Mitrov Homes Pty Ltd v Mustafa

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2019 05718

MITROV HOMES PTY LTD (ACN 618 266 247)	Plaintiff
v
BUJAR MUSTAFA	First Defendant
NEZ LOCI	Second Defendant

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JUDGE:	Connock J
WHERE HELD:	Melbourne
DATE OF HEARING:	2 August 2022
DATE OF JUDGMENT:	30 August 2022
CASE MAY BE CITED AS:	Mitrov Homes Pty Ltd v Mustafa
MEDIUM NEUTRAL CITATION:	[2022] VSC 501

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PRACTICE AND PROCEDURE – Security for costs – General principles – Whether reason to believe company will be unable to pay costs – Weighing of discretionary factors – Whether ordering security would stultify proceedings – Whether person standing behind the plaintiff will benefit from the litigation if successful – Claimed inability to provide security for costs - Whether plaintiff’s impecuniosity caused by defendants – Delay – Period where first defendant was self-represented and did not seek security for costs – Self-represented defendant and security for costs – Threshold requirements conceded – Merits of claim – Existence of counterclaim – Counterclaim to be discontinued – Whether claim is defensive – Discontinuance of counterclaim – Corporations Act 2001 (Cth), s 1335(1) – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 62.02.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	J Levine	Maciel Pizzorno & Co Lawyers & Consultants
For the First Defendant	G Nip	CAV Law Pty Ltd
For the Second Defendant	No Appearance

HIS HONOUR:

Introduction

The first defendant, Bujar Mustafa (Mr Mustafa), seeks:

(a) security for Mr Mustafa’s costs of the proceeding from the plaintiff in the sum of $95,848 up to and including the first day of trial, pursuant to s 1335 of the Corporations Act 2001 (Cth) (Act) or r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules);

(b) an order that the proceeding be stayed until security for costs is given by the plaintiff; and

(c) an order that the plaintiff pay the first defendant’s costs of the application.

The plaintiff opposed the application. The second defendant (Ms Loci), who is self-represented, did not take any position on the application or appear at the hearing.

Mr Mustafa relied upon his affidavit filed on 28 April 2022 and two affidavits of his solicitor, Claudio Venegas, filed on 18 February 2022 and 27 April 2022 respectively. He also relied upon a written submission filed on 24 June 2022, which was supplemented orally by his counsel at the hearing. Counsel for Mr Mustafa also tendered (without objection) a document headed ‘Key procedural dates’ (Dates Document) and an ASIC company search extract of the plaintiff obtained on 1 August 2022 (Company Search).

The plaintiff relied upon the affidavit of a director, Mr Nikola (Nik) Mitrov (Mr Mitrov), filed on 22 July 2022, and a written submission filed on 14 July 2022, which was supplemented orally at the hearing by counsel for the plaintiff.

Neither Mr Mustafa nor the plaintiff sought to cross-examine any of the deponents.

For the reasons that follow I have determined that Mr Mustafa’s application for security for costs from the plaintiff should succeed. The plaintiff will be required to provide $62,000 by way of security for the first defendant’s costs up to and including the first day of trial, and the proceeding against the first defendant will be stayed pending provision of that security.

Brief background, the plaintiff’s claim, and Mr Mustafa’s counterclaim

Mr Mitrov has been a registered builder for over 40 years. He was a friend of Ms Loci’s mother, which played a part in Mr Mustafa and Ms Loci becoming involved with Mr Mitrov’s building business during 2016 and working with him. Mr Mustafa and Ms Loci were then married but are now separated. With the assistance of accountants, the plaintiff was incorporated in March 2017 and the building business was carried out through the plaintiff thereafter. At the time of its incorporation the directors were Mr Mitrov and Mr Mustafa.

There were and remain 200 ordinary shares in the plaintiff and it has paid-up capital of $200. At the time of incorporation Mr Mitrov and Mr Mustafa each held 100 ordinary shares. Mr Mustafa was also the company secretary. In about September 2019 the shareholdings in the plaintiff changed, with Mr Mitrov holding 10 shares, Ms Loci holding 96 shares, and Mr Mustafa holding 94 shares.

Mr Mustafa remained a director until he resigned in the second half of 2019. The Company Search records that Mr Mustafa’s director ‘cease date’ was 5 July 2019. Mr Mustafa’s evidence was that he and Ms Loci ceased working with Mr Mitrov and the plaintiff in about September 2019. For a period thereafter, Mr Mitrov was the sole director of the plaintiff until January 2021, when a person recorded as Mehdi Sayed was appointed until he ceased his appointment on 2 June 2021. A person recorded as Sayed Mehdi was appointed on 9 September 2021 and the Company Search records a director cease date of 5 July 2022, although this sat in tension with an aspect of Mr Mitrov’s evidence. Counsel for the plaintiff confirmed that the court should proceed on the basis that Mehdi Sayed and Sayed Mehdi are one and the same person. Sayed Mehdi is also recorded as now owning the 190 shares previously owned by the defendants. The position of Mr Mehdi (which is how I shall refer to him) is further addressed later in these reasons.

By its claim against Mr Mustafa the plaintiff alleges, among other things, that during the period of 29 March 2017 to 31 December 2019 Mr Mustafa owed to the plaintiff fiduciary and statutory duties as a director under ss 180, 181 and 182 of the Act. At the heart of the claims by the plaintiff against Mr Mustafa are allegations that he breached the fiduciary and statutory duties owed to the plaintiff by, among other things, making, facilitating or participating in the making of, unauthorised payments to himself, Ms Loci and others with company funds or credit facilities. The alleged transactions are particularised in Annexures A, B and D to the plaintiff’s statement of claim, which reveals that there are literally hundreds of alleged unauthorised transactions and payments that are said to have been carried out in the relevant period up to December 2019 (Alleged Wrongful Payments). Many of the Alleged Wrongful payments involve small amounts, including some claims for under $5.00.

Among other things, the plaintiff claims damages, interest and other relief from Mr Mustafa in respect of the Alleged Wrongful Payments. The plaintiff also alleges that, by reason of the Alleged Wrongful Payments, it is entitled to an equitable charge over a property said to be owned by Mr Mustafa (Hughes Street Property), and/or that the Hughes Street Property is subject to a constructive or resulting trust in favour of the plaintiff.

Related allegations are made against Ms Loci, with the hundreds of alleged wrongful payments and transactions in which she was said to be involved (Loci Alleged Wrongful Payments) being detailed in annexures A, C and D to the plaintiff’s statement of claim. The plaintiff also claims against Ms Loci that, by reason of the Loci Alleged Wrongful Payments, the plaintiff is entitled to an equitable charge over property said to be owned by Ms Loci (Loci Property), and/or that it is subject to a constructive or resulting trust in favour of the plaintiff.

Mr Mustafa admits that he owed certain fiduciary and statutory duties to the plaintiff whilst a director of the plaintiff during the period 29 March 2017 to 5 July 2019, but denies that he breached the duties as alleged. His defence pleads little more than bare denials and non-admissions in relation to the breach allegations regarding the Alleged Wrongful Payments. The defence also raises a set-off in relation to the loss and damage claimed by Mr Mustafa in his counterclaim. Mr Mustafa’s affidavit reveals that he alleges that most of the payments relate to business expenses of the plaintiff, with others being payments to Mr Mitrov himself and for wages that Mr Mitrov agreed could be paid. This is disputed by Mr Mitrov, as the evidence referred to later in these reasons reveals.

By his counterclaim, Mr Mustafa alleges that the plaintiff lodged caveats over the Hughes Street Property without reasonable cause that resulted in the loss of a sale of that property, and the consequent suffering of loss and damage. Among other things, by the counterclaim Mr Mustafa seeks compensation pursuant to s 118 of the Transfer of Land Act 1958 (Vic) together with costs.

The court was informed by counsel for Mr Mustafa that he seeks leave pursuant to r 25.02(3) of the Rules to discontinue the counterclaim. Counsel informed the court that the caveats had been removed and that the Hughes Street Property had been sold to a third party pursuant to an agreement reached between the plaintiff and Mr Mustafa, under which the sale proceeds are currently being held on trust pending the outcome of this proceeding. The court was informed that the claim for compensation by Mr Mustafa was no longer being pursued because the sale price achieved on the sale of the Hughes Street Property exceeded the value of the lost opportunity referred to in the counterclaim.

Counsel for the plaintiff confirmed the position in relation to the sale of the Hughes Street Property and the existence of an arrangement between the parties, although the details of that arrangement were not addressed in the evidence or disclosed to the court. Although counsel for the plaintiff confirmed that the plaintiff did not wish to make any submissions against the grant of leave to Mr Mustafa to discontinue his counterclaim, he stated that the plaintiff was not consenting to it. In so doing, it was apparent that counsel was aware of the costs position under r 63.15 of the Rules.

Orders were made granting leave to Mr Mustafa to discontinue his counterclaim, with the discontinuance to take effect from the day of the hearing on 2 August 2022. Further, on the application of Mr Mustafa, it was ordered that the question of the determination of the costs of his counterclaim be reserved to a date to be fixed, which was a course not opposed by the plaintiff. Prior to that costs issue being further progressed, the parties are to confer with a view to reaching agreement regarding the same, or at least seeking to narrow any issues between them on the topic.

Affidavit material

I have considered the affidavit material relied upon by the parties, aspects of which are referred to below.

Affidavits filed on behalf of the first defendant, Mr Mustafa

Mr Venegas’ first affidavit addressed the financial position of the plaintiff, aspects of the procedural history,[1] including in relation to this application, concerns regarding the absence of responses to requests for financial information about the plaintiff from the plaintiff’s solicitor, delay, and Mr Venegas’ opinion regarding the (scale) costs to be incurred up to and including the first day of trial. He estimated these costs to be $95,848. His costs estimate up to the end of a five-day trial was $170,488.
[1]Which is addressed further below and in Annexure A to these reasons.

In his second affidavit, Mr Venegas: provided further updated financial information regarding the plaintiff; referred to a foreshadowed challenge to the defendants’ pleadings by the plaintiff; addressed the delayed provision of the plaintiff’s solicitor’s letter of 10 March 2022 that set out the grounds on which the plaintiff would oppose any application for security for costs; referred to the time taken to prepare Mr Mustafa’s affidavit; and further addressed aspects of the procedural history.

The matters addressed by Mr Mustafa in his affidavit[2] included the following:
[2]Although the plaintiff had initially objected to the admissibility of aspects of Mr Mustafa’s affidavit on hearsay grounds, these objections were understandably not ultimately pressed — although submissions regarding the weight of the evidence were made, particularly with respect to paragraph 37 of Mr Mustafa’s affidavit. In addition to paragraph 37, the other paragraphs (or parts of paragraphs) of Mr Mustafa’s affidavit to which objection was initially taken on hearsay grounds were referred to in the plaintiff’s written submission, being paragraphs 30, 44, 51, 55, 66, 67 and 74. Given the operation of s 75 of the Evidence Act 2008 (Vic) and the operation of r 43.03(2) of the Rules, had they been pressed the hearsay objections would have failed in any event.

(a) The background to Mr Mustafa meeting Mr Mitrov and the nature of Mr Mitrov’s building business at that time, which was then operated by Mr Mitrov as a sole trader.

(b) Discussions said to have taken place in about mid-2016 between Mr Mustafa and Mr Mitrov about working together, including statements said to have been made by Mr Mustafa about he and his then wife, Ms Loci, needing to be paid for the work, and Mr Mitrov saying he could pay them $1,000 per week each in wages, and that he would pay more money once the building of particular projects had commenced and reached certain stages.

(c) Mr Mustafa working for Mr Mitrov in around December 2016, initially for two days a week but later full-time.

(d) Ms Loci doing office and administrative work for the business and setting up an office for Mr Mitrov at their home.

(e) How Mr Mitrov ran his business prior to the incorporation of the plaintiff as a sole trader using what was described as an overdraft account (Mitrov Overdraft Account), and the provision of certain information, spreadsheets and other financial information by Ms Loci to Mr Mitrov at the end of each month.

(f) Mr Mustafa’s perception from shortly after commencing work with Mr Mitrov that Mr Mitrov’s business had financial issues, including in connection with payment of trades and other debts.

(g) Discussions with Mr Mitrov regarding payment issues and Mr Mustafa saying in about March 2017 that he and Ms Loci had not been paid $1,000 per week and that they could not continue to work under that arrangement.

(h) Further discussions about how the parties were to continue to work together, including regarding Mr Mustafa not wanting to lose the opportunity to obtain his builder’s licence, which was said by Mr Mustafa to be a primary reason for working with Mr Mitrov in the first place.

(i) Mr Mustafa not wanting to be subject to liabilities of Mr Mitrov’s existing sole trader business and discussions about getting advice from an accountant to create a new company, which Mr Mustafa said Mr Mitrov agreed with. Mr Mustafa also addressed statements he said had been made by Mr Mitrov regarding the defendants borrowing money against their own properties to help finish off certain projects. Mr Mustafa said that he spoke to Ms Loci about doing that and she said that she trusted Mr Mitrov and was willing to do so.

(j) The incorporation of the plaintiff in early 2017 and communications with the accountant, Mr McMillan, when the defendants and Mr Mitrov went to see him to obtain advice about setting up a new company. Mr Mustafa said that, following that meeting, he understood that Mr McMillan would assist the three of them to create a new company (the plaintiff) that would run new projects. In paragraph 37 of his affidavit Mr Mustafa also stated that:

the three of us — Nik, Nez and I — agreed that we would work for the new company at a wage of $1,000 per week.

(k) The shareholdings in the plaintiff following its incorporation, and Mr Mustafa and Mr Mitrov being joint directors and initially equal shareholders.

(l) That Mr Mustafa has no recollection of having any discussions with Mr Mitrov or Ms Loci about requiring two directors to sign off on any expenses of the plaintiff at the time. He said that Mr Mitrov continued to be the sole signatory of the Mitrov Overdraft Account and that he did not have any authority over the account, was not a signatory, and neither was Ms Loci.

(m) Mr Mustafa’s concern that the new company (the plaintiff) would become liable for any debts arising from Mr Mitrov’s earlier projects by reason of Mr Mitrov’s builder’s licence becoming associated with the plaintiff.

(n) Discussions with Mr Mitrov and Ms Loci regarding the opening of a separate bank account for the plaintiff. Mr Mitrov said that it should be left as it was with the existing projects to use the Mitrov Overdraft Account, which Mr Mustafa said he had no choice at the time but to agree.

(o) The conduct of the business in mid-2017, including what was said to be difficulties in making payments to subcontractors as a result of not having access to the Mitrov Overdraft Account.

(p) The receipt of $10,000 from Mr Mitrov by cheque in August 2017, which Mr Mustafa said was for payment of wages for he and Ms Loci and was the first payment he received from Mr Mitrov in respect of the wages notwithstanding the earlier agreement.

(q) A meeting between the defendants and Mr Mitrov in mid-September 2017 when Mr Mitrov was informed that ‘tradies and suppliers’ did not want to get paid by cheque and wanted to be paid by online banking on the date that invoices were due to be paid. Mr Mustafa said Mr Mitrov said he would give Ms Loci access to internet banking so she could pay ‘tradies and suppliers’, that he would continue to come to the office so she could pay bills each month, and that all he wanted to know was what money came in and went out each month. Mr Mustafa said that Ms Loci said she agreed. He also said she continued to give printouts of spreadsheets to Mr Mitrov at the end of each month, together with copies of bank statements.

(r) Mr Mustafa said that once Ms Loci had access to the plaintiff’s internet banking, she occasionally transferred funds to Mr Mustafa’s personal account so that he could use his Visa debit card linked to that account to pay for the plaintiff’s business expenses or, at Mr Mitrov’s request, Mr Mitrov’s personal expenses. Mr Mustafa said that Ms Loci continued to provide spreadsheets, bank statements and supporting documents to Mr Mitrov at the end of each month regarding what was spent and what the spending related to. The spreadsheets were said to be colour coded.

(s) Mr Mustafa said that:

with Nik’s consent, Nez and I continued the process of transferring funds from the Mitrov Overdraft Account to my personal account to meet business expenses (and to pay for Nik’s personal expenses). I am informed by Nez and believe that she did the same to her own account to pay for expenses related to operating the office.

(t) The establishment in July 2018 of further bank accounts for the plaintiff, being a business advantage account and a GST account. This was said to have followed a conversation in mid-2018 between the defendants and Mr Mitrov about the defendants wanting to separate the plaintiff’s finances from Mr Mitrov’s personal finances so that the plaintiff only paid for its expenses.

(u) Mr Mitrov and the defendants becoming signatories to the plaintiff’s business advantage account and having obtained their own debit card linked to that account.

(v) Ms Loci and Mr Mitrov being allocated Visa debit cards linked to the Mitrov Overdraft Account.

(w) The funding of projects following the incorporation of the plaintiff. In this context, Mr Mustafa referred to he and Ms Loci advancing the plaintiff a combined total of about $168,000, which was said to have occurred through a number of transfers, including in connection with a loan of $135,000 that Ms Loci had obtained from a private lender. Mr Mustafa said that he was informed by Ms Loci and believed that the funds advanced to the plaintiff from the loan obtained by Ms Loci were used for: the plaintiff’s everyday expenses; the payment of Mr Mustafa’s wages; paying tradies and suppliers; transferring funds to the Mitrov Overdraft Account; paying the plaintiff’s bookkeeper; and repaying some of the amounts that Ms Loci and Mr Mustafa had advanced to the plaintiff.

(x) Mr Mustafa said that he was also informed by Ms Loci and believed that when more funds were needed to meet expenses and keep projects operational, she deposited more funds into the plaintiff’s GST account from her personal account. Mr Mustafa said that he did similarly, referring by way of example to a $10,000 payment in August 2019.

(y) Mr Mustafa’s resignation as a director in July 2019 following some contact from a building insurance company that was said to be investigating Mr Mitrov regarding his projects and building insurance issues.

(z) The change in the shareholding to give an increased number of shares to Ms Loci (96 shares) and Mr Mustafa (94 shares) in August 2019 in circumstances where Mr Mustafa said the defendants were of the view that they had been putting too much money into the business and had been working too hard.

(aa) The building insurer informing Mr Mustafa in about September 2019 that it had taken control of various building sites of the plaintiff and that Mr Mustafa should ‘get out of the business and cut his losses’. As earlier mentioned, Mr Mustafa said that he and Ms Loci ceased to work with Mr Mitrov in about September 2019.

(bb) Some general and specific responses regarding the Alleged Wrongful Payments in Annexure B. In these responses the matters referred to by Mr Mustafa included: the transfers beginning on the date that Mr Mitrov granted Ms Loci access to internet banking; Mr Mustafa being paid about $50,200 in wages for the 2017 year and about $48,250 for the period 1 January 2018 to December 2018 — and being paid wages from 1 January 2019 until he stopped working for the plaintiff; the credit card allegations in the claim not being an accurate description of payments, and disputes between the parties about what amounts were paid for; some amounts being very small amounts of less than $100, including items 32 to 174 in Annexure B; statements regarding amounts being paid for the benefit of the building business; a number of payments being made for personal expenses of Mr Mitrov, including water bills, tyres for his car, pet food, and a fee for building registration at Braeside, Victoria.

(cc) The Alleged Wrongful Payments in Annexure D, which ‘to the best of Mr Mustafa’s knowledge’ were said to comprise (variously): amounts paid into his account for business expenses, wages and some of Mr Mitrov’s personal expenses; amounts paid into Ms Loci’s account for the plaintiff’s business expenses and Mr Mustafa’s wages; an amount for cash that was withdrawn and given to Mr Mitrov personally at his request; amounts paid to subcontractors working on projects; amounts paid into an account by Ms Loci to repay advances that she had made to the plaintiff; amounts paid to the Australian Tax Office; and amounts transferred to Mr Mustafa for amounts he said he had paid on his credit card to meet business expenses. Some examples of business expenses were given.

Mr Mustafa also stated that, due to his financial circumstances, he was unable to obtain legal representation in the proceeding until August 2021 and that, as soon as he obtained that legal representation, the prospect of the application for security was raised in correspondence with the plaintiff’s solicitors. As to the counterclaim being said to give rise to the same facts as the plaintiff’s claim, Mr Mustafa said that it concerned the caveats lodged against the title of the Hughes Street Property and that those caveats had been removed when the property was sold.

Affidavit filed on behalf of the plaintiff

In Mr Mitrov’s affidavit, the matters he addressed included the following:

(a) His position as a director of the plaintiff and observations regarding his advancing years and poor health.

(b) The plaintiff being solvent but having no capacity to make a payment for security for costs.

(c) His belief that the plaintiff was left in a terrible financial state as a result of the conduct of the defendants taking money from the plaintiff and leaving it with debts.

(d) That he had no idea of the plaintiff’s spending while the defendants were in charge of the plaintiff and that he was not able to use internet banking. Mr Mitrov said that he was not informed of issues with payments to subcontractors and suppliers and that the defendants kept reassuring him in answer to his enquiries that the plaintiff’s financials were all under control and up to date.

(e) Ms Loci being in control of the books and records of the plaintiff and, so it was said, Ms Loci taking them with her upon leaving.

(f) Mr Mitrov’s financial position, including his statement that he had no capacity to make a payment for security for costs and had no income. Reference was also made to the property at 15 Research Road, Lara, with it being subject to mortgages of up to $780,000. He also explained that he had not been able to refinance the property so as to obtain a loan.

(g) The inability of the plaintiff to trade until recently because it could not obtain warranty insurance.

(h) The plaintiff and Mr Mitrov having incurred considerable costs in the proceeding to date, including $48,000 in counsel’s fees up to 1 December 2020, of which only 50% has been paid. He said that he had been advised that an estimate of counsel’s fees incurred since this time until now would be at least $20,000, and about $30,000 for solicitor’s fees.

(i) That the plaintiff and he would not have continued with the proceeding if an application for security costs had been made at an earlier time because neither he nor the plaintiff could afford to pay a substantial sum for security for costs.

(j) His account of the circumstances in which the defendants came to be working with him and then the plaintiff. Among other things he emphasised Mr Mustafa’s desire to obtain a builder’s licence through him and stated that Mr Mustafa had said that he would work for free in his own time, but he needed Mr Mitrov to sign off on the builder’s licence as Mr Mustafa wanted a new career. Mr Mitrov said he was about to retire and therefore Mr Mustafa should do his builder’s course so he could take over. He said that Ms Loci said that she would do the book work for free.

(k) What was said to be an agreement between the defendants and Mr Mitrov from about January 2017 that they would work together and any profits would be shared equally, meaning that the defendants would get 50% and Mr Mitrov would get 50%. Mr Mitrov said that he did not ever agree to pay the sum of $1,000 per week in wages and that he did not receive any wages from the plaintiff so he would not agree to pay the defendants a wage.

(l) The building projects that he was working on at the relevant time, including the building margin of 15%.

(m) Being convinced to obtain new bank accounts by the defendants, which Mr Mitrov said resulted in him losing control of the plaintiff’s finances at that time because he did not have access to internet banking and did not receive any credit card or bank statements. He said he was not given the internet banking password, and therefore he could not get someone to look at the bank statements on his behalf. If a bank credit card was issued in his name he said he never received it.

(n) Being reassured by the defendants that everything was under control and he (Mr Mitrov) having no idea of the plaintiff’s finances. He said that a couple of times Ms Loci had briefly showed him an extract from the accounts.

(o) The absence of any authorisation by him for the defendants to make payments, except in August 2017, when it was agreed that the defendants would receive a total sum of $10,000 and Mr Mitrov would receive $10,000. He said that he never authorised the defendants to make any payments for their wages as there was never any entitlement to such wages.

(p) The receipt of certain funds for a Point Cook project by the defendants and defects and issues with that project.

(q) Receipt by the defendants of a deposit for another project of the plaintiff.

(r) The plaintiff having appointed a new director ‘to take over the building business from [Mr Mitrov]’. It was said that the new business had to continue through the plaintiff to satisfy warranty insurance requirements. The application proceeded on the basis that, notwithstanding some tension with the Company Search, the new director was Mr Mehdi and that he remained a director. It was also evident from the Company Search that he was the shareholder now holding 190 of the 200 shares in the plaintiff.

(s) The new director having nothing to do with the previous arrangements between the defendants and Mr Mitrov. It was also said that ‘the new director is not funding this proceeding and will not gain anything by this proceeding’.

The plaintiff did not file any evidence addressing the quantum of the security for costs addressed by Mr Venegas in his first affidavit or any evidence responding to the evidence regarding the procedural history and the timing of the application that Mr Venegas addressed in his first and second affidavits.

Relevant principles and observations

There was no issue between the parties regarding the principles applicable to the determination of security for costs applications, and many of the well-rehearsed authorities were referred to by both parties in their written and oral submissions. For present purposes, after setting out the relevant provisions, it is convenient and efficient to extract a number of relevant observations made in previous cases.

Section 1335(1) of the Act provides:

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.

Rule 62.02 of the Rules states:

(1)Where—

(a) the plaintiff is ordinarily resident out of Victoria;

(b) the plaintiff is a corporation or (not being a plaintiff who sues in a representative capacity) sues, not for the plaintiff's own benefit, but for the benefit of some other person, and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so;

(c) a proceeding by the plaintiff in another court for the same claim is pending;

(d) subject to paragraph (2), the address of the plaintiff is not stated or is not stated correctly in the plaintiff's originating process;

(e) the plaintiff has changed the plaintiff's address after the commencement of the proceeding in order to avoid the consequences of the proceeding;

(f) under any Act the Court may require security for costs—

the Court may, on the application of a defendant, order that the plaintiff give security for the costs of the defendant of the proceeding and that the proceeding as against that defendant be stayed until the security is given.

(2)The Court shall not require a plaintiff to give security by reason only of paragraph (1)(d) if in failing to state the plaintiff's address or to state the plaintiff's correct address the plaintiff acted innocently and without intention to deceive.

In Livingspring Pty Ltd v Kliger Partners,[3] the Court of Appeal comprehensively addressed the threshold requirements:
[3](2008) 20 VR 377 (Maxwell P and Buchanan JA).

The test
[10] The plaintiff being a corporation, the application for an order for security for costs is brought pursuant to r 62.02(1)(b) of the Supreme Court (General Civil Procedure) Rules and s 1335(1) of the Corporations Act 2001. Rule 62.02(1)(b) relevantly provides that, where there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so, the court may order that the plaintiff give security for costs. Section 1335(1) provides:
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.

Although the wording is not identical, the applicable principles have been developed – and applied - on the assumption that they apply equally to the rule of court and to the statutory provision.[4] Considerations of certainty underline the wisdom of that approach.
[4]See, for example, Interwest Limited v Tricontinental Corporation Limited (1991) 5 ACSR 621 at 623 per Ormiston J; Hurworth Nominees Pty Ltd v ANZ Banking Group Ltd [2005] NSWSC 1360 at [25] and [42].
[11] The first question to be addressed is whether the threshold condition for the exercise of the power is satisfied, that is, whether
there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful.

That jurisdictional condition must be satisfied before the discretionary power to order security for costs is enlivened.[5]
[5]See FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241 (‘FFE’), at 247-8, [21] per Pidgeon and Owen JJ.
[12] In the present case, the judge applied what he described as ‘the generally accepted test on the threshold question’, being that formulated by Von Doussa J in Beach Petroleum NL v Johnson, as follows:
In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there was a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on the service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs, along with all the circumstances, actual and possible, about its financial position, would be then taken into account in the exercise of discretion, and in framing the orders of the court if the decision is to order security. [6]
[6](1992) 7 ACSR 203 at 205.

[13] This formulation has been applied many times. In our respectful view, however, it is wrong to substitute a judicial exposition for the words of the statute itself. As the High Court has stated repeatedly in recent years, it is the words of the statute which govern.[7] Kirby J made the point very clearly in Central Bayside General Practice Association Limited v Commissioner of State Revenue:
[7]Weiss v R (2005) 224 CLR 300 at 305, [9]; Stingel v Clark (2006) 226 CLR 442 at 458, [26]-[27].
Where the law in issue is expressed in the form of an Act of an Australian legislature, it is in the words of that statute that the content of the legal obligation is to be found, not in judicial synonyms, restatements or approximations.[8]
[8](2006) 228 CLR 168 at 197, [84].

[14] The language of the statutory test is clear. The court must address the question which the section poses:
Is there reason to believe that the corporation will be unable to pay the defendant’s costs?[9]
[9]See, for example, Lesvos Pty Ltd v Penrith Whitewater Stadium Ltd (2006) 58 ACSR 481 at 485, [23] per Bell J.

There is no warrant for – and no apparent advantage in – adopting the much lengthier Beach Petroleum formulation, which requires the court to decide whether there is:
reason to believe that there is a real chance that in events which can fairly be described as reasonably possible the corporation will be unable to pay, … even if in other events which can be fairly described as reasonably possible the corporation would be able to pay…

[15]     The phrase ‘reason to believe’ is the touchstone of jurisdiction. It requires a rational basis for the belief – and no more.[10] The wording adopted may be contrasted with other familiar formulations such as ‘If the court is satisfied that … ‘ or ‘If in the view of the court it is likely that …’. The section requires the making of a judgment, a risk assessment: is there a risk that the corporation will be unable to pay? (It adds nothing, in our view, to say that it must be a “real risk”.) A risk assessment is, of necessity, imprecise. The section calls for a practical, commonsense approach to the examination of the corporation’s financial affairs.
[10]See Warren Mitchell Pty Ltd v Australian Maritime Officers’ Union (1993) 12 ACSR 1 at 5 per Lee J; FFE (2000) 156 FLR 116, 122 [22].
[16]     It may be said, with justification, that this is a low threshold. But the test simply reflects the policy of the provision, which is to protect a defendant against the risk of the plaintiff corporation’s impecuniosity.[11] The provision equips the court with the means to require that the defendant be secured against that risk.
[11]Ariss v Express Interiors Pty Ltd (In Liq) [1996] 2 VR 507 at 513-4.
[17]     The power being enlivened, the court must consider whether it should be exercised. Foremost amongst discretionary considerations will be any contention on behalf of the plaintiff that an order for security would work an injustice. We turn to consider the question of onus.
…
[18]      It was for a long time debated whether satisfaction of the threshold test — reason to believe that the corporation will be unable to pay — should “predispose” the court to exercise the discretion in favour of ordering security.
In Victoria, that debate ended with the decision of this court in Ariss v Express Interiors Pty Ltd (in liq).[12] In that case, Phillips JA (with whom Ormiston and Charles JJA agreed) said:[13]
… [T]he debate about the word “predisposition”… is a sterile one and should no longer be pursued … The discretion conferred by s 1335 should be accepted now as altogether unfettered, but upon the footing that the very fact of which there must be credible evidence in order to enliven the jurisdiction in the first place may itself be a factor, even a most significant factor, in the exercise of the discretion.

[19] The same point may be expressed slightly differently, as follows. The threshold condition for the exercise of the power to order security defines the circumstances in which parliament contemplated that the power would be exercised. That is, the power was conferred for the purpose of protecting the defendant against the very risk which must be shown to exist before the power can be exercised. In this sense, satisfaction of the threshold condition — demonstrating the existence of the risk — “calls for” the fulfilment of the purpose for which the power was conferred.[14] Whether the power should be exercised in the particular case will, of course, depend upon all the circumstances.

[12]At 514.

[13]Ibid.

[14]Compare Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1984) 182 CLR 51 at 88 per Brennan J; Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201 at 217 per Smithers J.

In Colmax Glass Pty Ltd v Polytrade Pty Ltd (Colmax Glass),[15] Derham AsJ articulated how an application is to be approached, addressing both the threshold requirements and the court’s discretion:
[15][2013] VSC 311. See also, for example: Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577; Andrews v Zuccubarr Pty Ltd [2020] VSC 675; Re Credit Clear Ltd [2022] VSC 206, [9]–[13] (Riordan J).

[16] The first question is whether the threshold condition for the exercise of the power is satisfied, that is, whether there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful. That jurisdictional condition must be satisfied before the discretionary power to order security for costs is enlivened: Livingspring Pty Ltd v Kliger Partners.[16]

[16](2008) 20 VR 377 at 381 [11].
[17]     It is well established that the proper approach to the matter is that the court has an unfettered discretion, but on the footing that the very fact that the jurisdiction has been enlivened in the first place may itself be a factor, even a most significant factor, in the exercise of the discretion.[17]
[17]Ariss v Express Interiors Pty Ltd [1996] 2 VR 507, 514.8 (Phillips JA, with whom Ormiston and Charles JJA agreed). See also Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, 382 [18].
[18]     If the court has jurisdiction to order security, the burden rests on the defendant to persuade the court that an order for security should be made.[18]
[18]Livingspring Pty Ltd v Kliger Partners at 383 [21].
[19]     In exercising the discretion whether to order a company to give security for costs the court must carry out a balancing exercise. It must weigh the injustice to the plaintiff if it is prevented from pursuing a proper claim by an order for security, against the injustice to the defendant if no security is ordered and at trial the plaintiff’s claim fails and the defendant is unable to recover costs from the plaintiff: See the observations of Smithers J in Tradestock Pty Ltd v TNT (Management) Pty Ltd.[19] The court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, but also it will be concerned not to be so reluctant to order security that an impecunious company can use its inability to pay costs to put unfair pressure on the defendant: Keary Developments Ltd v Tarmac Construction Ltd.[20]
[19](1977) 14 ALR 52 at 56.
[20][1995] 3 All ER 534 at 540; Op Cit Williams Civil Procedure Victoria [62.02.80].
[20]     The various factors that have been found to be potentially relevant in the exercise of the discretion were summarised many years ago, compendiously, by Smart J in Sydmar Pty Ltd v Statewise Developments Pty Ltd.[21] So far as relevant to the present application, those factors include:
[21](1987) 73 ALR 289 at 299–300 (NSWSC); see also Williams, Civil Procedure Victoria [62.02.90].
(a)The plaintiff’s prospects of success: Whether the plaintiff’s claim is made bona fide and has reasonable prospects of success. In this regard, the authorities make the following points:
(i)As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with reasonable prospects of success;[22]
[22]See Bryan E Fencott and Assocs Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; 13 ACLC 437 at 439.
(ii)Assessing the plaintiff’s prospects of success is not really a practicable test in any case of reasonable complexity: Interwest Ltd v Tricontinental Corp Ltd;[23] Although it will ordinarily not be practicable to reach any clear view about the merits of the plaintiff’s claim, that is not to say that the merits are always irrelevant (unless totally lacking) or that the bona fides of the claim may be disregarded: Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd;[24]
[23](1991) 5 ACSR 621; 9 ACLC 1218 (VSC).
[24][1999] 2 VR 191 at 199; [1999] VSCA 43.
(iii)The court is not obliged to consider at length the merits of the claim, and to do so would ordinarily be a waste of resources: Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440 (QSC);

(b)Plaintiff’s impecuniosity caused by defendant: Whether the plaintiff’s lack of funds has been caused or contributed to by the conduct of the defendant in relation to the transaction the subject of the claim: Sir Lindsay Parkinson & Co Ltd v Triplan Ltd.[25] In this regard, the authorities make the following points:
[25][1973] QB 609; [1973] 2 All ER 273, per Lord Denning MR.
(i)The plaintiff carries the burden of persuasion on the question whether the conduct of the defendant was the cause of the plaintiff’s financial difficulties: BPM Pty Ltd v HPM Pty Ltd;[26]
[26](1996) 14 ACLC 857 (WASC).
(ii)There must be a solid foundation for that conclusion: Right Home Improvements International Pty Ltd v Imperial Alarm Screens (Aust) Pty Ltd,[27] referred to in Sandl Trading Pty Ltd v North American Oil Co;[28].
[27](1986) ATPR 40–641 (FCA).
[28][1998] VSC 8.
(iii)The plaintiff carries the onus of satisfying the court on the basis of admissible evidence, see Ninan v St George Bank Ltd;[29]

(c)Plaintiff’s proceeding merely defensive: Whether the plaintiff’s proceeding is merely a defence against “self-help” measures taken by the defendant: Heller Factors Pty Ltd v John Arnold’s Surf Shop Pty Ltd (in liq);[30] Sydmar Pty Ltd v Statewise Developments Pty Ltd;[31] Interwest Ltd v Tricontinental Corp Ltd.[32] Each case must be looked at to see whether in substance the claim set up is by way of defence such that the plaintiff’s claims are properly characterised as defensive;
(d)Security order would stultify pursuit of legitimate claim: Whether the making of the order would unduly stultify the ability of the plaintiff to pursue an arguable case legitimately instituted: See MA Productions Pty Ltd v Austarama Television Pty Ltd;[33] Drumdurno Pty Ltd v Braham;[34] Ariss v Express Interiors Pty Ltd (in liq);[35] Excelsior Run Pty Ltd (in liq) v Nelius Pty Ltd;[36]
(e)Contribution by shareholders or creditors to security ordered: The extent to which it is reasonable to expect shareholders or creditors (or beneficiaries, if the company is a trustee) to make funds available to satisfy any order for security which is made: National Bank of New Zealand Ltd v Donald Export Trading Ltd;[37] Pacific Acceptance Corp Ltd (t/as Flack & Flack) v Forsyth (No 2);[38] Drumdurno Pty Ltd v Braham;[39] Newtons Travel Services Pty Ltd v Ansett Transport Industries (Operations) Pty Ltd;[40]
(f)Delay in applying for security: Delay in applying for security may be ground for refusing to order security. The company, which can be assumed to be in financial difficulties, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it makes a substantial financial commitment toward litigating the claim. See Buckley v Bennell Design & Construction Pty Ltd;[41] Smail v Burton; Re Insurance Assocs Pty Ltd (in liq);[42]
(g)Defendant’s cross-claim raising same facts: where the defendant has raised a cross-claim, whether substantially the same facts are likely to be canvassed in determining the claim and cross-claim. The court would ordinarily seek to avoid the situation where the claim is stayed because of the inability of the plaintiff to provide security while the defendant’s cross-claim covering the same factual areas proceeds: Sydmar Pty Ltd v Statewise Developments Pty Ltd.[43]

[29][2012] FCA 905; at [48].

[30](1979) 22 SASR 20; 4 ACLR 492 (SASC).

[31](1987) 73 ALR 289 at 302 (FCA).

[32](1991) 5 ACSR 621, (VSC).

[33](1982) 7 ACLR 97 (SASC).

[34](1982) 42 ALR 563.

[35][1996] 2 VR 507.

[36][2001] VSC 161.

[37][1980] 1 NZLR 97.

[38][1967] 2 NSWR 402 at 407; (1967) 85 WN (Pt 1) (NSW) 715.

[39](1982) 42 ALR 563 at 570.

[40](1982) 44 ALR 163 at 166 (FCA).

[41](1974) 1 ACLR 301 at 309 (NSWCA).

[42][1975] VR 776.

[43](1987) 73 ALR 289 at 300 (NSWSC).

It is also important to keep in mind the observation in Andrews v Zuccubarr Pty Ltd that:[44]

Neither the Rules (r 62) or the Corporations Act (s 1335) compel the Court to order security against an impecunious corporate plaintiff. The court is given an unfettered discretion to do what is justly required by the circumstances of each case.[45] If the court takes the view that this protection should not be afforded to the defendant, it has an unlimited and unrestricted discretion to give effect to such view without having to look for special circumstances.[46]

[44][2020] VSC 675, [70] (Derham AsJ).

[45]Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd, [1999] 2 VR 191, [15] (Winneke P and Phillips JA).

[46]Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301, 305 (Street CJ); cited with approval in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191, 195 [14]-[15].

As to the court’s inherent jurisdiction to order security for costs, the following observations from Stuart v Said[47] warrant extraction:[48]
[47](2021) 65 VR 50 (Maxwell P and McLeish JA).
[48]But noting that the application related to a natural person.

[5] Rule 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 provides that, in specified circumstances, the Court may order that the plaintiff give security for the defendant’s costs of the proceeding and may stay the proceeding against that defendant until the security is given. However, the Court also retains an inherent jurisdiction to order security for costs. As Derham AsJ explained in Von Marburg v Aldred [No 3]:[49]
[49][2017] VSC 146 (Von Marburg).
The Court retains an inherent jurisdiction to order security for costs as an adjunct to the Court’s power to regulate its own procedure. The inherent jurisdiction to order security for costs provides an important safeguard. It permits the Court to require security for costs where that is necessary in the interests of justice in circumstances that fall outside the categories found in r 62.02 of the Rules.[50]
[50]Ibid [39] (citations omitted).

[6] Derham AsJ went on to make a point that is important to the disposition of the present application:
It is also true that the inherent jurisdiction is not restricted to the examples in the decided cases, in the sense of denying the existence of the power for any other case. The fact that the power has been regularly exercised in a limited number of cases and refused in others proves the existence of, but does not restrict, the jurisdiction.[51]
[51]Ibid.

…
[22]     Leaving aside the case of corporations,[52] it has long been the case that security for costs will not be ordered against a plaintiff solely on the grounds of that plaintiff’s poverty or impecuniosity.[53] This has been described as a ‘rule’ or ‘principle’,[54] or as a manifestation of a ‘disinclination’,[55] or as the ‘usual’ position.[56] But whatever the strength or rigidity of this identified practice of the courts, no authority supports the proposition that the discretion to order security for costs is not enlivened unless an ‘additional factor’ is first identified.
[52]Corporations Act 2001 (Cth) s 1335.
[53]See, eg, Co-operative Farmers’ and Graziers’ Direct Meat Supply Ltd v Smart [1977] VR 386, 387 (Kaye J) (‘Smart’); Tamaresis v CSR Ltd [2013] VSC 613, [53] (Kyrou J) (‘Tamaresis’).
[54]Smart [1977] VR 386, 387.
[55]Knight [2005] FCA 764, [32] (Lindgren J); Tamaresis [2013] VSC 613, [54] (Kyrou J).
[56]Von Marburg [2017] VSC 146, [41] (Derham AsJ); Troiano (2019) 61 VR 511, 518 [23] (Riordan J).
[23]     Such a proposition also finds no support in principle. The exercise of the discretion to order security for costs usually involves a balancing of competing considerations. On the one hand, there is the Court’s concern not to place obstacles in the way of a plaintiff who seeks to invoke its jurisdiction to secure a remedy using its processes. On the other, there is the concern that a defendant who is ultimately successful in resisting a claim, and who could then ordinarily expect to have a costs order in his or her favour, might find that order to be worthless; the operation of the costs regime to discourage unnecessary litigation may thus be undermined.[57]
[57]Tamaresis [2013] VSC 613, [54] (Kyrou J); Von Marburg [2017] VSC 146, [45] (Derham AsJ); Troiano (2019) 61 VR 511, 518 [23] (Riordan J).
[24]     The circumstances in which these competing considerations may arise for evaluation are as varied as the human interactions between individuals which may give rise to litigation. For that reason, the courts have long been at pains not to seek to circumscribe in advance the possible bases for ordering that security for costs be provided. In Rajski v Computer Manufacture & Design Pty Ltd, Holland J said:
the inherent jurisdiction to award security for costs cannot validly be said to be restricted to … examples in the decided cases in the sense of denying the existence of the power for any other cases. It may be postulated that the general practice in the exercise of the power is to be found in the cases but it is another thing to say that an ever present inherent power to regulate the court’s procedure so as to attain the ends of justice can wither away or become shrunken by limited past examples of its exercise. In my opinion, the fact that in the past the power has been regularly exercised in a limited number of cases and refused in others proves the existence of but does not restrict the jurisdiction.[58]
[58][1982] 2 NSWLR 443, 448–9.

[25] Yet the applicant’s suggested approach would have the opposite effect. It would impose a straitjacket on the inherent jurisdiction by confining its operation to certain categories of case. That is the framework upon which r 62.02 proceeds, but the very purpose of the inherent jurisdiction is to expand the jurisdiction to any situation where the justice of the case requires.[59]
[59]See, eg, Commissioner of Taxation v Vasiliades (2016) 344 ALR 558, 578 [69] (Kenny and Edelman JJ); [2016] FCAFC 170; Guss v Sullivan [1998] VSC 64, [10] (Byrne J); Trkulja v Dobrijevic [2016] VSC 596, [20] (Garde J).
…
[35] In summary:
(a)The inherent jurisdiction to order security for costs may be exercised whenever the interests of justice require, in all the circumstances of the case.
(b)The Court has a discretion which is not otherwise fettered or confined by reference to specified categories.
(c)The inquiry when the Court’s jurisdiction is invoked involves the single issue of what the interests of justice require and it is not necessary to satisfy any additional precondition to enliven the jurisdiction.
(d)The power is not usually exercised against an impecunious plaintiff unless there is something in addition to the plaintiff’s impecuniosity to justify making the order.
(e)There is no requirement that the defendant establish ‘exceptional circumstances’, or that the case is ‘ill-pleaded’, lacks prospects of success, or is harassing or vexatious. Each of those matters may be relevant in a given case, but they do not constitute conditions to be satisfied before an order can be made.
(f)The absence of a properly pleaded case may likewise be relevant to the exercise of the discretion.

As to the form of security, Hargrave J’s observations in DIF III Global Co-Investment Fund LP v BBLP LLC[60] are instructive:

[40] Drawing these threads together, in exercising its broad discretion as to the form of security for costs in the relevant security circumstances, the Court will usually apply the following principles:
(1)the plaintiff is entitled to propose security in a form least disadvantageous to it;
(2)the plaintiff bears a ‘practical onus’ of establishing that the proposed security is adequate and does not impose an ‘unacceptable disadvantage’ on the defendant;
(3)in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and
(4)based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.

[60][2016] VSC 401. Cited with approval by Tate and Kyrou JJA in Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293, [35], [57].

The first defendant’s submissions

Counsel for Mr Mustafa relied upon the written submission filed 24 June 2022, aspects of which were emphasised during oral submissions. Reference was also made to the Dates Document and the Company Search during the course of oral submissions.

As to the threshold requirements under s 1335(1) of the Act, and rr 62.02(1)(b) and (f) of the Rules, Mr Mustafa submitted that these were satisfied having regard to the evidence about the plaintiff’s financial position. In so doing Mr Mustafa relied upon, among other things: the plaintiff having only $200 paid up capital; the absence of any real property in Australia; the existence of two security interests on the PPSR against all of its present and after-acquired property; the existence of two default judgment applications filed against the plaintiff said to total $24,369; the content of the plaintiff’s solicitor’s letter of 10 March 2022 regarding the plaintiff’s financial position; and Mr Mitrov’s evidence regarding the financial position of the plaintiff.

As to the exercise of the court’s discretion, it was submitted that the relevant factors were:[61] the injustice if security is not granted; the weakness of the plaintiff’s case; the application having been brought sufficiently promptly and at the appropriate stage of the proceeding; the court not being able to be satisfied that an order for security for costs would stultify the proceeding; it not having been established that the plaintiff’s impecuniosity arises from the conduct of Mr Mustafa that is the subject of the plaintiff’s claim; that the plaintiff’s claim was not commenced defensively and is not defensive in character; and the relevance of Mr Mustafa’s counterclaim.
[61]Each of these factors were further addressed in Mr Mustafa’s written submission (and aspects of the oral submissions), to which I have had regard, but the detail of which need not be set out.

During oral submissions made by Mr Mustafa’s counsel, it was submitted that the three main points in the application were: the weakness of the plaintiff’s case, the application having been brought sufficiently promptly so that any delay ought not to defeat the application, and the absence of sufficient evidence to be satisfied that the claim would be stultified if security for costs was to be ordered against the plaintiff.

When addressing what were said to be the three main issues relevant to the exercise of the court’s discretion, a number of matters were raised or emphasised by counsel for Mr Mustafa, many of which were also addressed in Mr Mustafa’s written submission. With respect to the contention that the plaintiff’s claim was weak, the matters emphasised, or to which reference was made, included the following:

(a) A claimed absence of a response by Mr Mitrov to Mr Mustafa’s responses in his affidavit to the Alleged Wrongful Payments in Annexures A, B and D to the statement of claim, including in relation to what were said to be amounts paid for the personal benefit of Mr Mitrov.

(b) A claimed absence of a sufficient response to Mr Mustafa’s evidence about there being an agreement for him and Ms Loci to be paid $1,000 per week by way of wages.

(c) What was said to be the comprehensive nature of the evidence of Mr Mustafa in relation to the Alleged Wrongful Payments which, so it was said, showed a high degree of probability that the plaintiff’s claim would fail.

(d) A contention that the material facts in support of the alleged breaches of the various pleaded duties were vague and inadequately particularised in the statement of claim.

As to the question of delay it was submitted that there had not been any real delay given that notice had been provided in August 2021 soon after Mr Mustafa became represented. Other matters raised in this context were: the fact that delay is only one factor relevant to the court’s discretion; the claimed failure of the plaintiff’s solicitors to respond promptly (or at all) to requests for information regarding the financial position of the plaintiff or the grounds of opposition to this application; the current stage of the proceeding in circumstances where the procedural history was said to have been slow, discovery and pleading issues remained, no trial was imminent, and directions for the filing and service of evidence had not yet been made; and the asserted absence of prejudice on the part of the plaintiff from any delay, with reference being made to what were said to be no more than assertions of prejudice by Mr Mitrov.

In the context of these submissions regarding delay, reference was also made to the decisions in Idoport Pty Ltd v National Australia Bank Ltd (Idoport),[62] PPK Willoughby Pty Ltd v Baird (PPK Willoughby),[63] Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (Crypta Fuels)[64] and Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd (Milfoil).[65]
[62][2001] NSWSC 744, [70].
[63][2019] NSWCA 48, [10]–[11].
[64](1995) 19 ACSR 68.
[65][2020] VSCA 223, [18]–[19].

On the issue of the prospect of stultification of the proceeding, emphasis was placed on what was said to be insufficient evidence of Mr Mitrov to support a contention that the proceeding would be stultified, and the absence of evidence regarding the financial position of Mr Mehdi, who was said to be the second director of the plaintiff and who the Company Search revealed is now the majority shareholder of the plaintiff, owning 190 of 200 shares in the plaintiff. Counsel for Mr Mustafa submitted that the position of Mr Mehdi revealed that a person behind the plaintiff stood to benefit from the litigation, also contending that the court should not accept that Mr Mehdi would not benefit given that the plaintiff is a corporation and Mr Mehdi is the main shareholder.

In this context reference was made to Livingspring Pty Ltd v Kliger Partners,[66] and the observations of the Court of Appeal about that which was said in Bell Wholesale Corp Pty Limited v Gates Export Group (No 2) (Bell Wholesale No 2),[67] regarding the relevance of establishing that those who stand behind the company who may benefit from the litigation if it is successful are also without means. Attention was also drawn to the observations of the Full Federal Court in Bell Wholesale No 2[68] that it was not for the party seeking security to raise the matter, but part of the case of a company seeking to resist an order for security on the stultification ground to raise the issue of impecuniosity of those whom the litigation may benefit, and to prove the necessary facts.
[66][2008] 20 VR 377, [22].
[67](1984) 2 FCR 1,4.
[68]Ibid.

As to Mr Mustafa’s counterclaim, and as earlier mentioned, this related to allegations regarding caveats being inappropriately lodged by the plaintiff over the Hughes Street Property owned by Mr Mustafa and a claim for compensation as a result of an alleged lost sale of that property. It was common ground that the caveats have since been removed by agreement when the property was sold, with the sale proceeds being held on trust by Mr Mustafa’s solicitor pursuant to an arrangement between the plaintiff and Mr Mustafa pending the completion of this proceeding. As mentioned, Mr Mustafa sought and was granted leave to discontinue the counterclaim pursuant to r 25.02(3) of the Rules. It was not controversial that leave was required under that rule because pleadings have closed and the discontinuance was not with the consent of the other parties — although it was not opposed by the plaintiff.

With respect to the quantum of security to be provided, Mr Mustafa relied upon the affidavit of his solicitor in seeking the sum of $95,848 by way of security for costs up to and including the first day of the trial. Upon enquiry from the court regarding the evidence that the quantum should be determined by reference to the engagement of senior counsel for Mr Mustafa, counsel for Mr Mustafa responsibly informed the court that she did not have any substantive submissions to make upon that issue, confirming also that, to date, senior counsel has not been involved for Mr Mustafa.[69]
[69]It became common ground that at one stage the second defendant was assisted by senior counsel as a result of orders made referring her to the Victorian Bar Pro Bono Scheme, although this appears no longer to be the case and Ms Loci is self-represented.

Plaintiff’s submissions

The plaintiff relied upon its written submission in opposition to the application, with points of emphasis being made during oral submissions, particularly in connection with what had been said to be the three primary matters raised by counsel for Mr Mustafa.[70]
[70]As earlier mentioned, counsel for the plaintiff understandably did not pursue the hearsay admissibility objections foreshadowed in paragraph 2 of the plaintiff’s written submission.

As to the threshold requirements under s 1335 of the Act and r 62.02 of the Rules, the plaintiff conceded that these had been met and that the issue for the court was whether or not to exercise the court’s discretion in favour of the grant of security for costs against the plaintiff.

The plaintiff submitted that the discretionary matters that the court should consider were as follows:[71]
[71]These matters were elaborated upon in the plaintiff’s written submission with aspects being emphasised during oral submissions, to which I have had regard.

(a) The plaintiff’s claim should be presumed to be bona fide, not a sham, and it is well accepted that it would be impracticable and costly to make a determination on the merits. At times it was submitted during oral submissions that the plaintiff’s claim can be seen to have merit or good prospects of success. One aspect that was emphasised in this context was the contention that Mr Mustafa’s allegation about an agreement being reached between Mr Mitrov and the defendants to pay Mr Mustafa and Ms Loci $1,000 per week by way of wages was not supported by Ms Loci’s defence and counterclaim because she alleges in paragraphs 2 and 14 of that pleading that she undertook to work on a voluntary basis. Other matters upon which emphasis was placed included: Mr Mitrov’s evidence regarding the absence of any agreement regarding wages; the absence of any documentary evidence from Mr Mustafa regarding the vast majority of the Alleged Wrongful Payments; what was said to be the unusual arrangement of amounts being transferred from the plaintiff’s bank account into Mr Mustafa’s personal account before various amounts were being paid for what are claimed by Mr Mustafa to be for business expenses; Mr Mitrov’s evidence regarding the absence of any authority to make the payments; what was said to be vague and unsatisfactory language in paragraph 37 of Mr Mustafa’s affidavit regarding the alleged wages agreement — to which it was submitted no weight should be given; tensions between Mr Mustafa’s evidence regarding advances said to have been made and the loans referred to by Ms Loci in her defence and counterclaim; the absence of any affidavit from the second defendant;[72] the absence of any allegations or counterclaim by Mr Mustafa for recovery of any amounts alleged to have been advanced or paid by him on behalf of the plaintiff; and the evidence of Mr Mitrov regarding the course of dealings between the parties.
[72]Although at one stage it was foreshadowed that a Jones v Dunkel submission might be made about Ms Loci, counsel for the plaintiff ultimately said it was not necessary because it was sufficient to rely upon the inconsistency between her pleaded position about wages and Mr Mustafa’s evidence regarding the same. In any event, even if Ms Loci was assumed to be in Mr Mustafa’s camp notwithstanding their separation, any Jones v Dunkel inference, if drawn, would not have made any difference to the result of this application.

(b) Any order for security for costs would stifle the plaintiff’s legitimate claim because the plaintiff lacks access to funds to satisfy an order for security for costs. Emphasis was placed upon Mr Mitrov’s evidence regarding the plaintiff having no capacity to make a payment for security for costs and his own poor financial position. Attention was also drawn to his evidence that he would not have continued with the proceeding if an application for security for costs had been made at an earlier time because neither he nor the plaintiff could afford to pay a substantial sum for security for costs. In this context reference was made to having incurred costs to date, including in excess of $48,000 in counsel’s fees up to December 2020, of which only 50% had been paid, and Mr Mitrov being informed that a reasonable estimate of counsel’s fees incurred since that time to date is at least $20,000 plus solicitor’s fees of $30,000.

(c) With respect to Mr Mitrov’s evidence regarding the plaintiff’s appointment of a new director to take over the building business from him, emphasis was placed upon the evidence that the new director had nothing to do with the previous arrangements between Mr Mitrov, the plaintiff and the defendants, and his evidence that ‘the new director is not funding this proceeding and he will not gain anything by this proceeding’. Reference was also made to the evidence that the takeover of the building business was only occurring through the plaintiff because it was not possible to satisfy the requirements for warranty insurance unless it could be shown that the applicant for building insurance had been in the building business for the previous two years. During oral submissions, the court was informed by counsel for the plaintiff that the new director would not fund the proceeding at all and will not gain any benefit from it.[73]
[73]Although there was some tension between Mr Mitrov’s evidence recording the existence of the new director and the terms of the Company Search recording the resignation of that person as a director on 5 July 2022, the court was informed by counsel for the plaintiff that the court should proceed on the basis that there is a second director of the company and that it is the same person as the shareholder holding 190 of the 200 shares, namely Mr Mehdi.

(d) The defendant has delayed inordinately in making the application. It was emphasised that the writ was filed on 16 December 2019 and that the first indication that there might be an application for security for costs was made on 30 August 2021. The plaintiff submitted that the delay was inordinate and prejudicial, with the real prejudice being the plaintiff’s inability to meet an order for security for costs, which would see its claim permanently stayed or dismissed, also resulting in the plaintiff having to pay the first defendant’s costs of the proceeding. In this context, reference was made to the observations of Derham AsJ in Colmax Glass[74] about a company being entitled to know its position in relation to security at the outset and before it embarks to any real extent on pursuing litigation, ’… and certainly before it makes a substantial financial commitment toward litigating the claim.’
[74][2013] VSC 311, [20(f)].

(e) On the topic of delay it was further submitted that there was no obligation on the plaintiff to provide financial information to Mr Mustafa regarding its position and that, when financial information was not forthcoming, the application should have been made in any event. It was said that the applicant could then seek to rely upon the absence of such information and any inferences that could be drawn from it.[75] The plaintiff also submitted that the fact that the first defendant was self-represented for a period was irrelevant, and that the prejudice suffered by the plaintiff should be the focus, again referring to the plaintiff’s evidence about the amount that had been spent by the plaintiff to date, and Mr Mitrov’s evidence that the proceeding would not otherwise have been pursued.
[75]Referring to Djordjevich v Rohrt [2021] VSCA 279.

(f) The counterclaim of the first defendant raising the same facts because it is the Alleged Wrongful Payments that are alleged to have given rise to the caveatable interest in the Hughes Street Property. This was said to be central to the question of whether the caveat was lodged without a reasonable basis and whether compensation is payable.

(g) The plaintiff’s impecuniosity was caused by the defendants taking its funds as alleged in the statement of claim.

(h) The plaintiff’s claim was defensive because it was initiated in response to the defendants’ application under s 89(A) of the Transfer of Land Act 1958 (Vic) to remove the plaintiff’s caveats, which were lodged on the defendants’ properties.

It was submitted in the alternative that, if a security for costs order was to be made, it should be made up to and including the first day of the trial but without any provision for senior counsel. The plaintiff contended that the proceeding was not of sufficient complexity to warrant senior counsel, noting also that an order for security for costs is not a complete indemnity. It was further stated that there was no proper evidence adduced regarding the need for senior counsel. No other submissions were made regarding quantum and it was submitted that any issue of quantum was academic because a security for costs order could not be met by the plaintiff in any event.

Consideration and disposition
Threshold requirements

As mentioned, the plaintiff conceded that the threshold requirements under s 1335 of the Act and r 62.02 of the Rules had been met. This concession was properly made.

In any event, having regard to the evidence of Mr Venegas and Mr Mitrov’s evidence regarding Mr Mitrov’s and the plaintiff’s financial position, and as required by s 1335 of the Act, it was established that it appeared by credible testimony that there is reason to believe that the plaintiff will be unable to pay the costs of Mr Mustafa if he is successful in his defence to the plaintiff’s claim. That same evidence established that the plaintiff is a corporation and that there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so. By reason of these matters, the court’s power to order security pursuant to s 1335 of the Act and rr 62.02(1)(b) and (f) of the Rules was also enlivened.[76]
[76]I add that counsel for the plaintiff informed the court that the concession was made for the purposes of the application being made by Mr Mustafa at this time but that the plaintiff reserved its position on the topic for any future time, should any later applications for security for costs made.

Discretion

The threshold requirements having been met, taking into account the evidence, submissions, and principles earlier referred to, and carrying out the balancing exercise that the judicial discretion requires, I am satisfied that it has been established that the plaintiff should be required to provide $62,000 by way of security for the first defendant’s costs up to and including the first day of trial, and that the proceeding against the first defendant should be stayed pending the provision of that security.

I elaborate below regarding the exercise of my discretion and the matters raised by the parties. I will hear further from the parties regarding the form in which the security for costs is to be provided by the plaintiff.

Merits of the plaintiff’s claim and Mr Mustafa’s defence

It is apparent from the pleadings and the evidence on this application that there are a very large number of contested factual matters arising in connection with the hundreds of Alleged Wrongful Payments, and other issues, that will have to be determined at trial in the absence of earlier resolution between the parties. It is not possible, necessary or desirable to determine any of these substantive contested factual matters or other issues on this application.[77]
[77]Which was also understandably accepted by counsel for each of the parties.

Whilst counsel for Mr Mustafa submitted that the plaintiff’s claims could be seen to be weak, and counsel for Mr Mitrov submitted that the plaintiff’s claims could be seen to be strong, on the evidence before me it is not possible to reach either of these conclusions, and nor is it necessary to do so. The hundreds of transactions involved, the complexity, and the related contested issues of fact, involving many substantive credibility and other issues, means that it is also not necessary, possible or desirable on the evidence before me to reach a view regarding the relative merits of the plaintiff’s claims or Mr Mustafa’s defence to the same. That this is so is well illustrated by, among other things, a comparison of the affidavit evidence of Mr Mustafa with the affidavit of evidence of Mr Mitrov. Approaching the matter in this way on an application of this kind sits comfortably with the observations made in other cases, and in the present circumstances the observations on the topic emphasised by Derham AsJ in Colmax Glass[78] also resonate.
[78][2013] VSC 311, [20(a)].

That being so, it is not necessary or desirable for me to explore on this application the various competing positions of the parties in the affidavit material regarding many factual matters, including many of the Alleged Wrongful Payments and the contest between the parties regarding Mr Mustafa’s claim that it was agreed with Mr Mitrov that they (and Ms Loci) would each be paid $1000 per week. Notwithstanding that Mr Mustafa’s evidence on the topic of the wages agreement in paragraph 37 of his affidavit for the purpose of this application was limited and general, and that it appeared to sit in tension (at least in part) with Ms Loci’s pleaded position that she was working on a voluntary basis, this and other factual contests will be hotly contested central issues for trial. There were also various areas where Mr Mitrov’s evidence was limited and general, and various aspects of Mr Mustafa’s evidence to which Mr Mitrov did not respond, including in relation to alleged payments made to Mr Mitrov or for his personal expenses. However, this is not the trial of the proceeding and the application is not to be approached as though it is.

That said, having regard to the evidence of Mr Mitrov, the terms of the claims, and taking into account Mr Mustafa’s evidence, I am satisfied for the purposes of this application it is appropriate to proceed on the basis that the plaintiff’s claim is being pursued on a bona fide basis and has a reasonable prospect of success.

Timing of the application and alleged delay

The time taken to foreshadow and make an application for security for costs are relevant matters to take into account in the exercise of the court’s discretion, and particularly any prejudice that is to be or may be occasioned by matters of timing and delay. As the Court of Appeal observed in Milfoil,[79] while the authorities establish that delay may be a significant factor in determining whether to order security, the discretion is one which depends ‘entirely on the circumstances of each particular case’.[80] It was similarly observed in PPK Willoughby[81] that the relative significance of delay as a factor in the exercise of the court’s discretion inevitably varies with the facts of each case, the nature and extent and cause for any delay, and the overall justice of the case.
[79][2020] VSCA 223, [18]–[19] (Beach and Hargrave JJA).
[80]Ibid, [18] citing Maher v Commonwealth Bank of Australia [2008] VSCA 122, [79].
[81][2019] NSWCA 48, [11] (Bell P and Simpson AJA).

23. I have estimated Mr Mustafa’s costs on the Supreme Court Scale of Costs in Appendix A to the Supreme Court (General Civil Procedure) Rules 2015 (Authorised Version No. 40, as of 1 January 2022). The trial will involve three parties and at least three witnesses (possibly more). Given the breadth of the claims, and the fact that counterclaims are also pleaded, I anticipate the trial would take at least 5 days.
24. On an estimate of 5 days, I expect that Mr Mustafa would incur approximately $93,300 in costs for appearance fees at the trial alone. Fees for appearances would comprise:

No. Description Scale item Scale amount (per item) Estimated amount

1.
Senior Counsel’s fees for appearances at trial

(x 5 days)
19(a)(i) $9,650 $48,250

2.
Junior Counsel’s fees for appearances at trial

(x 5 days)
19(a)(i) $6,430 $32,150

3.
Instructor’s fees for instructing at trial – at 6 hours per day of trial

(x 5 days)
1(a)(ii) $430 $12,900

Estimated total: $93,300
25. With reference to those same scale items, the appearance fees for the first day of a trial alone would be $18,660 (i.e., $93,300 ÷ 5).
26. Mr Mustafa would also incur significant costs apart from appearance fees. My estimate of all other costs, on scale, up to and including the trial would be approximately $77,188 at a minimum. That total estimate comprises:

No. Description Scale item Scale amount (per item) Estimated amount

Solicitor’s fees

1. Attendance requiring my legal skill or knowledge (estimated at 25 hours) 1(a)(i) $43 per 6 minutes or part thereof $10,750

2. Drafting witness statements (30 folios) 2 $63.60 $1,908

3. Perusing documents filed by the other parties in advance of trial (of at least 15 folios x 5) 8 $64.20 for up to three folios, and $21.40 for each folio thereafter $1,605

4. Correspondence with other partis in the proceeding, other than messages and short correspondence (estimated 20 folios) 5(c) $75.30 $1,506

Counsel’s fees

5. Junior Counsel’s fees for settling witness statements, written opening submissions, written closing submissions
(x 20 hours) 19(f) $643 $12,860

6. Senior Counsel’s fees for settling witness statements, written opening submissions, written closing submissions
(x 5 hours) 19(f) $965 $4,825

7. Junior Counsel’s appearance fees at directions hearings
(x 3) 19(a)(ii) $3,215 $9,645

8. Junior Counsel’s fees for preparing for directions hearings
(x 3 hours) 19(c) $643 $1,929

9. Junior Counsel’s fees for preparing for trial (x 20 hours) 19(d) $643 $12,860

10. Senior Counsel’s fees for preparing for trial (x 20 hours) 19(d) $965 $19,300

Estimated total $77,188
27. My combined total estimates are therefore:
(a) $95,848 up to and including the first day of trial; and
(b) $170,488 up to and including a trial of 5 days length.

The plaintiff did not lead any evidence regarding the quantum of security for costs, the cost estimates of Mr Venegas, or seek to cross-examine Mr Venegas regarding the same. Except for the submission that no allowance should be made for senior counsel’s fees, the plaintiff did not suggest that the costs estimate was excessive or otherwise challenge it. That appeared to me to be a responsible position for counsel for the plaintiff to take.

I observe that, given the number of transactions and factual matters in issue between the parties, the time and cost estimates appeared at least reasonable, and possibly even a little understated in connection with some pre-trial work. As things stand, I also suspect that the trial may take longer than is currently estimated, although this can be reviewed when the matter is closer to trial.

As I have said earlier, security for costs should be ordered up to and including the first day of trial, but should at this stage exclude any allowance for senior counsel. To date senior counsel has not been involved for Mr Mustafa and it was not suggested by counsel for Mr Mustafa that senior counsel will or will likely be retained. Counsel for Mr Mustafa also responsibly informed the court that she did not have any submissions to make in support of an allowance for senior counsel at this point. As I have said, this is without prejudice to Mr Mustafa’s right to seek such security at a later point should it become apparent that senior counsel is to become involved.

In light of the above, and adopting Mr Venegas’ calculations, I calculate the amount of security to be provided when costs relating to senior counsel are excluded to be $62,073 which I will round to $62,000.

As to the form in which the security is to be provided, I refer to the observations of Hargrave J in DIF III Global Co-Investment Fund LP v BBLP LLC[110] set out above.
[110][2016] VSC 401. Cited with approval by Tate and Kyrou JJA in Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293, [35], [57].

Conclusion and proposed orders

The first defendant has succeeded in its application for security for costs against the plaintiff. Subject to hearing from the parties regarding the form of security to be provided and the precise form of orders, I propose to order that:

(a) The plaintiff provide to the Associate Judge who is the Senior Master of the court $62,000 by way of security for the first defendant’s costs up to and including the first day of trial, with that security amount to be provided by way of payment into court or by way of a bank guarantee that is in a form acceptable to the Senior Master.

(b) The proceeding against the first defendant is stayed until the plaintiff provides the security for costs referred to in subparagraph (a).

(c) The first defendant has liberty to apply in respect of any further security for costs to be sought by him in the future.

I will hear from the parties regarding the costs of the application.

Annexure A – Security for Costs Application Timing

When the proceeding was commenced in December 2019 the plaintiff was represented by Mr Dusko Petrovic of The Law Professionals. The writ was generally indorsed and did not have a statement of claim. Mr Mustafa and Ms Loci were each self-represented, which remained the position for an extended period.
On 27 February 2020, the proceeding was entered into Connock J’s List and a directions hearing set for 20 March 2020, which was subsequently adjourned on the papers by consent to 29 May 2020, and then adjourned again by consent on the papers to 26 June 2020.
On 26 June 2020, procedural directions were made regarding the filing and service of a statement of claim by 23 July 2020, defences, discovery, and the holding of a judicial mediation by 2 October 2020. The directions hearing was adjourned to October 2020.
The plaintiff did not file and serve its statement of claim as required.
On 1 and 13 July 2020, the court’s ADR Administration Team wrote to the parties about mediation dates in late September 2020. The plaintiff’s solicitors did not respond to the emails. The defendants were self-represented and responded in part. Due to the lack of response, the mediation dates were assigned by the court to other matters.
At the directions hearing on 9 October 2020, orders were made extending the time for the filing of the statement of claim by the plaintiff to 30 October 2020 and requiring detailed schedules of the alleged unauthorised payments to be included. The dates for the filing of defences were extended and the directions hearing was adjourned to 4 December 2020.
On 30 October 2020, the plaintiff filed its statement of claim.
On 3 December 2020, the directions hearing was adjourned by consent to 5 March 2021.
On 12 March 2021, the directions that were made included orders extending the dates for the filing of defences by the defendants (who were self-represented) and the holding of the judicial mediation, which was to be held by 4 June 2021. A further discovery order was also made in respect of the plaintiff’s discovery. The directions hearing was adjourned to 11 June 2021.
The mediation was held on 25 May 2021 before Matthews AsJ. It was not successful.
On 11 June 2021, further directions were made extending dates for pleadings and discovery and the directions hearing was adjourned to 3 September 2021.
By order made on 11 June 2021, the self-represented litigants coordinator was requested to lodge a request with the Victorian Bar Pro Bono Assistance Scheme to appoint a barrister to provide some limited assistance to Mr Mustafa, namely to draft a defence and any counterclaim, assist with discovery, and appear at the next directions hearing.
That request was made and accepted by two members of junior counsel on 16 August 2021. Mr Mustafa was self-represented until that time.
On 30 August 2021, Mr Mustafa wrote to the plaintiff’s solicitors informing the plaintiff, among other things, that he was being assisted by two barristers, that he was taking steps to appoint a firm of solicitors, seeking financial information about the company, advising of his concern about the plaintiff not being in a position to pay costs, and raising the prospect of a security for costs application being made. That letter read in part as follows:
Dear Mr Petrovic
Mitrov Homes Pty Ltd v Mustafa & Loci | S ECI 2019 05718
I refer to the proceeding above.
Notice to Produce
30 August 2021
Please see attached to my covering email, by way of service, a notice to produce directed to your client pursuant to rule 29.10 of the Supreme Court (General Civil Procedure) Rules 2015.
Given the current COVID-19 restrictions, I ask that you make available any documents by email.
Directions Hearing
A directions hearing in this proceeding is listed for 3 September 2021. On 25 August 2021, my counsel, Chris Fitzgerald, emailed you a copy of proposed orders for the filing of further pleadings and discovery. He has also emailed a copy to your client's counsel, Mr Levine. The second defendant consents to those orders being made.
On 27 August 2021, the Court emailed the parties encouraging them to work sensibly to reach consent or unopposed positions consistent with the overarching obligations in the Civil Procedure Act 2010. The Court also asked the parties to forward any signed consent or unopposed orders by 1.00 pm this Wednesday , 1 September 2A21to avoid the need to attend the directions hearing.
Your client has not indicated whether it agrees to the proposed orders circulated on 25 August 2021. Please let me know if your client agrees to those orders being made by consent in advance of the Court's deadline this Wednesday.
Mitrov Home's Financial Status
I understand your client presently has paid up share capital of $200. It has also recently had an order for default judgment registered against it by EFE Kitchen Pty Ltd on 16 June 2021.
ln the circumstances, I am concerned that if I am successful in this proceeding against your client, I will not be able to recover my legal costs. Please provide me with information confirming that your client has sufficient assets in Victoria to meet a costs order, including:
1.details of assets held in your client's name — including the nature, description and value of those assets; and
2.details of liabilities in your client's name — again, including the nature, description and value of those liabilities.
I request that your client provides that information by 4.00 pm on 13 September 2021. I may rely on this letter in an application for security if that becomes necessary.
Future Communications
As you are aware, Chris Fitzgerald and Ahmed Terzic of counsel have been appointed to represent me in this proceeding. I am currently taking steps to engage a firm of solicitors to represent me. Until that time, please copy Mr Fitzgerald and Mr Terzic into any correspondence directed to me about this matter.
Their contact details are set out below, and I have copied them to my covering email.
…
By consent orders made on the papers on 3 September 2021, the dates for filing pleadings were further extended and the directions hearing was adjourned to 22 October 2021.
On 8 September 2021, Mr Mustafa’s defence and counterclaim was filed.
On about 20 September 2021, Mr Mustafa engaged a solicitor, Mr Venegas, of CAV Law, who remains his solicitor. By letter of 20 September 2021, Mr Venegas wrote to the plaintiff’s solicitor following up Mr Mustafa’s letter of 30 August 2021, to which there had been no response. Mr Venegas’ letter was in the following terms:
Dear Dusko Petrovic,
Re: BUJAR MUSTAFA & OR ATS MITROV HOMES PTY LTD ACN 618 266 247
SUPREME COURT OF VICTORIA NO.: S E CI 2019 05718
I act for Bujar Mustafa in the above proceeding. Please see enclose a sealed notice of appearance.
In future, please direct all correspondence to my office by email, details are below.
I refer to my client’s letter to you dated 30 August 2021. I attach a copy for ease of reference.
Notice to produce
My client has not yet received a response to the notice to produce dated 30 August 2021. To avoid any unnecessary application to the Court, please provide your client’s response to that notice within 7 days of the date of this letter.
Your client has an obligation under s 26(1) of the Civil Procedure Act 2010 (Vic) (CPA) to disclose the existence of all documents that are or have been in your client’s possession, custody or control of which you are aware, and which are critical to the resolution of the dispute. To date, the materials disclosed by your client have been very limited. My client reserves his right to apply for an order that your client has contravened any of its overarching obligations under the CPA.
Mitrov Homes’ financial position
In his previous letter, my client raised concerns about your client’s financial position and, in particular, its capacity to meet an order for his costs in the event that your client is unsuccessful in its claim. My client has not received a response.
Please see enclosed a draft summons. My client proposes to seek an order for security for costs. It may not be necessary for my client to make that application if your client provides the following information to my office:
1.your client’s most recent financial report;
2.details of assets held in your client’s name — including the nature, description, and value of those assets; and
3.details of liabilities in your client’s name — again, including the nature, description, and value of those liabilities.
Please provide this information by 4.00 pm this Friday 24 September 2021. My client will rely on this letter in the event an application is necessary.
Under s 10 of the CPA, our respective clients, legal practitioners and law practices are bound by the overarching obligations, including to cooperate in the conduct of the proceeding and to use reasonable endeavours to act promptly and minimise delay. My client is ready and willing to cooperate on the issues the subject of this letter to avoid any unnecessary applications being made. Your client, on the other hand, has not provided any response to my client’s requests. If there is some reason why your client cannot respond, please let me know as soon as possible.
All my client’s rights are reserved.
Yours faithfully,
CAV Law Pty Ltd
Claudio Venegas — Legal Practitioner Director
The letter also enclosed a draft summons seeking orders for security for costs in similar terms to the summons filed for this application.[111]
[111]Noting that the draft summons referred to security for costs in the sum of $60,000. The summons for this application was filed on 9 March 2022, after attempting to file it earlier but having to obtain a return date from Connock J before it would be accepted by the Commercial Registry for filing.
Thereafter, Mr Venegas sent further correspondence and emails, and made telephone call to the plaintiff’s solicitors, following up his letters and requests for information, and expressing concern regarding the lack of the courtesy of any response at all from the plaintiff’s solicitors. This was addressed in Mr Venegas’ first affidavit and the various written communications from Mr Venegas were exhibits to it.
By orders made by consent on the papers on 22 October 2021, the time for the plaintiff to file its replies and defences to counterclaims of each of the defendants was extended, as was the date for completion of discovery.
On 18 November 2021, the directions hearing was adjourned by consent on the papers to 16 December 2021.
On 26 November 2021, Mr Venegas wrote to the plaintiff’s solicitors in the following terms:
Dear Dusko Petrovic,
Re: BUJAR MUSTAFA & OR ATS MITROV HOMES PTY LTD ACN 618 266 247
SUPREME COURT OF VICTORIA NO.: S E CI 2019 05718
I refer to the letter dated 30 August 2021 from my client and to my letter dated 20 September 2021 concerning your client’s financial status. I have not received a response.
I have since conducted further searches on behalf of my client. Those searches show that, among other things:
1.your client has no property registered in its name in any state or territory.
2.your client is classified as ‘currently highly vulnerable’ with ‘COD trading highly recommended’.
3.two default judgment applications have been recently filed against it in the Magistrates’ Court of Victoria. The most recent application was filed in June 2021; and
4.in August and September 2021, two entities — Semtar Pty Ltd and Sutton Property Pty Ltd — registered security interests on the PPSR. Your client was named as the grantor. The collateral recorded on each certificate is ‘All present and after-acquired property’.
The results of those searches strengthen my client’s concern that Mitrov Homes Pty Ltd (Mitrov) will not be able to meet a costs order if my client is ultimately successful in this proceeding. I am instructed that my client therefore intends to make an application for security for his costs.
My client will not be required to make that application if your client transfers the amount of $168,065 into our office trust account by 4.00 pm on 7 December 2021. The details of that account are as follow:
Account name:           CAV Law Pty Ltd Law Practice Trust Account
Bank:  Bankwest
BSB:  302-973
Account No.:              0344091
My office would hold that amount on trust pending determination of the proceeding.
Alternatively, we invite your client to provide the following information as soon as possible:
1.Mitrov most recent financial report ending 30 June 2021.
2.Mitrov’s most business activity statement for the period 1 April 2021 to 30 June 2021 and 1 July 2021 to 30 September 2021.
3.details of the security interests held by Semtar Pty Ltd and Sutton Property Pty Ltd; and
4.any other document confirming Mitrov’s current asset and liability status.
Again, if there is some impediment preventing your client from disclosing that material, please let us know.
Lastly, I note the effect of s 198F of the Corporations Act 2001 (Cth). You will appreciate that my client — as a former director — has a right to inspect and take copies of Mitrov’s books and records. My client is mindful of keeping his costs to a minimum in circumstances where it is unlikely his costs would be satisfied. I therefore invite Mitrov to provide the documents that have been requested without the need for an application.
Please note that my client may rely on this letter in support of an application for security for his costs should that application be necessary.
Yours faithfully,
CAV Law Pty Ltd
Claudio Venegas – Legal Practitioner Director
It will be observed that Mr Venegas indicated that Mr Mustafa was seeking to keep his costs to a minimum given concerns regarding the plaintiff’s apparent inability to satisfy any costs orders.
On 8 December 2021, Mr Venegas again telephoned the plaintiff’s solicitor leaving a message following up a response to the letter regarding security for costs and expressing concern at the ongoing discourtesy regarding the lack of any response. The plaintiff’s (then) solicitor, Mr Petrovic, returned the call from Mr Venegas. During that discussion Mr Venegas referred to having been chasing a response to the security for costs information since 30 August 2021. He informed Mr Petrovic that the matter was back for directions on 16 December 2021. Mr Venegas was informed that Mr Petrovic was going to see the barrister ‘tomorrow’ and a response would be sent that day. It was not sent then, or at any later time.

The plaintiff’s current solicitor did not file any affidavit material on this application disputing any aspect of Mr Venegas’ evidence or addressing the communications or reasons for the absence of any response.
One of the matters addressed at the directions hearing on 16 December 2021 was the foreshadowed security for costs application. No explanation was volunteered at that time by the plaintiff for the absence of any response. Upon enquiry from the court regarding the financial position of the plaintiff, which was made with a view to minimising time and costs associated with that issue if it was possible, the court was informed that the plaintiff could give a response about its financial position to Mr Mustafa’s solicitor within a ‘… a week or two …’.[112]
[112]Transcript 14:28–29.
With the aim of minimising potential costs and delay and allowing for an opportunity for the parties to provide information to see if the security for costs issue could be resolved between the parties without the need for an application, timetabling directions were made for an exchange of information before any application was to be filed and served, and also taking into account the Christmas/January period. This course was expressly accepted by the parties at the time as being an appropriate way to proceed, including by the plaintiff’s counsel. Counsel for the plaintiff also sought additional time for responding to any application that might be made.
Consequently, orders were made as follows:[113]
[113]Order of Connock J, 16 December 2021.
1.By 4:00pm on 31 January 2022, the second defendant file and serve further and better particulars of each of the conversations referred to in paragraphs 33 and 36 of the second defendant’s counterclaim.
2.The date in paragraph 5 of the orders of Justice Connock made on 11 June 2021 (by which the parties shall make discovery of the documents required by r 29.01.1(3) of the Rules) is extended from 20 August 2021 to 4:00pm on 4 February 2022.
3.By 4:00pm on 28 March 2022, following conferral with counsel for the plaintiff, the defendants file and serve a table setting out their respective positions regarding the payments and other transactions referred to in the annexures to the statement of claim filed 30 October 2020.
4.By 4:00pm on 17 January 2022, the plaintiff inform the defendants in writing of the grounds upon which they will oppose any application for security for costs.
5.By 4:00pm on 18 February 2022, the defendants file and serve any application for security for costs together with any affidavits in support.
6.By 4:00pm on 18 March 2022, the plaintiff file and serve any affidavits in response.
7.By 4:00pm on 28 March 2022, the defendants file and serve an outline of submissions with respect to any application made for security for costs.
8.By 4:00pm on 4 April 2022, the plaintiff file and serve an outline of submissions in response to any submissions received pursuant to the preceding paragraph 7 of this Order.
9.Any application seeking security for costs is to be made returnable for directions only on a date to be fixed before Justice Connock.
10.The proceeding is listed for further directions at 10:00am on 8 April 2022 before Justice Connock.
11.Costs are reserved.
12.There is liberty to apply.
Upon enquiry, counsel for Ms Loci at the 16 December 2021 directions hearing, who appeared pro bono through a limited referral, indicated that she did not have instructions one way or the other as to whether Ms Loci was going to join in the security application. The reason was said to be because Mr Mustafa had requested financial information from the plaintiff and counsel for Ms Loci was hoping to see that before making a decision one way or the other as to Ms Loci’s position on the application.
The plaintiff did not comply with the orders made on 16 December 2021. It did not inform the defendants in writing of the grounds on which it proposed to oppose any application for security for costs by 17 January 2022. The plaintiff’s solicitor also did not respond to a follow-up email dated 25 January 2022. At the time that Mr Venegas swore his first affidavit, he had still not received a response from the plaintiff’s solicitor.
On Friday 18 February 2022, Mr Venegas wrote to my chambers attaching the proposed summons and affidavit in support and seeking a return date as he had been unable to file the summons with the Commercial Registry without a return date. My Associates informed Mr Venegas and the other parties by email on Monday 21 February 2022 that the summons should be made returnable for directions only on 11 March 2022.
As at 9 March 2022, being two days before the next directions hearing, the plaintiff had still not complied with the order of 16 December 2021 and informed the defendants of the grounds of opposition to the proposed security for costs application. The summons for this application was filed that day together with Mr Venegas’ first affidavit sworn 18 February 2022, with the summons being made returnable for directions at the directions hearing on 11 March 2022.
On 9 March 2022, Ms Loci’s solicitor filed a notice of ceasing to act.
On 10 March 2022, the plaintiff filed a notice of change of solicitor recording that Mr Angelatos of Maciel Pizzorno & Co was the plaintiff’s new solicitor.
On 11 March 2022, the following orders were made at the directions hearing:[114]
[114]Order of Connock J, 11 March 2022.
1.The date in paragraph 5 of the orders of Justice Connock made on 16 December 2022 (Orders) (by which the defendants are to file and serve any application for security for costs together with any affidavits in support) is extended from 18 February 2022 to 4:00pm on 25 March 2022.
2.The date in paragraph 6 of the Orders (by which the plaintiff is to file and serve any affidavits in response) is extended from 18 March 2022 to 4:00pm on 1 April 2022.
3.The date in paragraph 7 of the Orders (by which the defendants are to file and serve an outline of submissions with respect to any application made for security for costs) is extended from 28 March 2022 to 4:00pm on 22 April 2022.
4.The date in paragraph 8 of the Orders (by which the plaintiff is to file and serve an outline of submissions in response to any submissions received pursuant to paragraph 3 of this order) is extended from 4 April 2022 to 4:00pm on 29 April 2022.
5.Any application seeking security for costs is, in the first instance, to be made returnable before Connock J on 18 May 2022.
6.The date in paragraph 5 of the orders of Justice Connock made on 11 June 2021 (by which the parties shall make discovery of the documents required by r 29.01.1(3) of the Rules) is further extended from 4 February 2022 to 4:00pm on 19 April 2022.
7.The proceeding is listed for further directions at 10:30am on 18 May 2022 before Justice Connock.
8.Costs are reserved.
9.There is liberty to apply.
Also on 11 March 2022, the plaintiff’s new solicitor sent a letter dated 10 March 2022 to the defendants informing the defendants of the grounds upon which a security for costs application would be made. That letter was in the following terms:
Dear Adrian and Claudio
Mitrov Homes Pty Ltd -v- Bujar Mustafa & Nez Loci
Supreme Court Proceedings - S ECI 2019 05718
We refer to paragraph 4 of the orders made on 16 December 2021.
We are instructed that our client will be opposing any application for security for costs on the following grounds:
a)The Plaintiff’s claim is presumed to be bona fide and not a sham (in the absence of evidence to the contrary), and it would normally be impracticable and costly to make a determination on the merits thereof (per Smithers J in Tradestock Pty. Ltd. v TNT (Management) Pty. Ltd. (1977) 14 ALR 52 at p 57, see per Derham AsJ in Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 1311 at [20] (a)]
b)An order for security for costs would stifle the Plaintiff’s legitimate claim as the Plaintiff lacks access to significant funds to satisfy an order for security for costs (per Redlich JA in Kenyon v Akeroyd (2007) VSCA 50 at [10], Smithers J in Tradestock Pty. Ltd. v TNT (Management) Pty. Ltd. (1977) 14 ALR 52 at p 57)
c)The Plaintiff’s alleged impecuniosity was caused by the Defendants in taking its funds as alleged in its claim (per Redlich JA in Kenyon v Akeroyd (2007) VSCA 50 at [10], Smithers J in Tradestock Pty. Ltd. v TNT (Management) Pty. Ltd. (1977) 14 ALR 52 at p 57, Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 1311 Derham AsJ said at [20 (b)]). The Plaintiff has carried on its business for a lengthy period of time and the court can infer that the Defendants were a cause of any alleged financial problems (per Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 at [88]).
d)The Plaintiff’s claim is defensive as it was initiated in response to the Defendants’ s 89A application to remove the Plaintiff’s caveats which were lodged upon the Defendants’ properties Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 1311 Derham AsJ said at [20 (c)]).
e)The Plaintiff’s sole shareholder and director lacks the capacity to make funds available for security for costs.
f)The Defendant has delayed in making an application for security for costs. The writ was filed on 16 December 2019 and the first indication that there might be an application for security for costs was made on 30 August 2021. The delay was inordinate and prejudicial to the Plaintiff. In Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 1311 Derham AsJ said at [20 (f)]) … Delay in applying for security may be ground for refusing to order security. The company, which can be assumed to be in financial difficulties, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it makes a substantial financial commitment toward litigating the claim. See Buckley v Bennell Design & Construction Pty Ltd;[115] Smail v Burton; Re Insurance Assocs Pty Ltd (in liq);”
[115](1974) 1 ACLR 301 at 309 (NSWCA).
g)The First Defendant’s counterclaim raises the same facts, as to whether the alleged misappropriation of funds was expanded upon the First Defendant’s properties and give rise to a caveatable interest therein, and if not, whether the caveat was lodged without a reasonable basis and compensation is payable therefore Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 1311 Derham AsJ said at [20 (g)]).
Yours faithfully
Sam Angelatos
Special Counsel
Maciel Pizzorno & Co
Enc
Following receipt of this letter Mr Venegas obtained instructions from Mr Mustafa regarding the grounds of opposition and prepared Mr Mustafa’s affidavit, which he said took him a considerable time and required him to have regard to about 950 documents relating to the various transactions. He sought to extend the timetable to allow this material to be filed, which was agreed by consent, together with consequential timetable extensions ending on 4 July 2022.
These extension directions were made by orders made on the papers on 13 May 2022, and pursuant to which the security for costs application was fixed for hearing before me on 2 August 2022. Mr Mustafa’s affidavit was filed on 28 April 2022, pursuant to leave given nunc pro tunc by those orders.
The consent orders of 13 May 2022 required the plaintiff to file any affidavit material by 14 June 2022 and an outline of submissions by 4 July 2022. Those orders were not complied with. The plaintiff’s affidavit was not filed until 22 July 2022 and the outline of submissions was not filed until 14 July 2022.
The hearing took place on 2 August 2022.

No.	Description	Scale item	Scale amount (per item)	Estimated amount
1.	Senior Counsel’s fees for appearances at trial (x 5 days)	19(a)(i)	$9,650	$48,250
2.	Junior Counsel’s fees for appearances at trial (x 5 days)	19(a)(i)	$6,430	$32,150
3.	Instructor’s fees for instructing at trial – at 6 hours per day of trial (x 5 days)	1(a)(ii)	$430	$12,900
Estimated total:				$93,300

[2022] VSC 501

30 August 2022