DC Legal Pty Ltd v Joukhador

[2023] NSWSC 804

Supreme Court

New South Wales

Medium Neutral Citation:

DC Legal Pty Ltd v Joukhador [2023] NSWSC 804

Hearing dates:

15 March 2023

Date of orders:

11 July 2023

Decision date:

11 July 2023

Jurisdiction:

Common Law

Before:

Harrison AsJ

Decision:

(1) The plaintiff is to provide additional security by payment to the first and third defendants up to the conclusion of the preparation of evidence in the sum of $91,764 within 14 days.

(2) The proceedings are to be stayed until security has been provided.

(3) The plaintiff is to pay the first and third defendant’s costs.

Catchwords:

COSTS – security for costs – relevant factors – whether there has a been a change of circumstances since first application for security for costs – other factors

Legislation Cited:

Civil Procedure Act 2005 (NSW) s 56-60

Corporations Act 2001 (Cth) s 1335

Legal Profession General Rules 2015 (NSW)

Legal Profession Uniform Law 2014 (NSW)

Uniform Civil Procedure Rules 2005 (NSW) r 42.21

Cases Cited:

Brundza v Robbie & Co (No 2) (1952) 88 CLR 171

Crypta Fuels Pty Ltd v Svelta Corp Pty Ltd (1995) 14 ACLC 393

Dennis v Joukhador [2021] NSWSC 870

Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664

Green Camel Pty Ltd v Urban Ecological Systems Ltd [2017] NSWSC 362

JKB Holdings v de la Vega [2013] NSWSC 501

Misthold Pty Ltd v NSW Historic Sites and Railway Heritage Co Pty Ltd [2022] NSWSC 42

Mr D v Ms P [2020] NSWCA 174

Sent v Jet Corporation (1984) 2 FCR 46

Category:

Procedural rulings

Parties:

DC Legal Pty Ltd (Plaintiff)
Marcel Joukhador (First Defendant)
Harrow Legal Pty Ltd (Third Defendant)

Representation:

Counsel:
B DeBuse (Plaintiff)
S Ahmed (First and Third Defendants)

Solicitors:
Watson & Watson (Plaintiff)
Mills Oakley (First and Third Defendants)

File Number(s):

2020/355118

Judgment

1. By amended notice of motion filed 15 March 2022, the first and third defendants seek the following orders:

1. Pursuant to Uniform Civil Procedure Rules 2005 (NSW) (‘UCPR’) r 42.21 and/or s 1335 of the Corporations Act 2001 (Cth), the plaintiff give additional security by payment to Court for the first and third defendants; costs of the proceedings in the sum of $194,670.

2. The proceedings be stayed until the plaintiff has provided the security pursuant to Orders 1 above.

2. The plaintiff is DC Legal Pty Ltd (‘DC Legal’). The first defendant is Marcel Joukhador (‘Mr Joukhador). The second defendant was Brookarelli Pty Ltd (Brookarelli), which has now been released from the proceedings. The third defendant is Harrow Legal Pty Ltd (‘Harrow Legal’). The first defendant currently practises as a solicitor through the third defendant. The plaintiff is represented by B. Debuse. The defendants were represented by S. Ahmed. The parties relied upon a joint Court book (‘Ex A’).

3. The plaintiff relies on the affidavit of Richard Watson, solicitor, sworn 20 January 2023 (‘Watson Affidavit’). The first and third defendants rely upon the affidavits of Louise Cantrill, Partner at Mills Oakley, sworn 1 July 2022 (‘Cantrill 1’) and 25 October 2022 (‘Cantrill 2’) and the affidavit of Lydia FogI, Costs Consultant, sworn 1 November 2022 (‘Fogl Affidavit’).

The summons

4. On 15 December 2020, DC Legal and Bruce Dennis (Mr Dennis), its principal, filed a summons (‘the summons’) in the Supreme Court of New South Wales commencing these proceedings numbered 2020/00355118 against the first and second defendants seeking the following:

1. A declaration that the first defendant holds certain trust monies deposited to “Thomas Joukhador Practice General Trust Account” in connection with a settlement agreement on behalf of the plaintiffs;

2. An order that the first defendant provide an accounting in relation to the plaintiffs in respect of all monies received by him in accordance with clause 2.2(b)(i) of the settlement agreement;

3. An order that the first defendant pay to the plaintiffs for monies received and to which the plaintiffs are entitled in accordance with clause 2.2(b)(i) of the settlement agreement

5. Rules 42.21 of the UCPR reads:

42.21   Security for costs

(cf SCR Part 53, rules 2, 3, 4 and 5; DCR Part 40, rule 1; LCR Part 31, rule 11A, Part 31A, rule 11)

(1)  If, in any proceedings, it appears to the court on the application of a defendant—

…

(d)  that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or

(e)  that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so, or

(f)  that there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings,

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

(1A) In determining whether it is appropriate to make an order that a plaintiff referred to in subrule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant—

(a)  the prospects of success or merits of the proceedings,

(b)  the genuineness of the proceedings,

(c)  the impecuniosity of the plaintiff,

(d)  whether the plaintiff’s impecuniosity is attributable to the defendant’s conduct,

(e)  whether the plaintiff is effectively in the position of a defendant,

(f)  whether an order for security for costs would stifle the proceedings,

(g)  whether the proceedings involves a matter of public importance,

(h)  whether there has been an admission or payment in court,

(i)  whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant,

(j)  the costs of the proceedings,

(k)  whether the security sought is proportionate to the importance and complexity of the subject matter in dispute,

(l)  the timing of the application for security for costs,

(m)  whether an order for costs made against the plaintiff would be enforceable within Australia,

…

(1B) If the plaintiff is a natural person, an order for security for costs cannot be made merely on account of his or her impecuniosity.

(2)  Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct.

(3)  If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff’s claim for relief in the proceedings be dismissed.

(4)  This rule does not affect the provisions of any Act under which the court may require security for costs to be given.

6. Similarly, section 1335 of the Corporations Act 2001 (Cth) reads:

1335 Costs

(1)  Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

…

Re-litigation of an Interlocutory application since the first security order

7. On 21 July 2021, Davies J in Dennis v Joukhador [2021] NSWSC 870 (‘Dennis v Joukhador’) ordered that DC Legal provide security for Mr Joukhador’s costs of the proceedings in the sum of $35,000 up to the conclusion of the filing and serving of the evidence in the proceedings.

8. It is an abuse of process for parties to re-litigate interlocutory applications absent a change in circumstances which is of “substance”: JKB Holdings v de la Vega [2013] NSWSC 501 at [69] (‘JKB Holdings’). In JKB Holdings Lindsay J observed at [61]-[62] and [64] the following:

“[61] ...principles governing abuses of the process of the Court may be called in aid of opposition to repetitive interlocutory applications: National Parks and Wildlife Service v Pierson (2002) 55 NSWLR 315 at 317-318 [13]-[17].

[62] There is no absolute bar on the renewal of an interlocutory application absent a change in circumstances: Nominal Defendant v Manning (20001 NSWCA 80: (2000) 50 NSWLR 139 at 155-156 [71]-[73] and 167 [122]. However, the Court of Appeal has noticed, and left open for consideration in an appropriate case, the possibility that Nominal Defendant v Manning may require reconsideration in light of the subsequent enactment of the "case management" system of judicial administration embodied in the Civil Procedure Act 2005 NSW, ss 56-60: Fletcher v Besser [2010] NSWCA 30 at [17].

…

“[64] Nevertheless, I do not overlook the practical reality that a change in circumstances bearing upon the justice or otherwise of adherence to an interlocutory decision is generally looked for on renewal of an application for a different decision: Adam P Brown Male Fashions Pty Limited v Phillip Morris Incorporated (19811 HCA 39: (1981) 148 CLR 170 at 177-178. And care needs to be taken to guard against repetitive applications that might be characterised as "judge shopping" - an endeavour to seek from one judge what another has refused, in order to circumvent limitations on the availability of appeals from interlocutory decisions: Re Delta Landscaping Pty Limited v Bell Dies Pty Limited (1990) 20 NSWLR 508 at 509E-G.”

9. In Misthold Pty Ltd v NSW Historic Sites and Railway Heritage Co Pty Ltd [2022] NSWSC 42 [17], Payne JA recently considered the principles relating to when it is appropriate to order further security where there has been a material change in circumstances and said at [17]-[18]:

“[17] Misthold must demonstrate that there has been a material change in circumstances since 14 September 2021 justifying an order for further security for costs: SSPeetham Pty Ltd as trustee for the CHB CDI Trust v Marcos Accountants Pty Ltd [2020] NSWSC 378 at [19] (Stevenson J); Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46 (McLelland J); Ingot v Macquarie [No 5] [2006] NSWSC 255 at [9] (McDougall J).

[18] In a case such as the present, Misthold bears the onus of demonstrating a material change in circumstances since the date of making the original order and that, in the exercise of discretion, it is appropriate that an order for additional security should be made in a particular amount.”

The first order for security for costs

10. The security for costs in accordance with the orders of Davies J in Dennis v Joukhador was provided. Davies J in Dennis v Joukhador stated at [5]-[56]:

“[51] DC Legal was incorporated in 2009, seemingly to be the vehicle through which Mr Dennis conducted his legal practice. Mr Dennis has not held a practising certificate since 30 June 2015, and on 6 May 2016 orders were made for the removal of his name from the Supreme Court roll.

[52] The evidence discloses that on 13 July 2020 an amount of $500,000 was paid to DC Legal in relation to the costs settlement with the liquidator. As at 10 May 2021 there remained in the Westpac Bank account of DC Legal the sum of $114,069.82. NAB holds a fixed and floating charge over all the property and assets of DC Legal. This charge was put in place on 26 May 2011.

[53] In his affidavit of 12 May 2021 Mr Dennis said that DC Legal no longer banks with NAB, it is not indebted to NAB, and he has requested that NAB discharge the charge. At the time of hearing of the motions on 4 June 2021 there was no further evidence about what had been done in relation to removing that charge.

[54] Since June 2015 DC Legal has had no active business. Although Mr Dennis says it has no business outgoings, it is apparent that the account at Westpac is being used to pay liabilities as they arise such as to the ATO, ASIC and for legal fees.

[55] Given the rate at which the amount of $500,000 has been diminished, there is a reasonable belief that DC Legal will be unable to pay the costs of the first defendant if ordered to do so. I note, in that regard, that the only evidence about the account is one bank statement showing transactions between 1 April 2021 and 10 May 2021.

[56] Mr Dennis says that he is the registered proprietor of a strata unit in Hosking Place in Sydney. No mortgage is shown on the certificate of title. However, in light of my determination that the claim by Mr Dennis should be summarily dismissed, it is significant that, although submissions filed for the plaintiffs say that Mr Dennis “has acknowledged that he would stand behind” DC Legal, and that he has unencumbered property to “support and such ability”, his affidavits do not make any such offer. Nor is it satisfactory that the first defendant should have to execute a judgment against the property. No offer of a charge or mortgage was made. In any event, where DC Legal has a bank account with funds in it, that is the appropriate source for the provision of security, if it is to be ordered.”

11. Since the decision of his Davies J, Mr Dennis has been removed as a party,. His Honour’s findings at [51]-[56] above as to DC Legal’s financial position remain that as set by his Honour.

12. In Dennis v Joukhador, Davies J described how he perceived the scope of the proceedings at [94]:

“[94] The application is made at a very early point in the proceedings. No evidence in relation to the substantive claim appears to have been filed by the first defendant. I am not at all critical of the early application. However, it makes it more difficult to reach an informed view about the complexity of the case, and what costs are likely to be incurred in its preparation. On one view, it is a relatively straightforward case. Whether the money was received on trust would not seem to depend on a great deal of evidence. Whether there should be an accounting is likely to be determined by similar evidence to the trust point. It is likely that evidence about the background will be agreed. The case may well depend largely on the construction of documents. By reason of my decision on the position of the first plaintiff, the issues are likely to be narrower.”

13. Since Davies J delivered his judgment on 21 July 2021, the plaintiffs have filed a fulsome and prolix statement of claim and the plaintiff and defendants are at odds whether his findings still apply. The plaintiff submitted that the issues in the dispute remain much the same as stated by Davies J, while the defendants take a very different position by saying there have been two seismic shifts in the issues in dispute.

14. The parties agree that these proceedings relate to how monies received by the defendants were distributed and the basis of distributions: (paragraph 5(i) of the Fogl Affidavit; paragraph [36] of the Watson Affidavit). The monies were received following settlement of a class action (‘the Baldock Proceedings’) in which the plaintiff and the defendants, at various times, had acted as solicitors for the plaintiffs in the Baldock Proceedings, and the monies included components for both damages and legal costs.

15. Expanding upon my introduction of the parties in these proceedings, the first defendant, Mr Joukhador, is a solicitor who traded as Thomas Booler Lawyers, and who then became the principal of the third defendant, an incorporated legal practice after judgment was reserved by Brereton J and prior to the time the monies were received. He was the principal of the third defendant when the monies were received. He authorised the distribution of a substantial portion of the monies to a third party, Bookarelli, formerly the second defendant.

16. The first and third defendants in these proceedings were retained by and acted on behalf of the plaintiff in recovering the costs payable to the plaintiff by the Baldock plaintiffs and HIH Liquidators, under the costs order in the Baldock proceedings.

Duty owed by defendants to plaintiff as a client

17. The defendants confirmed in written correspondence that it acted on behalf of the plaintiff (Ex 1 tendered before Davies J on 4 June 2021 (at Ex A 373)).

18. The defendants were aware the plaintiff claimed a lien over the costs payable by the HIH Liquidators. With full knowledge of the lien and without regard to protection of it, the defendants caused a substantial part of the monies to be distributed to Bookarelli.

19. The plaintiff never gave up its lien over the costs to be received from the defendants and continues to maintain it.

20. Under the settlement deed, the plaintiff released the HIH Liquidators from its lien over the costs but did not release its lien in any other respect. The proceedings regarding the distribution of funds arose from the HIH Group liquidation. From about 2001 Mr Dennis and company was retained to advise and act for certain shareholders (‘the Original HIH Shareholders’) of HIH who had acquired shares in circumstances which, according to those shareholders, allegedly involved a market affected by misrepresentation. The Original HIH Shareholders claimed to be entitled to lode proof of debts on the liquidation of HIH and claim damages for accessorial liability against other defendants.

21. Mr Joukhador acted for other shareholders in the Smith proceedings, the Cuong Ly proceedings and the De Bortoli proceedings. These proceedings were ordered to be heard together with the Baldock proceedings. The defendants in the Baldock proceedings are set out at [20] of the statement of claim detailed below.

The statement of claim

22. The statement of claim filed 22 April 2022 (beginning at p 51 of Ex A) pleads: an oral retainer agreement between DC Legal and Mr Joukhador; a partly oral partly written retainer with Harrow Legal; ratification; a breach of those retainers; estoppel arising from a 'shared assumption'; a breach of fiduciary duties owing to the plaintiff; breach of duties as a trustee; and breach of a duty of care amounting to negligence. Oral negotiations and agreements arising from 13 months of communications in June 2014 to July 2015 between Mr Dennis and Mr Joukhador, as well 15 months of communications in July 2015 and October 2016 between Mr Dennis and Mr Joukhador are alleged to have formed an oral agreement.

23. The statement of claim of 22 April 2022, filed by the plaintiff, DC Legal, joined the third defendant (Ex A). Specifically, paragraphs [42]-[45] read:

“Marcel Joukhador Retainer and Harrow Legal Retainer with DC Legal

42. By an oral agreement made between July 2015 and October 2016 DC Legal retained Marcel Joukhador to act to recover for DC Legal the costs owing to DC Legal by each of the Continuing Baldock Plaintiffs ("Marcel Joukhador Retainer").

Particulars

(a) Bruce Dennis on behalf of DC Legal instructed Marcel Joukhador who had agreed to recover costs owing to DC Legal following the successful outcome of the Baldock Proceedings.

(b) Marcel Joukhador Retainer was between Bruce Dennis personally and on behalf of DC Legal and Marcel Joukhador.

The Harrow Legal Retainer

43. It was a term of the Marcel Joukhador Retainer with DC Legal that Marcel

Joukahdor;

(a) Would carry out his tasks with reasonable care and skill;

(b) Would not permit his interest to conflict with the interest of the Plaintiff or with his other clients;

(c) Would cease to act if his duties to others conflicted with those to the Plaintiff;

(d) Would keep the Plaintiff reasonable informed;

(e) Would keep proper accounts in accordance with requirements of the Legal Profession Act and the Legal Profession Uniform Law; and

(f) Would retain as trust money any monies of the Plaintiff received by him which he did not have authority to disburse.

(The terms of the Marcel Joukhador Retainer).

44. In October 2016 Marcel Joukhador acting in accordance with Marcel Joukhador Retainer filed a Notice of Change of Solicitor in which thereafter he represented the Continuing Baidock Plaintiffs.

45. Following cancellation of Marcel Joukhador's Practicing Certificate by the Law Society, in about October 2017, Phillip Madden as promoter of Harrow Legal agreed with Bruce Dennis on behalf of DC Legal:

(a) To incorporate an incorporated legal practice;

(b) To recover the Continuing Baidock Plaintiffs' Costs pursuant to the Brereton J Costs Order on behalf of DC Legal;

(c) To recover costs pursuant to other costs orders for the other Plaintiff parties in the Smith Proceedings, the Cuong Ly Proceedings and the De Bortoli Proceedings on behalf of the First Defendant.

(d) That the newly incorporated Harrow Legal would negotiate a settlement of costs and pay those costs referred to in (b) to DC Legal or proceed to assessment and have the costs referred to in (b) assessed and pay them to DC Legal;

(e) That in the event that Marcel Joukhador was reinstated as a solicitor, Marcel Joukhador or Harrow Legal under the control of Marcel Joukhador, would thereafter act for DC Legal;

(f) That the terms of the Harrow Legal Retainer were otherwise the same as the Marcel Joukhador Retainer set out in paragraph 44 above; and

Particulars

(a) The agreement was partly oral and partly in writing and was made in or about October 2017; and

(b) The written part was in a document dated 6 November 2017 signed by Phillip Madden and Bruce Dennis.”

24. This expanded pleading needs to be considered in the light of Mr Dennis and Mr Joukhador were friends who met up regularly on a part social part work basis. Mr Joukhador is in a position to provide instructions and give evidence as to what was discussed. No doubt there were such periods of time such as that while judgment was reserved. There was little to discuss concerning costs.

The evidence – Quantum of costs

25. The chart setting out the work to be done and the costing of the first and third defendant’s solicitor costs and counsel fees, is as follows:

Item		Solicitor	Counsel
Time (Hrs)	Costs	Time (hrs)	Costs
Taking instruction and advising clients on Defence to be pleaded	2 (Partner)	$770.00
Drafting Defence	19 (Special Counsel; Inci 3 hours with Joukhador 5 (Partner)	$6,745 $1,925
Settling of Defence	1 day	$3,500
Discovery – review documents produced by the other parties in this proceeding, the Baldock proceedings and the Related Proceedings (as required) including but not limited to: • Considering appropriate categories for discovery; • Preparing the First and Third Defendants’ categories for discovery; • Preparing an Affidavit of Documents (noting that the First and Third Defendants’ records during its conduct of the Baldock Proceedings, • Related Proceedings and conduct of the costs recovery are in excess of 4000 pages. • Reviewing other parties’ documents and providing advice.	50 (Lawyer) 5 (Special counsel)	$11,500 $1,775	2 days	$7,000
Discovery documents and advice to client	3 (Partner)	$1,155	No change
Subpoena   on Bookarelli   and review of documents produced Expectation is that Bookarelli   will produce 2,000 3,000   documents relevant to a fact in issue noting the factual matrix spans 20 years from the collapse of the HIH entities	20 (Lawyer) 7 (Solicitor) for report & advice 3 (Partner) advice to client	$4,600 $1,610 $1,155	1 day	$3,500
Appearance   at Directions Hearings prior   to   trial; estimated 4 appearances at 2 hours per appearance	8 (Lawyer)	$1,840	4	$1,400
Review of Plaintiff’s evidence estimate of one lay Affidavit and one expert report	14 (Lawyer) 3 (Partner)	$3,220 $1,155
Preparing advice to client on evidence served	14 (lawyer) 3 (Partner)	$3,220 $1,155
Preparing lay evidence at least 2 witnesses including collating documents and preparing Affidavit (Marcel Joukhador and Naushad Husaini)	60 hours lawyer 10 hours Special Counsel 5 hours	$14,950 $3,550 $1,925	15	$7,500
Expert liability evidence from solicitor expert (one lump sum fee) Preparing brief to expert, liaising with expert on liability report (Special Counsel)	60 (Lawyer) 10 (Special Counsel) 5 (Partner)	$14,950 $3,550 $1,925	15	$5,250
Preparing   lay evidence to be given by Bookarelli (voluntarily given on the basis of paying for Bookarelli’s legal costs) Alternatively Option 2 Preparing lay evidence to be given by Bookarelli (by compulsion under subpoena) - Preparing outline   of evidence	40 (Lawyer) 10 (Special Counsel) 5 (Partner) Bookarelli legal costs 30 (Lawyer) 10 (Special Counsel) 5 (Partner)	$9,200 $3,550 $1,925 $10,000 (total $29,925) $6,900 $3,550 $1,925	15 15
Increasing hearing 1 day arising from evidence to be led orally   (prep; Hearing)	14 (Special Counsel)	$4,970 (alternative total $29,595)	2 days	$7,000
Expert liability evidence from solicitor expert (one lump sum fee) Preparing brief to expert, liaising with expert on liability report (Special Counsel)	5 (Special Counsel)	$12,000 $1,775	$1,750
Forensic Accountant Expert and/or costs consultant to provide a report taking into account Bookarelli’s documents to establish Bookarelli’s   costs and disbursements of the Baldock Proceedings (one lump sum fee) Reviewing   and finalising report with expert	$12,000	$2,500 (includes reviewing and initial instruction and brief)	$2,100 (Counsel settling at half a day)
Reviewing Plaintiff’s evidence in reply’ Affidavits and any expert evidence in reply Reporting to client	10 (Partner)	$3,850	5	$1,750
Reviewing Second Defendant’s evidence and any expert evidence and reporting to client	(10)	-$3,850	(5)	-$2,500
Sub-Total to Preparation of Evidence	$120,120	$44,750

26. The plaintiff agrees in the chart set out above that the agreed hourly rates to the partner, special counsel, solicitor and a paralegal are reasonable. What is in dispute is whether the work envisaged by Ms Cantrill is overly generous. At [30] of Cantrill 1 she set out the additional work and cost using the table above to get to the stage of the conclusion of the preparation of evidence. The estimate of solicitors fee costs and counsel fees ($32,500) equates to the sum of $166,845: Cantrell 2 at [20].

27. I will summarise the parties’ submissions in detail, before succinctly doing so in my resolution.

The plaintiff’s submissions

28. The plaintiff submitted that the case remains as it was when the application for security for costs was made to Davies J concerning a dispute about the disbursement of monies received by a solicitor pursuant to a settlement deed.

29. The plaintiff submitted that under the settlement deed, the first defendant had an obligation to deposit into the Thomas Booler Lawyers Law Practice Trust Account the settlement sum of $2,382,000, which was paid by the HIH Liquidators by bank cheque in that amount drawn in favour of “Thomas Booler Lawyers Law Practice Trust Account” (Clause 2.2(b) of Settlement Deed at Annexure A to the affidavit of Mr Dennis dated 15 December 2020.

30. As part of the preparation for the first application for security, and preparation of the evidence and submissions in support of the application, the former solicitors (Harrow Legal and Vaikom Legal) and counsel (Oliver Jones) turned their minds to the circumstances relating to the subject of the claim. This involved contemplation of the role played by the third defendant, even though it was not then a party. The work undertaken necessarily included receiving the summons and affidavit, obtaining instructions, conferring with the first defendant and considering and reviewing evidence relied upon by the first defendant in relation to various matters to enable counsel to conduct the case. This would also include reviewing documents held by the first defendant which are relevant to the proceeding and the first application for security for costs, including retaining each counsel to appear and prepare written submissions.

31. The plaintiff asserted that there was no suggestion that the defendants did not understand the case they were required to meet (then pleaded by way of summons) or the work involved when they sought security. Submissions were made relevant to how the first defendant proposed to defend the claim: (pp 323-330 Ex A).

32. This knowledge gained by the lawyer for the first defendant, including by way of counsel, is, the plaintiff submitted, critical for the conduct of these proceedings and was within the knowledge of the solicitors and counsel briefed at the time. The information obtained for the purpose of prosecuting the first application for security for costs would be retained by the defendants’ solicitors and barrister. The second application for security appears to have been prompted by a change in solicitor. The plaintiff submitted that this is not a matter which justifies the granting of further security for the work covered by the order made by Davies J.

33. Upon receipt of the redacted version of Harrow Legal trust account statement on or about 3 August 2021 from the first defendant, the plaintiff learned that the settlement sum of $2,382,000 was deposited into the trust account of Harrow Legal Pty on or about 30 June 2020 rather than into the trust account of Thomas Booler Lawyers.

34. The plaintiff argued that the joining of the third defendant does not change the issues of the proceeding. The plaintiff explained that the third defendant was joined in its capacity as the recipient of the settlement sum. The third defendant is the corporate vehicle of the first defendant which he controls. The first defendant is the individual who had control over the trust account of the third defendant. The plaintiff therefore submitted that the defendants’ suggestion that there is a change in circumstances such as to justify a second attempt to obtain security should be rejected by the Court.

35. The plaintiff further submitted that the application arises at a critical forensic point in the defendants’ conduct of the claim. Neither has filed a defence or indicated what their defences are likely to be. The defendants’ insurer has assumed conduct of the claim and so their resources have significantly increased.

Issues in the proceedings further clarified

36. Since the first application for security was heard by Davies J on 4 June 2021, the issues in the proceedings have been clarified.

37. On 30 November 2022, solicitors for the plaintiff received from solicitors for the defendants a copy of directions from Bookarelli (previously the second defendant) to the third defendant ‘(Bookarelli’s 13 July 2020 Directions) (copy at Ex A 274).

38. In light of Bookarelli’s 13 July 2020 Directions, the issues in the proceedings have been narrowed. The primary issue in the proceedings is whether the defendants were entitled to make distributions in accordance with Bookarelli’s 13 July 2020 Directions without consent from the plaintiff.

39. At the time of making the disbursements as set out in Bookarelli’s 13 July 2020 Directions, the first defendant was obliged to comply with its duties and be satisfied as to the basis of any entitlement to make distributions in accordance with Bookarelli’s 13 July 2020 Directions.

40. No issue of defence is raised by the evidence from the defendants which seeks to justify or explain the payment. The strength of the claim brought is only one issue the Court would consider in relation to this application. However, the absence of an explanation from the solicitor responsible for a trust account when confronted by an allegation that they did not disburse monies in accordance with their duties as fiduciaries or held and dealt with them in accordance with the requirements of the Legal Profession Uniform General Rules 2015 (NSW) is as described the plaintiff is both surprising and relevant.

41. Any documents relied on by the defendants in satisfying themselves of the entitlement to make distributions in accordance with Bookarelli’s 13 July 2020 Directions must have been available prior to making the distributions.

42. To date, the defendants have not provided any evidence, explanation or statement of defence which is responsive to the primary issue in these proceedings, which were set out in the Watson Affidavit.

43. In light of the defendant’s lack of evidence, explanation or statement as to its entitlement to make distributions in accordance with Bookarelli’s 13 July 2020 Directions, the plaintiff asserts that their case against the defendant is more likely to succeed than at the time of the last motion hearing before Davies J on 4 June 2021.

44. It is at the Court’s discretion to consider the strength of the plaintiff’s case in determining whether an order for security for costs is appropriate.

Attempt to Resolve

45. On 11 January 2023, the plaintiff offered further security of $20,000. The plaintiff submitted that amount must be sufficient to cover the costs of both inquiry and preparation of an appropriately pleaded defence.

46. The solicitors have changed, which, the plaintiff submitted is not a circumstance which would figure in the exercise of the Court’s discretion. The third defendant has been added because it was discovered that it received the proceeds of settlement, a fact which was well known to its principal, the first defendant, when he sought security the first time. The plaintiff again argues the case has not changed. Rather, the defendants seek to use the opportunity presented by the addition of the third defendant to impose, what the plaintiff describes as a very substantial burden of further security on the plaintiff, who continues to be held out of his money.

47. The plaintiff contended that the dictates of ss 56-60 of the Civil Procedure Act 2005 (NSW) are breached by this type of application.

Cross-claim arising from same factual matrix

48. On 7 September 2021 the first defendant served a cross claim seeking payment of $381,980.00 as an overpayment of monies paid by him to the plaintiff.

49. The plaintiff would have had to consider the basis for any payment and why such an amount was an overpayment and calculate the alleged actual entitlement of the plaintiff. The plaintiff submitted that the court should not order security in circumstances where a cross claim is brought out of the same factual matrix, which in effect, makes the plaintiff pay for the work done by the cross claimant on its case that it seeks to bring. The plaintiff submitted it would be unjust for the plaintiff to be exposed to a stay of its claim whilst the cross-claimant is free to pursue its claim.

Excessive quantum of security for costs sought by defendants

50. So far as the quantum for the claim for security of costs, as set out in Cantrill 2 and the Fogl Affidavt, it appears the estimated costs are on a solicitor and its own client basis rather than on a party/party basis. The estimated costs have not taken into account any discounting that may apply in respect of a party/party costs assessment. Security for costs are not intended to meet all eventualities nor provide complete and certain indemnity to a defendant: Brundza v Robbie & Co (No 2) (1952) 88 CLR 171, 175.

51. The plaintiff submitted that some categories of work described are questionable and others appear to take a luxurious approach to time and the tasks. An example of the former is the items described at paragraph [30] of the Cantrill 1 in relation to discovery. The plaintiff notes the following: first, it is the defendants who hold the relevant documents in this matter; secondly, the suggestion that the defendants’ solicitors will find matters relevant to their defences by trolling through discovered documents in the Baldock and related proceedings suggests an ‘extravagant and largely irrelevant approach’ to the defence of the claim on behalf of the defendants. The plaintiff submitted that examples of the second categories are 90 hours claimed for the preparation of two lay affidavits of Marcel Joukhador and Naushad Husaini, an employee of the third defendant. A further example is the claims for preparation of over 42 hours for the solicitors and 4 days for counsel.

52. It is appropriate for a Court to initially order security for costs in stages: Green Camel Pty Ltd v Urban Ecological Systems Ltd [2017] NSWSC 362, [65]. The plaintiff therefore submitted that in this case, the Court has already ordered the appropriate amount for security of costs up to completion of the defendant’s evidence.

The first and third defendants’ submissions

53. At the hearing of this motion, the first and third defendants filed an amended motion seeking security for costs for $193,845 (for both M Joukhador and Harrow Legal ) to the conclusion of the hearing and $166,845 up to the conclusion of the preparation of evidence to reflect the evidence they rely on as to anticipated costs arising from what they allege are the material change in circumstances set out below.

54. At paragraph [5] of Cantrill 1, Ms Cantrill sets out her experience: 27 years of practice, 9 years as a partner, with specific experience acting for professionals and their insurers where it is necessary to provide detailed defence cost estimates. Ms Cantrill also notes her experience in preparing bills of costs.

55. At paragraph [10] Fogl Affidavit, she annexes her CV. She further sets out her experience at [1] to [8] of the Fogl Affidavit. Her experience as a costs consultant is substantial. She was a solicitor for 19 years and subsequently has worked exclusively in costs for a further 23 years.

56. The defendants noted that there are some key differences between the summons and the claim including the following, without limitation: the claim itself is 27 pages and the facts and circumstances pleaded relate to four separate Supreme Court proceedings in respect of class actions against the liquidators of HIH insurance commencing in 2013.

Plaintiff's impecuniosity

57. Paragraphs [33]-[37] of Cantrill 1 deposes the correspondence with the plaintiff regarding its financial status. Requests were made by the defendants for financial information of the plaintiff. This was considered by Lehane J to be an important step prior to the filing of any motion: Crypta Fuels Pty Ltd v Svelta Corp Pty Ltd (1995) 14 ACLC 393.

58. The plaintiff demanded the defendants file their defence first (as set out in the letter from the plaintiffs’ solicitors dated 14 June 2022 at p 118 of the Exhibit of Cantrill 1 and staunchly in a further letter dated 30 June 2022 at p 131 of the Exhibit of Cantrill 1). No financial information was provided, which inspired the defendants to file this motion nor has any financial information been provided subsequently.

59. Paragraphs [38]-[40] of Cantrill deposed the defendants' searches as to the plaintiff’s financial position. The defendants submitted this is impecunious. As at July 2021, the Court found that it had no active business since June 2015: Dennis v Joukhador at [54]. No further evidence has been adduced to suggest that that position has changed.

60. The defendant therefore submitted that there is no other reason that the Courts discretion to grant security ought not be made. It is the defendants’ view the only issue before the Court is the quantum of the security that ought to be granted.

61. Fixing the amount to be provided by way of security is part of the exercise of the Court's discretion: Fiduciary Ltd v Morningstar Research Pty Ltd [2004] NSWSC 664 at [132]. Security for costs are not intended to provide a complete and certain indemnity for costs: Mr D v Ms P [2020] NSWCA 174 at [57]. It is submitted that the defendants do not seek a complete and certain indemnity.

Nominal plaintiff

62. Security will be ordered where a plaintiff is a nominal plaintiff. As explained by the learned Dal Pont GE in Law of Costs at [29.39], "the fact that litigation is, for example, prosecuted by an insolvent company at the instance and under the control of a secured creditor substantially for the benefit of that creditor is therefore a weighty consideration in favour of granting security under s 1335(1) of the Corporations Act (citing Sent v Jet Corporation (1984) 2 FCR 46 at 53).

63. The remaining and existing plaintiff, DC Legal Pty is a company of which Mr Dennis has, at all material times, been the sole director and sole shareholder. The defendants submitted that DC Legal is in effect a nominal plaintiff in the sense that Mr Dennis alone stands to benefit from any fruits of this litigation. He personally claimed a lien over the funds in the hands of HIH: Dennis v Joukhador at [13]. Yet without security, he is not burdened with any risk. This is a weighty consideration in favour of granting security.

62. Since the first security order was made on 21 July 2021, the defendant argues that there has been the following material change in circumstances:

1. On 15 October 2021, the Court ordered that the matter proceed by way of statement of claim ([18] Cantrill 1) and DC Legal became the sole Plaintiff.

2. On 22 April 2022 (six months later), the plaintiff filed a 27-page statement of claim. There was a seismic shift in the number of issues in dispute in the proceedings, the time required for Hearing (estimate to be three days now instead of one day) and concomitantly, defence costs.

3. The claim added Harrow Legal as the third defendant.

4. With the benefit of a deeper understanding of the issues in dispute between the parties arising from the 27-page statement of claim, on 1 July 2021 the defendants filed a motion seeking further security, together with Cantrill 1 in support, estimating that defence costs will be $106,235 to the preparation of evidence and $194,670 until the conclusion of proceedings;

5. On 4 October 2022, the proceedings against Bookarelli were discontinued. This, per the defendant, caused a second seismic shift in how the defendants would need to defend these proceedings. Paragraph [9] of Cantrill 2 explains that as a result, it would now be necessary for the defendants to adduce additional evidence or arrange for oral evidence from Bookarelli (if it did not voluntarily assist the defendants) as it was no longer a party to the proceedings and had no compulsion to do anything.

65. As a result in the change in circumstances referred to above, paragraph [19] of Cantrill 2 set outs in detail her estimate as to the costs that be incurred, together with evidence as to the reasons for any increase. For many steps in the litigation, there is no increase.

66. This change results in Ms Cantrill estimating at paragraph [20] of Cantrill 2 that defence costs until the preparation for evidence will be $166,845 not $106,235; and until the conclusion of the hearing from $261,467 not $194,670.

67. Accordingly, the total estimated costs of the proceedings is $261,467 + $21,000 already incurred = $282,287. Ms FogI opines that, of this amount, the likely allowance in a costs assessment of ordered costs is $228,087.

68. The security that is sought in the amended motion is $193,000 (being $228,087 - $35,000 which security has already been provided).

69. Although the defendants would be entitled to seek further security arising from the defensive cross claim it would be required to file which is estimated to be $27,555 to the preparation of evidence and $40,815 until the conclusion of the Hearing ([28] Cantrill 2), they are not pressing that amount.

70. The defendants submitted that the $35,000 that has been provided so far as security is totally inadequate for the costs likely to be incurred in these proceedings. Paragraph [21] of Cantrill 2 deposes that most of this money has already been used.

71. The defendants submitted that what they describe as seismic shifts in the proceedings from first security motion warrants the grant of further security.

Resolution

72. On 21 July 2021 (nearly two years ago), an order was made that the plaintiff to pay the defendants’ $35,000 for security for costs. Prior to the hearing of this amended statement of claim, the plaintiff offered $20,000 as further security for costs. The first and third defendants seek $166,845 up until the conclusion and preparation of evidence and will incur another $68,870 defending the cross claim to the conclusion of the proceedings, through they are not pressing the lesser amount. That is an appropriate course to take as there will be some commonality the evidence pertaining to the statement of claim and cross claim.

73. Counsel for the plaintiff agrees that the charge out rates for lawyers, special counsel and counsel are reasonable. There has been a material change in circumstances due to the filing of a complex statement of claim.

74. According to the plaintiff, there is a “luxurious” approach to time and task, in particular, the defendant, who already have the relevant documents, say they need to troll through discovered Baldock and related proceedings that were largely extravagant and irrelevant. 90 hours of time were expended for the production of 3 witness statements and 42 hours of preparation time for the solicitors and 4 days for counsel.

75. As to the filing of the statement of claim, Davies J allowed $35,000 as security for costs of the defence up until the completion of evidence. Most of that money has already been expended. The defence has not yet been filed. The authorities show that the amount of security ordered should be sufficient, but not a complete indemnity: Brundza v Robbie & Co (No 2) (1952) 88 CLR 171. The costing chart calculates costs that will be incurred on an indemnity basis.

76. While the plaintiff seeks the amounts of security for costs to be given in tranches, the first and third defendants seek that one sum of security for costs be awarded to the completion of the proceedings. I favour the earlier approach. To award the larger sum may stifle the plaintiff’s proceedings.

77. The main issue in dispute still remains the disbursement of moneys received by the plaintiff pursuant to a settlement deed, but the issues have been expanded to include the express and implied terms of the retainer, breach of fiduciary duty and failure to comply with Legal Profession Uniform Law 2014 (NSW). One important factor to bear in mind is that Mr Joukhador was the other party to the conversations with Mr Dennis that took place over a number of years.

78. Party/party costs are normally allowed at around 70% of the costs claimed. I have taken into account that the parties may settle proceedings at mediation, as mediation has almost been agreed upon. The amounts claimed for discovery, preparation of witness statements and other preparations are excessive. The HIH litigation is past history. The parties came to an agreement as to costs in the Bookarelli litigation. Taking all this account, the amount I propose to allow for security for costs up until the conclusion of the preparation of evidence is 55% of the amount claimed. $166,845 x 55% equates to $91,764. I allow this amount.

Costs

79. Costs are discretionary. Costs normally follow the event. The plaintiff is to pay the first and third defendant’s costs.

THE COURT ORDERS THAT:

1. The plaintiff is to provide additional security by payment to the first and third defendants up to the conclusion of the preparation of evidence in the sum of $91,764 within 14 days.

2. The proceedings are to be stayed until security has been provided.

3. The plaintiff is to pay the first and third defendant’s costs.

**********

Decision last updated: 11 July 2023