Jabiru Satellite Ltd (in liq) (recs & mgrs apptd) v Societe Generale
[2022] VSC 521
•6 September 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL AND RETAIL LEASES LIST
S ECI 2020 02631
BETWEEN:
| JABIRU SATELLITE LIMITED (IN LIQUIDATION) (RECEIVERS & MANAGERS APPOINTED) (ACN 121 667 365) & ANOR (according to the attached Schedule) | Plaintiffs |
| v | |
| SOCIETE GENERALE & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Irving AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 August 2022 |
DATE OF RULING: | 6 September 2022 |
CASE MAY BE CITED AS: | Jabiru Satellite Ltd (in liq) (recs & mgrs apptd) & Anor v Societe Generale & Ors |
MEDIUM NEUTRAL CITATION: | [2022] VSC 521 |
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PRACTICE AND PROCEDURE – Applications for security for costs under r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 and s 1335 of the Corporations Act 2001 (Cth) – Security for past costs – Delay – Security for future costs – Costs of a third party claim – Form of security – Charge for work done out of Victoria – Oswal v Australia and New Zealand Banking Group Ltd [2016] VSC 52 – I Minh Holdings Pty Ltd v Chuang (2021) 65 VR 184 – DIF III Global Co-Investment Fund LP v BBLP LLC [2016] VSC 401.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | O Bigos QC with P Annabell | Banton Group |
| For the First to Third and Seventh Defendants | S Rosewarne with A Batrouney | Allen & Overy LLP |
| For the Eighth Defendant | C G Juebner with G M Douglas | Colin Biggers & Paisley |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Procedural history.............................................................................................................................. 2
The parties’ respective evidence on security for costs................................................................ 7
The Lenders’ evidence.................................................................................................................. 7
The plaintiffs’ evidence in response to the Lenders’ application......................................... 13
Coface’s evidence on application for security........................................................................ 14
The plaintiffs’ evidence in response to Coface’s application for security.......................... 16
The parties’ submissions on security for costs........................................................................... 18
Legal principles................................................................................................................................ 25
Consideration.................................................................................................................................... 29
Coface’s costs on the second plaintiff’s discontinuance to be paid by Rockgold............... 33
Conclusion......................................................................................................................................... 35
HIS HONOUR:
Introduction
This proceeding concerns a dispute arising from funding arrangements entered into in 2013 for an unsuccessful project to build, launch and operate a commercial satellite (Jabiru project). Until it was placed into administration, Jabiru Satellite Limited (first plaintiff) carried on a communications and satellite business as part of the NewSat Group. The first plaintiff was a wholly owned subsidiary of NewSat Limited (second plaintiff) at the relevant time. Before the second plaintiff was placed into administration, it carried on a business of operating a teleport, communications and satellite business and was the parent company of the NewSat Group. The first, second, third and seventh defendants (collectively, Lenders) are multinational finance institutions who entered into agreements with the first plaintiff and the second plaintiff (plaintiffs) to provide finance for the Jabiru project. The eighth defendant, La Compagnie Francaise D’Assurance Pour Le Commerce Exterieur (Coface) provided the second plaintiff with an export credit insurance policy in relation to the funding provided by the first, second and third defendants.
By their amended statement of claim, the first and second plaintiffs allege that as a matter of English law governing the finance agreements, the Lenders breached implied obligations of good faith, causing the Jabiru project and the plaintiffs’ businesses to fail. The first plaintiff further alleges the Lenders and Coface engaged in unconscionable conduct in the supply of financial services to the first plaintiff. The plaintiffs claim damages for breach of contract and alternatively, compensation payable to the first plaintiff pursuant to s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and/or s 236 of the Competition and Consumer Act 2010 (Cth) sch 2 (Australian Consumer Law) (ACL).
This ruling concerns two applications for security for costs, the first made by the Lenders and the second by Coface. This ruling also concerns Coface’s application for costs as a result of the second plaintiff’s notice of discontinuance filed 4 May 2022, by which the second plaintiff discontinued its claim against Coface.
The parties agree that the Court’s jurisdiction to order security for costs has been enlivened. The only issues for the Court to resolve are the quantum of security and its form.
Rockgold Holdings Pty Ltd (Rockgold) is a shareholder of the second plaintiff and a creditor of the first plaintiff. On 28 April 2022, Rockgold undertook to the Court to be liable for any costs the Court may order as a result of the second plaintiff’s discontinuance of its claim against Coface.
In relation to the applications for security for costs, for the reasons that follow, I have decided that within 14 days:
(a) the plaintiffs should pay the sum of $599,393.18 as security for the Lenders’ costs up to but not including discovery; and
(b) the first plaintiff should pay the sum of $513,093.48 as security for Coface’s costs up to but not including discovery.
In relation to Coface’s application for costs in relation to the discontinuance, for the following reasons, I will order that Rockgold pay 35% of Coface’s costs incurred in defending the proceeding from 17 June 2021 to 4 May 2022 inclusive, such costs to be paid forthwith.
Procedural history
One of the issues before the Court on the security for costs applications was whether the Lenders and Coface had delayed in bringing their applications for security. For this reason, it is necessary to set out, in summary, the procedural history of the proceeding.
On 18 June 2020, the plaintiffs commenced the proceeding by filing a writ indorsed with the claim. By 17 June 2021, the plaintiffs had served the writ on all defendants other than the sixth and seventh defendants.
On 17 June 2021, Rockgold filed an application seeking leave to conduct the proceeding as a derivative action (derivative leave application). The defendants to the derivative leave application were the plaintiffs in this proceeding.
On 24 August 2021, the trial judge, on the plaintiffs’ application, made orders extending the validity of the writ to 18 June 2022.
In early September 2021, Rockgold requested an extension to the timetable for the filing of evidence and submissions in the derivative leave application. The defendants who had filed an appearance in this proceeding either consented to or did not oppose Rockgold’s extension request.
On 30 September 2021, the seventh defendant filed a notice of appearance.
In early October 2021, Rockgold proposed further revisions to the timetable for the derivative leave application. Following negotiation between the solicitors for Rockgold and the defendants in this proceeding, a new proposed timetable was largely agreed. At this stage, the plaintiffs had not filed a statement of claim in the proceeding nor provided the appearing defendants with a copy of a draft statement of claim as part of the derivative leave application. The defendants informed Rockgold and the plaintiffs that at the directions hearing scheduled for 26 November 2021 they would press for orders that the plaintiffs file a statement of claim.
At the directions hearing on 26 November 2021, the trial judge made further orders for the preparation and hearing of the derivative leave application and ordered the plaintiffs to file a statement of claim by 21 January 2022. The trial judge further ordered that no defendant was required to file a defence until after the determination of Rockgold’s derivative leave application.
On 21 January 2022, Rockgold’s solicitors informed the defendants that Rockgold intended to discontinue its derivative leave application and to fund the plaintiffs’ proceeding itself.
At the directions hearing on 28 January 2022, the trial judge dismissed Rockgold’s derivative leave application and extended the time for the plaintiffs to file a statement of claim to 4 February 2022.
On 4 February 2022, the plaintiffs discontinued the proceeding as against the fourth, fifth and sixth defendants and served a statement of claim. In this statement of claim, the plaintiffs alleged, among other things, that in March 2015 Coface engaged in unconscionable conduct in breach of s 21 of the ACL.
On 22 February 2022, Coface notified the plaintiffs that it intended to bring an application for strike out and summary judgment against both plaintiffs. Coface foreshadowed the grounds of the application as being, first, that the second plaintiff was a publicly listed company in March 2015 when it was alleged Coface engaged in unconscionable conduct; second, that the allegations of unconscionable conduct concerned an insurance product which was a financial service or financial product expressly excluded from the operation of the ACL; and third, the facts as alleged, even if proven, could not found liability for unconscionable conduct in breach of s 21 of the ACL.
On 25 February 2022, at a directions hearing, Rockgold’s solicitors foreshadowed an application for the appointment of a special purpose liquidator to the plaintiffs. The trial judge made orders timetabling requests for further and better particulars and their responses and for the Lenders and Coface to file any applications for security for costs and/or summary judgment. The trial judge also ordered the second plaintiff to produce its electronic share register by 4 March 2022.
On 28 February 2022, the Lenders’ solicitors, Allen & Overy, requested that the plaintiffs’ solicitors provide further and better particulars of certain paragraphs of the statement of claim.
On 4 March 2022, the second plaintiff failed to produce its share register. Rockgold and Ever Tycoon Limited filed an originating process in the Supreme Court of New South Wales seeking orders appointing a special purpose liquidator to the plaintiffs to take over the conduct of the proceeding. The application contemplated that Rockgold would enter into a funding agreement with the special purpose liquidator to partially fund the proceeding.
On 10 March 2022, the solicitors for Coface wrote to the plaintiffs’ solicitor and requested that the plaintiffs confirm in open correspondence that the second plaintiff would not contest that it was a listed public company as at March 2015.
On 15 March 2022, the solicitors for Coface caused a subpoena to be served on Computershare Investor Services Pty Ltd (Computershare). That subpoena sought production of an electronic copy of the second plaintiff’s share register as at 25 March 2015. Computershare complied with the subpoena on 16 March 2022.
On 31 March 2022, Coface filed a notice to admit facts which sought that the plaintiffs admit that at the time relevant to the allegation of unconscionable conduct, the second plaintiff was a listed public company.
On 4 April 2022, the plaintiffs’ solicitors foreshadowed finalising an amended statement of claim as soon as possible after 11 April 2022, subject to receiving instructions from the special purpose liquidator.
On 8 April 2022, Coface filed its summons and supporting evidence seeking orders for summary judgment and that the statement of claim be struck out.
On 11 April 2022, Black J dismissed Rockgold and Ever Tycoon Limited’s application for a special purpose liquidator in the Supreme Court of New South Wales.
At the directions hearing on 12 April 2022, the trial judge ordered the plaintiffs to file an amended statement of claim by 22 April 2022 and adjusted the timetable for the Lenders’ and Coface’s applications. The trial judge also dispensed with the requirement that the defendants file defences before filing third party notices.
On 22 April 2022, the plaintiffs’ solicitors wrote to the defendants’ solicitors requesting an extension of time to file their amended statement of claim. On 27 April 2022, the plaintiffs’ solicitors provided a draft amended statement of claim to the Lenders. This version of the amended statement of claim did not include the paragraphs alleging the Lenders’ breach of an implied duty of good faith. The plaintiffs’ solicitors also informed the Lenders’ solicitors that the liquidator and Rockgold had reached an in‑principle interim funding agreement to allow the liquidator to approach the funding market.
A further directions hearing was held on 28 April 2022. The trial judge extended the time for the plaintiffs to file an amended statement of claim to 20 May 2022 and made consequential adjustments to the timetable for the Lenders’ and Coface’s applications for security for costs and/or summary judgment. At this directions hearing, counsel for the plaintiffs confirmed that the second plaintiff intended to abandon the unconscionable conduct claim against Coface. The trial judge made orders for the second plaintiff to file a notice of discontinuance of its claims against Coface by 2 May 2022, failing which Coface’s summons seeking summary judgment and strike out would be proceed to hearing on 9 May 2022.
On 4 May 2022, the second plaintiff filed a notice of withdrawal of its claim for compensation pursuant to s 236 of the ACL against the Lenders and a notice of discontinuance of its unconscionable conduct claim against Coface.
On 20 May 2022, the plaintiffs filed an amended statement of claim containing the allegations against the Lenders of breaches of implied terms under English law of the finance agreements and unconscionable conduct under the ASIC Act. The sole claim alleged against Coface was made by the first plaintiff, being for unconscionable conduct under s 21 of the ACL.
On 9 June 2022, Coface filed a request for further and better particulars of the amended statement of claim.
On 10 June 2022 Coface filed four notices of contribution from the Lenders.
The Lenders filed their application for security for costs on 14 June 2022.
On 16 June 2022, the Lenders served notices of contribution on Coface.
Coface filed its application for security for costs on 21 June 2022.
The parties’ respective evidence on security for costs
The Lenders’ evidence
The Lenders’ application was supported by three affidavits affirmed by Michael Timothy Shepherd (Shepherd) on 20 May 2022, 22 July 2022 and 12 August 2022 (Shepherd’s first, second and third affidavits, respectively), as well as the affidavit of David Ross Nicholas (Nicholas) affirmed 30 July 2022. The Lenders also relied on their written submissions dated 25 July 2022.
The Lenders, by their amended summons, sought orders that the plaintiffs provide security for the Lenders’ past and estimated future costs in the proceeding up to discovery in such amount as assessed by the Court to be appropriate. They sought an order that the plaintiffs pay the amount of security within 14 days by way of payment of funds into Court.
By his first affidavit, Shepherd deposed that the Lenders, having been served with the plaintiffs’ statement of claim on 4 February 2022, first raised their concerns about the plaintiffs’ capacity to meet an adverse costs order in correspondence to the plaintiffs on 21 February 2022. In this letter, the Lenders’ solicitors requested the plaintiffs put forward a proposal for security for costs. The Lenders’ solicitors followed up this correspondence on 2 March 2022 and requested the plaintiffs’ solicitors provide a substantive response. On 4 March 2022, the plaintiffs’ solicitors responded, confirming that a response would be provided in due course. The Lenders’ solicitors again followed up on 18 March 2022, informing the plaintiffs’ solicitors that the Lenders were proceeding to prepare their application for security on the basis that the plaintiffs had not put forward a proposal.
Shepherd’s first affidavit also sets out an estimate of the Lenders’ costs of the next steps in the proceeding by reference to the hourly charge out rates (exclusive of goods and services tax (GST)) for the Lenders’ solicitors’ professional staff, Victorian counsel and qualified English barristers, whom the Lenders expected to retain to assist in the proceeding. The next steps (or workstreams) identified by Shepherd were to:
(a) review, analyse and advise in relation to the amended statement of claim including briefing English counsel and obtaining English law advice in relation to the allegations that the Lenders breached an implied term of good faith;
(b) prepare the strike out application, analyse any responsive material filed by the plaintiffs and appear at the hearing of the application;
(c) advise on any potential contribution claims by the Lenders against third parties including preparing such claims;
(d) consider and request any further particulars of the amended statement of claim, prepare the defence and review any reply filed by the plaintiffs; and
(e) provide additional advice and legal services as required, including communicating with other parties and attending directions hearings.
In the second affidavit, Shepherd deposed that the Lenders had decided not pursue a strike out application and, accordingly, no longer sought security in relation to that workstream. Shepherd provided revised estimates for the remaining workstreams, that took into account:
(a) the considerable length of the amended statement of claim (95 pages) and the large number of documents referred to in the amended statement of claim or in the plaintiffs’ responses to requests for further particulars (approximately 300 documents), totalling 5,491 pages and 18 Excel spreadsheets;
(b) the need to review extensive documents held by or on behalf of the Lenders that are not referred to in the amended statement of claim but which inform the events and matters the subject of the claim;
(c) the need to engage English barristers to analyse and advise on the English law aspects of the amended statement of claim and assist in the preparation of the Lenders’ defence; and
(d) the need to engage with lawyers based in the United States of America (US) who worked on the underlying transactions relevant to the amended statement of claim.
Shepherd further deposed that some of the work identified in the first affidavit had now been completed and that the estimates provided in the first affidavit had been updated to take this into account. The previous estimate was also amended to take into account the Lenders’ decision to use English junior counsel to assist in the preparation of the defence, rather than both English junior and senior counsel. Shepherd said that the Lenders sought security in relation to some of the costs incurred in the proceeding in the period June 2021 to 20 May 2022. The past costs sought by the Lenders excluded costs incurred in the course of the derivative leave application and the application for the appointment of a special purpose liquidator. Additionally, Shepherd deposed that the Lenders would include a further workstream made up of the costs of the security for costs application.
Shepherd deposed that in summary the Lenders sought security in relation to:
(a) estimated future costs of $862,310.84 (excluding GST), comprising:
(i) Victorian counsel costs of $224,518.64;
(ii) English counsel costs of $50,829.30;
(iii) cost consultant costs of $7,500; and
(iv) solicitors’ professional costs of $579,462.90.
(b) past costs of $237,989.48 (excluding GST), comprising:
(i) Victorian counsel costs of $34,965.13; and
(ii) solicitors’ professional fees of $203,024.35.
Next, Shepherd deposed to the likely recoverability of costs in Victoria. Shepherd said that he expected 90-100% of counsel’s fees for both past and future costs to be recovered. Shepherd based this view on his inspection of the Supreme Court Scale of Costs (Scale)[1] and the fact that junior counsel’s fees were below Scale and that senior counsel’s fees were allowed at the maximum Scale rate and slightly discounted to take into account any duplication of work.
[1]Supreme Court (Chapter I Appendices A and B Amendment) Rules 2021 (Sr No 16 Of 2021).
Nicholas is an expert costs assessor engaged by the Lenders to prepare an expert report (Nicholas report) on the likely recoverability on a party/party basis of the past and estimated future solicitors’ professional costs in accordance with the principles that apply to a costs assessment in the Supreme Court of New South Wales. In New South Wales, a costs assessor when assessing costs payable as a result of a costs order must determine the fair and reasonable amount of costs for the work. In determining the fair and reasonable amount, the costs assessor must have regard to the factors set out in ss 172(1) and (2) of the Legal Profession Uniform Law (NSW). Nicholas deposes that he had regard to these factors in forming his opinion on recoverable costs.
Nicholas first considered the hourly rates of professional staff identified in the Lenders’ brief. Nicholas deposes that he considered the Costs Assessment Rules Committee Guideline Costs Payable between Parties under Court Orders (Guidelines) when considering the reasonableness of the hourly rates for solicitors, US partners and English junior associates. He noted that the Guidelines were intended as guidance as to what will usually be appropriate in ordinary cases, but that they recognise that there will be unusual circumstances and extraordinary cases which fall outside the guidelines. Nicholas also noted that the Guidelines were issued in 2016 and that since their issue there had been an increase in both market and recoverable hourly rates. Nicholas expressed the opinion that this is not an ordinary case, noting the complexity of the proceeding.
In relation to hourly rates suggested by Shepherd, Nicholas’ opinion was that the recoverable hourly rate for:
(a) English junior counsel was likely to be $600;
(b) US partner was likely to be $1,000 (less than the actual hourly rate of $1,268.29);
(c) English junior associate was likely to be $400 (less than the actual hourly rate of $507.58);
(d) Australian partner was likely to be $775 (less than the actual hourly rate of $814);
(e) Australian counsel was likely to be $750 (less than the actual hourly rate of $773);
(f) Australian senior associate was likely to be $500 (less than the actual hourly rate of $577); and
(g) Australian lawyer was likely to be $273 (equivalent to the actual hourly rate).
Next, Nicholas considered the recoverability of the Lenders’ estimated future costs (up to discovery) by reference to the workstreams identified by Shepherd. First, Nicholas considered the spread of anticipated work across the various staff levels and concluded that, while it was not unreasonable, there could be some reduction to recoverable professional costs on the basis of lack of delegation. Nicholas took this into account in the percentage reductions he applied to each workstream.
Nicholas provided his opinion of likely recoverable future costs by applying his adjusted hourly rates to the workstreams identified by Shepherd and then applying a percentage reduction to each workstream, allowing between 65% to 80% of the adjusted estimated costs. In summary, Nicholas’ opinion was as follows:
Workstream
Future costs & disbursements estimated to be incurred
Future costs & disbursements estimated to be recovered on assessment
Amended statement of claim
$76,929.40
$72,710
Contribution
$32,903
$21,385
Pleadings
$271,244.80
$208,244
Care and conduct
$113,610
$74,508
Security for costs
$143,105
$87,698.50
Total
$637,792.20
$464,545.50
In relation to past costs, Nicholas again adjusted the hourly rates as he had done in relation to estimated future costs. Nicholas also applied a percentage reduction to take account of the possible reduction of recoverable professional costs on the basis of lack of delegation. In summary, after considering the past workstreams identified by Shepherd, Nicholas’ opinion was as follows:
Workstream
Past incurred costs
Past incurred costs estimated to be recovered on assessment
Briefing counsel
$41,024.17
$30,808
Initial consideration of English law issues
$5,141.38
$3,081.75
Hearing 24.8.21 and directions hearings on 26.11.21, 28.1.22, 25.2.22 & 28.4.22
$34,499.10
$25,861.64
Other
$122,359.70
$92,034.56
Total
$203,024.35
$151,785.95
In the third affidavit, Shepherd deposed that Allen & Overy’s US and Australian staff had been retained to advise the Lenders on financing the Jabiru project in the period 1 January 2012 to 17 April 2015, when administrators and receivers were appointed to each of the plaintiffs. This work was primarily undertaken by US-based Allen & Overy staff, although some work was done in Australia. Allen & Overy continued to provide advice to the Lenders after receivers were appointed to the plaintiffs up until approximately June 2019. Shepherd said that Allen & Overy’s own files in connection with the Lenders’ retainer to advise in relation to the Jabiru project financing comprise in excess of 50,000 documents.
The plaintiffs’ evidence in response to the Lenders’ application
The plaintiffs relied on the second affidavit of Amanda Kim Banton (Banton) sworn 14 August 2022 in opposition to the Lenders’ application for security. The plaintiffs also relied on their written submissions dated 12 August 2022.
Banton is the managing partner of the firm Banton Group, and the solicitor on the record for the plaintiffs in this proceeding. Banton has 19 years of relevant experience as a legal practitioner in New South Wales. Banton deposed that she extracted the information contained in Shepherd’s first and second affidavits to review the Lenders’ estimate of reasonable hours based upon her experience in complex matters like the current proceeding.
Banton deposed to her opinion that the Court should not order security in relation to the Lenders’ past costs because the Lenders have not provided evidence substantiating those costs. Alternatively, Banton deposed that if security is to be ordered in relation to past costs, she had prepared two scenarios for assessing each workstream to guide an assessment of appropriate quantum. The first scenario supposed an assessment of costs in New South Wales. Under this scenario, Banton reduced the hourly rates of professional staff in line with the reduced rates in the Nicholas report. Banton then applied a 65% party/party discount to solicitors’ fees and a 90% discount to counsel’s fees. Banton estimated the Lenders’ reasonable standard party/party past costs to total $116,727.27, if assessed in New South Wales. The second scenario supposed assessment in Victoria using the Scale. Banton estimated the Lenders’ reasonable standard party/party past costs to total $66,906.07, if assessed in Victoria. In estimating the Lenders’ reasonable standard party/party costs in the Victorian scenario, Banton adjusted the staff working on each task and the time taken to reflect what she considered reasonable based upon her experience.
In relation to estimated future costs, Banton again reviewed the Lenders’ estimate based on the information in Shepherd’s first and second affidavits and the Nicholas report. Banton again extracted that information to provide her opinion of the Lenders’ reasonable standard party/party future costs in relation to each workstream adjusting the staff levels and time taken to undertake each task. Banton discounted each workstream estimate by either the same or greater discount percentage applied by Nicholas to each workstream.
In summary, Banton estimated the Lenders past and future recoverable costs as follows:
Shepherd 1 & 2
Nicholas
Banton (NSW)
Banton (Vic)
Past costs from 20 May 2022
Professional fees
$202,914.37
$152,298.03
$85,258.58
$53,717.63
United Kingdom (UK) counsel
$0.00
$0.00
$0.00
$0.00
Vic counsel
$34,965.21
$27,972.16
$31,468.68
$13,188.44
Total past costs to 20 May 2022
$237,879.58
$180,270.19
$116,727.27
$66,906.07
Future costs
Professional fees
$579,462.90
$399,603.50
$115,261.80
$93,264.15
UK counsel
$50,829.30
$44,400.00
$9,600.00
$11,132.64
Vic counsel
$224,518.64
$200,900.42
$93,922.85
$109,877.88
Disbursements
$7,500.00
$6,000.00
$6,000.00
$6,000.00
Total future costs
$862,310.84
$650,903.92
$224,784.65
$220,274.66
Combined total
$1,100,190.42
$831,174.11
$341,511.92
$287,180.73
Coface’s evidence on application for security
Coface sought orders that the first plaintiff provide security for Coface’s costs in the proceeding up to and including the filing of Coface’s defence but before the commencement of discovery in the sum of $692,292.88. This sum was premised on the Court granting Coface’s application for costs of the second plaintiff’s discontinuance. By that application, Coface sought an order that Rockgold pay, on behalf of the second plaintiff, 50% of Coface’s costs incurred in defending the proceeding from 17 June 2021 up to and including 4 May 2022, such costs to be paid forthwith.
Coface’s application was supported by three affidavits of John Louis McGirr (McGirr) sworn 20 June 2022, 3 August 2022 and 14 August 2022, respectively.[2] Coface also relied on its written submissions dated 12 August 2022.
[2]McGirr swore another affidavit in the proceeding on 8 April 2022. That affidavit was filed in support of Coface’s application for summary judgment. Its content went to the second plaintiff’s status as a listed public company within the meaning of s 21 of the ACL.
McGirr, in his affidavit sworn 20 June 2022, deposed that on 30 May 2022 Coface wrote to the plaintiffs and Rockgold demanding that the plaintiffs provide security for costs up until the commencement of discovery in the sum of $572,314.00. Coface also demanded security covering 50% of the costs incurred by Coface up to and including 4 May 2022. This related to the other 50% of costs incurred to the date of discontinuance, as these had not been demanded from Rockgold.
McGirr further deposed his opinion as to the next steps in the proceeding up to discovery. McGirr set out the hourly rates of the solicitors and counsel expected to undertake the work for Coface, noting that the fees charged by counsel were below Scale and that the hourly rates charged by solicitors averaged out at about Scale. McGirr’s opinion, based on his experience, was that he expected that 80 to 100% of the hourly rates would be allowed on taxation on the standard basis.
McGirr then provided detailed estimates of the time required by various levels of practitioners for each anticipated step in the proceeding up to the commencement of discovery as well as actual costs incurred by Coface between 5 May 2022 and 15 June 2022. McGirr also provided an estimate of 50% of actual costs incurred by Coface until 4 May 2022.
McGirr, in his affidavit sworn 3 August 2022, deposed to a revised estimate of Coface’s past and future costs, amended to reflect Coface’s decision not to proceed with its summary judgment and strike out application. In summary, McGirr’s estimated Coface’s costs to be:
Task
Solicitors’ costs (ex GST)
Counsel’s costs (ex GST)
Total
50% of actual past costs incurred by Coface until 4 May 2022
$70,548.00
$112,513.88
$183,061.88
Actual past costs incurred by Coface from 5 May 2022 to 15 June 2022
$25,711.00
$83,215.00
$108,926.00
Estimate of future costs of security for costs application
$13,550.00
$22,500.00
$36,050.00
Estimate of future costs of preparing defence
$108,800
$124,000.00
$257,800.00 (including additional disbursement costs)
Estimate of future costs of considering Lenders’ defences and plaintiffs’ replies to all defences
$4,305.00
$6,300
$10,605.00
Estimate of future costs of providing additional advice as required, including attending directions hearings
$55,350.00
$40,500.00
$95,850.00
Total
$278,264.00
$389,028.88
$692,292.88
In his affidavit sworn 14 August 2022, McGirr deposed that he estimates Coface’s costs incurred in relation to Rockgold’s derivative leave application to be approximately 3% of its total past legal costs incurred to 4 May 2022, ie approximately $11,000.00.
The plaintiffs’ evidence in response to Coface’s application for security
In opposition to Coface’s security for costs application, the plaintiffs relied on the first affidavit of Banton sworn 12 August 2022. The plaintiffs also relied on their written submissions dated 12 August 2022. The plaintiffs’ position was that the Court should order security up to and including the filing of defences (but excluding discovery) in the sum of $68,312.25.
Banton deposed that the Court should not order security in relation to Coface’s past costs. This was primarily because McGirr had not provided details of the fee earners undertaking the tasks involved nor the time taken to complete the tasks, and additionally because McGirr’s affidavit sworn 20 June 2022 included within the costs estimate the costs relating to Coface’s response to Rockgold’s derivative leave application.
Banton then deposed to estimates for Coface’s past and future costs in the event the Court did order the plaintiffs to pay security. Banton’s estimates were based on the Scale and her experience in complex commercial litigation. Banton’s estimates were as follows:
McGirr estimate (excluding strike out application costs) Banton estimate Professional fees $70,548.00 $25,016.05 Counsel fees $112,513.88 $18,737.50 Professional fees $25,711.00 $22,707.50 Counsel fees $83,215.00 $37,400.00 Subtotal of past costs $291,987.88 $103,861.05 Professional fees $118,303.25 $41,936.96
(65% of Banton estimate of $64,518.40)
Counsel fees $173,970.00 $40,380.03
(90% of Banton estimate of $44,866.70)
Disbursements $17,500.00 $17,500.00
(70% of Banton estimate of $25,000.00)
Subtotal of future costs $309,773.25 $99,816.99 Combined total $601,761.13 $203,678.04
Banton deposed to her experience in obtaining After the Event (ATE) insurance policies and related deeds of indemnity in the market. Banton said that insurers would be prepared to quote for entry into an ATE insurance policy with the plaintiffs and execute a deed of indemnity, subject to confirmation of the amount of security ordered. Banton said that the typical ATE insurance policy would provide that the insurer will insure the plaintiff in respect of any security for costs amount the plaintiffs may be ordered to provide and submit to the exclusive jurisdiction and laws of the State of Victoria for the purpose of enforcement of the policy. Banton said that a typical deed of indemnity would provide that:
(a) the insurer will provide an unconditional and irrevocable undertaking to provide security for costs to the defendants, upon a written demand, for any sum the plaintiffs become liable to pay in respect of the defendants’ respective costs in the proceeding;
(b) the insurer will unconditionally and irrevocably agree to indemnify the defendants pursuant to the terms of the deed of indemnity;
(c) the insurer will enter into a deed of indemnity that is directly enforceable against the insurer and be subject to the exclusive jurisdiction and laws of the State of Victoria.
(d) the insurer will be deemed to be the principal debtor and not merely surety, and shall not be discharged from liability other than by actual payment made by or on behalf of the plaintiffs in respect of the insured sum;
(e) the insurer will agree that in an event of default the insurer will consent to judgment; and
The plaintiffs submitted that the Court should order that security be provided in the form of an ATE insurance policy that included, in substance, the terms and conditions set out in Banton’s first affidavit.
The parties’ submissions on security for costs
Both the Lenders and Coface filed written submissions in support of their applications for security. Those submissions were filed before it became apparent that the plaintiffs conceded that the Court’s jurisdiction to order security had been enlivened and the real issues in dispute were limited to the quantum of security and its form. Accordingly, it is convenient to set out the plaintiffs’ submissions on these issues first.
The plaintiffs made the following submissions in relation to quantum on the Lenders’ application for security:
(a) the proceeding is at a very early stage and so the estimates of future costs are necessarily imprecise. That imprecision warrants a substantial discount, particularly as the Lenders may make further applications for security as the proceeding progresses;
(b) the information and estimates of the Lenders’ costs are properly characterised as ‘at the high end’ or ‘deluxe’. That warrants a significant discount to the amount of security ordered;
(c) the Court should award no security in relation to the Lenders’ costs of their application for security for costs;
(d) the Lenders’ costs in relation to the contribution claims are not recoverable as against the plaintiffs and so the Court should not order security for those costs. In any event, the Lenders’ estimate of $46,275.76 costs in relation to the contribution claims is excessive for what is effectively a pro forma notice;
(e) the Court should not order security for past costs in circumstances where the Lenders’ significant delay in bringing their application for security remains unexplained;
(f) the Lenders’ assumption that the costs of their Australian solicitors, US counsel and UK barristers will be taxed according to the rules applicable in the New South Wales Supreme Court is flawed and so the Court should give no weight to the Nicholas report or substantially discount his assessment of recoverable costs; and
(g) the Lenders have made little or no allowance for a discount on Victorian counsel’s fees on taxation.
In relation to Coface’s application for security, the plaintiffs repeated their submissions in regard to the stage of the proceeding, the deluxe or high end nature of Coface’s estimates, that the Court should not award security for past costs on account of Coface’s delay in bringing its application for security, and that security should not be awarded for the costs of the security for costs application. Additionally, the plaintiffs submitted that if the Court were minded to allow an amount of security for past costs, those costs should not include Coface’s costs of responding to Rockgold’s derivative leave application. Finally, the plaintiffs submitted that Coface effectively sought a full indemnity for its costs having made no allowance for a discount on taxation.
The plaintiffs submitted that the Court should not order security for the past costs of either the Lenders or Coface because both had delayed in seeking security. The plaintiffs submitted that the Lenders first raised security for costs on 21 February 2022 and that Coface first raised it on 25 February 2022, a period of eight months from the time the defendants filed appearances in the proceeding. The plaintiffs submitted that the authorities indicate that prejudice to the plaintiffs as a result of delay is presumed and not something the plaintiffs have to prove.
The plaintiffs said that it is clear from the structure of the Rules that the third party procedure is to apply to contribution claims. The plaintiffs submitted that ‘just as third party claims are separate proceedings technically, so are contribution proceedings, because the proceedings [are] between the defendants, the plaintiffs aren’t involved in those proceedings at all’. Accordingly, the plaintiffs said the Court should not order security in relation to the defendants’ costs of the contribution claims.
The plaintiffs submitted that the Court should be cautious in accepting Nicholas’ opinion when assessing an appropriate quantum of security for the Lenders’ costs. This is because Nicholas was instructed to estimate recoverable costs assuming that all the work identified by the Lenders was done. Nicholas was not instructed to express a view, and had not expressed any view, on the appropriateness of the work done or proposed to be done by the Lenders. The plaintiffs said this approach was to be contrasted with the work undertaken by Banton, who looked at the appropriateness of the work proposed to be done as well as recoverability on taxation.
In relation to the volume of documents referred to in the amended statement of claim, the plaintiffs submitted that a large proportion of those documents are transaction documents that the Lenders and Coface have already seen. The plaintiffs submitted that the Court should not allow security for the Lenders’ proposed costs of two US‑based lawyers who were involved in the original financing transactions. According to the plaintiffs, the US lawyers are not providing legal advice but rather are more properly understood as witnesses.
The plaintiffs submitted that both the Lenders and Coface’s estimates of past and future costs demonstrated that they were adopting a deluxe approach to the litigation. For example, the plaintiffs said that the Lenders had engaged three barristers including a silk at the top end of the Scale and two juniors for the early steps in the proceeding. In relation to the pleadings work stream, the Lenders estimated 182 hours of junior counsel’s time and 61 hours of senior counsel’s time in addition to 35 hours of English counsel’s time and 383 hours of solicitors’ time. The plaintiffs also pointed to the significant difference between the Lenders’ and Coface’s estimates of costs associated with the security for costs application where the Lenders’ estimate was more than three times Coface’s estimate.
The plaintiffs submitted that they should be allowed to provide security in the form of an ATE insurance policy. They submitted that an appropriately worded ATE insurance policy may be capable of providing sufficient security for costs.
The plaintiffs submitted that the Court is required to undertake a risk assessment to determine whether the proposed insurance policy would be sufficient in the circumstances of the case. That would involve considering the terms and conditions of the policy and how readily the policy may be avoided. The plaintiffs said that while they were not able to offer precise terms of an ATE insurance policy for the Court’s consideration because the terms of the policy can only be confirmed once the amount of security is determined, Banton has considerable experience with ATE insurance policies and indemnity deed terms and has deposed to the likely terms of an ATE insurance policy and indemnity in this case. The plaintiffs submitted that on the basis of Banton’s evidence, the Court could be satisfied that an ATE insurance policy including the terms identified by Banton would not impose an unacceptable disadvantage on the defendants and, accordingly, the Court should order that security take the form of an ATE insurance policy that included, in substance, the typical terms deposed by Banton.
The Lenders submitted that in determining an appropriate quantum of security, the Court should consider the context of the litigation including the quantum and complexity of the plaintiffs’ claims. In this regard, the Lenders pointed to the amended statement of claim, which set out complex historical transactions involving hundreds of millions of dollars. The Lenders also pointed to Black J’s decision[3] in Rockgold’s application for a special purpose liquidator, where his Honour noted the evidence before him was that Rockgold had provided more than $3.5 million of funding for the conduct of the Victorian proceeding. In the application before Black J, Rockgold provided his Honour with confidential financial modelling of potential damages in this proceeding, indicating claims for damages ranging ‘from large amounts to very large amounts indeed’.[4] In addition, the Lenders noted the claim of breach of the implied duty of good faith is said to arise under English law and that one of the finance agreements is governed by the law of the United States of America. Counsel for the Lenders described the proceeding as ‘a claim of the most complex type and it appears on its face a claim of a size which is as big as the Supreme Court of Victoria has probably ever seen’.
[3]Re Jabiru Satellite Ltd (in liq) and NewSat Ltd (in liq) [2022] NSWSC 459.
[4]Ibid [38].
In relation to delay, the Lenders submitted that the Lenders needed to understand the nature of the plaintiffs’ claims and it was reasonable for the Lenders to wait to be served with the statement of claim in February 2022. The Lenders submitted that it was shortly after they received the statement of claim that they started making inquiries of the plaintiffs about security. In any event, the Lenders said they were not provided with the amended statement of claim until 20 May 2022.
In relation to the recovery of costs of solicitors based in New South Wales, the Lenders submitted that the authorities make clear that solicitors’ costs, calculated on the basis of their location of practice, are properly recoverable in Victorian proceedings. The Lenders submitted it was reasonable for them to have retained Sydney-based solicitors in circumstances where that same firm of solicitors have acted for the Lenders since December 2011, including on the underlying financial transactions the subject of the proceeding, and the firm does not have an office in Melbourne.
The Lenders submitted that the Court should disregard Banton’s evidence on the basis that she had not set out her experience and expertise in matters of recoverability of costs. The Lenders submitted that the Court should prefer the evidence of Nicholas and Shepherd over Banton who had, according to the Lenders, merely applied blanket percentage reductions of 65% to professional fees and 90% to counsel fees with no real explanation or rationale. The Lenders took issue with Banton’s opinions about the length of time that would reasonably be spent by particular people on particular tasks. The Lenders, by way of example, said that Banton’s suggestion that junior counsel should spend only one day on the defence was unrealistic, given the length and complexity of the amended statement of claim.
The Lenders submitted that there is no universal rule in relation to whether security should be allowed in relation to the contribution claims. In the exceptional circumstances of this case, the Lenders submitted it would be appropriate for the Court to include the costs of the contribution claims in assessing the appropriate quantum of security.
In relation to the form of security, the Lenders submitted that without an actual policy and an understanding of any relevant undertakings by the insurer, it was simply impossible for the Court to analyse whether ATE insurance adequately achieved the object of security and did not impose an unacceptable disadvantage on the Lenders.
Coface submitted that quantum of security of $68,312 proposed by the first plaintiff was grossly deficient, being out of all proportion with the amount spent by the plaintiffs to date, which Coface said was over $3 million.
Coface submitted that its evidence of past and future costs was not so imprecise that security should not be ordered, noting that it only sought security for very confined tasks up to the filing of a defence. This would involve, Coface said, solicitors and counsel reviewing a large amount of documents, with all involved, other than a partner based in Sydney, charging fees below Scale.
Like the Lenders, Coface’s counsel sought to distinguish the cases sought to be relied upon by the plaintiffs to say no security should be awarded in relation to the contribution claims. The basis of that distinction was, according to Coface, that those cases involved third party claims and not claims for contribution, with the latter in the context of this case involving no additional facts.
Coface submitted that it brought its application for security for costs promptly, with pleadings not yet having closed. Coface pointed to proposed consent orders prepared in advance of the directions hearing on 25 February 2022 that noted that Coface foreshadowed making an application for security for costs. Additionally, Coface relied on its solicitors’ open letter to Rockgold’s solicitors dated 30 May 2022 containing an open offer in relation to security.
In relation to the plaintiffs’ complaint that Coface’s estimate of past costs included costs referable to Rockgold’s derivative leave application, Coface pointed to McGirr’s affidavit of 14 August 2022. In that affidavit, McGirr deposed that directions hearings in the derivative leave application were listed with directions in the substantive proceeding and that, due to Rockgold abandoning its derivative leave application, Coface did very little work in response to that application. McGirr estimated the associated costs to be approximately $11,000.00.
Coface said there was no rule that would preclude the Court awarding security for the cost of its security for costs application. Coface submitted its costs of the security for costs application were quite significant, in part because the plaintiffs did not indicate that quantum was the only issue in dispute until the afternoon of the last business day before the hearing of the application. Coface said the authority the plaintiffs sought to rely on to exclude the costs of the security for costs application did not purport to express a rule but rather should be regarded as merely an example where the Court, exercising broad discretion, decided not to award security for the costs of the security for costs application.
Coface submitted that Banton’s evidence was at a level of detail that sought to engage the Court in something akin to a taxation of costs. Coface also submitted that Banton’s evidence should be treated with caution because she has no relevant experience of taxation of costs in Victoria and had not set out the basis of her assumptions about the appropriate fee earners to be involved in the tasks the subject of her costs estimates.
Coface adopted the submissions of the Lenders in relation to the plaintiffs’ proposal that security be provided in the form of an ATE insurance policy and deed of indemnity.
Legal principles
The Lenders and Coface both made their applications for security pursuant to r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules) and s 1335 of the Corporations Act 2001 (Cth) (Corporations Act).
The plaintiffs conceded that the Court’s jurisdiction to order security has been enlivened. The real issues in dispute concern the quantum of security and its form.
The legal principles applicable to quantum of security are well known and were not in dispute between the parties. They were conveniently summarised in the plaintiffs’ written submissions as follows:
In determining the amount of security, the Court has a broad discretion to order an amount which it considers “just and reasonable” having regard to all of the circumstances of the case.[5] The purpose of security for costs is not to provide full indemnity for the estimated costs of the party seeking security.
[5]These include the nature of the proceeding, the nature and complexity of the steps that need to be undertaken by the party seeking security, the likely costs in undertaking those steps, the length of the trial, any security already provided, and the possibility that the proceeding may settle: Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293, [63] (Tate and Kyrou JJA).
The amount ultimately fixed must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide the security.
The Court adopts a “broad brush” approach to the determination of the amount of security, involving “guesstimates as much as estimates”. There must be an adequate evidentiary basis for the security sought. However, the Court is not bound by the amounts suggested by the parties, nor is the Court required to give the party full security for its estimated party/party costs.
In some circumstances, security may also include an amount for past costs already incurred, provided that the application is made promptly. The grant of security for past costs is a matter entirely within the Court’s discretion; the longer the delay and the greater the costs the plaintiff has been allowed to incur, the less likely it is that an order will be made.
Without limiting the discretion, the Court generally applies a discount in respect of any sum claimed for security for costs. The factors warranting such a discount relevantly include (but are not limited to):
a.reductions in respect of taxation of costs to make allowance “for the unquenchable fire of human optimism and the likelihood that the figure of taxed costs put forward would not emerge unscathed after taxation”;
b.a significant discount in respect of taxation may be warranted if the costs are considered to be at the “high end” or reflecting a “deluxe approach”;
c.similarly, the larger and more expensive a case becomes the higher the discount is likely to be. As Gordon J observed in Norcast S.ár.L v Bradken Ltd, “to put it bluntly, the more expensive the lawyers, the larger the discount”;
d.the Court may apply a larger percentage discount where there is an insufficiency or imprecision in the evidence substantiating the claim for security, or questions about the reliability of assumptions, particularly since if security proves inadequate as the litigation progresses a further application may be made for more security;
e.the Court may apply a discount to reflect the possibility that the case may settle; and
f.where the quantum of security has been calculated based upon interstate rates, a discount should be applied to take into account the risk that, upon taxation, particular items will not be allowed at that rate.
[citations omitted]
In Oswal v Australia and New Zealand Banking Group Ltd,[6] Sifris J summarised the principles emerging from the authorities on the consequences of delay on an application for security for costs:
(a)Delay in making an application for security for costs, or further security for costs, is a most important and often a critical factor, essentially because it unfairly allows a plaintiff to proceed and incur costs on the assumption that no application is to be made.
(b)Delay is more significant, and often critical, in relation to security for past costs although it may also be a relevant factor in relation to security for future costs.
(c)Prejudice to a plaintiff is assumed and presumed because of the delay. However, each side may adduce evidence in support of, or against, such prejudice.
(d)Despite delay, security may be granted for past costs (in whole or in part) where it is established that there is some conduct that negates the prejudice, harshness, or oppression, that is otherwise apparent when there is a delay and substantial costs have been incurred. The Court retains a broad discretion which requires all relevant facts and circumstances to be taken into account. Each case must be decided in accordance with its own peculiar facts and circumstances.[7]
[6][2016] VSC 52.
[7]Ibid [44].
Rule 63.44 of the Rules states that where a bill includes a charge for work done out of Victoria by a legal practitioner, so far as is practicable, the charge shall, if allowed, be allowed in an amount appropriate to the place where the work was done.
This rule was considered by Hargrave J in Samson Capital Pty Ltd v Westpac Private Equity Pty Ltd:[8]
The Court should recognise the common practice of litigants instructing solicitors in their home state or territory to act as their principal solicitors in prosecuting or defending actions in other Australian jurisdictions. … There will be usually nothing improper or unreasonable about such an arrangement.
…
This interpretation of r 63.44 does not mean that all of the work performed by the defendant’s Sydney solicitors will, if it is successful and obtains a costs order, necessarily be allowed at the rates applicable in New South Wales. Although I am satisfied that it was reasonable for the defendant to engage Sydney solicitors as its principal solicitors in this proceeding, the taxing master’s discretion under r 63.29 should nevertheless be exercised for each item, or class of items, which it is claimed should be allowed. That is, in cases such as this the taxing master will ordinarily consider whether it was “necessary or proper for the attainment of justice or for enforcing or defending the rights of the party” to use the interstate solicitors for that aspect of the work? If so satisfied the charge should, “so far as practicable”, be allowed in the amount appropriate to the place where the lawyer practises. The words “so far as practicable” should be interpreted as meaning “insofar as the taxing master is reasonably capable of doing so on the basis of the evidence and his or her experience”.[9]
[8][2007] VSC 453.
[9]Ibid [22]-[24].
The taxing master may consider factors such as the longstanding relationship between the client and its interstate lawyers to act for it in certain matters and when the client first became aware that the proceeding was to be conducted in Victoria.[10]
[10]Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97, [11]-[12].
Order 11 of the Rules deals with the Court’s third party procedure. Rule 11.15 provides that where a party claims against another party to the proceeding any relief of the kind described in r 11.01, the party may make the claim against the other party by filing and serving a third party notice. Rule 11.01 includes relief in the form of a claim for contribution or indemnity.
In I Minh Holdings Pty Ltd v Chuang,[11] Garde J examined the Australian and English authorities relevant to whether the Court should order security for costs arising from the costs of a third party claim. Garde J noted a divergence in approach between the Australian and English courts and declined to follow the English approach. In relation to the Australian authorities, Garde J noted:
The Australian authorities which I have set out above uniformly stand for the proposition that the costs of a third party proceeding are not normally properly the subject of a security order because a third party proceeding is a separate proceeding by the defendant as plaintiff against the third party as defendant. It is not sufficient that the third party proceeding would not have been commenced were it not for the principal proceeding.[12]
[11](2021) 65 VR 184.
[12]Ibid [98].
Garde J found support for this in the wording of r 62.02 where the defined terms ‘plaintiff’, ‘defendant’ and ‘proceeding’ are used and in the wording of s 1335 of the Corporations Act, which speaks of the costs of the defendant in his, her or its defence and is taken to be the costs of the defendant in the action and not the third party proceeding.[13] Garde J also noted that the Court may have a discretion to order security for the costs of a third party claim in exceptional circumstances.[14]
[13]Ibid [100]–[101].
[14]Ibid [104].
In relation to the form of security, in DIF III Global Co-Investment Fund LP v BBLP LLC,[15] Hargrave J’s judgment identified the following principles:
[15][2016] VSC 401, [38]–[39].
(a) the plaintiffs are entitled to put forward security in the form least disadvantageous to them;
(b) the relevant question is whether the proposed form of security is adequate to achieve its object as security;
(c) the plaintiff bears the onus of satisfying the Court that the form of security proposed does not impose an ‘unacceptable disadvantage’ on the defendant; and
(d) if that onus is met, the Court should order security in that form.
Consideration
All parties agreed that the proceeding is both legally and factually complex and involved large volumes of documents, although the extent of the documents involved was disputed.
I do not accept that the Court should not order security for the Lenders’ or Coface’s past costs because they delayed in bringing their applications. In my view, it was reasonable for both the Lenders and Coface to wait until the plaintiffs filed a statement of claim so that they could properly understand the claims made against them before filing their applications for security. Additionally, I note that the seventh defendant did not enter an appearance until 7 September 2021. The evidence demonstrates that once the plaintiffs filed their statement of claim, both the Lenders and Coface promptly raised the issue of security. Additionally, it appears that to the extent there was delay, that can be substantially attributed to Rockgold’s abandoned derivative leave application and its unsuccessful application for the appointment of a special purpose liquidator. Accordingly, security will be ordered for the Lenders’ and Coface’s past costs.
In my view, it is appropriate that the orders for security include security for the costs of preparing the security for costs applications. The evidence shows that both the Lenders and Coface sought to engage the plaintiffs on the question of security but that the plaintiffs did not respond substantively on the issue. The authority sought to be relied upon by the plaintiffs to say that security should not be ordered for these costs involved a case of very different circumstances and did not purport to express any binding legal principle on this issue.
I do not agree with the Lenders and Coface that the costs of the contribution claims should be distinguished from the principle that, absent exceptional circumstances, the costs of third party proceedings are not costs for which security should be ordered. It appears to me that it is not sufficient that the contribution claims may raise no additional evidence beyond that to be adduced in the principal proceeding. Nor is it sufficient that the contribution claims are only brought because of the plaintiffs’ claim. By their nature, the Lenders’ and Coface’s contribution claims are disputes between the defendants and it would not be appropriate to order the plaintiffs to provide security for costs associated with those claims.
I do not accept the plaintiffs’ submissions that the amount of security should be based on the Lenders’ costs assessed in accordance with the Scale costs applicable in Victoria. The evidence demonstrated that the Lenders have a longstanding relationship with their Sydney-based solicitors, who acted for them in relation to aspects of the underlying transactions. The Sydney firm does not have an office in Melbourne. In my view, it is not unreasonable for the Lenders to continue to use their Sydney-based solicitors.
I accept the plaintiffs’ submission that the Lenders’ and Coface’s costs should be discounted because they are somewhat at the high end in terms of sheer hours to be spent on identified tasks. I accept that Nicholas was effectively asked to accept the Lenders’ view of reasonable time and tasks. I also accept that Coface’s submission that it would expect only minimal reduction on taxation to be an example of great optimism. The level of detail in Banton’s evidence was, however, more appropriate to a taxation of costs than a security for costs application and ultimately it appeared that her estimates of reasonable time that should be spent of particular tasks were significantly underquoted. In my view, the Lenders’ costs estimate was particularly high, warranting a greater discount than Coface’s. For example, the Lenders’ estimate of costs associated with the security for costs application was considerably more than three times the amount estimated by Coface. While I accept that the Lenders put more evidence before the Court than Coface and employed the services of a costs consultant, I agree with the plaintiffs that this does not explain the stark disparity in the costs estimates.
In relation to the Lenders, adopting a broad brush approach and keeping in mind that security is not intended to provide a full indemnity, it appears to me that it would be just and reasonable to deduct the costs associated with the contribution claim, adopt the discounted hourly rates identified by Nicholas and apply an overall discount of 50% in relation to professional costs and 80% to Victorian counsel’s fees to reflect the deluxe approach. This results in the following:
Lenders’ past and future costs - security
Future professional fees $308,882.50 Future Victorian counsel fees $168,916.70 Past professional fees $95,061.88 Past Victorian counsel fees $26,532.10 Total $599,393.18
In relation to Coface, and again adopting a broad brush approach and keeping in mind that security is not intended to provide a full indemnity, it appears to me that it would be just and reasonable to adjust the past costs figures to take account of the costs ordered in relation to the second plaintiff’s discontinuance (below), deduct $10,000 for the estimated professional costs associated with the contribution claim, deduct a further $11,000 for the estimated costs related to Rockgold’s derivative leave application, and apply an overall discount of 60% in relation to professional costs and 80% to counsel’s fees to reflect the deluxe approach (after deducting $15,000 for estimated counsel fees associated with the contribution claim). This results in the following:
Coface past and future costs - security
Past costs to 4 May 2022 Professional fees $50,737.44
Counsel fees $117,014.44Past costs from 5 May to 15 June 2022 Professional fees $9,426.60
Counsel fees $54,572.00Future costs Professional fees $109,203.00
Counsel fees $154,640.00
Disbursements $17,500.00TOTAL $513,093.48
I accept the Lenders’ submission, adopted also by Coface, that without a policy of ATE insurance, the terms of which are known and able to be scrutinised, it is impossible for the Court to be satisfied that the plaintiffs’ proposed form of security is adequate. In my view, it would be inappropriate to make the order sought by the plaintiffs that security be provided in the form of an ATE insurance policy and deed that included in substance the terms deposed by Banton. In my view, such an order would almost inevitably lead to further dispute between the parties as to whether the terms of the ATE insurance policy and deed were in fact substantially in the terms deposed by Banton, and probably a further court hearing.
As is the usual practice, it is appropriate to order that if security is not paid in accordance with the Court’s order, the proceeding be stayed.
Coface’s costs on the second plaintiff’s discontinuance to be paid by Rockgold
The plaintiffs, Coface and Rockgold agree that Rockgold has provided an undertaking to the Court that means it shall be liable for any costs that the Court orders in relation to the second plaintiff’s discontinuance of its claim against Coface.
Coface sought orders that Rockgold pay forthwith 50% of Coface’s costs of this proceeding up to the date of the discontinuance on 4 May 2022, to be taxed on a standard basis in default of agreement. Coface also sought a further order that 50% of Coface’s costs of its strike out/summary judgment application be reserved.
Coface submitted that as it faced parallel identical claims of unconscionable conduct from the plaintiffs, it followed that the costs Coface incurred in defending the second plaintiff’s claims were common costs with those it incurred in defending the first plaintiff’s claims. Further, Coface submitted that the authorities allow and support apportionment of common costs for the purposes of taxation of costs because it represents a simple, pragmatic, albeit imprecise, measure that will end further disputation between the parties.
In relation to when costs should be payable, Coface submitted that, the proceeding as between the second plaintiff and Coface being finalised, there is no principled reason that costs should not be payable forthwith.
Rockgold acknowledged its liability to pay costs in connection with the second plaintiff’s discontinuance but contended that the Court should limit those costs to costs thrown away rather than 50% of Coface’s costs. Rockgold also contended that the Court should not order costs to be payable forthwith but should allow those costs to be paid at the conclusion of the proceeding.
Rockgold submitted that there was no need for the Court to make any order in relation to these costs because of the combined effect of the operation of the Rules in relation to the costs of discontinuance and its undertaking to the Court. Rockgold further submitted that there could be no justification for ordering Rockgold pay 50% of Coface’s costs. Rockgold said, first, that the first plaintiff’s claim against Coface was continuing and so, unlike the authorities Coface’s counsel referred to on common costs, this was not a case involving a costs liability of multiple parties. Second, Rockgold submitted that the bulk of Coface’s costs in responding to the unconscionable conduct claim should be attributed to the claim brought by the first plaintiff with only a very small proportion attributed to the discontinued claim of the second plaintiff.
Rockgold contended that the relative proportion of Coface’s costs attributable to defending the second plaintiff’s claim should be left to taxation. This position was fortified, according to Rockgold, by the fact that Coface had not sought to put on evidence of its costs of responding to the second plaintiff’s discontinued claim.
Third, Rockgold argued that the default position under the Rules[16] is that, on interlocutory applications, the party in whose favour the order was made is not to tax those costs until the end of the proceeding. Coface said this default position had been applied by at least one other judge in relation to costs of withdrawal or discontinuance.
[16]Rule 63.21(1).
Finally, Rockgold submitted that the proceeding was still at an early stage and that there could be costs orders ‘going both ways’, which would mean an order to pay the discontinuance costs forthwith would be prejudicial to Rockgold.
In my view, notwithstanding the Rules and Rockgold’s undertaking, it is appropriate to make a costs order at this point. Rockgold is not a party to the proceeding and it may be a significant time before the remaining proceeding is finalised. I accept, however, that it would be inappropriate to order costs amounting to 50% of Coface’s cost of responding to the unconscionable conduct claim because that claim remains pressed against Coface by the first plaintiff and so a significant proportion of those costs would have been incurred as a result of that claim. In the circumstances of this case, it is appropriate to order that Rockgold pay 35% of Coface’s costs incurred in defending the proceeding from 17 June 2021 to 4 May 2022, inclusive.
It is also appropriate to order that Rockgold pay those costs forthwith. This is because the proceeding as between the second plaintiff and Coface is at an end. It would be unfair for Coface to have to await the outcome of the balance of the proceeding, which could remain on foot for a considerable time, before receiving its costs.
Conclusion
For the reasons given above, I will order that:
(a) the plaintiffs pay security for the Lenders’ costs, fixed in the sum of $599,393.18, to be paid within 14 days by way of payment of funds into Court;
(b) the first plaintiff pay security for Coface’s costs, in the sum of $513,093.48, to be paid within 14 days by way of payment of funds into Court;
(c) failing payment of security, the proceeding against the relevant defendant or defendants be stayed; and
(d) Rockgold pay forthwith 35% of Coface’s costs of this proceeding to 4 May 2022, to be taxed on a standard basis in default of agreement.
I ask that the parties confer and provide agreed orders giving effect to this ruling. I also request that the parties confer to see if the costs of these applications can be agreed. If consequential orders, or orders in relation to the costs of the applications cannot be agreed, the matter will be relisted.
SCHEDULE OF PARTIES
| S ECI 2020 02631 | |
| BETWEEN: | |
| JABIRU SATELLITE LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 121 667 365) | First Plaintiff |
| NEWSAT LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 003 237 303) | Second Plaintiff |
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| SOCIETE GENERALE | First Defendant |
| STANDARD CHARTERED BANK (UK Company Number ZC18) | Second Defendant |
| CREDIT SUISSE (LUXEMBOURKE) S.A. | Third Defendant |
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| EXPORT-IMPORT BANK OF THE UNITED STATES | Seventh Defendant |
| LA COMPAGNIE FRANCAISE D’ASSURANCE POUR LE COMMERCE EXTERIEUR (Registre du Commerce et des Societes of Nanterre 552 069 791) | Eighth Defendant |
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