FEDERAL COURT OF AUSTRALIA
CIP Group Pty Ltd v So (No 4) [2024] FCA 1372
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Details
- Case
- [2024] FCA 1372
- Decision Date
CaseChat Overview and Summary
In the case of CIP Group Pty Ltd v So (No 4), the Court was asked to consider an application for security for costs made by the So interests in relation to derivative proceedings brought by the Clancy interests. The proceedings were brought under the Corporations Act 2001 (Cth) and related to a loan agreement and subsequent receivership of some of the Carver’s Reach entities. The primary legal issue before the Court was whether the So interests were entitled to an order for security for costs, given the circumstances of the case, including the late filing of the application and the existing undertaking to indemnify the So interests against costs. The Court also had to determine the appropriate quantum of security, if any, that should be ordered.
The Court held that the application for security for costs was brought very late in the proceedings, which generally weighed against ordering security. However, the Court also noted that the proceedings had not followed the usual course of litigation, and that there was no substantial prejudice to the Clancy interests if an order for security was made. The Court found that while the existing undertaking to indemnify the So interests against costs weighed against ordering security, it was also necessary to consider the potential inadequacy of that fund and the fact that not all those who stood to benefit from the litigation had exposed their assets to the risk of a cost order. The Court concluded that some further security should be provided, and ordered that the Clancy interests provide security in the sum of $450,000 for the So interests' costs. The Court also ordered that the sum held by the Clancy interests' solicitors to support their indemnity in relation to any costs orders made against the Carver’s Reach entities be security for any adverse costs order made against the Clancy interests or the Carver’s Reach entities in respect of all claims made by those entities in the proceeding.
The Court's decision highlights the importance of considering the overall circumstances of a case when determining whether to order security for costs, including the timing of the application, the adequacy of existing undertakings, and the risk exposure of those who stand to benefit from the litigation. The decision also emphasises the need for parties to carefully consider the implications of their litigation strategy and the potential consequences of late applications for security for costs.
The Court held that the application for security for costs was brought very late in the proceedings, which generally weighed against ordering security. However, the Court also noted that the proceedings had not followed the usual course of litigation, and that there was no substantial prejudice to the Clancy interests if an order for security was made. The Court found that while the existing undertaking to indemnify the So interests against costs weighed against ordering security, it was also necessary to consider the potential inadequacy of that fund and the fact that not all those who stood to benefit from the litigation had exposed their assets to the risk of a cost order. The Court concluded that some further security should be provided, and ordered that the Clancy interests provide security in the sum of $450,000 for the So interests' costs. The Court also ordered that the sum held by the Clancy interests' solicitors to support their indemnity in relation to any costs orders made against the Carver’s Reach entities be security for any adverse costs order made against the Clancy interests or the Carver’s Reach entities in respect of all claims made by those entities in the proceeding.
The Court's decision highlights the importance of considering the overall circumstances of a case when determining whether to order security for costs, including the timing of the application, the adequacy of existing undertakings, and the risk exposure of those who stand to benefit from the litigation. The decision also emphasises the need for parties to carefully consider the implications of their litigation strategy and the potential consequences of late applications for security for costs.
Orders
Orders of the court
1. Pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act), r 19.01(1)(a) of the Federal Court Rules 2011 (Rules), and s 1335 of the Corporations Act 2001 (Cth) (Corporations Act), the Clancy interests provide security in the sum of $450,000 for the first and fourteenth to twentieth respondents’ costs of and incidental to the proceeding to the first day of trial.
2. The security referred to in Order 1 is to be:
(a) paid into Court by way of cash deposit or bank guarantee in a form that is satisfactory to a Registrar of the Court, or in any such other form as the Registrar deems appropriate;
(b) provided within 14 days of the Order being made.
3. Pursuant to r 19.01(1)(c) of the Rules, if the Clancy interests fail to provide the security within the time specified in Order 2(b), the proceeding be stayed indefinitely or dismissed.
4. Pursuant to s 56 of the Federal Court Act, r 19.01(1)(a) of the Rules, and ss 242 or 1335 of the Corporations Act, the sum held by the Clancy interests’ solicitors to support their indemnity in relation to any costs orders made against the Carver’s Reach entities in respect of any costs made against them in the proceeding, be security for any adverse costs order made against the Clancy interests or the Carver’s Reach entities in respect of all claims made by those entities in the proceeding.
5. The Clancy interests are not to deal with the sum referred to in Order 4 unless the parties agree or the Court otherwise orders.
6. The parties are to be heard on the question of costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Further, as a result of certain agreements reached between the parties prior to the hearing of this application (which are discussed in more detail where necessary), the So interests no longer pursue paragraph 3 of the interlocutory process. Background There is no need to set out the metes and bounds of the intense disputation between the parties or the precise nature of the complaints made by each side. They have been articulated extensively in other interlocutory decisions in these proceedings: see CIP Group Pty Ltd v So (2022) 164 ACSR 566 (CIP (No 1)) and CIP Group Pty Ltd v So (No 3) [2023] FCA 518 (CIP (No 3)). However, it is useful to provide some description of the circumstances of the litigation to date. The relevant matters were helpfully set out in the written submissions filed by the So interests, from which the following is partially taken. The present proceeding was commenced on 25 March 2022. By an originating process, the Clancy interests (being CIP Group Pty Ltd, CIP 1 Pty Ltd and Pyrmont Portfolio Pty Ltd) sought relief including orders for leave to bring proceedings under ss 236 and 237 of the Corporations Act 2001 (Cth) (Corporations Act) in the name of the Carver’s Reach entities. Those entities were the operational companies involved in the Carver’s Reach development pursued by Mr So and Mr Clancy. The substance of the derivative proceedings relates to, first, the enforcement of a written loan agreement and associated guarantees entered into in November 2019 by one of the So interests (Ultimate Investment Portfolio Pty Ltd) in favour of one of the Carver’s Reach entities (GGPG Pty Ltd), and secondly, the subsequent receivership of the some of the Carver’s Reach entities. The substantive relief sought by the Clancy interests in the proceeding includes an order that, pursuant to s 233 of the Corporations Act, shares held by the Clancy interests in the Carver’s Reach entities be purchased by the companies associated with Mr So (being the So interests). On 16 December 2022, this Court granted leave under ss 236 and 237 of the Corporations Act for the Clancy interests to bring derivative proceedings in the name of the Carver’s Reach entities. That was subject to the Clancy interests’ undertakings:(a) to indemnify the second to thirteenth respondents (Companies) against any costs orders made against them in the proceeding;(b) to increase the sum held by their solicitors to support that indemnity to $750,000 and not to deal with that sum unless the parties agree or the court otherwise orders. An amended originating process and amended statement of claim was filed by the Clancy interests on 10 February 2023. On 10 March 2023:(a)UIP 1 Pty Ltd, an entity associated with Mr So, was joined as the eighteenth respondent to the proceeding; (b)the orders giving the Clancy interests leave to pursue the derivative proceedings were varied to include the claims made and the relief sought in the amended originating process and the statement of claim filed 10 February 2023;(c)the security provided by the Clancy interests by way of the undertaking was modified on the basis that they paid a further $100,000 to the trust account of Bartley Cohen (such that the total amount held would become $850,000); and(d)leave was given for the Clancy interests to amend their originating process in the form filed on 10 February 2023.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
As has been mentioned, for the purposes of security for costs, the prospects of success are often not regarded as being relevant. Certainly, before the Court on this occasion there was no attempt to delve into the evidence which has been filed and on which the final merits are to be determined. The issues in the present case are far too complex for the Court to reach even a preliminary view about the prospects which the parties have on the matters raised in various claims: General Trade (No 2) [207] – [211]. Conclusion on security for costs Given that the right of indemnity to the amount held in respect of the derivative action now extends to the So interests and that Mr Clancy has given an undertaking to be responsible for any order for costs of those parties, the circumstances of the application are quite different to those that existed when it was filed. Both of those factors weigh against the ordering of security. Similarly, a significant factor against ordering security is the fact that the application was brought very late in the course of the litigation and after the matter had been set down for hearing for some time. Though some attempt was made to justify that course, it was not sufficient. In this context, the observations of Kelly J in Bartter v PFJV loom large. As a general rule, parties should not be faced with applications of the present kind towards the end of the proceedings. That said, it cannot be doubted that the current proceedings have not followed the usual course of litigation, and this rather sets the circumstances of this case apart from most. Despite the unexplained lengthy delay by the So interests in making the application, it is clear that no substantial prejudice will be suffered by the Clancy interests if an order for security is now made. Beyond that, although the existence of the indemnity and the protection that it now offers to the So interests initially weighs against making an order for security, it is necessary to take account of the fact that there could be a number of claims on that fund and there can be little doubt that it will not be sufficient if it needs to be called upon. Whilst Mr Clancy has offered an undertaking to be responsible for any order for costs made against the Clancy interests, it is noted that not all of those who stand to benefit from the litigation have been prepared to expose their assets to the risk of it — Mrs Clancy has not provided any such undertaking and she remains in the position of a person who stands to benefit substantially from the litigation without the risk of paying costs. Further, it is not apparent that Mr Clancy’s undertaking is of sufficient value to provide any serious protection for the So interests. These are significant matters in favour of making of an order for security in circumstances where the Clancy interests have been shown to be without funds. On balance, this is a case where some further security should be provided.The quantum of security In the calculus of the amount of security which might be provided, it is necessary to keep in mind that the sum of $850,000 has been held in the trust account of Bartley Cohen as security for the costs of the derivative proceedings since March 2023. Thereafter, additional sums have been added in respect of security for the costs of additional respondents to the derivative actions, with the result that the total amount now held is $1,175,000. As mentioned, following the filing of this application, the parties agreed that an order should now be made to the effect that the amount held in the trust account be treated as security for all of the So interests’ claims for costs in respect of the derivative action. The making of that order will provide substantial security for those parties. On the other hand, the evidence indicates that the costs expended by the So interests to date well exceed that amount, as do the costs which are expected to be incurred in future. Further, the sum may also be used to cover the costs of the other respondents, such that it may not be sufficient in the event that it needs to be called upon.
Ratio Decidendi
Legal Principle Established
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