Projects Arncliffe’s interests for leave to be granted without an undertaking as to costs (and that so much has implicitly been accepted by Sayour Holdings in proffering the undertaking that it has proffered).

  2. Deiri Nominees and Mr Deiri submit that the company could be subject to “a very significant costs liability” if the first cross-claim fails (having regard not only to their costs but also to the costs of the other cross-defendants); and they submit that the real issue is whether Sayour Holdings can meet the undertaking it has proffered, noting that in Cooper v Myrtace Consulting it was accepted that the financial capacity of an applicant to meet any proffered undertaking is central to whether it is in the best interests of the company to grant leave (see at [30]-[32]).

  3. Deiri Nominees and Mr Deiri argue that there is no evidence that Sayour Holdings has the funds to satisfy a costs order made against Combined Projects Arncliffe in the Arncliffe proceedings, noting that the only means that Sayour Holdings has identified to meet its proposed undertaking is for Plaza to charge its 50% share of the partnership funds held by the receiver (and arguing that the proffer of that charge as the means by which it seeks to secure its undertaking essentially amounts to an admission that Sayour Holdings has no other means). The solicitor for Investments, Deiri Nominees and Mr Deiri, Mr Paul McCann, has deposed in his affidavit sworn 7 June 2019 that no results were returned for a property search in Australia of Sayour Holdings (see at [35]).

  4. Further, as adverted to above, Deiri Nominees and Mr Deiri point to the fact that, if Plaza’s share of the partnership funds is charged to meet an adverse costs order in the Arncliffe proceedings, then the cross-defendants to Plaza’s cross-claims in the Broadway proceedings will be left without recourse to Plaza’s share of the funds held by the receiver and will lose what was in effect a de facto security that had existed since the start of those proceedings. Mr McCann has deposed that Investments, Mr Deiri and Deiri Nominees did not seek an order against Plaza for security of their costs in the Broadway proceedings because the funds held by the receiver gave them the comfort that any costs orders against Plaza could be satisfied from that fund (see at [31]). It is argued that there was previously no basis on which security could have been ordered in the Broadway proceedings because of the funds held by the receiver.

  5. Thus it is submitted that the Court should not accept as adequate any security for the undertaking offered by Plaza (for the benefit of Sayour Holdings in the Arncliffe proceedings) which would have the effect of removing the existing (de facto) security that exists for the costs of the defendants in the Broadway proceedings.

  6. In relation to the Arncliffe proceedings, Mr McCann has estimated the total costs to the conclusion of the hearing at approximately $1.5 million exclusive of GST ([49(b)]). Deducting past costs (incurred prior to the first cross-claim being filed) (see [44(a)]), the total estimated costs as calculated amount to $753,825. Deiri Nominees and Mr Deiri say that, to the amount of their costs, there must be added the costs of both Konstructions and Zapphire, as well as the other companies associated with Mr Deiri (Deicorp Properties and Deicorp Construction), since those are costs for which Combined Projects Arncliffe will be liable if its claims against those entities were to fail.

  7. It is further noted that the Constitution of Combined Projects Arncliffe provides that the company shall indemnify any person who is an officer of Combined Projects Arncliffe against liability to any person in defending proceedings in which judgment is given in favour of that officer (see cl 44.1(b)(i)); and thus it is submitted that, if Plaza is unsuccessful in its first cross-claim against Mr Deiri, as a director of Combined Projects Arncliffe Mr Deiri would be entitled to a full indemnity from the company. As such, it is said that the total costs for which Combined Projects Arncliffe may ultimately be liable arising from the first cross-claim if it is unsuccessful against Mr Deiri would include essentially all of the costs Mr Deiri incurs in defending the Arncliffe proceedings on a solicitor/client (not party/party) basis.

  8. Investments, Deiri Nominees and Mr Deiri seek an order that the leave granted to Sayour Holdings on 9 May 2019 to bring the first cross-claim in the name of Combined Projects Arncliffe be withdrawn nunc pro tunc, or that that order be set aside, should Sayour Holdings not provide security in the amount of $753,825.00 (plus an amount for the likely costs of the other cross-defendants) for any undertaking that is given. They have propounded in Annexure A to their notice of motion a proposed form of undertaking in that regard.

Security for costs

  1. Alternatively, if the undertaking proposed by Plaza (for the benefit of Sayour Holdings) were to be accepted, then Investments seeks orders that Plaza provide security for the costs of Investments, Mr Deiri and Deiri Nominees in the Broadway proceedings.

  2. It is submitted that, if Plaza’s funds held by the receiver are charged as security for the Arncliffe proceedings, then the threshold test on a security for costs application is met because there is reason to believe there is a real chance that Plaza would then be unable to meet adverse costs orders obtained by the cross-defendants in the Broadway proceedings (noting, as referred to above, that there is no evidence that Plaza holds any assets or real property of any kind).

  3. Mr McCann has estimated that the recoverable costs in the Broadway proceedings on a party/party basis would be in the range of approximately $1.5 million to $1.8 million (excluding GST and costs associated with what are said to be the earlier accounting aspect of the proceedings).

  4. As to the discretionary factors set out in r 42.21(1A) of the UPCR, and in particular as to the timing of the present application, it is submitted that the complaint by Sayour Holdings as to delay is met by the fact that the motion is now brought in circumstances where Plaza seeks to charge its interest in the partnership funds (i.e., where there has been a material change in circumstances).

Submissions for Deicorp Entities

  1. The Deicorp Entities represented by Kreisson (namely, the fifth to eighth, tenth and eleventh cross-defendants on the fifth cross-claim in the Broadway proceedings; the cross-claimant on the sixth cross-claim in the Broadway proceedings; and the sixth cross-defendant on the first cross-claim in the Arncliffe proceedings) (collectively referred to in their submissions as the Kreisson Clients), seek security for their costs in respect of both sets of proceedings. (I interpose here to note that I do not understand the application for security for costs in the Arncliffe proceedings by the Deicorp Entities to be intended to encompass the costs of the very entity in whose name the first cross-claim in the Arncliffe proceedings is being brought – Combined Projects Arncliffe; since that would make no sense.)

  2. The solicitor acting for the Kreisson Clients, Mr David Glinatsis, in his reply affidavit sworn 28 June 2019, has calculated the sum sought as security for the Kreisson Clients’ costs in the amounts of: $734,543.15 (but rounded up to $735,000.00) in relation to the Broadway proceedings (being an order for security against Plaza); and $406,814.65 (rounded down to $405,000.00), in relation to the Arncliffe proceedings (being an order for security against Sayour Holdings). In oral submissions, the amount sought was further revised downwards to reflect an acceptance of the proposition that a lesser amount should be included as a contingency for unforeseen issues, namely, a total of $650,000 (exclusive of GST) in the Broadway proceedings and $350,000 (exclusive of GST) in the Arncliffe proceedings.

  3. In this regard, the Kreisson Clients emphasise two particular features of these applications for security: first, the lack of evidence of assets available on the part of Plaza and Sayour Holdings to meet potential costs orders; and, second, that Plaza and Sayour Holdings are trustee companies.

  4. As to the first, it is noted that the solicitor acting for the respondents to these security for costs applications (i.e., for Plaza and Sayour Holdings), Mr Kenneth Ti, has deposed in his 21 June 2019 affidavit (at [101]) to the fund of approximately $2.526 million held by the receiver (at that date) but has not otherwise identified any assets which would be available to satisfy any adverse costs orders. It is submitted that the totality of adverse costs orders which might be suffered by Plaza and Sayour Holdings would be expected to exceed $2.5 million (noting that the Broadway proceedings involves multi-million dollar claims against a bank, a large firm of solicitors, and multiple other parties), and that there is thus a proper basis to order security for costs.

  5. As to the second, it is noted that Plaza has cross-claimed in the fifth cross-claim in the Broadway proceedings in its capacity as trustee of the Sayour Family Trust and that Sayour Holdings has commenced the Arncliffe proceedings (as plaintiff) and stands as the party with the conduct of the first cross-claim in its capacity as trustee of the Sayour 2 Family Trust. Reference is made to Funds First Pty Ltd v Owners Corporation Strata Plan 66609 (No. 2) [2008] NSWSC 428 where Brereton J (as his Honour then was) said (at [5]):

… Where a plaintiff is a trustee and its only asset is its right of indemnity as trustee against the trust assets, an applicant for security will be taken to have satisfied the onus of establishing that there is reason to believe that the plaintiff will be unable to pay a costs order if so ordered, unless the plaintiff can establish that it will have recourse to property or assets held by it on trust ...

  1. Reference is also made in that context to what was said in Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 and in LSKF Holdings Pty Ltd v Shield Lifestone Holdings Pty Ltd [2018] NSWCA 109 (at [15]-[16] per Leeming JA).

  2. It is noted that neither Plaza nor Sayour Holdings has attempted to identify any assets held within their respective trusts (other than the receiver’s funds), against which those trustee companies would have an indemnity.

  3. As to the quantum of security sought by the Kreisson Clients, it is submitted that Mr Glinatsis’ estimate (in his 28 June 2019 affidavit) is “a reasonable and conservative amount when considered in the context of these particular proceedings”, emphasising that: the two proceedings are set down for a final hearing of six weeks’ duration; the Kreisson Clients comprise seven different corporate entities, against whom a multitude of allegations are made (noting that the fifth cross-claim in the Broadway proceedings consists of 571 pleaded paragraphs and the amended statement of first cross-claim in the Arncliffe proceedings consists of 321 pleaded paragraphs); that the Broadway proceedings comprise six separate cross-claims; and submitting that, with overlapping factual issues, legal issues, and questions of witness credibility, there is no feasible or logical manner in which different parties’ involvement in the final hearing can be segregated to discrete hearing dates and hence each party’s interests must be protected and pursued by their legal representatives throughout the six-week hearing.

  4. Pausing there, the submission as to the segregation of different parties’ involvement, as I understand it, is limited to the involvement of the respective Kreisson Clients. It has on earlier occasions been suggested, for example, that the involvement of other cross-defendants in the hearing (namely, HWLE) might be able to be confined to discrete hearing days.

  5. For the Kreisson Clients, it is submitted that their legal representatives will be required to attend in Court for the duration of the final hearing and that it is not to the point to identify (as Sayour Holdings does) that Mr Deiri is the principal standing behind each of those corporate entities. It is noted in this regard that, by its fifth cross-claim in the Broadway proceedings, Plaza challenges, in effect, the entirety of the payments made to Deicorp for the construction of the Broadway Plaza retail and residential development and that, through its defence of the fifth cross-claim and by the sixth cross-claim (said to be defensive in nature), Deicorp has been called upon to justify construction costs in the vicinity of $70 million. Further, it is said that various portions of the construction costs in relation to the Arncliffe development are also challenged by Sayour Holdings in the Arncliffe proceedings (the amounts there in question being of the order of approximately $3.6 million).

  6. It is submitted that the complex and extensive nature of the allegations brought by Plaza in the fifth cross-claim (and, to a lesser extent, the allegations brought by Sayour Holdings in the Arncliffe proceedings) illustrates that: engaging separate solicitors and counsel for the Kreisson Clients was and is reasonable; and that briefing both a senior junior and a junior counsel is also reasonable.

  7. It is also said that, of the allegations directly concerning the Kreisson Clients, a large number is different in nature to those that are directed at others of Mr Deiri’s corporate entities (pointing, in particular, to the position of Deicorp). It is noted that the claims against Deicorp in the Broadway proceedings raise questions concerning: the validity and proper interpretation of the construction contracts; and the reasonableness of about $70 million of construction costs charged by that company. It is submitted that the retention of separate representation for Deicorp in respect of allegations of that kind (building and construction matters) is “both reasonable and sensible”; and that the resources required in order to prepare evidence, “including detailed expert evidence in relation to tens of millions of dollars of construction”, are not insubstantial.

  8. By contrast, it is said that the parties represented by Cornwalls (primarily, Deiri Nominees and Mr Deiri) are involved in the proceedings in largely different (though overlapping) respects. It is said that the nature of the allegations being raised against Deiri Nominees and personally against Mr Deiri warrants separate solicitors and counsel, whose focus is upon the different allegations being pursued by Plaza and Sayour Holdings against those parties.

  9. Insofar as Construction Legal separately represents Deicorp Properties (the sixth cross­defendant on the first cross-claim in the Arncliffe proceedings), it is said that the costs of that representation are significantly ameliorated by the briefing of the same counsel as for the Kreisson Clients (Mr Bedrossian).

  10. It is submitted that, were the entirety of Mr Deiri’s personal and corporate interests in these proceedings to be represented by a single team of lawyers, such a team would be more extensive and the likelihood is that the involvement of lawyers would not be materially different than on the present scenario where different firms have been engaged. (This last submission seems to me, with respect, to be inherently speculative and impossible meaningfully to test.)

Submissions for Deicorp Properties

  1. The separate application by notice of motion filed 7 June 2019 filed by Deicorp Properties seeks security for its costs in relation to the Arncliffe proceedings in the amount of $175,000 (rounded down from $176,096.25) (being an order for security against Sayour Holdings) based on the estimate provided by its solicitor, Ms Jessica Rippon, in her reply affidavit affirmed 28 June 2019. Ms Rippon has applied a 75% rate of recovery to the solicitor/client costs estimate.

  2. Annexed to Ms Rippon’s first affidavit, affirmed on 31 May 2019, are documents relied upon as identifying a prima facie entitlement on the part of Deicorp Properties to obtain an order for security for costs, including: property searches that identify that no real property is owned by Sayour Holdings (see Annexure C); a company search that shows that the paid-up capital of Sayour Holdings is $100 (Annexure D); property searches that show that no real property is owned by Plaza (Annexure E); and a company search for Plaza that identifies the paid-up capital of the company is $200 (Annexure F).

  3. It is accepted that the issues raised in these proceedings and which directly concern Deicorp Properties are relatively discrete but it is said that there is “no apparent method” by which its attendance at, and participation in, the final hearing can be reduced from the full extent of the six week hearing. That said it is submitted that significant costs savings have been achieved by the briefing of the same counsel as for the Kreisson Clients.

  4. It is noted that the allegations against Deicorp Properties concern: approximately $750,000 of fees and expenses incurred in relation to real estate transactions; the extent to which Sayour Holdings, through the late Jamil Sayour, knew and approved of those fees; the extent to which those fees and expenses were reasonable and standard in the industry; and the distinction between moneys received by Deicorp Properties on account of agency fees and those moneys received in order to reimburse for disbursements or other expenses paid to third parties.

Submissions for Konstructions

  1. Konstructions largely relies on the submissions made for the Deiri Entities and Zapphire in support of its separate application for an order that Combined Projects Arncliffe or, alternatively, Sayour Holdings give security for its costs, arguing that there is reason to believe that those companies will be unable to pay its costs if ordered to do so. Konstructions relies upon the affidavit of Mr James Jordan, the solicitor with carriage of the matter, filed on 26 June 2019 as to the quantum of costs.

  2. Insofar as it is permissible to have regard to the prospects of success of the proceedings, Konstructions submits that it is relevant to note that the separate proceedings have been ordered to be heard together; and that the proceedings involve complex factual and legal issues (including the cross admissibility of evidence; admissibility of evidence when the maker of representations is unavailable; authority to act; estoppel; and criminal conduct on the part of persons expected to give evidence in the proceedings; and deceased parties). It is submitted that the plaintiff and related entities are responsible for a significant expansion of the proceedings by way of amendment and joinder of additional parties. Konstructions argues that, to a significant degree, Sayour Holdings’ prospects of success very much depend upon the admissibility, reliability and accuracy of evidence concerning the acts and declarations of the late Jamil Sayour and the effect of commercial transactions and arrangements in which he was involved; and that the complexity of the proceedings makes a clear assessment of the prospects of success difficult to determine, noting that no evidence has yet been filed by Konstructions or Zapphire concerning the identification of the Arncliffe site and the payment of the site identification fee. That said, Konstructions goes on (somewhat inconsistently) to submit that Sayour Holdings’ prospects of success are limited and that, due to the complexity and interdependent nature of the claims, must be assessed as relatively weak.

  3. It is submitted that the plaintiff entities have limited financial means and that the undertaking to pay costs and security offered over the cash fund held by the receiver is insufficient to meet the potential aggregate costs orders and that it would be unfair to give priority to one claimant over another. Konstructions argues that, save for the receiver’s cash fund, the plaintiff entities are impecunious (so as to trigger the discretion as to security) and it asserts that this impecuniosity is not attributable to Konstructions.

  1. Rule 42.21(1A) of the UCPR sets out a list of non-exhaustive considerations largely reflecting the discretionary considerations that were identified as relevant in this context by Beazley JA (as Her Excellency the Governor then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 (KP Cable) (at 196-198). Turning briefly to those factors, I note as follows.

  2. First, as to the prospects of success or merits and the genuineness of the proceedings (r 42.21(1A)(a)-(b)), it has been said that, as a general rule, where a claim is prima facie regular on its face and discloses a cause of action then the court should proceed on the basis that the claim is bona fide and has reasonable prospects of success (KP Cable at [197]). I do so in the present case. Further, although complaint was made that various of the defences did not disclose a defence, I consider those submissions more relevant to the question whether in substance the cross-defendant is here a cross-claimant. I certainly could not conclude that the respective defences to the cross-claims are not brought on a bona fide basis and I do not consider it appropriate to entertain consideration of the merits of the particular cross-defendants’ defences.

  3. The next factor listed in r 42.21(1A) is impecuniosity on the part of the plaintiff (r 42.21(1A)(c)). Related to that factor is whether any such impecuniosity is attributable to any conduct on the part of the applicant for security (see 4.21(1A)(d)). Impecuniosity has been recognised as a substantial factor favouring the exercise of the discretion to order security (see Idoport at [40] (Mason P); Tyneside Property Management Pty Limited v Hammersmith Management Pty Ltd [2013] NSWCA 404 at [18] (Sackville AJA)).

  4. A plaintiff who opposes the provision of security for costs on the basis that there is a causal connection between the plaintiff’s impecuniosity and a defendant’s conduct must substantiate that claim by appropriate evidentiary material; mere assertion or submission being insufficient (see Ninan v St George Bank Ltd [2012] FCA 905; (2012) 294 ALR 190 at [37]). This requires proof of “a real causal connection between the conduct and the impecuniosity which, in the exercise of the Court’s discretion, would make it unjust to require security” (see Dalma Formwork Pty Ltd (Administrator Appointed) v Concrete Constructions Group Ltd [1998] NSWSC 472 (Rolfe J)). It must be shown that the defendant’s conduct is the material contributor to or cause of the plaintiff’s impecuniosity (see The Owners – Strata Plan 87265 v Saaib [2019] NSWSC 289 (Saaib)). Stevenson J noted in Saaib (at [45]) that this factor usually requires “consideration of whether the matters complained of in the proceedings caused the plaintiff to be, when the proceedings were commenced, without the means to meet a costs order”. Without evidence of the financial position of the plaintiff prior to the alleged wrongdoing by the defendants, in the Ingot litigation the Court was unable to satisfy itself of that causal connection (see Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 at [96]).

  5. I am not persuaded that any impecuniosity on the part of the respective cross-claimants (Plaza and Sayour Holdings) has been established to be due to the conduct of the cross-defendants so as to enliven this factor.

  6. Another relevant factor is whether the cross-claimant is effectively in the position of a defendant (r 42.21(1A)(e)). I consider that there is a real issue as to whether the parties who are putting in issue the claims for payments by reference to the reasonableness of value (see Deicorp Properties; Deicorp Constructions) may well properly be characterised as being effectively in the position of claimant (such that this would be a factor against the grant of security in their favour in respect of the relevant cross-clams in which they press those entitlements).

  7. Security for costs will generally not be ordered where doing so will stifle non-frivolous proceedings (r 42.21(1A)(f)). It has been recognised that the discretion to order security for costs should not be used as an instrument of oppression, shutting out genuine claims by plaintiffs who are otherwise impecunious (see Idoport at [59], which in turn cited Pearson v Naydler [1977] 1 WLR 899; and KP Cable at 197) (and see Fiduciary Ltd v Morningstar Research (at [72]-[73]), per Austin J, although this factor will not create an automatic bar to such an order in all cases – Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [92]). As to stultification, the evidence does not demonstrate that an order for security would stultify the proceedings.

  8. As to delay (see r 42.21(1A)(i) of the UCPR as well as r 42.21(1A)(l) which relates to the timing of the application for security of costs), security for costs should be sought promptly (see KP Cable at 197; In the matter of Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [69]). This is because the plaintiff will otherwise spend money on the litigation and, if security for costs is ordered and the plaintiff is unable to meet that order, the proceeding will be stayed, those costs will have been wasted and the plaintiff will suffer prejudice (see Litmus Australia Pty Ltd (in liq) v Canty [2007] NSWSC 670 at [26]; Buckley at 309 per Moffitt P; Bryan E Fencott at 514 per French J, his Honour then sitting in the Federal Court. Hodgson J (as his Honour then was) said in Green (as liquidator of Armico Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; 67 ACSR 105 at [57]:

… where substantial costs have been incurred since the time when an application for security should have been brought, it would be unreasonable to deny the existence of prejudice … [emphasis added]

  1. No doubt in recognition of this, the application for security for costs by Investments, Deiri Nominees and Mr Deiri does not include past costs in the Broadway proceedings (and it is said that any past costs included in the security for the undertakings sought in the Arncliffe proceedings would be nominal). I accept the explanation proffered for the delay (given by Mr McCann) – it is both plausible and not unreasonable for the view to have been taken that there was no basis to seek security for costs in the Broadway proceedings at a time when there was no suggestion that the partnership funds held by the receiver would be unencumbered and available to meet any adverse costs orders.

  2. The next factor that is raised in r 42.21(1A) (under (j)), is as to the costs of the proceedings (here, the cross-claim). The fact that a party is likely to incur significant legal costs in defending the claim, and will be unprotected if no order for security is made, is a consideration which may favour the making of an order for security (see Porter v Gordian Runoff Limited [2004] NSWCA 171 at [13]). There can be no doubt that significant costs will be incurred in this matter proceeding to a final hearing, having regard to the submissions made as to the complexity of the respective proceedings and having regard to the interlocutory stoushes to date.

  3. As to the remaining factors listed in r 42.21(1A) which I have not considered above, r 42.21(1A)(k) relates to whether the security sought is proportionate to the importance and complexity of the subject matter in dispute. Given the number of parties involved and the complexity of the issues to be determined I do not consider the sums sought by way of security to be disproportionate (substantial as the quantum of the aggregate costs is).

  4. Insofar as undertakings have been proffered in the Arncliffe proceedings, as the Kreisson Clients point out, the proffering of undertakings as such is not of itself determinative, as a matter of principle; rather it is relevant to consider the worth of the undertakings against the exposure to costs that is faced by the party seeking security for those costs (see, in particular Wollongong City Council v Legal Business Centre; Prynew Pty Limited v Nemeth [2010] NSWCA 94 (Prynew) (Beazley JA at [44]-[45]); Jazabas Pty Ltd v Haddad [2007] NSWCA 291; 65 ACSR 276 (the majority view expressed by Mason P (as his Honour then was) and McClellan CJ at CL in that case being preferred in Prynew); Epping Plaza Fresh Fruit and Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at 198; [1999] VSCA 43 (Winneke P and Phillips JA); Westpac Banking Corporation v Southern Environmental Services Pty Ltd [2017] NSWSC 626 at [58]-[60] (Adamson J).

  5. Had the question of security for costs been necessary here finally to determine, I would have been of the view that the threshold test was met in the Broadway proceedings if the partnership funds were the subject to a charge of the kind proffered by Plaza but probably not otherwise; and that, in the Arncliffe proceedings it was relevant to take into account the financial position of the moving party (Sayour Holdings) in considering the exercise of the inherent jurisdiction to award security for costs (even if that entity not be the “plaintiff” for the purposes of r 42.21(1)(d) of the UCPR) and that, again, there was sufficient evidence to satisfy the threshold test in that regard. Balancing the discretionary factors referred to above, I would have concluded that some level of security for costs was warranted (though not in the ambit claimed).

  6. As to the quantum of security, the objective in making an order for security for costs is not to provide a defendant with a full indemnity against all eventualities in the proceedings (see Bryan E Fencott at 515); rather, the objective is to assess what is “sufficient” security (see Vertical Australia Pty Ltd v Air Company Vertical-T LLC; Air Company Vertical-T LLC v Vertical Australia Pty Ltd [2012] NSWSC 719 at [106]). In determining the quantum of security to be ordered, it is recognised that a “broad brush” approach may be adopted (see Felan's Fisheries at [40] per Black J; Cody v Live Board Holdings Pty Ltd(No 2) [2017] NSWSC 308 at [165] and [174] per Robb J). There is also authority for the proposition that the Court may fix the amount of security based on a general estimate (see Allstate Life Insurance Co v ANZ Banking Group Limited [1995] FCA 1778; (1995) 134 ALR 187).

  7. As to when security is to be paid, in some cases it may be appropriate that security be ordered in tranches by reference to particular aspects of the pre-trial preparation and the hearing itself (see Pacific Acceptance Corporation Limited v Forsyth (No 2) (1967) 85 WN (Pt 1) (NSW) 715 (Moffitt J))

  8. Had I been prepared to order security for costs, I would have ordered the provision in tranches referable to stages of preparation of the case for hearing (though, of necessity, as the hearing date is nearly upon us the number and timing of those tranches would have been limited); and I would have excluded costs the subject of the claims where the cross-defendants are really in the position of claimants (such as where the claim is as to the reasonable value of the building works). As it is, however, it is not necessary to set out the detail of what I would have been prepared to order but for the conclusion I have reached above on the derivative suit undertakings.

  9. Costs should in my opinion follow the event on the application for security for the derivative suit undertakings. In relation to the respective security for costs applications I consider that the appropriate course is for costs to be costs in the cause, as it was not necessary finally to determine those applications but the formal dismissal of those motions does not reflect the merits of the applications.

Orders

  1. Accordingly, I make the following orders:

  1. Order that the leave granted on 9 May 2019 to the plaintiff (Sayour Holdings Pty Ltd) to file the first cross-claim in the name of Combined Projects (Arncliffe) Pty Ltd be set aside, upon the expiry of 28 days from the date of these orders unless, within that time period, the plaintiff:

  1. provides an undertaking in the form of Annexure A to the notice of motion filed 7 June 2019 by the second and third defendants to the Arncliffe proceedings (2017/00180712); and

  2. provides security for that undertaking in the amount of $2 million for the costs of the respective cross-defendants to the first cross-claim, by way of payment into Court or unconditional bank guarantee in a form acceptable to the cross-defendants or otherwise as ordered by the Court.

  1. Order the plaintiff to pay the second and third defendants’ costs of the notice of motion filed 7 June 2019 in the Arncliffe proceedings.

  2. Otherwise, dismiss the notices of motion that were before the Court for hearing on 4 July 2019 and 12 August 2019, with costs of those motions to be costs in the cause.

**********

Decision last updated: 22 August 2019

Most Recent Citation
Cases Cited

67

Statutory Material Cited

4

Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2019] NSWSC 410
In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1070
Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480