Guildford Montessori Kindergarten Pty Ltd v Wehbe

[2025] NSWSC 145

Supreme Court

New South Wales

Medium Neutral Citation:

Guildford Montessori Kindergarten Pty Ltd v Wehbe [2025] NSWSC 145

Hearing dates:

24-25 February 2025

Date of orders:

5 March 2025

Decision date:

05 March 2025

Jurisdiction:

Equity

Before:

Meek J

Decision:

Decision to order security for costs made. Decision to order disclosure of certain categories of documents made.

Catchwords:

CIVIL PROCEDURE — Obligations of parties and legal practitioners — Proportionality of costs — Six interlocutory applications listed for hearing relating to disclosure of documents, security for costs, preservation of documents and distribution orders — Unnecessarily large Court Book extending to over 2,500 pages with a further approximately 220 pages tendered at the hearing — Extraordinary amount of solicitor-client costs incurred by the parties in respect of the interlocutory applications estimated to total in the order of at least $872,000

CIVIL PROCEDURE — Obligation of parties and legal practitioners to facilitate the just, quick and cheap resolution of real issues in the proceedings — The volume of material and extent of costs should cause the parties and the practitioners to deeply reflect upon whether the overriding purpose has been achieved — The experience and capability of legal representatives eminently suits them to be able to deploy discipline and ingenuity in ensuring that only central issues in respect of interlocutory applications are identified, marginal issues and arguments discarded and only the key materials that are required for determination of such applications are included in the Court Book — Unless parties and their legal practitioners can sensibly reduce the volume of materials to be provided to the court and conduct interlocutory applications with appropriately proportionate costs, the Court may, on an appropriately informed basis, have to consider limiting the volume of materials to be relied upon in respect of such applications and consider cost capping orders

CIVIL PROCEDURE — Disclosure of documents — Discussion of approach where certain production and disclosure of documents has already occurred by both parties — Where plaintiffs have served their evidence in chief including over 15,000 pages of documents, defendants seek further disclosure prior to serving their evidence in chief, plaintiffs assert Practice Note SC Eq 11 precludes disclosure without exceptional circumstances, plaintiffs failed to seek particulars of defences in respect of allegations of knowledge, authorisation and approval of transactions in respect of monies they claim have been misappropriated

CIVIL PROCEDURE — Disclosure of documents — Purposive and flexible approach to the Court’s case management powers to regulate production of documents to ensure the overriding purposes of the CPA and UCPR to facilitate the just, quick and cheap resolution of the real issues in the proceedings in light of the volume of material served and the extent of costs incurred in the proceedings to date — During the course of the hearing the claim for disclosure was refined — Held certain disclosure should be provided in respect of revised categories of documents

COSTS — Security for costs — Contrast between a current solvency test and requirement for payment if necessary by liquidation of assets at a future time — Generally, in security for costs applications, the question regarding payment of security is not a current solvency test requiring that the corporation have liquid funds available as at the time of the hearing of the application for security

COSTS — Security for costs — Plaintiffs are all corporate entities with some being trustees of trusts and some no longer operational — Defendants claim security for costs — Plaintiffs have relatively minimal net business assets — Plaintiffs adduce expert evidence as to the fair market value of the businesses based on capitalisation of future maintainable earnings — Income stream as a source for future payment of costs — Proof of a calculated value of a future income stream per se neither gives rise to any clear inference that the entirety or a substantial part of such a value will be able to be realised promptly following findings on a final judgment nor demonstrates the ability of plaintiff companies to realise a large lump sum from the income stream in a timely way to pay any significant adverse costs order — Doubt regarding capacity to pay costs at future time — Security ordered — Quantum of security discussed and determined

COSTS — Basis for assessing costs — Costs under the CPA are subject to rules of court and to the CPA or any other Act awarded on either the “ordinary basis” (as distinct from “party-party basis”) or on an “indemnity basis”

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Corporations Act 2001 (Cth)

Legal Profession Uniform Law Application Act 2014 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410

Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410

Commonwealth Bank of Australia v Goater [2016] NSWSC 710

Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 55

East Grace Corporation vXing(No 1) [2005] FCA 219

Estate of Guamani; Guamani v De Cruzado [2023] NSWSC 502

Gazal v Setiawan [2024] NSWSC 1046

Graphite Energy Pty Ltd v Lloyd Energy Systems Pty Ltd [2014] NSWSC 1326

Health Administration Corporation v Toll Global Forwarding Pty Ltd [2024] NSWSC 285

Hitchcock v Pratt Group Holdings Pty Ltd as trustee for the Pratt Family Holdings Trust [2024] NSWSC 1292

Idoport Pty Ltd v National Australia Bank Ltd (2000) 49 NSWLR 51; [2000] NSWSC 338

ILC Group v Sydney Water Corporation [2014] NSWSC 1407

In the matter of Mempoll Pty Limited, Anakin Pty Limited and Gold Kings (Australia) Pty Limited [2012] NSWSC 1057

Lee v Belmore 88 Pty Limited [2025] NSWSC 96

Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458

Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385

Putney Group Pty Limited v The Royal Rehabilitation Centre Sydney [2009] NSWSC 424

Re Marriage of Garufi (1991) 15 Fam LR 69

Reeves v Reeves [2024] NSWSC 134

Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317

Taurus Mining Finance Fund Aiv LP v Sandfire Resources Ltd [2021] WASC 52

Yara Australia Pty Ltd v Oswal (2013) 41 VR 245

Texts Cited:

Dal Pont, GE, The Law of Costs (5th ed, 2021, LexisNexis)

Practice Note SC Eq 11

Category:

Procedural rulings

Parties:

Guildford Montessori Childcare Pty Ltd ACN
120 987 028 (First Plaintiff)
Rose-Hill Montessori Kindergarten Pty Ltd
ACN 130 543 574 (Second Plaintiff)
Eltelegraph Newspaper Pty Limited ACN
142 631 285 (Third Plaintiff)
Alanwar Newspaper Pty Limited ACN 073
059 159 (Fourth Plaintiff)
Anoujoum Magazine Pty Limited ACN 135
682 521 (Fifth Plaintiff)
Access to Care Pty Limited ACN 615 856
365 (Sixth Plaintiff)
Future Academy Pty Limited ACN 135 043
113 (Seventh Plaintiff)
Wehbe Investments Pty Ltd ACN 065 783 968 (Eighth Plaintiff)
Remy Wehbe (First Defendant)
Linda Kafrouni (Second Defendant)
Kevin Wehbe (Third Defendant)
Karl Wehbe (Fourth Defendant)
Remy Wehbe Investments Pty Limited ACN
136 262 247 (Fifth Defendant)
Advanced Training Services Pty Ltd ACN 604
847 681 (Sixth Defendant)
Taghrid Choukair (Eighth Defendant)
Prestige Training Group Pty Ltd ACN 602 416 722 (Ninth Defendant)

Representation:

Counsel: A Ivantsoff (solicitor – special counsel) (Plaintiffs)
DK Ratnam with J Courtenay (Defendants)

Solicitors:
Finn Roache Lawyers (Plaintiffs)
Simon Diab & Associates (Defendants)

File Number(s):

2022/258011

JUDGMENT

Introduction

1. HIS HONOUR: It is now almost a quarter of a century since statutory reforms in New South Wales commencing on 1 March 2000 provided an overriding purpose into rules of Court to facilitate the just, quick and cheap resolution of the real issues in proceedings, which were the precursor to further reforms introduced in 2005 with the Civil Procedure Act 2005 (NSW) (CPA). ^[1]

   1. See s 56(1),(2) CPA: Reeves v Reeves [2024] NSWSC 134 at [364] citing Idoport Pty Ltd v National Australia Bank Ltd (2000) 49 NSWLR 51; [2000] NSWSC 338 at [14]-[36] per Einstein J.

2. The applications described below listed before the Court last week show that there are still instances where those purposes are not being achieved, at least in any meaningful way.

3. This proceeding involves strongly contested litigation regarding what is known as the Wehbe Group companies operated by the plaintiffs.

4. The pleadings are now complete and the plaintiffs’ evidence in chief has been served. However, the proceedings are still very far from completion of interlocutory procedures and nowhere near a point at which they are be able to be fixed for hearing.

5. Five notices of motion, two by the plaintiffs and three by the defendants, containing six applications were originally listed before me.

6. Two days of court time were allotted to deal with the applications. Concerned as I was at pre-trial directions on 11 December 2024 about the costs and that amount of court time being spent on what are essentially procedural matters, and in light of the provisions of s 56 of the CPA, I directed that the parties engage in an informal settlement conference on or before 30 January 2025 to attempt to resolve or otherwise refine the disputes between them in relation to the five notices of motion. I was informed that a select bundle of material would be produced for the application ^[2] and I made directions for a Court Book (CB) to facilitate the hearing of the applications and I expressly indicated I expected the Court Book to be no more than one folder or, if more than one folder, the materials should be ordered in a way conducive to everyone being able to sensibly navigate the materials. ^[3]

   2. Transcript, 11 December 2024, T 10.21-.27.

   3. Transcript 11 December 2024 T 10.41-.50.

7. Unhappily, the Court Book produced was 4 volumes of double-sided materials extending to over 2,500 pages. It contains 21 affidavits. It was unnecessarily voluminous. The parties’ written submissions whilst helpful are nonetheless lengthy. On the hearing itself, not only that material was relied upon but additional material, being a further affidavit and two exhibits, were tendered on behalf of the plaintiffs comprising in excess of 220 pages.

8. Were those figures not enough to give rise to concern regarding just, quick and cheap resolution of the applications in the proceedings, the extent of costs raises alarm bells.

9. The costs generated by the defendants in their applications is the subject of some evidence in the proceedings. Their costs alone for the applications including this hearing (which has extended over the two days) total approximately $472,000. ^[4] The plaintiffs’ costs in respect of the applications were indicated as being in the ballpark of $400,000. Thus, collectively, the overall costs for motions dealing with disclosure, production of documents, security for costs and preservation of documents approach close to $872,000.

   4. More precisely $472,311.40. See Transcript, 24-25 February 2025, T 1.23, 16.9-.25, 25.42-26.50; see also CB 2246-2250 with incurred costs (d) $43,750.90; (e) $9025; (f) $104,485.50; (g) $97,834; (m) $39,000; (n) $26,400 = $320,494.90; future notice of motion costs $151,816.50.

10. Presently, I have insufficient basis to make any finding that any party has breached its duty to assist the Court to further the overriding purpose or that any legal practitioner has caused a party to be in breach of that duty, as provided for in ss 56(3) and (4) of the CPA.

11. Expressly, I do not make any finding regarding any such breach. However, no one should think that that extent of volume of material, most of which was not expressly referred to on the hearing of the application, and that that extent of costs is admirable or a testament to concision and economical litigation.

12. No attempt was made by the parties or the legal practitioners to justify the reason for the staggering amount of material in the Court Book. Options open to the parties included consolidating material and in particular discussing with one another the relevance of and necessity for much of the material.

13. The above matters ought to lead to very deep reflection on the part of the parties and the legal practitioners as to whether their s 56 obligations have been met, particularly having regard to the principle of proportionality in s 60 of the CPA.

14. Generally speaking, the experience and capability of legal representatives eminently suits them to be able to deploy discipline, refinement and ingenuity in ensuring that the central issues in respect of interlocutory applications are identified, marginal issues and arguments discarded and only the key materials that are required for determination of such applications are included in the Court Book. Ideally, the senior practitioners on each side ought, in preparing the applications, to speak with one another at an appropriately early stage when an index to a Court Book is being prepared with a view to distilling the materially relevant material and discarding the balance.

15. Unless parties and their legal practitioners can sensibly reduce the volume of materials to be provided to the Court and conduct interlocutory applications with appropriately proportionate costs, the time may come, if it has not already arrived, when the Court will have to take further decisive action to ensure the overriding purposes of civil litigation are met. This potentially includes limiting the volume of materials that are placed in the Court Book and capping the costs recoverable in respect of interlocutory applications. Of course, any such action would need to be done in a considered and informed way.

16. It was acknowledged during the hearing that there has been a breakdown of trust between the parties in the litigation. ^[5] There was an intimation that such distrust influenced concerns regarding production of documentation. ^[6] If that is the case, the Court expects the legal representatives for the parties to act in a way which transcends any inter partes distrust or enmity and to find ways of allaying concerns and facilitating expeditious and cost-effective resolution of chronic and costly interlocutory disputes.

    5. Transcript, 24-25 February 2025, T 68.20-.37.

    6. Transcript, 24-25 February 2025, T 43.50, 64.32-.33.

Hearing & evidence

17. The applications were listed and heard before me on 24 and 25 February 2025.

18. Mr Ivantsoff, a special counsel with the plaintiffs’ solicitors, appeared on behalf of the plaintiffs and Mr Ratnam of counsel with Mr Courtenay appeared on behalf of the defendants.

19. For convenience I will refer to the parties as follows (including, as the parties have done in the submissions, to the individuals by their first as a number of them share the same surname):

1. Guildford Montessori Childcare Pty Ltd - first plaintiff (GMC), Rose-Hill Montessori Kindergarten Pty Ltd - second plaintiff (RMK), Eltelegraph Newspaper Pty Limited - third plaintiff (EN), Alanwar Newspaper Pty Limited - fourth plaintiff (AN), Anoujoum Magazine Pty Limited - fifth plaintiff (AM), Access to Care Pty Limited - sixth plaintiff (ATC), Future Academy Pty Limited - seventh plaintiff (FA) and Wehbe Investments Pty Ltd - eighth plaintiff (WI);

2. Remy Wehbe - first defendant (Remy), Linda Kafrouni - second defendant (Linda), Kevin Wehbe - third defendant (Kevin), Karl Wehbe - fourth defendant (Karl), Remy Wehbe Investments Pty Limited - fifth defendant (RWI), Taghrid Choukair - eighth defendant (Taghrid) and Prestige Training Group Pty Ltd - ninth defendant (PTG).

20. Advanced Training Services Pty Ltd, previously the sixth defendant, is no longer a defendant in the proceedings, having been removed from the proceedings consequent upon the filing of the Second Further Amended Statement of Claim (2FASOC). For completeness, I note that consequent upon the filing of the Further Amended Statement of Claim on 14 July 2023, ^[7] the seventh defendant “The Trustee of the Remy Wehbe Family Trust” was removed as a defendant, and Taghrid and PTG were added as (respectively eighth and ninth) defendants.

    7. According to the Court stamp on the document.

21. The evidence relied upon in support of and resistance of the applications are set out in the index to the Court Book. ^[8] The Court Book was tendered and notwithstanding that it contained pleadings and motions was marked without objection JP-1.

    8. Transcript, 24-25 February 2025, T 2.35-.41.

22. Overall, 22 affidavits were read and relied upon. Ultimately there was no objection to any of the affidavits or evidentiary materials.

23. On the plaintiffs’ side, 9 affidavits were relied upon, being:

1. 6 affidavits by Daniel Georges (Mr Georges) - the plaintiffs’ solicitor, sworn 12 April 2023, 8 May 2023, 17 May 2023, 20 February 2024, 17 January 2025 and 24 January 2025;

2. an affidavit by Paul Garufi (Mr Garufi) - an accountant, sworn 23 January 2025, and exhibit PG-1 being a valuation report (valuation report);

3. an affidavit by Charlotte Morson (Ms Morson) - a costs consultant, affirmed 23 January 2025; and

4. an affidavit of Amelia Jane Ramsey (Ms Ramsey) - a solicitor in the employ of Mr Georges, sworn 22 February 2025 and exhibit AR-1.

24. Mr Ivantsoff tendered a bundle of documents bearing upon the question of security for costs (in response to paragraphs 50-52 and 57 of the defendants’ submissions) marked as exhibit P-1.

25. The affidavit of Ms Ramsey and exhibits AR-1 and P-11 were initially provisionally admitted and then subsequently admitted without any objection. ^[9]

    9. Transcript, 24-25 February 2025, T 2.47-4.22, 22.16-.26.

26. On the defendants’ side, 13 affidavits were relied upon, being:

1. 7 affidavits by Simon Diab (Mr Diab) - the defendants’ solicitor, affirmed 10 May 2023, 17 May 2023, 10 October 2024, 3 December 2024, 10 December 2024, 20 December 2024 and 11 February 2025;

2. 3 affidavits by Remy, affirmed 25 November 2022, 10 July 2023 and 29 January 2025; and

3. 3 affidavits by Linda affirmed 25 November 2022, 10 July 2023 and 29 January 2025.

27. Despite certain disputes in respect of the evidence, none of the deponents of affidavits were cross-examined.

Factual overview

28. It is appropriate to give a brief outline of the nature of the plaintiffs’ businesses, the key individuals in respect of the defendants, the claims in the proceedings, and the nature of the defences.

29. The following summary is drawn substantially from the outline of submissions of Mr Ivantsoff (PS), which Mr Ratnam accepted was, broadly speaking, an accurate overview, with the qualification that the plaintiffs’ claims in respect of the defendants are understood to be allegations. ^[10]

    10. Transcript, 24-25 February 2025, T 4.41-5.4.

30. The Wehbe Group is divided into the following groups of businesses: the Childcare Centre Group (GMC and RMK); the Media Group (EN, AN and AM); the NDIS business (ATC); and the training business (FA). WI is the trustee of the Wehbe Family Trust. Walhan Wehbe aka Wally Wehbe (Wally) is the founder and chairman of the Wehbe Group companies.

31. With respect to the defendants, the main “antagonists” ^[11] are Remy (Wally’s second cousin), Linda (Remy’s wife) and RWI. RWI is the trustee of the Remy Wehbe Family Trust, and Remy is the sole director and shareholder of RWI.

    11. Mr Ivantsoff’s word.

32. Kevin and Karl are Remy’s and Linda’s adult children. Taghrid is the sole director and shareholder of the PTG (together the Prestige Defendants).

33. During the period from about 15 July 2008 to 12 July 2021, Remy was a director, Chief Executive Officer or Financial Controller of each of the Wehbe Group companies. Remy also held (and continues to hold), through RWI, equity interests in all Wehbe Group companies, other than the Wehbe Family Trust. At various times, Linda was employed by the Childcare Centre Group.

28. The plaintiffs’ claims against the defendants amount to approximately $7.1 million in aggregate. The claims overlap and are quantified as against each defendant as follows.

29. During the period in which Remy was a director and employee of the Wehbe Group companies, the plaintiffs allege that he embezzled approximately $7.1 million from the Wehbe Group companies.

30. Seemingly, approximately 4,000 transactions are impugned in relation to a 13-year period, namely 2008-2021. ^[12]

    12. Transcript, 24-25 February 2025, T 3.31, 28.44-.50, 35.41, 36.9-.10, 51.30-.33, 65.10.

31. The plaintiffs further allege that:

1. Linda misappropriated, or was knowingly concerned in, the misappropriation of approximately $2.5 million of funds from the Wehbe Group companies;

2. Kevin and Karl received wages of about $80,000 from the Childcare Centre Group, although they were never actually employed; and

3. the Prestige defendants received sham training, referral and other fees totalling approximately $1 million.

38. Broadly speaking, in their defences, the defendants deny the allegations of fraud. In substance, they admit that the payments were made but say that the payments were made with Wally’s knowledge and authorisation or otherwise in the ordinary course of providing services to the Wehbe Group companies.

39. Thus, there is said to be a contest between alleged embezzlement and misappropriation of funds on one hand and alleged authorisation, knowledge and consent regarding such payments on the other hand. ^[13]

    13. Transcript, 24-25 February 2025, T 65.49-.50.

40. During the course of the hearing, an issue arose regarding the nature of the defendants’ defence in respect of Wally’s knowledge and authorisation. I was surprised to be told that the plaintiffs haD not requested any particulars of that defence. ^[14] Below, I will return to the significance of the lack of particulars.

    14. Transcript, 24-25 February 2025, T 60-62.

41. The plaintiffs have served 25 lay affidavits and one expert’s report. There are various exhibits to the plaintiffs’ affidavits, comprising in excess of 15,000 pages of documentary evidence. ^[15] This evidence is said to complete the plaintiffs’ evidence in chief for the final hearing. ^[16] Whilst there was some contention as to precisely when the defendants had received that evidence, Mr Ratnam accepted that the defendants had received it no later than 11 September 2024. ^[17]

    15. Defendants’ Submissions (DS) [46].

    16. Transcript, 24-25 February 2025, T 41.19-.22.

    17. Transcript, 24-25 February 2025, T 30.9-.45.

42. The defendants have not served any affidavits in chief in response to the plaintiffs’ evidence for the final hearing. ^[18]

    18. Transcript, 24-25 February 2025, T 5.27-.31. That is leaving aside affidavits dealing with freezing orders: T 5.31-.34.

43. The valuation report at some points suggests that RMK is a corporate trustee. However, on the hearing, when I asked about this, Mr Ivantsoff said it was a typographical error. ^[19] Whether it is a typographical error or otherwise, I accept that prima facie there is no other material indicative of RMK being a trustee of a trust. During the hearing, Mr Ratnam accepted that it had not been valued as the trustee of a trust. ^[20] In those circumstances I propose to proceed on the basis that RMK’s involvement in the proceedings is not in a capacity as trustee of a trust.

    19. Transcript, 24-25 February 2025, T 9.18-10.12, 18.13-.39.

    20. Transcript, 24-25 February 2025, T 33.35-.41.

Brief procedural history

44. The following summary of procedural history is also drawn substantially from the outline of submissions of Mr Ivantsoff, which Mr Ratnam for his part accepted was broadly accurate with the same qualification as noted above. ^[21] It suffices for the purposes of understanding the nature of the applications but does not purport to be a complete outline of the procedural history.

    21. Transcript, 24-25 February 2025, T 4.41-5.4.

45. On 30 August 2022, the plaintiffs commenced the proceedings by way of a Statement of Claim. On 27 September 2022, they filed an Amended Statement of Claim.

46. On 7 November 2022, the defendants filed a notice of motion seeking an order that the Amended Statement of Claim be struck out or otherwise that the proceedings be dismissed.

47. On 10 November 2022, the Court made freezing orders against Remy, Linda and RWI. In addition, the Court made orders for: (a) the return of subpoenas and notices to produce; (b) the parties to exchange categories of documents sought for disclosure; and (c) verified disclosure to be provided to the extent that categories of documents were agreed. The plaintiffs required documents subject to the various production orders to better plead and particularise their statement of claim, in response to the defendants’ strike-out application. In the events that occurred, some categories of documents for disclosure were agreed between the parties, but no disclosure (either formal or informal) took place.

48. On 14 ^[22] July 2023, the plaintiffs filed a Further Amended Statement of Claim, (they say) to satisfy the defendants’ concerns in relation to the alleged deficiencies in the pleadings.

    22. In the PS, the date is stated as being 13 July 2023. However, the Court stamp on the document records 14 July 2023 as the date.

49. On 15 November 2023, the defendants filed defences to the Further Amended Statement of Claim.

50. On 5 December 2023, the Court made orders requiring the plaintiffs to serve their evidence by 29 January 2024, the defendants to serve their evidence by 1 March 2024 and the plaintiffs to serve their evidence in reply by 1 May 2024. The time for the plaintiffs to serve their evidence was extended, by further order of the Court, to 17 May 2024.

51. During the period 14 February 2024 to 17 May 2024, the plaintiffs served 22 affidavits by way of their lay evidence.

52. On 29 May 2024, the plaintiffs served their expert evidence, comprising the report of Forde Nicolaides (Deloitte Report). During the hearing, Mr Ivantsoff made reference to the Deloitte Report on a number of occasions. No such report is in evidence before me. I located a reference to the report in a piece of correspondence at CB 2521, which describes the report in the following terms:

The Deloitte Report contained a forensic accountant’s analysis supporting the plaintiffs’ claims. The Deloitte Report contained 37 appendices, setting out a forensic analysis of the transactions the plaintiffs contend were fraudulently made by the defendants. The appendices comprise excel spreadsheets which contain: a. With respect to the entire claim, a complete list of all transactions made from each of the plaintiffs’ bank accounts to each of the defendants’ bank accounts; and b. With respect to each claim on an individual basis, a list of the relevant transactions made from each of the plaintiffs’ bank accounts to each of the defendants’ bank accounts.

53. On 15 August 2024, the plaintiffs filed and served the 2FASOC.

54. On 30 August 2024, the plaintiffs served three further lay affidavits. As at 30 August 2024 (according to the plaintiffs) and by 11 September 2024 (according to the defendants), the plaintiffs had served all their evidence in their proceedings.

55. On 11 September 2024, the defendants filed and served their defences to the 2FASOC.

Applications

56. Chronologically, in summary, the applications listed for hearing are:

1. the plaintiffs’ request for disclosure: notice of motion filed 12 April 2023 (plaintiffs’ disclosure application);

2. the defendants’ request for disclosure: notice of motion filed 10 May 2023 (defendants’ disclosure application);

3. the plaintiffs’ request for production: notice of motion filed 20 February 2024 (production application);

4. the defendants’ request for distribution: notice of motion filed 10 October 2024 (distribution application);

5. the defendants’ request for security for costs: the notice of motion being initially filed on 7 November 2022 and amended and filed on 3 December 2024 (security for costs application); and

6. the defendants’ request for preservation of documents: embodied in the notice of motion amended and filed on 3 December 2024 (preservation application).

57. The parties are now agreed that:

1. the production application should be dismissed and the costs of the 20 February 2024 notice of motion reserved; ^[23] and

2. specific orders should be made in relation to the distribution application with no order as to costs of the notice of motion filed on 10 October 2024. ^[24]

   23. See proposed SMO; Transcript, 24-25 February 2025, T 2.15-.26, 71.41-.49.

   24. Transcript, 24-25 February 2025, T 70.49-71.39.

58. The defendants’ amended notice of motion filed on 3 December 2024 also initially sought orders for summary dismissal strike out or dismissal for want of prosecution. However, seemingly that relief has not been pressed.

59. The preservation application was in contest at the commencement of the hearing. However, following consideration overnight in relation to issues bearing upon the disclosure application, the defendants did not press for a determination in respect of that application. ^[25]

    25. Transcript, 24-25 February 2025, T 57.44-.49.

60. The plaintiffs’ disclosure application was initially the subject of dispute between the parties. Mr Ivantsoff foreshadowed in the prehearing submissions that if the defendants’ disclosure application was not permitted, the plaintiffs’ disclosure application would not be pressed. Further, the plaintiffs accepted that if the defendants’ disclosure motion is dismissed, the plaintiffs’ disclosure motion should also be dismissed. ^[26]

    26. PS [23]-[25].

61. However, on the hearing of the matter, Mr Ratnam acknowledged that irrespective of the outcome of the defendants’ disclosure application, the defendants consented to the plaintiffs’ disclosure application. ^[27]

    27. Transcript, 24-25 February 2025, T 69.26-70.19.

62. Mr Ivantsoff properly acknowledged that mere consent of the defendants to the plaintiffs’ disclosure application of itself did not compel the Court to make orders for discovery. He emphasised the role of the Court in satisfying itself that disclosure is necessary, in particular where an order is sought by one or other of the parties. ^[28] In this regard he made reference to the decision of McDougall J in Leighton International v Hodges; Thiess v Reinforced Earth [2012] NSWSC 458 (Leighton) (see e.g. at [11]). Mr Ivantsoff also emphasised that there is no right to discovery citing Leighton. ^[29]

    28. Transcript, 24-25 February 2025, T 66, 70.23-28.

    29. The reference cited in the transcript is to [35]. However, the point is made by McDougall J at [31].

63. Nonetheless, there was no suggestion from the defendants or otherwise that it was inappropriate to make orders for the plaintiffs’ disclosure application on the basis, for example, that it was onerous or that there was a lack of relevance. ^[30]

    30. Transcript, 24-25 February 2025, T 70.30-.33.

64. In the above circumstances, I propose to make orders for the plaintiffs’ requested disclosure.

Security for costs application

65. The defendants’ security for costs application is pursuant to r 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and/or s 1335 of the Corporations Act 2001 (Cth) (Corporations Act). ^[31] They also seek consequential orders including a stay of the proceedings if security is ordered and not provided. ^[32]

    31. See also DS [47].

    32. See CB 1155.

Principles

66. In Estate of Guamani; Guamani v De Cruzado [2023] NSWSC 502 at [118]-[122], I addressed the purpose and rationale of an order for security for costs as follows:

118 Generally speaking, the purpose of an order for security for costs is to protect a defending party to proceedings (however described) against the prospect that any order the Court might make for costs of the proceedings may be frustrated by a plaintiff lacking financial resources to meet a costs order: Dal Pont at [28.1] 1024.

119 Sometimes, the nature of the order has been described in terms of the Court regulating abuse of its own processes by preventing impecunious persons from litigating without responsibility: Re Marriage of Garufi (1991) 15 Fam LR 69 at 73 per Butler J.

120 At least one of the rationales for an order for security for costs is guarding against the possibility that a party may, prior to commencing litigation, divest itself of funds or be funded by a third party or otherwise order its affairs to potentially secure the benefit of a judgment in its favour without being at risk of paying costs in the event of failure: Dal Pont at [28.2] 1025.

121 Viewed that way, one might see some similarities with the jurisdiction of Courts to make freezing orders. However, that jurisdiction (and orders made pursuant thereto), whilst it might in some instances have the practical effect of guarding against the possibility that final orders made by the Court may be frustrated by a lack of assets, is exercised on a distinctly separate ground and rationale.

122 The power to order security for costs has been described as essentially an exercise in risk management as the Court balances the interests of the parties having regard to their legitimate interests both as applicant and respondent: Dal Pont at [28.1] 1024 citing observations of French J (as his Honour then was) in East Grace Corporation v Xing (No 1) [2005] FCA 219 at [6] (see also Re Condon at [82]-[84]).

67. Section 1335(1) of the Corporations Act provides as follows:

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.

68. Rule 42.21(1)(d) of the UCPR relevantly provides:

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, 

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

69. Under r 42.21 of the UCPR, if that first finding is made, in determining whether it is appropriate to make such an order for security for costs, the Court may have regard to 14 enumerated matters and such other matters as it considers relevant: r 42.21(1A) UCPR.

70. On the hearing of the application, the parties did not expressly distinguish between principles applicable to s 1335 of the Corporations Act on the one hand and r 42.21 of the UCPR on the other hand.

71. On particular occasions it may be necessary to distinguish between those provisions. However, for the purposes of this application, it is not suggested that there is a material difference in the principles applicable to those different sources of power. ^[33] I will proceed accordingly.

    33. Transcript, 24-25 February 2025, T 58.15-.26.

72. The threshold question for security, at least in respect of an application under s 1335, is described by Dal Pont ^[34] as follows (omitting footnotes):

1. “as a jurisdictional threshold, the defendant (being the applicant for security) carries the onus of adducing credible testimony of reason to believe that the company (plaintiff) will be unable to meet a costs order”; ^[35]

2. “the term ‘credible’ suggests ‘a requirement that the evidence to be relied upon has some characteristic of cogency’, obliging the defendant ‘to show that the material before the court is sufficiently persuasive to permit a rational belief to be formed that, if ordered to do so, the corporation would be unable to pay the costs of that party upon disposal of the proceedings’”, ^[36] it being “described as ‘an undemanding test’, and as setting up a ‘fairly modest threshold’”; ^[37] and

3. “a reason why the threshold is not construed overly strictly is that s 1335(1) requires the court to form an opinion as to what the corporate plaintiffs’ financial position will be immediately after judgment”. ^[38]

   34. GE Dal Pont, The Law of Costs (5th ed, 2021, LexisNexis) (Dal Pont) [28.23] at 1036.

   35. Ibid [28.23] at 1036-1037.

   36. Ibid.

   37. Ibid.

   38. Ibid.

73. In assessing that future financial position immediately after judgment, Dal Pont indicates (omitting footnotes): ^[39]

This may be influenced not only by the outcome of the trial and its associated costs, which may be difficult to foresee at an early stage, but also by the success of the plaintiffs’ business in the interim, which may be less predictable again. The phrase ‘reason to believe’ acknowledges that on an application for security, a court cannot, as a matter of practicality, examine a plaintiffs’ financial position as thoroughly as at a final hearing; therefore it does not require the court to be satisfied of future financial incapacity on the balance of probabilities. At the same time, there is ‘a critical difference’ between finding a ‘reason to believe’ that a company ‘will be’ unable to pay the relevant costs and concluding that it has been proven that the company will not be able to pay those costs. A conclusion that there is a risk that this will, or may, be the case does not suffice. Nor does the phrase ‘will be unable to pay’ require that a company have available liquid funds sufficient to meet the costs order on the date the order is made.

39. Ibid [28.23] at 1037-1038.

74. In relation to financial materials that may bear upon that, Dal Pont states (omitting footnotes): ^[40]

The plaintiffs’ financial statements, where accessible to the defendant, are important evidence for this purpose. Where, even on a reading most favourable to the plaintiff, they leave the court with serious doubts over the plaintiffs’ capacity to meet a costs order, the jurisdictional threshold is met. That the defendant raises doubt as to the plaintiffs’ financial position by reference to publicly available information, to which the plaintiff responds by relying upon that same information, may lead the court to conclude that the plaintiff will be unable to meet an adverse costs order.

40. Ibid [28.24] at 1038.

75. In respect of situations where the plaintiff is a corporate trustee, Dal Pont notes (omitting footnotes): ^[41]

Where a plaintiff is a corporate trustee and its only asset is its right of indemnity as trustee against the trust assets, an applicant for security is, as a general principle, taken to have discharged the onus of establishing reason to believe that the plaintiff will be unable to pay a costs order if so ordered, unless the plaintiff can show that it will have recourse to property held by it on trust or that it has assumed personal liability for the costs. This is because, where the plaintiff holds its only tangible assets on trust, making its solvency depend on its right of indemnity, the court bears in mind the difficulty a defendant may encounter in attempting to enforce a costs order in his or her favour.

41. Ibid [28.26] at 1039-1040.

76. In deciding whether “…the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence…” (s 1335) or “..a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so” (r 42.21(1)(d)), the focus is on the ability of the corporation to make a payment at a later point in time.

77. Thus, generally, in security for costs applications, the question regarding payment of security is not a current solvency test requiring that the corporation have liquid funds available as at the time of the hearing of the application for security. Rather, the jurisdictional threshold question requires making an assessment of the ability of the corporation to pay an (assessed or otherwise quantified) amount of costs at a later point of time, usually after the Court has had a final hearing of the matter and makes a determination in respect of costs. Part of that consideration may involve an assessment of whether a corporation which currently has no sufficient liquid assets will be able by that future time to liquidate its assets to pay costs.

76. This distinction was explained by Forster J in Putney Group Pty Limited v The Royal Rehabilitation Centre Sydney [2009] NSWSC 424 who, without deciding the point, made the following observations at [94]:

It is unnecessary for me to determine whether, as has been submitted by the plaintiffs, the defendant must not only be able to pay such costs, but must also be able to pay such costs as and when such costs become due and payable. Were it necessary for me to decide that issue, I would have thought it significant that a comparison of the provisions of s 1335 of the Corporations Act with the provisions of s 95A of that Act reveals that the latter provision refers to an ability to pay all debts “as and when they become due and payable”, whereas the former has no such requirement. It seems to me that the imposition of a like gloss on s 1335 does not sit comfortably with the absence of those words in that section. That discomfort is exacerbated by the fact that costs are usually assessed and payable some considerable time after the Court hands down its decision, giving an unsuccessful party time to liquidate such of its non-current assets as may be required to satisfy an adverse costs order. Certainly there is nothing to suggest in any of the authorities to which I have been referred that the respondent to a motion for security for costs must have liquid funds available at the time of the hearing of the motion. Its ability to liquidate its assets by the time any costs may become payable should be taken into account.

79. Earlier, in Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317, Brereton J had observed at [16]:

A corporation is to be taken to be unable to pay an adverse costs order if it can only do so if allowed extended time to realise assets, even if upon realisation the assets may produce a surplus over liabilities sufficient to pay the costs [Beach Petroleum, 205; Dalrymple Park Pty Ltd v Tabe & Lees Pty Ltd (1996) 6 Tas R 111; (1996) 22 ACSR 71].

80. This contrast between a current solvency test and requirement for payment if necessary by liquidation of assets at a future time was emphasised by the Victorian Court of Appeal in Yara Australia Pty Ltd v Oswal (2013) 41 VR 245. Redlich JA stated at [11]-[13] (Macaulay AJA at [136] agreeing) (footnotes omitted):

11 Costs are usually assessed and payable some considerable time after the court hands down its decision, giving an unsuccessful party time to liquidate such of its non-current assets as may be required to satisfy an adverse costs order. There is no authority that the respondent to a motion for security for costs must have liquid funds available at the time of the hearing of the motion. Its ability to liquidate its assets by the time any costs may become payable should be taken into account. Although a respondent may not be entitled to “extended time” to realise assets in order to pay a costs order, the discretion must be broad enough to permit a reasonable time in which to do so.

12 As a matter of principle the discretion to grant or refuse security should not be circumscribed by a requirement that an asset within the jurisdiction be necessarily immediately available and accessible when there is no imminent likelihood that the applicant will obtain a costs order which it will seek to enforce. What is required is that the applicant have ready and certain access to the amount secured if and when entitlement to claim it arises.

13 The applicants are not shut out from making a fresh application for security whenever there is a change or anticipated change in the circumstances relating to the asset or a risk arises that the asset may be dissipated or there is a more imminent likelihood that the applicant will obtain an order for costs.

81. Particular questions arise in relation to assets that are intangible or in the nature of goodwill.

82. In Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385, Black J stated at [7] in part:

… Although Narradine contends that interest has significant value, its future worth is uncertain in circumstances that the bulk of its value amounts to goodwill and the business has recently been making losses and it would not be readily realisable. The fact that Narradine could only realise its interest in the Partnership by taking steps which are likely to involve complexities and take an extended time is a factor which tends in favour of an order for security for costs: Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 at [16].

83. As to the form of security, Nicholas J in Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [41] stated:

The purpose of an order for security is protective. In my opinion, satisfactory security should be in a form which provides a successful defendant with ready and certain access to the amount secured if and when entitlement to claim it arises. In the circumstances, I find that the plaintiffs’ proposal should be rejected as unsatisfactory. It is an empty proposal because there is no consent from PCL. Furthermore, the extent of the protection it affords appears to me to be highly doubtful and uncertain both as to access and amount. I find that appropriate security should be provided by way of payment of the amount into court or by way of bank guarantee in a form acceptable to the registrar, or otherwise as agreed.

Defendants’ submissions

84. Most of the defendants’ written submissions were devoted to contentions as to why there should be an order for security for costs. Very few submissions were made regarding the quantum of such an order.

85. In summary, the defendants submitted ^[42] (adopting Mr Ratnam’s wording):

    42. DS [14].

1. three of the plaintiff companies do not trade and have no financial means of paying any costs order;

2. a number of the plaintiff companies are corporate trustees. In those circumstances, complexities arise in relation to enforcement against those companies and the ability for those companies to pay a cost order (a presumption arises);

3. none of the plaintiff companies has sufficient assets;

4. each of the plaintiff companies has insufficient cash at bank;

5. there is no good basis to assert there is any value in the goodwill for any of the companies;

6. each of the companies do not indicate a strong profit position;

7. the plaintiffs’ delay in responding to the defendants’ ^[43] security concerns permits a necessary inference that the plaintiffs cannot pay a cost order;

8. the plaintiffs’ expert report expressing views as to the value of the plaintiff companies should be approached with caution;

9. the plaintiffs’ ability to sell the plaintiffs’ business to convert it into cash that would be available to the plaintiffs to pay a cost order is not appropriate nor comforting as to provide some cogent image of solvency to pay a cost order; and

10. the plaintiff companies are related entities and would be subject to the insolvent provisions contained in the Corporation Act.

    43. The word used was "Plaintiffs". However clearly the word "defendants’" was intended.

86. Further, and without intending to minimise the significance of nuances of expression, in summary, the defendants’ submissions ^[44] emphasise:

    44. DS [50]-[95].

1. the alleged delay by the plaintiffs in responding to requests for security;

2. that FA and AN no longer conduct business and are not in operation and that WI does not trade and is only an investment vehicle;

3. that at least as at December 2024 the plaintiff companies have insufficient cash at bank and an inadequate asset position to cover costs;

4. that a number of the plaintiffs are generating losses or just making a small profit “nowhere near any amount that could be awarded against the plaintiffs in these proceedings”;

5. that Mr Garufi’s valuation report is unreliable in a number of respects;

6. that there is no credible supporting reasons to justify the significant amounts apportioned to goodwill in the valuation report;

7. that the only true way of demonstrating the plaintiffs’ ability to pay a costs order is for the sale of a number of businesses and there is uncertainty of what might be realised consequent upon any sale; and

8. that there is a risk that one or more of the plaintiffs may be placed in liquidation.

87. In relation to the alleged inadequate asset position, the defendants’ submissions focused upon various loans by reference to the balance sheets of RMK, ATC, AN, AM, EN and FA.

88. In respect of the alleged unreliability of Mr Garufi’s report, the submissions assert that there is no evidence or explanation existing to support statements regarding the companies and businesses consisting of “an established and experienced management team”, with an “established community base with strong support” and “strong understanding of the industry”.

89. On the hearing, Mr Ratnam acknowledged that he had not cross-examined Mr Garufi but observed that his statements in the report are assertions that have very little weight and there was no need to cross examine in circumstances where the supporting underlying reasons for his conclusions were not stated. ^[45]

    45. Transcript, 24-25 February 2025, T 15.

90. On the hearing, Mr Ratnam:   

1. emphasised, by reference to his written submissions, that a number of the corporate trustees had significant loans owing to them, in particular FA, with no evidence as to the terms of the loans’ repayment or any security; ^[46]

2. noted, as appears to be the case, that other than from the valuation report, none of the plaintiffs except for EN record “goodwill” as an asset; ^[47] and

3. stressed that there is lack of clarity as to what hypothetical purchaser there might be for the businesses. ^[48]

   46. Transcript, 24-25 February 2025, T 11.

   47. Transcript, 24-25 February 2025, T 12-13.

   48. Transcript, 24-25 February 2025, T 12-14.

91. Mr Ratnam, in anticipating a submission made on behalf of the plaintiffs, disputed any contention that the defendants have caused the plaintiffs’ impecuniosity, submitting that there would need to be direct evidence of that and there was none on the application. ^[49]

    49. Transcript, 24-25 February 2025, T 17.29-18.1.

Plaintiffs’ submissions

92. Mr Ivantsoff submitted that the plaintiffs conduct substantial businesses, in particular what he describes as the Childcare Centre Group and the NDIS business, which have value and are capable of being sold for significant sums of money and that the proceeds of sale could be used to satisfy adverse costs orders. ^[50]

    50. PS [95].

93. Mr Ivantsoff further submitted that the evidence in the valuation report, “unchallenged on the security application”, is to the effect that the aggregate fair market value of the plaintiffs’ business is $2,823,688 and that RMK’s business alone has a fair market value of $1,837,879 (CB 1413). Accordingly, he says that the value of the plaintiffs’ assets is therefore more than sufficient to satisfy Ms Morson’s estimated costs and even Mr Diab’s estimate. ^[51]

    51. PS [89],[98].

94. To underpin that, Mr Ivantsoff submitted that Mr Garufi adopts an entirely orthodox valuation methodology to arrive at his conclusions, being capitalisation of adjusted future maintainable earnings, applying a multiple for comparable businesses, and making adjustments for surplus assets and financial liabilities. ^[52]

    52. PS [97].

95. Mr Ivantsoff submitted that Mr Garufi’s report and the calculations regarding the capitalised maintainable future earnings were based on “earnings over the previous three years, ^[53] adjusted to strip out abnormals, effectively, and then multiplied by a factor, and the factors vary based on Mr Garuffi’s professional judgement as to what is a comparable business”. ^[54]

    53. The assessments are over 4 financial years being the financial years 2021, 2022, 2023 and 2024: CB 1412-1414.

    54. Transcript, 24-25 February 2025, T 20.20-.24.

96. In terms of discretionary factors, Mr Ivantsoff in his PS submitted that: ^[55]

    55. PS [103].

1. the plaintiffs have a bona fide case with reasonable prospects of success;

2. the genuineness of the proceedings may be accepted;

3. to the extent that there is any issue of impecuniosity, it could only have been caused by the defendants’ conduct, in particular the conduct of Remy and Linda; and

4. the defendants have not prosecuted the security motion first filed in November 2022 with any diligence.

97. During the hearing, Mr Ivantsoff emphasised the methodology adopted by Mr Garufi in preparing the valuation report, stating “The methodology is purely an analysis of the accounts, an analysis of the performance over the past number of years, applying a comparable multiple, and deriving a result.” ^[56]

    56. Transcript, 24-25 February 2025, T 20.12, 23.31-.33.

98. Mr Ivantsoff eschewed the characterisation that Mr Garufi’s assessment of the fair market value of the equity contained a component of goodwill. ^[57] One difficulty with that is that “goodwill” is Mr Garufi’s word. Rather, he submitted that essentially what Mr Garufi had assessed is “an income stream based on previous years’ earnings adjusted”. ^[58] Mr Ivantsoff rejected the notion that the income stream was dependent on factors such as who is operating the business and the clientele of the business. ^[59] He submitted that in terms of any hypothetical purchaser, “it is obvious that it would be someone who wishes to buy a kindergarten or an in-home care centre”. ^[60]

    57. Transcript, 24-25 February 2025, T 21.36-.42.

    58. Transcript, 24-25 February 2025, T 21.44-.48.

    59. Transcript, 24-25 February 2025, T 22.35-23.33.

    60. Transcript, 24-25 February 2025, T 23.44-.46.

99. As to timing for realisation, Mr Ivantsoff submitted that for a case like this, the cost assessment process may take 6 to 12 months and that there would be plenty of time for the plaintiffs to make arrangements to meet any costs orders. He emphasised that the defendants had not adduced evidence to the effect that the businesses would take 4-6 years to sell or any similar duration. ^[61]

    61. Transcript, 24-25 February 2025, T 23.38-.44.

100. Mr Ivantsoff acknowledged that the evidence does not take account of when the business might be sold and that Mr Garufi would not be qualified to give that evidence as he is not a business broker. ^[62]

     62. Transcript, 24-25 February 2025, T 23.37-.38.

101. To the extent that Mr Ratnam criticised the valuation report, Mr Ivantsoff submitted that there was no expert evidence adduced by the defendants. ^[63]

     63. Transcript, 24-25 February 2025, T 25.1-.21.

102. In relation to delay, Mr Ivantsoff, whilst acknowledging that there had been delay, disputed that the delay could be laid at the feet of the plaintiffs. He contended that it was open to the defendants to bring on the application expeditiously. ^[64]

     64. Transcript, 24-25 February 2025, T 25.22-.29.

Trust deeds

103. The material in exhibit P-1 contained the unit trust deed for the Bankstown Community and Home Care Trust (BCHC Trust) (P-1 51-100) and the deed for the Guildford Montessori Kindergarten Trust (GMC Trust) (P-1 101-131).

104. Mr Ivantsoff submitted ^[65] that the trustee of the BCHC Trust had power to deal with the assets of the trust as if it was the beneficial owner of the trust fund: clause 6.1(b).

     65. Transcript, 24-25 February 2025, T 19.27-.29.

105. The trustee may be indemnified out of the trust fund except in respect of the case of fraudulent or wilful default or breach of trust: clause 6.2(a)(1).

106. One of the provisions regarding indemnity is to the following effect: clause 6.2(d)

In the event that the Trustee has incurred a liability as Trustee and the Trustee is entitled under the terms hereof or otherwise as allowed by law to be indemnified in respect of such liability out of the Trust Fund the Trustee may claim such indemnity from the Trust Fund but the Trustee will not be entitled to be indemnified in respect thereof by any Unit Holder unless by a separate agreement with that Unit Holder.

107. In relation to the GMC Trust, Mr Ivantsoff submitted that the trustee had powers of management citing clause 7.1. ^[66]

     66. Transcript, 24-25 February 2025, T 19.46-.48.

108. The rights of indemnity of the trustee are addressed in clauses 7.5 and 7.6 as follows:

7.5 The Trustees is indemnified and held harmless out of the Trust Fund against all claims, costs, damages, losses, fees, expenses, taxes, duties and impositions which arises in connection with or in consequence of this Deed or the Trusts hereby created except to the extent that the same arise in a manner for which the Trustees accountable under the preceding clause ^[67] provided that the right of the Trustee to enforce the indemnity conferred is limited to the Trust Fund and the Trustee has no right of indemnity, reimbursement or recompense whatsoever against any of the unit holders.

7.6 The right of the Trustee to be indemnified under clause 7.5 is limited to the assets of the Trust Fund in the hands of or under the control of the Trustee does not extend to enable the Trustee to recover any loss or obtain reimbursement for any liability incurred from any unitholder or other person beneficially entitled to any unit.

67. Being clause 7.4 dealing with liability of the trustee.

109. Contrary to the submission of Mr Ratnam, ^[68] I accept Mr Ivantsoff’s submission ^[69] that the consent of beneficiaries is not required for the trustee to have a right of indemnity to the trust assets or to sell an asset.

     68. Transcript, 24-25 February 2025, T 12.17-.40.

     69. Transcript, 24-25 February 2025, T 19.37-20.1.

Plaintiffs’ financial circumstances

110. Mr Garufi in his valuation report: ^[70]

     70. CB 1397-1444.

1. outlines details regarding each of the plaintiffs and his sources of information - which included tax returns and accounts, including draft accounts for 2024;

2. discusses his approach to valuation methodology;

3. expresses an opinion as to the fair market value of 5 of the 8 entities; and

4. did not assess a value for FA and AN which have ceased operating, nor for WI, which, according to Mr Garufi, is an investment vehicle consisting predominantly of loans in other businesses.

111. In relation to GMC, RMK and ATC, Mr Garufi adopted an approach of capitalisation of future maintainable earnings.

112. Mr Garufi’s conclusions regarding the fair market value of the businesses, goodwill, fair market value of 100% of the equity, and business quality are set out in the table at CB 1416.

113. The fair market value of the businesses/potential sale price for the 5 entities (3 of which are trustees of trusts) is said to be $3,022,053. The fair market value of 100% of their equity said to be $2,823,688: CB 1416.

114. It is evident that only 3 of the 8 plaintiffs have any significant value when regard is had to equity, namely GMC, RMK and ATC. GMC and ATC are trustees of trusts. The trust deeds for those trusts were, as I have noted, adduced on the first morning of the hearing in the body of the materials marked as exhibit P-1.

115. In relation to GMC, it is noteworthy that its operating profit has decreased over the period 2021-2024. In the 2023 financial year, it had operating profit before tax of $55,938 and, in the 2024 financial year, it had a loss of $74,098: CB 1412. In the 2024 financial year it had net business assets of only $44,778. He has added in a figure of $298,272 for “goodwill” including on property value: CB 1412.

116. RMK’s operating profit before tax has dropped very considerably since the 2021 and 2022 financial years. In 2022, the operating profit before tax was $348,673. However, in 2023 it was $69,927 and, in 2024, $89,039: CB 1413. As at 2024, it had net business assets of $79,455. He has added in a figure of $1,470,722 for goodwill including on property value: CB 1413.

117. Similarly to RMK, ATC’s operating profit before tax has dropped very considerably since the 2021 and 2022 financial years. In 2022 the operating profit before tax was $266,140. However, in 2023 it was $148,948 and 2024 $67,846: CB 1413. As at 2024, it had net business assets of $182,435. He has added in a figure of $757,434 for goodwill including on property value: CB 1413.

111. It is evident from Mr Garufi’s analysis that a significant part of the value of the businesses is embedded in the figures that he has attributed to them for goodwill (his word).

112. There is a clear difference between what the plaintiffs’ financial accounts describe as goodwill and Mr Garufi’s notion of “goodwill”. Mr Garufi has attributed no goodwill value to EN (CB 1414) yet in the balance sheet of EN as at 30 June 2024, it has a recorded value of “goodwill” of $754,250 (CB 1991).

113. “Goodwill” is described in Mr Garufi’s glossary in appendix 8 of the report as being “That intangible asset arising as a result of name, reputation, customer loyalty, location, products, and similar factors not separately identified”: CB 1443.

114. Exactly how the goodwill is derived is not clear from the body of the report. However, when one turns to appendix 6 of the report and the adjusted balance sheets, it is clear that for the above three entities, GMC, RMK and ATC, “goodwill” has been calculated as the excess of the assessed fair market value of the business under a capitalisation of future maintainable earnings methodology and the net business assets of the entity: CB 1435-1437.

115. Thus, it is clear that the calculation of “goodwill” in the case of each of the businesses of GMC, RMK and ATC (CB 1412-1413) is simply the difference between the capitalised fair market value of the business and the net business assets.

116. For my part, I am prepared to proceed on the basis of Mr Ivantsoff’s submission that essentially what Mr Garufi had assessed is “an income stream based on previous years’ earnings adjusted”. ^[71] Mr Ivantsoff accepted that the valuation was a valuation as at 30 June 2024. ^[72]

     71. Transcript, 24-25 February 2025, T 21.44-.48.

     72. Transcript, 24-25 February 2025, T 24.19-.49; CB 1415.

Income stream as a source for future payment of costs

124. The entities have limited net assets and the submissions as to the value of the companies is considerably reliant upon the value attributed to the calculated value for the income stream.

125. There are some cases in which an income stream is regarded as a reliable source for future payment of costs and a judicial officer may be satisfied that the income stream is likely to continue into the future: see e.g. Taurus Mining Finance Fund Aiv LP v Sandfire Resources Ltd [2021] WASC 52, where Registrar Whitby was satisfied that an entitlement to future royalty payments was a valuable asset of the plaintiffs and was sufficient to ensure that the defendant, if successful, would have a fund available and the jurisdiction against to enforce a judgment for costs. ^[73] The Registrar was satisfied that that the defendants would continue to pay royalties to the plaintiffs for a period into the future and considered that she was not required to be satisfied, at that stage of hearing the application for security, as to when those royalties are most likely to cease. ^[74]

     73. At [26],[50].

     74. At [40].

126. In other cases, having regard to the facts, the outcome may be different. Thus, for example in ILC Group v Sydney Water Corporation [2014] NSWSC 1407, McDougall J did not think that an income stream from a joint venture project possessed any real quality of certainty. ^[75] Nonetheless, based on other considerations including an offer of a guarantee and an undertaking to the Court, his Honour dismissed the defendant’s application for security for costs. ^[76]

     75. At [59].

     76. At [66].

Threshold determination

127. I consider that the threshold for s 1335 of the Corporations Act and r 42.21 of the UCPR is engaged. I note the following.

128. First, the evidence valuing the plaintiffs’ income steam is now 8 months dated (30 June 2024).

129. Secondly, whilst the valuation has been based upon financial statements that cover a period over which this litigation has been on foot, the general trend of the profit of GMC, RMK and ATC has been decreasing rather than increasing over the four-year period of accounts (2021-2024).

130. Thirdly, I consider that there may be risks with realising the income stream. No evidence was adduced as to how realisable the income stream is and when the income stream may be generated into readily available assets to meet any costs order.

131. Proof of a calculated value of future income stream per se neither gives rise to any clear inference that the entirety or a substantial part of such value will be able to be realised promptly following a final judgment nor demonstrates the ability of the plaintiff companies to realise a large lump sum from the income stream in a timely way to pay any significant adverse costs order.

132. Fourthly, it is not obvious to me to what extent the value assessed or any ability to realise the value assessed takes account of the fact that the plaintiffs are still embroiled in what, at the moment, is significant and extremely costly litigation that is still nowhere near the allocation of hearing dates or conclusion.

133. Fifthly, whilst I acknowledge the submission of Mr Ivantsoff that an assessment process may take a lengthy period of time, it may well be that there is no lengthy assessment process. The Court, if requested, may accede to making a gross sum costs order with no lengthy assessment period involved.

134. Overall, I consider that there is sufficient credible evidence that the plaintiffs “will be unable to pay the costs of the defendants if successful in his, her or its defence…” (s 1335) or “..will be unable to pay the costs of the defendant if ordered to do so” after judgment. ^[77]

     77. Dal Pont [28.23] at 1037.

Discretionary factors

135. I have considered each party’s submissions regarding discretionary factors.

136. The defendants did not assert or at least expressly assert that the plaintiffs’ claim was not bona fide within the meaning of the authorities. The genuineness of the proceedings per se was not disputed.

137. In relation to any claim regarding the delay in bringing the application, the defendants assert that they first raised their concern regarding security 3 months after the proceedings commenced and filed an application for security for costs on 7 November 2022 ^[78] albeit that the motion was amended on 3 December 2024.

     78. DS [87].

138. I consider that it is regrettable that the security for costs notice of motion was not dealt with relatively soon after it was initially filed before further steps were taken in the proceedings, including costs being incurred and other applications having been made.

139. For his part, Mr Ivantsoff submitted that a degree of the time that has elapsed has been taken up by responding to the defendants’ proper requests for further particulars which, in turn, necessitated production of documents, and thus the process of particularising the claims involved an immense amount of work. ^[79] Mr Ivantsoff took some time to outline the chronology of what occurred in this regard. ^[80]

     79. Transcript, 24-25 February 2025, T 28.50-29.14.

     80. Transcript, 24-25 February 2025, T 29.21-31.10.

140. Mr Ivantsoff submitted that if security were to be ordered now, it would “result in immense prejudice to the plaintiffs by having to meet a security order for the work being wasted if they can’t. I say that they can.” ^[81]

     81. Transcript, 24-25 February 2025, T 31.11-.14.

141. It seems to me that it was open to both parties to request for the security for costs application to be brought on sooner than it has been. The fact that they were seeking to work out issues in relation to pleadings and particulars of the plaintiffs’ claim ^[82] might explain the delay but does not to my mind, in the particular circumstances of this case, give rise to a compelling discretionary reason to preclude an order for security.

     82. See e.g. Transcript, 24-25 February 2025, T 32.47-33.31.

142. Whether the cause of the delay in the sense of the lapse of time since the notice of motion for security was first filed is properly described as being attributable to a “series of unfortunate events” ^[83] need not be decisively determined. It suffices to say that I am satisfied that since the initial filing of the security for costs application, a large amount of the time that has elapsed is explicable by reference to the defendants raising concerns regarding the pleaded claims against them, and the plaintiffs providing clarification regarding those claims. ^[84]

     83. Transcript, 24-25 February 2025, T 7.5-.8, 25.24.

     84. Transcript, 24-25 February 2025, T 7.10-.24.

143. Notwithstanding my concern above, I do not consider that, on the materials produced before me, I can make any provisional, let alone definitive, finding that one side or the other has inappropriately delayed the security application being brought on.

144. With respect to the submission that any issue of impecuniosity could only have been caused by the defendants’ conduct, in particular, the conduct of Remy and Linda, I cannot on the basis of the materials produced before me, make any finding to that effect. Despite the volume of materials in the Court Book, none of the plaintiffs’ evidence in chief has been adduced before me.

145. Overall, I am not persuaded that there are any compelling discretionary factors which count decisively against the making of an order for security for costs.

Quantum of security

146. Mr Diab has marshalled the defendants’ claim for security for costs by reference to 3 categories being: (a) costs incurred by the defendants to 10 December 2024 (past costs or incurred costs); (b) costs of outstanding notices of motion (future notice of motion costs); and (c) future costs to the completion of the proceedings (other future costs). ^[85] Ms Morson has addressed costs on that basis: CB 2222.

     85. CB 1216 [18].

147. Mr Ratnam made specific reference to the cost schedules attached to Mr Diab’s affidavits being schedules 4-6. ^[86] I have had regard to that. However, the total costs claimed for each particular item in those schedules have been extracted into the summary schedules which Ms Morson sets out at CB 2246-2251.

     86. CB 1220-1229.

148. In relation to the quantum of security, Mr Ratnam, ^[87] whilst rejecting the reasoning of Ms Morson for the purposes of the application, was content to agree to the amount of total incurred costs and future costs awarded if assessed by an NSW court appointed costs assessor on a “party-party” basis as $982,958.96 inclusive of GST. ^[88]

     87. CB 2252 [34]; DS [15]; Transcript, 24-25 February 2025, T 16.44-17.18.

     88. CB 2252 [34].

149. I pause to observe that the reference to costs awarded on a “party-party” basis is a somewhat outdated notion. Costs are usually being awarded either on the “ordinary basis” or on an “indemnity basis”. ^[89] The “ordinary basis” is defined to be the basis of assessing costs in accordance with Division 3 of Part 7 of the Legal Profession Uniform Law Application Act 2014 (NSW). ^[90]

     89. Section 98(1)(c) CPA.

     90. Section 3 CPA, see definition of "ordinary basis".

150. Ms Morson is of the opinion that the hourly rates billed to the defendants are reasonable, although observes that is not to say that every piece of work billed would be allowed at those hourly rates. ^[91]

     91. CB 2220 [18]-[19].

151. Ms Morson observes that, whilst the claim for security for costs is made by all the defendants, only the ninth defendant appears registered for GST. She states that when a party is registered for GST, costs are awarded on a GST exclusive basis because the party is entitled to an input tax credit for GST paid on expenses and ultimately the liability for GST is an offset. Thus, she observes an adjustment should be made to the final figures to account for a reduction to GST payable on the ninth defendant’s share of costs. ^[92]

     92. CB 2224 [26].

152. In the event that security was to be ordered, there is a significant difference between the positions of Ms Morson and Mr Diab in relation to the appropriate figure for quantum of costs already incurred. Mr Diab has claimed amounts under 15 different categories, all totalling $1,095,105.84. Ms Morson’s figure is $631,105.43: CB 2249.

153. Ms Morson’s reasons regarding reductions for costs in respect of a number of categories principally relates to the time spent on the matter by the principal solicitor. The reasons of Ms Morson extend to categories (b), (c), (f) and (h)-(l) with respect to: attendances regarding access to the NAB and CBA accounts and variation of freezing orders (CB 2227); discovery attendances following the orders of Ball J (CB 2228-2229); security for costs (CB 2231-2232); and notices to produce issued by the defendants (CB 2235-2237). I accept her evidence.

154. As to categories (a) and (b), I am not persuaded that the claim for costs regarding the application by the plaintiffs for freezing orders should be included. The plaintiffs were successful in obtaining some freezing orders. The costs of the application for freezing orders and to vary the freezing orders are reserved, ^[93] and will, it seems, abide the final hearing and in my opinion should not be included.

     93. CB 922, 927 and 931.

155. For reasons stated at the end of these reasons, I provisionally consider that there be no order as to costs to the intent that each party shall bear their own costs of applications applicable to the following categories listed for hearing before me, being:

1. Category (d) relating to the application to obtain discovery, in which the defendants’ claimed costs are $43,750.90;

2. Categories (e) relating to enquiries as to the financial state of the plaintiffs where the defendants’ costs are said to be $9,025 and (f) application for security for costs in which the defendants’ costs are said to be $104,485;

3. Category (m) relating to costs incurred with respect to what is said to be relevant attendances consequent upon the sale of the Bass Hill property in which the defendants’ claimed costs are $39,000; and

4. Category (n) relating to the claim for preservation of documents in which the defendants’ claimed costs are $26,400.

156. Category (g) is costs in respect of the notices to produce issued by the plaintiffs which is in the sum of $97,834. However, those costs are now, by the agreement of the parties, reserved to abide the final hearing and in my opinion should not be included.

157. Category (o) is a claim for costs for work on preparation of evidence on behalf of the defendants, being a claim of $155,000 for professional fees. These are solely fees in relation to the solicitors and no counsel fees are claimed. I find it surprising that there could be such a claim in a context in which the defendants have not yet filed a single affidavit in chief. Ms Morson would only allow a figure of $31,000 in respect of those costs. As matters presently stand, I would only allow that figure in relation to that claim.

158. Having regard to the findings that I make in respect of the applications, I do not consider that there should be security provided in respect of the matters that are the subject of the hearing before me. In respect of costs already incurred, I would be prepared to allow an amount in respect of categories (c), (h), (i), (j), (k), (l) and (o) which, on Ms Morson’s figures, I round to approximately $218,000.

159. It will be evident from what I have found below that I provisionally (subject to submissions or otherwise) consider that the costs orders in the two applications that have been the subject of proposed consent orders should be as proposed and that for the other four applications, there should be no order as to costs to the intent that each party bears its own costs. On that basis, certain of the “past costs” incurred (CB 2246-2249) and the “future notice of motion costs” (CB 2250) should not be the subject of provision for security.

160. In contrast with her views in respect of past incurred costs, Ms Morson indicates she generally agrees with the estimates of the time and costs provided by Mr Diab for future notice of motion costs and other future costs, at least on what she describes as a solicitor-client basis. She indicates that she would expect a reduction to those costs if they were assessed on a party-party basis (i.e. ordinary basis). In her opinion the remainder of the future costs would be reduced by what, in her experience, is a typical reduction of 30% to both professional costs and counsel’s fees: CB 2246.

161. In relation to the future costs (see table at CB 2251), I note that the costs claimed by the defendants include inspecting discovered material. However, there is, in the scheme of things, only a relatively minor adjustment as between Ms Morson.

162. The future costs assume a mediation in a trial lasting 15 days. If the proceedings are conducted with anywhere near the same sort of entrenched conflict as has occurred to date, I have serious doubts whether the trial would be completed within a three-week period. However, as the evidence before me has jointly proceeded upon the above assumption, I propose, for the purposes of determining the application, to proceed on that basis. Overall, the only substantive difference between Mr Diab and Ms Morson is the above-referenced adjustment of 30%. Ms Morson has adopted an adjustment in respect of 8 of the 9 categories of future costs: CB 2251. She has disallowed, in its entirety, fees for a counsel conference at $7,560. The reason for that disallowance is not clear. I propose to add back an amount of $5,292 so that figure is only discounted by 30% not 100%. Making that adjustment, I consider that the amount for future costs is a figure of $507,076.50 ^[94] which I round to be $507,000.

     94. Ms Morson’s figure of $501,784.50 + $5,292.

163. Overall, I consider that the total amount of security should be $725,000 ($218,000 plus $507,000).

Form of security

164. The defendants initially sought either for the security to be paid into court or the plaintiffs’ solicitors’ trust account on agreeable terms or otherwise in a form of an appropriate bank guarantee. ^[95] On the hearing, Mr Ratnam submitted that, in terms of the form of the security, the defendants were in the hands of the Court. ^[96]

     95. DS [16].

     96. Transcript, 24-25 February 2025, T 17.20-.27.

165. No particular submission regarding form of security was made by or on behalf of the plaintiffs.

166. Provisionally, I consider that the security for costs should be provided in the form of the bank guarantee. Unless the parties can agree otherwise in bringing in short minutes of order, I propose to order security in the form of a bank guarantee.

Defendants’ disclosure application

167. The disclosure sought by the defendants is pursuant to r 21.2 of the UCPR in respect of categories of documents appearing at pages 30-79 and 92-96 of exhibit SD-2 to Mr Diab’s affidavit affirmed on 10 May 2023 “or in some amended form that may be served prior to the hearing of this motion”: CB 455.

168. The defendants request for the discovery to be verified by a list of documents pursuant to rr 21.3 and 21.4 of the UCPR: CB 455.

Documents sought

169. Based on the notice of motion, the first requested discovery sought 67 categories of documents from GMC ^[97] and the second requested discovery was in respect of 30 categories from various plaintiffs. ^[98]

     97. See CB 498-503 being pages 30-79 of SD-2.

     98. See CB 560-503 being pages 92-96 of SD-2.

170. Having regard to the prehearing outline of submissions, the defendants’ claim for discovery was modified to be made by reference to a schedule forming part of exhibit SD-7 at CB 2293-2312. Remarkably, there are 139 categories. It is said that categories 1-30 were sought up to May 2023; categories 31-58 were sought following pleadings; categories 59-103 comprise additional categories sought by the defendants after the plaintiffs completed their evidence; and categories 104-139 were categories which the plaintiffs previously consented to giving discovery over. ^[99] Categories 1-58 were said to be distilled from a previous set of categories, a number of which were the subject of challenge by the plaintiffs.

     99. DS [9]; Transcript, 24-25 February 2025, T 38.17-.29.

212. On one view, it becomes difficult to deny a party disclosure of documents that are said to bear upon authorisation on the basis of lack of clarity as to how the authorisation is said to be put, in circumstances where the other party has not sought any particulars.

213. To the extent there is no clarity particularising the defendants’ case of knowledge or authorisation, that is certainly a matter which was within the plaintiffs’ hands to address by seeking particulars. They had an opportunity to seek particulars but did not do so. Even if the plaintiffs expected that some form of clarity regarding authorisation would appear in the defendants’ evidence, ^[126] significant time has now passed. In light of the matter as it presently stands, the way the proceedings have been conducted, and the costs that have been incurred, I do not regard any lack of clarity of the defence (as alleged) as being a sufficient reason to refuse disclosure.

     126. Transcript, 24-25 February 2025, T 60.31-61.19.

Verification

222. Verification is a well-known process whereby a list of documents must be accompanied by a supporting affidavit and (if the disclosing party has a solicitor) by a solicitor’s certificate of advice: r 21.4(1) UCPR.

223. The requirements in respect of the affidavit include statements to the effect that the deponent has made reasonable enquiries as to the documents referred to in the order and inter alia believes that there are no documents (other than listed excluded or privileged documents) falling within any of the classes specified in the order that are, or that within the last six months before the commencement of the proceedings, have been, in the possession of the producing party: r 21.4(2) UCPR.

224. The solicitor’s certificate is a solemn document which addresses not merely the advice given but also the extent of a solicitor’s knowledge. Thus, the certificate must state that the solicitor has not only advised the client party as to the obligations arising under an order for discovery but also that the solicitor is not personally aware of any documents within any of the classes specified that, within the relevant time period, have been in possession of the party (leaving aside those documents within the list of excluded documents): r 21.4(3) UCPR.

225. Mr Ratnam, at least in relation to revised category 1, did not necessarily seek verified discovery. He proposed that the defendants be given access to the relevant email inboxes and outboxes and that his client would undertake the process of investigating and interrogating those documents. ^[127]

     127. Transcript, 24-25 February 2025, T 51-52.

226. However, more generally regarding the categories of disclosure sought, Mr Ratnam submitted that verification was appropriate in circumstances where documents had previously been sought but only partially produced and where the plaintiffs have been (he asserts) selective with what they considered relevant as opposed to providing all documents within the category. ^[128] Beyond the assertion of partial production and selectiveness, Mr Ratnam was unable to specify any other concerns that required verification. ^[129]

     128. Transcript, 24-25 February 2025, T 69.5-.19.

     129. e.g. Transcript, 24-25 February 2025, T 42.17-.30.

227. Verification in cases involving potentially many documents is a notoriously detailed, expensive and time-consuming process.

228. Having regard to the further time, expense and effort required or involved in verified discovery, I am not satisfied that verified discovery is appropriate. That is not merely in relation to revised category 1 but all the categories.

229. It will be evident from my determination below that I consider that some disclosure should be given to the defendants. To the extent that that is contrary to the provisions of the Practice Note, my determination is a case management decision having regard, in particular, to the overriding purposes of the rules as applied to the unique circumstances of this case.

230. To be clear, I do not require any painstaking listing of individual documents that are to be produced. With one qualification, I consider that that the production can proceed in a similar way to which documents are produced pursuant to a subpoena or notice to produce. The qualification is that there should be some correspondence from the plaintiffs’ solicitors to the defendants’ solicitors identifying in a general but clear way what is being produced so that it is evident to those within the defendants’ solicitors’ office what documents are referable to each category in respect of which production has been permitted.

Determinations on revised categories

Revised category 1

231. Revised category 1 is as follows:

The email inbox and outbox specified in subparagraphs (h) to (m) of paragraph 1 of Annexure “A” to the Preservation Application for the period 1 July 2008 to 30 June 2021

232. The email boxes referred to are set out at CB 1157-1158 and in summary are as follows:

1. “(h)” - the email inbox/es used by Remy while he was employed by EN including the inboxes for seven specified email addresses;

2. “(i)” - 3 specified inboxes for email addresses at FA;

3. “(j)” - the email inbox/es for the company email addresses for the following employees while in the employ of FA: Katia Bouchaaya, Harold Gasparotto, Maria Martinez, Eliane Boustani, Methini Jupudi, Regina Rilloraza, Georgette Hana, Paul Elhelou and Andrew Daoud;

4. “(k)” - the email inbox of Wally from 1 January 2008 to date;

5. “(l)” - the email inbox of Chabel Tadros while he was employed or during his directorship of FA; and

6. “(m)” - the email inbox of Joseph Bouchaaya while he was a director of FA.

233. It is sought on the basis that it is relevant to establishing that the impugned transactions were legitimate and authorised. ^[130] Mr Ratnam proposed that they could be provided, for example, on a USB stick. ^[131] Potentially another way that could be done is described as “a data dump”, or for the plaintiffs to give the defendants access for a limited period, with protocols put in place to permit that. ^[132]

     130. Transcript, 24-25 February 2025, T 51.

     131. Transcript, 24-25 February 2025, T 52.

     132. Transcript, 24-25 February 2025, T 53.

234. Mr Ivantsoff submitted that the inboxes will pick up materials that are irrelevant to the proceedings and other information that is confidential to the business and has no bearing on “the essential fact in issue, which is authorisation and approval for the transactions” and accordingly has the effect of casting a net over the entire history of correspondence of a 13-year period. ^[133]

     133. Transcript, 24-25 February 2025, T 63.

235. If disclosure is to be ordered by means of a dump onto a USB stick, Mr Ivantsoff accepted that the process would take no longer than an hour or two. ^[134]

     134. Ibid.

236. For reasons that I have addressed above, it is regrettable that the matter has progressed through to a contested hearing regarding disclosure of documents without clarity as to how the defendants’ knowledge, authorisation and approval case in respect of transactions is particularised.

237. Nonetheless, as matters currently stand, I consider that discovery should be given in respect of the email boxes, at least to address the claim in the defence in respect of knowledge, authorisation and approval for transactions.

238. I invite the parties to use their ingenuity as to how that may be appropriately and cost effectively done, so as to preserve any confidential materials.

239. If they are unable to agree on a process within a relatively short space of time, I will appoint, initially at the parties’ own cost, an expert pursuant to Pt 31 subdivision 5 of the UCPR (including for example rr 31.46, 31.54) to receive and review the email boxes and prepare a report identifying the email material to be disclosed in respect of knowledge, authorisation and approval for the claimed (approximately 4,000) transactions and determine how that can best be provided without inappropriate disclosure of any confidential material.

Revised category 2

240. Revised category 2 is as follows:

The folders maintained by Remy Wehbe and left in his former office of Remy Wehbe at Level 1, 398 Chapel Road, BANKSTOWN, NSW 2200 pertaining to Remy’s business operational duties and functioning of the Plaintiffs

241. There are two categories of folders. One category is Remy’s personal folders. The second category are the “Wehbe Group” company folders. ^[135] There is no objection to the personal folders being provided, though apparently they are not sought with only the company folders being sought. ^[136] There are company folders for each plaintiff with multiple folders for each financial year. ^[137]

     135. Transcript, 24-25 February 2025, T 53-54.

     136. Transcript, 24-25 February 2025, T 54-55.

     137. Transcript, 24-25 February 2025, T 55.

242. Mr Ratnam submitted that materials in the company folders relate to the factual issues and matrix in the case. Specifically, he says that there is financial information that would assist the defendants with reconciliation of the amounts claimed against them and contextual documents that would assist with proving their defences that the payments were authorised. ^[138]

     138. Transcript, 24-25 February 2025, T 55-56.

243. Mr Ivantsoff opposed discovery of the company folders on the basis that it is irrelevant and too wide. ^[139]

     139. Transcript, 24-25 February 2025, T 54.

244. I consider that there is plausible relevance as described by Mr Ratnam and that discovery should be given in respect of orders, but limited to only those matters in respect of reconciliation of the impugned transactions and in respect of knowledge, authorisation and approval for the impugned transactions.

Revised categories 3 & 5

245. Revised category 3 is as follows:

Cheque Books/Deposit Books for all plaintiffs for the period 1 July 2008 to 30 June 2021

246. Revised category 5 is as follows:

Cash Book income and Cash book expenses for all the plaintiffs as of 01/07/2008 till 30/06/2021

247. The defendants’ reason for seeking this material is that the plaintiffs’ claims relate to numerous alleged fraudulent transactions in respect of cash and bank transfers said to have been perpetrated by Remy. The defendants submit that production of these primary records will enable the defendants to reconcile a number of the impugned transactions and demonstrate the legitimacy of the payments as they allege. ^[140] Mr Ratnam emphasised in his oral submissions that the business operated as a cash business. He submitted that, even though that was the case, there were adjustments made to which primary cheque-books and deposit books would be relevant. ^[141]

     140. MFI-2.

     141. Transcript, 24-25 February 2025, T 65.

248. Mr Ivantsoff submitted that production of every cheque and deposit entry was too broad and would capture irrelevant documents. ^[142]

     142. Ibid.

249. Specifically, Mr Ivantsoff asserted that in terms of cash books, only three plaintiffs, namely FA, GMC and RMK, make cash claims. He submitted that he has provided the cash books for FA and GMC and that they do not have the cashbook for RMK. ^[143]

     143. Transcript, 24-25 February 2025, T 66.

250. Hopes for attempting to limit what might be appropriate disclosure have been stymied in part by the parties’ inability to agree on production and in part by the plaintiffs’ failure to seek particulars on material allegations of the defences. I consider that it is not unreasonable for the defendants to have access to the cheque-books and deposit books for the period. The volume of material that may need to be produced may be large. However, to some extent, that is a consequence of the extent of the plaintiffs’ claims in respect of impugned transactions over a 13-year period. I do not think it would be reasonable to deny the defendants an opportunity to review the cheque-books and deposit books to seek to reconcile payments or demonstrate the legitimacy of other impugned transactions.

251. In relation to cash books recording income and expenses, according to Mr Ivantsoff, seemingly every relevant cash book for FA and GMC recording income and expenses has been provided. If that is the case, then I do not require further production of what has already been produced. However, if any of the plaintiffs other than FA, GMC or RMK have any cash books recording income and expenses, I require production of those materials.

Revised category 4

252. Revised category 4 is as follows:

Hard copy folders maintained by the companies and left at the offices of the companies when Remy Wehbe employment was terminated in July 2021 for each of the units in the Philippines related to the following persons: [names specified]

253. Fifteen persons are nominated including four of the defendants being Remy, Linda, Kevin and Karl.

254. The relevance of this material according to Mr Ratnam is that it can assist in demonstrating that the impugned transactions were legitimate and authorised. The defendants contend that there are impugned transactions that are answered by dividend distributions paid to shareholders, which were then applied as payments relating to properties in the Philippines. They say that certain third parties associated with various shareholders, by agreement with Wally and Remy, made payments to various entities comprising the Wehbe Group to acquire interest in the properties in the Philippines. ^[144]

     144. MFI-2; Transcript, 24-25 February 2025, T 55-56.

255. Mr Ivantsoff submitted that putting aside the question of authorisation, whatever monies were deposited into a Wehbe Group account and paid to the ultimate recipient will be reflected in the bank statements, and thus only the bank statements are required. In any event, he submits that the category is too wide. ^[145]

     145. Transcript, 24-25 February 2025, T 66.

256. I do not think that it is a sufficient answer to the claim for disclosure to say that whatever payments are made are recorded in bank statements. I consider that disclosure should be given. There may be relevant recordings in documents other than the bank statements. However, I consider that there is some force in Mr Ivantsoff’s submission that the category is too wide. I consider that there should be production of material in the folders relating to whether any of the impugned transactions were legitimate or made with knowledge and authorised.

Revised categories 6-9

257. Revised category 6 is as follows:

Any document recording when a shareholder meeting took place and/or what transpired at such meeting for the period 1 July 2008 to 30 June 2021

258. Revised category 7 is as follows:

Any document recording any company resolutions for the Plaintiff Companies for the period 1 July 2008 to 30 June 2021

259. Revised category 8 is as follows:

All company minutes of meetings, director minutes of meetings, and shareholder minutes of meetings, for the Plaintiff companies for the period 1 July 2008 to 30 June 2021

260. Revised category 9 is as follows:

Any document recording approval/authorizations for the payment of expenses for the Plaintiff Companies for the period 1 July 2008 to 30 June 2021

261. Essentially as I understand it, Mr Ratnam submitted that authorisation of payments may have taken place in the context of informal meetings which might have been as casual as simple discussions. He posits that there might be recordings such as a diary entry which would identify when the meetings took place. ^[146]

     146. Transcript, 24-25 February 2025, T 56.

262. Mr Ivantsoff made his submissions in respect of the lack of clarity regarding the authorisation approval case which I have noted above. In addressing the specific categories, he reiterated those points. ^[147]

     147. Transcript, 24-25 February 2025, T 67.

263. Further, Mr Ivantsoff noted Mr Diab’s assertion that the main protagonist for the Plaintiffs will be Wally and that Remy’s principal dealings were with Wally and his assertions that (a) Joseph Bouchaaya was the director of FA, at all relevant times; (b) Remy denies being a director, CEO and/or Financial Controller of FA and says that he had no independent control or access to the accounts of FA and therefore had no ability to independently deal with FA’s accounts; and (c) Remy says that any access to FA’s accounts was within the knowledge and direction of Joseph Bouchaaya. ^[148]

     148. CB 464.

264. Mr Ivantsoff submitted that if Remy had no ability to deal with the accounts, then he can say that, implicitly submitting that he had no need for any documents. ^[149]

     149. Transcript, 24-25 February 2025, T 59.37-.41.

265. In relation to “category 8”, Mr Ivantsoff submitted that there is an issue about the identity of certain employees, being whether they were fake or legitimate. He submitted that no documents would assist the defendants because the plaintiffs’ case in respect of that is that the documents, whether they be payslips or other employment related records, are false. He submitted that the only way the defendants are going to be able to defend the allegations are to depose to seeing people attend at work setting up what they were doing and how long they were employed. ^[150]

     150. Transcript, 24-25 February 2025, T 59.41-.48.

266. Mr Ratnam did not make any specific submission in relation to category 9 other than noting that the reason for it being sought was covered by what had been said in relation to categories 3, 5 and 6. ^[151]

     151. MFI-2.

267. Mr Ivantsoff submitted that category 9 appeared to overlap to a significant degree with other categories and ought to be limited to what is pleaded in the 2FASOC, the particulars to it and the Deloitte Report. ^[152]

     152. Transcript, 24-25 February 2025, T 67.

268. I consider that production should be given in respect of these categories. As I have observed above, any lack of clarity regarding particularisation was within the plaintiffs’ hands to address and they have not done so.

269. To the extent that Mr Ivantsoff submits that certain documents are false and the only way the defendants can prove their case is to depose to matters observed, I am not satisfied that that is an answer to production. If there are documents that bear upon the allegations of knowledge or authorisation matter, it may be that the defendants contend that the documents are not false or that, even if they are false, they provide some context for defending the allegations.

Revised category 10

270. Revised category 10 is as follows:

Data file for the MYOB software platform used for the Plaintiff Companies

271. This is not some general request but rather, according to MFI-2, the defendants seek this as being the repository of the plaintiffs’ financial data referred to in the Deloitte report. That is certainly the way that Mr Ivantsoff appeared to understand the request. He indicated that he would seek some instructions in respect of it. ^[153]

     153. Transcript, 24-25 February 2025, T 67.9-.11.

272. If Mr Ivantsoff’s understanding is right, it seems to me that it should be produced. Even if this specific request has not been made pursuant to r 21.10 of the UCPR, it is clear that a party may request for inspection any document or thing that is referred to in an affidavit or witness statement filed or served by a party: r 21.10(1)(b) UCPR.

Revised categories 11 & 13

273. Revised category 11 is as follows:

Copies of all tax returns for the Plaintiff companies for the period 1 July 2008 to 30 June 2021

274. Revised category 13 is as follows:

Financial statements (including varied, draft and/or executed), including but not limited to profit and loss statements and balance sheets, for the financial years ending 2008 to 2021

275. The defendants seek documents under revised category 11 at least because they say they are relevant to addressing the claim of misappropriation of monies and the so-called adjustments made by Mr Garufi within his appendices to a number of the plaintiffs’ accounts. They also claimed that “underlying documents to prepare the tax returns are necessary”. ^[154]

     154. MFI-2.

276. Mr Ivantsoff says that all tax returns in relation to GMC and FA have been produced and they are content to provide tax returns for RMK to the extent that they are still in the possession of the plaintiffs.

275. The fact that Mr Garufi has made some adjustments for the purposes of preparing a valuation report does not seem to me to be a particular reason as to why the documents should be produced per se. However, I consider that the documents should be produced, to the extent that they have not already been produced, at least for the purposes of the defendants having available the tax returns that might bear upon the claims in respect of the impugned transactions.

276. Revised category 11 as sought does not extend to “underlying documents”. At this stage, I require the tax returns for the plaintiff companies for the specified period to be produced, essentially for the same reason that I have given in relation to categories 3 and 5.

277. As to revised category 13, the defendants say they are relevant to addressing the claim of misappropriation of monies. ^[155] Mr Ivantsoff stated that GMC and FA have been produced while RMK has not, and his instructions are that RMK is content to produce such documents, pursuant to a notice to produce. ^[156]

     155. MFI-2

     156. Transcript, 24-25 February 2025, T 67.44-.46.

278. It seems to me that, for the defendants to relevantly address the totality of the claims against them, it is appropriate for them to be able to view financial statements that have been prepared including draft, executed or varied statements which set out information regarding expenses of the various plaintiff companies. I consider that documents requested in revised category 13 should be produced for the period 1 July 2008 to 30 June 2021 except to the extent that they have already been produced.

Revised category 12

281. Revised category 12 is as follows:

Any contracts or agreement between Remy and the company

282. The defendants contend that the plaintiffs allege that Remy was the CEO or financial controller of the plaintiffs, ^[157] entered into agreements with the plaintiffs, ^[158] held a position of trust for the plaintiffs, was an officer of the plaintiffs, and had duties to the plaintiffs under the Corporations Act. ^[159] They contend that the terms of the agreements are relevant to these claims. ^[160]

     157. Citing 2FASOC at [10] (see CB 10).

     158. Citing 2FASOC at [17]-[24] (see CB 12-13).

     159. Citing 2FASOC at [27],[27A],[29] (see CB 13-15).

     160. MFI-2.

283. Mr Ivantsoff submits that his instructions are that, on the plaintiffs’ evidence, there are no written agreements and so there is nothing to produce.

284. Having looked at the current pleading 2FASOC, it appears by reference to the particulars to [25] ^[161] that the plaintiffs contend that the employment agreements were partly oral and partly implied and that it was an implied term of the employment agreements that Remy would act with loyalty and honesty.

     161. See CB 13.

285. In light of that, it would appear that there is nothing to produce. It is not clear to me whether there is any allegation that there any other agreements to which Remy was a party with the plaintiff companies. If there are, any such agreement should be brought to my attention. However, in respect of the defined “Employment Agreements”, ^[162] and because of the way they have been particularised by the plaintiffs, I accept the submission that there is nothing to produce. There is no suggestion that there is any writing which records any terms of any such agreements.

     162. CB 13 [25].

Revised category 14

286. Revised category 14 is as follows:

Bank Statements for the period 1 July 2008 to 30 June 2021

287. The defendants contend that the bank statements will record relevant transactions carried out by the defendants and that, in any event, they wish to cross-reference details of impugned transactions in the schedule to the 2FASOC against any such bank statements for the purposes of reconciling the impugned transactions. ^[163]

     163. MFI-2.

288. This aspect did not appear to be specifically contentious. Mr Ivantsoff appears to accept that the bank statements can be produced pursuant to a notice to produce. ^[164]

     164. Transcript, 24-25 February 2025, T 67.46-.50.

289. The offer to produce by Mr Ivantsoff should be acted upon. Even if there were no offer, I consider that there is sufficient relevance to require production. The orders that I require the parties to prepare to give effect to these reasons should include production of these bank statements.

Remaining applications

290. As I have indicated above, the parties are agreed on orders in relation to the plaintiffs’ production application and the distribution application. Further, the plaintiffs’ disclosure application is consented to and the preservation application is not pressed and, in any event, is now effectively superseded in light of what I have indicated regarding revised category “1”.

Costs

291. Mr Ratnam submitted that costs of all applications should be reserved to abide what happens ultimately at the trial. He accepted that an exception to that is the orders in relation to the distribution motion in which it was agreed that there be no order as to costs. ^[165]

     165. Transcript, 24-25 February 2025, T 72.8-.38.

292. He submitted that if I was not inclined to reserve costs, he would wish to have an opportunity to consider the reasons for judgment before making any specific submission in relation to costs. ^[166]

     166. Transcript, 24-25 February 2025, T 72.40-.48

293. For his part, Mr Ivantsoff simply wished to reserve his position on costs and to make specific submissions after considering the reasons for judgment. ^[167]

     167. Transcript, 24-25 February 2025, T 72.50-73.2

294. Ultimately, out of the 6 applications, 2 applications were resolved, 2 applications were contested, one application was ultimately not opposed, and the other application was, in the midst of the hearing, ultimately not pressed.

295. In respect of the 2 resolved applications, the parties are agreed to their costs orders. Namely, in respect of the plaintiffs’ production application, costs will be reserved, and in respect of the distribution application, there will be no order as to costs.

296. In relation to the applications that were contested, each side has had a measure of success and failure. The defendants have succeeded in persuading the Court to make an order for security. However, the amount of security that I am minded to award is significantly less than initially sought by the defendants. In relation to the defendants’ discovery application, ultimately, a significantly revised version of that application was pressed with many categories not ultimately sought. Nonetheless, the defendants have had some success in that I have found that disclosure should be given in respect of most of the revised categories.

297. The plaintiffs’ application for discovery was from the outset said to be contingent upon the outcome of the defendants’ application for discovery. However, ultimately it was not opposed. The defendants’ preservation was not pressed but that was in a context in which it was effectively subsumed in the defendants’ request for discovery under revised category “1”.

298. One potential outcome as mentioned by Mr Ratnam is that costs be reserved. However, that would leave the question to be dealt with by the judge finally hearing the proceedings at a point of time potentially significantly distant from the current time and in circumstances where the context of how the applications were dealt with and ultimately argued may be a little challenging for the trial judge to assess.

299. My provisional view is that, in all the above circumstances, rather than reserve the question of costs, the appropriate order is that the costs orders agreed in respect of the two applications that have been the subject of proposed consent orders should be as proposed and that, in respect of the balance of the four applications, there should be no order as to costs to the intent that each of the parties should bear their its costs.

300. If the parties wish to contend for a different position, I will make orders permitting that to occur. However, if that is to occur, it should be done in a cost-effective manner.

Orders

301. I direct the parties to bring in short minutes of orders to give effect to the findings that I have made in respect of each of the applications, which will necessarily include the proposed orders in respect of the two applications in which orders have been agreed as between the parties. The costs orders in respect of the remaining four applications should be as I have indicated unless the parties wish to contend otherwise.

**********

Endnotes

Decision last updated: 05 March 2025