In the matter of Pacific Springs Pty Ltd (No 2)

[2019] NSWSC 1183

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Pacific Springs Pty Ltd (No 2) [2019] NSWSC 1183
Hearing dates:	On the papers
Date of orders:	09 September 2019
Decision date:	09 September 2019
Jurisdiction:	Equity - Corporations List
Before:	Rees J
Decision:	Quantum of security for costs determined and orders for security: at [7]
Catchwords:	COSTS — Security for costs — Determination of quantum where amendment to pleadings — Dispute as to the complexity of issues in dispute and hearing length — Security ordered in amount between plaintiffs’ and defendants’ estimates.
Legislation Cited:	Uniform Civil Procedure Rules 2005, r 42.21
Category:	Procedural and other rulings
Parties:	Gani Mualim (First Plaintiff) Jorida Mualim (Second Plaintiff)   Ricards Dzelme (First Defendant) Pacific Springs Pty Limited (Second Defendant)
Representation:	Counsel: Mr D Grieve QC (Plaintiffs) Mr DR Pritchard SC (Defendants)   Solicitors: RMHB Commercial Lawyers (Plaintiffs) Swaab Attorneys (Defendants)
File Number(s):	2019/55505

Judgment

1. HER HONOUR: On 22 July 2019, I heard the defendants’ application for security for costs in the sum of $164,000. I decided that security should be provided but noted that, as the plaintiffs intended to amend their claim such that some of the prayers for relief would not be pressed at trial, the quantum of security sought might be beyond that which is now appropriate. I made directions for the plaintiffs to amend their claim and for the defendants, having regard to the amended statement of claim, to revise the amount of security sought.

2. On 29 July 2019, an amended statement of claim was filed adding some prayers for relief — concerning whether the first defendant has been validly appointed as a director of the second defendant, Pacific Springs — and deleting prayers for relief directed to appointing a liquidator to Pacific Springs. Having regard to the amended statement of claim, the defendants’ senior counsel, Mr Pritchard SC, submitted that, although the costs in relation to the winding up issue resulted in a reduction 20% in the security sought, the additional prayer for relief added back 10% such that $147,633.93 was now sought. The number of lay witnesses who would need to be called remained unchanged. The estimated length of hearing remained the same, being at least two days. It was also noted that the estimated costs had been based on briefing junior counsel for trial, but it was now likely that the defendants would brief senior counsel as well.

3. In reply, the plaintiffs’ senior counsel, Mr Grieve QC, submitted that rule 42.21(1A)(k) of the Uniform Civil Procedure Rules 2005 requires the Court to have regard to:

… whether the security sought is proportionate to the importance and complexity of the subject matter in dispute.

The costs estimate of the defendants’ solicitor was said to demonstrate an unacceptable level of inefficiency and the imposition of excessive charges said to add salt to a sore wound and invite [in]credulity. Mr Grieve QC considered that the hearing would not take two days as he did not presently intend to cross-examine. He queried how the defendants could call accountants as witnesses as they would “risk prosecution for breach of the then applicable legislation governing the legal profession”, although I confess that I did not follow this submission. Overall, it was submitted that the amount of security sought was altogether disproportionate to the importance and complexity of the subject matter in dispute and it was inappropriate to quantify a sum in excess of $50,000. Aside from this, the plaintiffs agreed in principle to the form of orders proposed by the defendants.

4. Whilst the plaintiffs’ senior counsel may see the hearing as involving a short, crisp issue, and may see only the evidence of the two plaintiffs as being relevant to that issue, that does not seem to me to preclude the defence which is proposed to be advanced at the trial. The defendants’ senior counsel clearly sees the evidence of other witnesses as being relevant to whether, when the shares were issued, the current shareholders knew and approved of it or the issue was otherwise valid. Given the number of lay witnesses identified by the defendants’ senior counsel, I think two days is a reasonable estimate.

5. I agree, however, that some of the time which it is suggested it will take to prepare for trial seems unwarranted. Why allowance should be made for requesting particulars of the statement of claim in a matter in the Corporations List is unclear. It is also not clear whether the case is one in which discovery would be appropriate or ordered. Whether the defendants brief junior or senior counsel is a matter for them, although, as the plaintiffs have briefed senior counsel, one can hardly deny them that privilege.

6. Making my own estimate, excluding GST for the moment, I have assumed that the cost of the defendants’ senior and junior counsel for trial will be, in total, $9,000 a day, and that solicitors’ costs are likely to be roughly the same. The cost of the trial, therefore, with disbursements such as transcript and court filing fees, is likely to be $40,000, and the costs of preparing for trial are likely to be, in my experience, double that, that is a further $80,000, for a total of $120,000. The defendants, if they obtain a costs order in their favour, would be entitled to costs on a party and party basis which, for the purposes of this exercise, I have taken to be roughly 70% of their costs on a solicitor and client basis, that is $84,000 or, with GST, $92,400. I propose to order security for costs in that amount, adopting the formulation of the orders proposed by the defendants to which the plaintiffs do not object in principle.

7. For these reasons I make the following orders:

1. The plaintiffs are ordered to provide security for costs in the sum of $92,400 as follows:

1. 50% within 28 days of these orders; and

2. 50% within 28 days from the conclusion of a mediation of the disputes or no later than six weeks from the commencement of the hearing, whichever is the sooner,

such security to be provided by way of an unconditional Bank guarantee from an Australian Bank in a form acceptable to the defendants or payment into Court.

2. In the event that the respective tranches of security ordered in order 1 above are not provided within the time specified, order that the proceedings be stayed until further order.

3. Grant the defendants liberty to apply on three days’ notice for further security to be provided for the period from commencement of the hearing or to increase the amount of security ordered in order 1 if the security provided in a particular tranche proves insufficient to cover the party/party costs thereby incurred, or in the event that there is disagreement as to the acceptability of the unconditional bank guarantee provided pursuant to order 1.

4. Grant the plaintiffs liberty to apply to vary the orders made for security for costs in the event that there is a material change in circumstances in the period prior to commencement of the hearing.

5. Order the plaintiffs to pay the defendants’ costs of and incidental to the interlocutory process of the defendants filed 3 April 2019.

6. Order the plaintiffs to pay the costs of the defendants of and occasioned by the amended statement of claim filed 29 July 2019.

7. The proceedings stand over to the Corporations List Judge at 10.00 am on Monday, 14 October 2019 for further directions.

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Decision last updated: 10 September 2019