Nelson v Goble (Security for Costs)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

COMMERCIAL LIST

S ECI 2023 03601

BETWEEN:

WAYNE NELSON & ANOR (according to the attached Schedule)	Plaintiffs
- and -
GRAEHAM GEORGE GOBLE & ANOR (according to the attached Schedule)	Defendants

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JUDGE:	Steffensen AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	19 April 2024
DATE OF RULING:	5 July 2024
CASE MAY BE CITED AS:	Nelson v Goble (Security for Costs)
MEDIUM NEUTRAL CITATION:	[2024] VSC 388

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PRACTICE AND PROCEDURE – Application for security for costs – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 62.02 – Where plaintiffs reside out of Victoria – Where only asset in the jurisdiction is shares in a Victorian company which owns trademarks – Relevance of assets in the jurisdiction – Whether trademarks are sufficient and appropriate form of security – Held not sufficient security – Application granted – Application of Yara Australia Pty Ltd v Oswal (2013) 41 VR 245 – Austin, Nichols and Co Inc v Lodestar Anstalt [2009] FCA 1228, Derma Pen LLC v Biosoft (Australia) Pty Ltd (Security for Costs) [2022] FCA 885, DIF III Global Co-Investment Fund, L.P. & Anor v BBLP LLC & Ors [2016] VSC 401 and NV Sumatra Tobacco Trading Company v British American Tobacco Australia Services Ltd (2008) 79 IPR 286 [2008] FCA 1542 considered.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	A Ford	O’Reilly Stevens Lawyers Pty Ltd
For the Defendants	M Hoyne	Media Arts Lawyers Pty Ltd

Contents

A.. Introduction

B.. Applicable principles

B.1          Relevance of assets in the jurisdiction
B.2          Assessing the asset as security
B.3          Security for costs authorities addressing trademarks

C.. The parties’ submissions

C.1 The defendants’ submissions
C.2 The plaintiffs’ submissions

D.. Consideration

E... Conclusion

HER HONOUR:

A Introduction

This decision concerns whether it is appropriate to require security for costs to be provided by foreign-resident plaintiffs, where the second plaintiff is the sole shareholder and director of an Victorian-registered company, Little River Band Pty Ltd (‘Company’). The first plaintiff does not have any assets in Australia. The second plaintiff does not have any assets in Australia other than his shares in the Company.
The Company owns trademarks registered in Australia, the United States and elsewhere connected with the Little River Band, a band that was particularly popular in the 1970s and 1980s. This proceeding concerns the plaintiffs’ entitlement to royalty payments in respect of albums that the band released in the 1980s. The band continues to perform today, and the business of the band is conducted mostly in the United States. It has not performed in Australia for many years.[1] The first plaintiff is, and has been for some time, the band’s singer and bassist.[2] The second plaintiff is a former member of the band, but has not toured with the band for many years.[3]
[1]See the letter to Groves & Partners Pty Ltd dated 26 February 2024, [13] (‘Valuer Instructions’), Affidavit of Thomas Stevens affirmed on 21 March 2024 (‘Stevens Affidavit’), Exhibit TS-4, 59-64.
[2]Stevens Affidavit, [14].
[3]Valuer Instructions (n 1), [13].
The business of the band is conducted by foreign-registered entities associated with the plaintiffs, as governed by:
(a)an intellectual property licence agreement dated 21 March 2000 between the Company and its Delaware-incorporated wholly owned subsidiary Euterpe Productions LLC (described as the ‘Touring Company’),[4] which grants Euterpe a licence to use the trademarks until such time as either party terminates the agreement on six months’ notice;[5] and
(b)a management agreement dated 1 January 2009 between the Company, Euterpe and Half Nelson Music LLC. Half Nelson Music is a company incorporated in Nevada which is described as belonging to the first plaintiff.[6] Pursuant to the management agreement, Half Nelson Music agrees to manage the business of the band and receives a first right of refusal in respect of any sale of the trademarks.[7] The management agreement is for an indefinite term, terminable on two years notice by any party.[8]
[4]Euterpe is described as the wholly owned subsidiary of the Company: Stevens Affidavit, [14]. However, no documentary evidence was adduced as to the identity of its shareholders or directors.
[5]Intellectual Property Licence dated 21 March 2000 (‘IP Licence Agreement’), Stevens Affidavit, Exhibit TS-2.
[6]Management Agreement dated 1 January 2009 (‘Management Agreement’), Stevens Affidavit, Exhibit TS-3. Half Nelson Music is described as belonging to the first plaintiff: Stevens Affidavit, [14]. However, no evidence was adduced as to the identity of its the shareholders or directors.
[7]Management Agreement, cl 2, 6.1.
[8]Ibid cl 7.1.
Pursuant to these agreements, the Company does not receive any royalties or other revenue from Euterpe’s use of the trademarks, and only receives payment of its costs incurred in maintaining and defending the trademarks.[9] The management agreement provides that the profits from the band’s business are split between Half Nelson Music and the second plaintiff, or entities controlled by him.[10]
[9]IP Licence Agreement (n 5), cl 3.2.
[10]Ibid, cl 2.3 and the Schedule. The valuer states that he was instructed that the fees and/or royalties payable to the second plaintiff or his nominee pursuant to the Management Agreement are calculated as a percentage commission on gross revenue of Euterpe, see Expert Report dated 21 March 2024, [31] (‘Expert Report’), Stevens Affidavit, Exhibit TS-4. However, there is no evidence of the amount presently being paid or the manner in which it is calculated.
The defendants seek security for their costs up until a mediation in the amount of $80,765.21. The key question to be determined on this application is whether the second plaintiff’s shares in the Company are sufficient security having regard to:
(a)the plaintiff’s expert evidence which values the trademarks at $2,178,616, being well in excess of the quantum of security sought; and
(b)the undertakings given by the second plaintiff to the Court which are designed to preserve the shares and the trademarks pending the outcome of this proceeding.[11]
[11]Affidavit of Stephen Housden affirmed on 7 March 2024 [10] (‘Housden Affidavit’). See also the mirror undertaking given by Mr Housden’s alternate director in the Affidavit of Thomas Stevens affirmed on 20 March 2024, [5].
This requires an assessment of the shares as security, that is, whether they are assets in the jurisdiction which are readily accessible to enforcement and satisfaction of an adverse costs order.
For the reasons that follow, I have determined that the shares do not provide security for the defendants’ costs, and will make an order requiring payment into Court of the security sought by the plaintiffs.

B Applicable principles

The principles relevant to an application for security for costs are well-settled and largely were not in dispute. Both parties drew the Court’s attention to Yara Australia Pty Ltd v Oswal,[12] where Priest JA (with whom the balance of the Court agreed) surveyed the authorities to distil the following principles:
[F]irst, the purpose of ordering security against a plaintiff ordinarily resident out of Victoria – and with no assets within it – is so that a successful defendant will have a fund in Victoria against which it can readily enforce an order for costs;
secondly, to make or refuse an order for security is a discretionary judgment;
thirdly, since such a judgment is discretionary, the court must weigh all relevant circumstances;
fourthly, the weight of any one circumstance must depend not only on its own persuasiveness, but must be considered against the impact other circumstances might have against it;
fifthly, a circumstance of great weight, but not necessarily decisive, is that the plaintiff is resident out of Victoria and has no assets within it;
sixthly, the weight of that circumstance may be outweighed by the plaintiff being able to point to other countervailing circumstances; and
seventhly, the ultimate question must always be — how is justice best served in the particular circumstances of the case?[13]
[12](2013) 41 VR 245.
[13]Ibid 268 [115] (Priest JA).
Priest JA concluded this statement of principles by providing the following guidance to a judge considering an application for security in circumstances where the plaintiffs are resident out of Victoria and has assets in the jurisdiction:
(a)the judge ought to ask themselves ‘in all of the particular circumstances of the case, how justice would be served’;
(b)the presence of assets in the jurisdiction would militate against an order for security, depending on the assessment of the asset as security in all the circumstances; and
(c)given that the decision involves the exercise of discretion in an interlocutory application, the Court ‘obviously is required to approach the matter in a broad and practical way’.[14]
[14]Ibid 269 [116] (Priest JA).
The applicant seeking security bears the burden of persuading the Court that the justice of the case was best served by the grant of security.[15]
[15]Ibid 270 [120] (Priest JA).

B.1 Relevance of assets in the jurisdiction

Whilst the plaintiffs accepted that the discretion was enlivened by their foreign residence, they submitted that the Court will not order security unless the plaintiffs also do not have assets in the jurisdiction.[16] I do not accept this submission. As is apparent from the guidance provided by the Court of Appeal in Yara, the presence of assets in the jurisdiction militates against the making of an order for security for costs. However, it is not the end of the enquiry. An assessment must be undertaken of the asset as security in all the circumstances and how justice would be served.
[16]Plaintiffs’ outline of submissions filed on 12 April 2024 [5a], [6], [9] (‘Plaintiffs’ submissions’), citing Von Marburg v Aldred & Anor (No 3) [2017] VSC 146, [38], CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270, 284-5, Liu v Resi Ventures Leakes Pty Ltd (No 2) [2019] VSC 638, [39], Nord v Truitt (Supreme Court of Victoria, Ormiston J, 25 November 1987) 3; Transcript of Proceedings, hearing on 19 April 2024, 51 (‘Transcript’).
The question of whether there are assets in the jurisdiction is not meaningfully reduced to a binary question of whether or not there are assets within the jurisdiction, but rather, regard needs to be had as to whether the assets are readily accessible to enforcement and satisfaction of a costs order. As Greenwood J said in NV Sumatra Tobacco Trading Company v British American Tobacco Australia Services Ltd:
The purpose of ordering security for costs against a party ordinarily resident outside the jurisdiction is to ensure that a successful party will have “a fund available within the jurisdiction of this Court against which it can enforce the judgment for costs, so that the respondent does not bear the risk as to certainty of enforcement in the foreign country and as to the time and complexity of the action there which might be necessary to effect enforcement” (Energy Drilling Inc. v Petroz NL (1989) ATPR 40 – 954 per Gummow J at 50, 422). The reference to a “fund” within the jurisdiction seems to suggest that a reference to “no assets within the jurisdiction” within the general principles is to be treated as a reference to no assets which are readily accessible to enforcement and satisfaction of the costs order.[17] (emphasis added)
[17](2008) 79 IPR 286, 290 [15]; [2008] FCA 1542 (Greenwood J).
This passage was cited with approval by the South Australian Court of Appeal in H, AW v K, S (No 2).[18] Further, none of the authorities referred to by the plaintiffs expressly consider whether the Court will require security for costs in circumstances where the plaintiff is a foreign resident but has assets in Victoria.[19] In CBS Records Australia Ltd & Ors v Telmak Teleproducts (Aust) Pty Ltd,[20] there is no discussion of whether the foreign plaintiffs had assets in the jurisdiction. Each of Liu v Resi Ventures Leakes Pty Ltd (No 2),[21] Von Marburg v Aldred & Anor (No 3),[22] and Nord v Truitt[23] address plaintiffs who were residents of Australia, but not Victoria. Accordingly, the authorities relied upon do not support the submission made.
[18][2022] SASCA 88, [26] (Bleby J).
[19]See n 16.
[20](1987) 72 ALR 270, 284-85 (Bowen CJ).
[21][2019] VSC 638 (Matthews JR).
[22][2017] VSC 146 (Derham AsJ).
[23]Nord v Truitt (Supreme Court of Victoria, Ormiston J, 25 November 1987).
Whilst in Nord, Ormiston J states ‘even residence outside Victoria is not a sufficient basis for security if assets remain in this State which would satisfy any obligation to pay costs.’[24] Having regard to the unfettered judicial discretion provided for in r 62.02, this statement cannot be the source of any hard and fast rule. And in any event, it predates the Court of Appeal’s guidance in Yara by more than two decades.
[24]Ibid 3.

B.2 Assessing the asset as security

When assessing the asset in the jurisdiction as security, Priest JA said in Yara ‘it is legitimate for a court to weigh in the balance the nature of the security pointed to by a plaintiff, including any fetters on its availability’.[25]
[25]Yara (n 12) 271 [124] (Priest JA).
As Redlich JA said in Yara, it is not necessary that the asset be immediately available and accessible in order to provide security. What is required is that the applicant have ready and certain access to the amount secured if and when entitlement to claim it arises. Although a respondent may not be entitled to ‘extended time’ to realise assets in order to pay a costs order, the discretion must be broad enough to permit a reasonable time in which to do so.[26]
[26]Ibid 249-250 [10]-[12] (Redlich JA).
Both parties referred to DIF III Global Co-Investment Fund, L.P. & Anor v BBLP LLC & Ors[27] where after a review of the authorities, Hargrave J said:
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.[28]
[27][2016] VSC 401 (Hargrave J).
[28]Ibid [40].
In DIF III, the Court was not considering whether to make an order for security for costs, as it was conceded that the foreign plaintiff who had no assets in the jurisdiction would need to provide security.[29] Rather, the Court considered the parties’ competing proposals as to the form that security should take. The application of the principles set out in DIF III to a court’s assessment of foreign plaintiff’s asset in the jurisdiction as security in all the circumstances may require further scrutiny. In any event, what must drive the court’s decision as to both whether to order security, and if so, in what form, is how justice will be served in all the circumstances.
[29]Ibid [1].

B.3 Security for costs authorities addressing trademarks

The parties took the Court to three authorities which considered whether security for costs should be ordered in respect of foreign moving parties who owned trademarks. The parties agree that the approaches taken in these authorities each turn on their own facts, and do not provide any binding or universal rules as to the way in which trademarks ought to be considered as security. That said, each of these cases provide guidance as to the approach courts have taken when considering trademarks as security.
In NV Sumatra, Greenwood J considered whether the Australian-registered trademarks held by the foreign litigant represented assets of sufficient liquidity in the jurisdiction so as to constitute a realistic fund against which a successful respondent might enforce an order for costs.[30] It is not clear what evidence was adduced as to the value of the trademarks. However, the owner argued that the litigation between the parties over the trademarks demonstrated that both parties regarded them as assets of value in the jurisdiction.[31] The Court noted the risk and complexity of appointing a receiver to realise the trademarks, even where the marks may have a value referable to the discounted cashflows derived from their exploitation.[32] The Court concluded that the Australian registered trademarks were not assets against which an order for costs might easily be enforced, and ordered that the moving party provide security for costs. Greenwood J did not regard the litigation concerning the trademarks to be a countervailing factor of sufficient magnitude to overcome the circumstance that the moving party was a foreign resident with no assets in the jurisdiction which could easily be converted into a fund to satisfy a costs order.[33]
[30]NV Sumatra (n 17) 291 [20]-[21].
[31]Ibid 291 [19].
[32]Ibid 291 [20].
[33]Ibid 291 [21].
A similar conclusion was reached in Austin, Nichols and Co Inc v Lodestar Anstalt by Lindgren J.[34] In opposing the application for security, the foreign entity pointed to significant consideration recently paid to purchase the business that included Australian-registered trademarks as evidencing that the marks were an asset in Australia which provided adequate security.
[34][2009] FCA 1228, [37]–[48] (Lindgren J).
Lindgren J rejected this argument on a number of grounds. His Honour accepted that the trademarks were very valuable to their owner, but found that the evidence did not indicate a separate value for the trademarks, as distinct from the business that was purchased. His Honour considered NV Sumatra and found that the foreign entity had failed to grapple with the ‘critical question’ as to whether the trademarks would be readily convertible into cash by sale to satisfy an adverse order for costs.[35] Regardless of their value, the Court found that the evidence did not establish that they would be readily convertible into cash in order to satisfy an adverse order for costs. In this regard, Lindgren J pointed out the difficulties that might be encountered in realising the trademarks separately from the business to which they related. His Honour also considered that there would be limited prospective buyers of the marks and that it was not apparent whether any of them would be interested in acquiring the trademarks.[36] His Honour concluded that it may be that a receiver would eventually be able to sell the trademarks, but the course of doing so would or might be fraught with difficulty and delay.[37]
[35]Ibid [44].
[36]Ibid [47].
[37]Ibid [48].
In Derma Pen LLC v Biosoft (Australia) Pty Ltd (Security for Costs),[38] one of the foreign moving parties owned a trademark registered in the United States, and the Court found that to be a valuable asset against which a costs order might be enforced. The Court required that this party provide security for costs to each of the respondents in an amount reflective of the costs of enforcing the judgment in the United States. In doing so, the Court did not accept submissions that enforcement of a judgment against the United States trademark was more difficult in the United States as compared to Australia, as there was no evidence to support the submission.[39]
[38][2022] FCA 885 (Perram J).
[39]Ibid [26].

The evidence of the value of the trademark was limited to that recorded in a judgment of the United States Bankruptcy Court refusing Chapter 11 protection. The Court found that the US$6 million value recorded in the United States Bankruptcy judgment was reliable, as it was put forward by the owner of the mark in circumstances where it was contrary to the owner’s interests in that case to submit that the mark was of significant value. Further, the Court noted that the United States Bankruptcy Court judgment recorded longstanding and vigorously contested litigation concerning the mark, which was indicative of its significant value. In circumstances where the parties seeking security did not adduce any evidence as to the value of the mark, the Federal Court did not engage with their submissions that the value of the marks might be less than US$6 million.[40]

C The parties’ submissions

[40]Ibid [17].

C.1 The defendants’ submissions

The defendants argue that Company’s shares (and the associated undertakings to the Court) do not provide security for their costs, as the process of executing any costs judgment would involve considerable uncertainty, difficulty and delay due to the licencing and management arrangements between the Company, Euterpe and Half Nelson Music, and the nature and attributes of the trademarks. Whilst they criticise the plaintiffs’ valuation evidence, they submit that, akin to Austin, Nichols, and NV Sumatra, the evidence does not demonstrate that there is a broader market for the shares or trademarks outside of the few people who have long-standing connections to the Little River Band from the 1970s and 1980s, and that none of those people, including Euterpe and Half Nelson Music, have indicated that they are willing buyers. They submit that the shares and trademarks are illiquid, and thus do not provide security for their costs, as they would be subjected to unacceptable risk arising from the foreign residence of the plaintiffs.
The defendants urge the Court to take a similar approach to that taken in Austin, Nichols and NV Sumatra, where despite some evidence as to value of the trademarks, the risks and complexity arising from appointing a receiver to realise the marks, resulted in the conclusion that the trademarks did not provide sufficient security.
The defendants submit that the undertakings proffered by the second plaintiff and his alternate director are effective insofar as they address ensuring that the trademarks will remain assets of the Company, but that they do not address the illiquidity issue.
Further they say that it is appropriate to treat each plaintiff separately as the Court did in Derma Pen, such that regardless of the Court’s findings as to whether the second plaintiff’s shares in the Company provide security, the first plaintiff, who has no assets in the jurisdiction, ought to provide security for the defendants’ costs.
The defendants rely upon the affidavit of David Vodicka filed on 19 February 2024, the affidavit of Danny Wang filed on 19 February 2024, which in turn exhibits an expert report addressing the quantum of security sought, and their submissions filed on 8 April 2024.

C.2 The plaintiffs’ submissions

The plaintiffs submit that the uncontested valuation evidence demonstrates that the second defendant’s shares in the Company are an unencumbered asset in the jurisdiction, the value of which far exceeds the amount sought by way of security. They say that this asset, together with the undertakings proffered by the second plaintiff and his alternate director not to dispose of the shares or the trademarks for the duration of the proceeding, provides the defendants with sufficient security for their costs.
The plaintiffs submit that the Court should take the same approach as Derma Pen in respect of their valuation of the trademarks. That is, that the Court should accept the plaintiff’s valuation of the trademarks, and submissions that the value may be lower should not be entertained in the absence of competing evidence. Further, like Derma Pen, the plaintiffs point to the 2002 litigation between the parties concerning the use of the Company’s trademarks, and the 1997 settlement of the winding up proceedings, as evidence of the trademarks being valuable assets. The plaintiffs say that even if the valuation of the trademarks is overstated, it cannot be overstated to such an extent that the trademarks are worth less than the quantum of security sought.
The plaintiffs accept that enforcement of a costs order over the shares will not be easy, but they submit that the process will not be as difficult or uncertain as the defendants seek to make out. [41] In this regard, the plaintiffs seek to distinguish Austin, Nichols and NV Sumatra on the basis that here, the receiver would only need to sell the Australian shares in the Company, rather than the trademarks, and they say that there is a clear market in Australia for the sale of shares in private companies. Thus, they submit that the shares are assets of value in this jurisdiction, and there is no need to enquire further in to their liquidity.
[41]Transcript, 59.
In addition, they say that the plaintiffs and the entities they control are obvious buyers of the trademarks, which will make any sale more straight forward. If not, they submit that given the trademarks are valued at over $2 million, another external buyer will be willing to purchase them. Further, they say that the defendants’ submissions that there is a limited market for the shares are in the nature of speculation, and are made without an evidential foundation.
The plaintiffs also submit that like Derma Pen, the Court should be slow to accept any submission that trademarks are difficult to enforce against, whether they are registered within or outside of Australia. The plaintiffs note that unlike Derma Pen, some of the trademarks here are registered in Australia, so that this is not a case where enforcement over trademarks registered outside of Australia needs to be considered.
Consistent with the principles outlined in DIF III, the plaintiffs submit that they are entitled to put forward security in a form which is least disadvantageous to them, and that they have, via the valuation evidence, satisfied the practical onus upon them to show that it is adequate and does not impose an unacceptable disadvantage on the defendants. They submit that the defendants’ approach is, in effect, seeking to undertake a comparison of the relative attributes of the security provided by the shares as compared to payment into court, and that is an impermissible approach for the reasons set out in DIF III.[42]
[42]See DIF III (n 27) [65].
The plaintiffs submit that given the overlapping nature of the plaintiffs’ claim, the second plaintiff’s shares provide sufficient security to the defendants, and that there is no need to consider the first plaintiff’s position separately.
The plaintiffs rely upon the two affidavits of Thomas Stevens filed on 20 and 21 March 2024, the affidavit of Stephen Housden filed on 20 March 2024, and their submissions filed on 12 April 2024.

D Consideration

For the reasons that follow, in my view, the justice of this case requires that security for the defendants’ costs ought to be provided.
Both plaintiffs are ordinarily resident outside of Australia which enlivens the Court’s discretion under r 62.02 to order security for costs. But of course, this alone would not justify an order for security for costs.
The first plaintiff has no assets in Australia, so there are no assets in Australia against which the defendants might execute a costs order made against the first plaintiff. Further, there is no information as to the plaintiffs’ assets in any other jurisdiction, and whether they are in jurisdictions amenable to enforcement of an Australian judgment. This is a weighty factor in favour of an order for security for costs in respect of the first plaintiff.
The second plaintiff has one asset in Australia, being all of the issued shares in the capital of the Company. Accordingly, in relation to the second plaintiff, this is not a case where there are no assets in the jurisdiction. Having regard to the guidance provided in Yara, the presence of the shares in the jurisdiction is a factor that militates against an order for security, depending on the assessment of their adequacy as security in all the circumstances.
When considering whether the shares are adequate security, regard must first be had to the financial position of the Company. There is little evidence of this, save for the Company’s ownership of the trademarks, and its paid up share capital of $300. Importantly, there is no evidence as to any debts owed by the Company. It is therefore unclear whether the Company has a net asset position which exceeds the security sought. Whilst it was submitted that the Company does not trade, and that it would not have any debts because it only acts as a holding company,[43] there was no evidence from the second plaintiff, who is the Company’s sole director, as to either of these matters.[44] This is significant, as it means that whether or not the trademarks are of any value and able to be realised within a reasonable time frame, it is not clear whether that realisation will be subject to the payment of any debts owed by the Company. This weighs in favour of an order for security.
[43]Transcript, 69.
[44]The Expert Report (n 10) states at [21] that the Company acts as a holding company and does not trade a business. However, no evidential foundation for this statements was identified by the valuer or otherwise adduced by the plaintiffs.
The Company does not receive any revenue from the trademarks, and thus, the Company does not have any bank accounts in Australia or elsewhere to which recourse might be had to meet an adverse costs order. The parties agree that enforcement of a costs order over the Company’s shares will involve obtaining a charging order over the shares, and the appointment of a receiver to realise the asset through sale of the shares or the trademarks. The appointment of a receiver of itself would ordinarily not be sufficient to warrant undue delay or complexity in enforcement. However, regard must be had to whether there are factors which affect the ease with which a receiver might effect a sale of the shares or trademarks for the purpose of enforcing the costs order.
The profits generated from the trademarks through the Little River Band’s performances in the United States are split between the first and second plaintiff through entities that they control, Euterpe and Half Nelson Music. Accordingly, any realisation of the shares or the trademarks will likely involve terminating these contractual arrangements, which may delay a receivership sale of the shares or trademarks. Additional complexities may also arise in view of the fact the trademarks are exploited in the United States, and the entities who presently have the rights to exploit them are incorporated in the United States and controlled by the plaintiffs.
The plaintiffs rely upon a valuation of the trademarks of $2,178,616 as at 21 March 2024. The valuation is calculated using the relief from royalty method, having regard to the revenue generated by Euterpe in running the Little River Band business. The valuer estimates the future financial performance of Euterpe, and gives his opinion that that a market royalty rate of 10% reflects the portion of that revenue which is derived from the use of the trademarks.[45] To this, a tax rate of 25% is applied to calculate the after-tax royalty relief income, and then a discount rate of 20% rate is applied to calculate the present value of the future income associated with the trademarks. To this, an amount is added to reflect the tax amortisation benefits associated with the trademarks.[46]
[45]Expert Report (n 10), [18].
[46]Ibid, Appendix C.
I accept the defendants’ submissions that the valuer fails to provide cogent explanations and reasoning to support some of the important assumptions that he has made and opinions that he has expressed. In particular:
(a)the valuer’s revenue projections appear to assume that the trademarks have an indefinite useful life, as indicated by the revenue projections being calculated into perpetuity.[47] However, there is no discussion in the report as to why this assumption was made, or the reasonableness or otherwise of it, having regard to the nature of the trademarks and the means by which they are exploited in the market. The trademarks are exploited through performances by the Little River Band including the first plaintiff in the lineup, and there is no discussion of whether, and if so, how, this might affect the useful life of the trademarks. Similarly, the tax amortisation benefit period of 15 years was selected as it is the tax effective life of a registered design under s 40.95(7) of the Income Tax Assessment Act 1997 (Cth).[48] However, there is no discussion as to similarities or otherwise of a registered design to a trademark, in order to explain or justify this assumption;
(b)the report discloses limited cogent reasoning as to why the valuer selected a 10% royalty rate in light of the market information he considered. The market information identifies 10 agreements, and all but two have royalty rates of less than 10%, with three contracts having a royalty rate of 3%. Secondly, the opinion that the 11% royalty rate relating to vocalist McKenna Breinholt is most comparable is presented in a conclusionary fashion, and is unexplained in light of the lower royalty rates identified in the market information that the valuer considered.[49] Whilst the valuer states that the McKenna Breinholt arrangements are the most comparable because they relates to recorded music, there is no discussion as to how or why royalty rates for recorded music are comparable to live entertainment business conducted by Euterpe. Lastly, whilst the valuer states that the market information was selected because they have a similar risk profile to the trademarks,[50] there is no discussion of the risk profile of the trademarks, or how they are similar to the intellectual property agreements disclosed in the market information (other than to note that they relate to music celebrities in the entertainment industry)[51]; and
(c)lastly, the valuer says that the 20% discount rate ‘in my opinion appropriately factors the market discount rate at the valuation date and considers the specific risks of the trademarks’.[52] A brief explanation of the components of the discount rate are set out in Appendix C to the valuation, including a beta of 1 and an asset specific premium of 10%. Whilst generic definitions are given as to the meanings of these components of the discount rate, the reasons for their selection is not articulated or described. In particular, there is no discussion in the report as to the specific risks of the trademarks.
[47]Ibid, Appendix C, [3].
[48]Ibid, Appendix C, [10].
[49]Ibid, Appendix C, [38(b)].
[50]Ibid, [37].
[51]Ibid [37(a)].
[52]Ibid, Appendix C [7].
Nevertheless, as the defendants have not led their own valuation evidence, the impact of any of their challenges to the valuer’s assumptions and methodology has not been quantified. I accept the plaintiffs’ submissions that it was incumbent upon the defendants to adduce valuation evidence for this purpose. However, I do not accept the submission that this requires the Court to accept the unchallenged valuation evidence, particularly where in important respects, the plaintiffs’ valuation evidence is conclusory and lacks cogency.[53]
[53]See H & Q Café Pty Ltd v Melbourne Café Pty Ltd (2023) 72 VR 53, 84-5 [148]-[149] (Niall JA, Kennedy JA and Forrest AJA).
Aside from the valuation, the plaintiffs point to litigation between former band members as demonstrating that the Company’s shares and trademarks are valuable. The plaintiffs’ solicitor’s evidence is that the settlement sum paid to Glenn Shorrock pursuant to the 1997 settlement agreement in exchange for the shares in the Company was calculated by reference to a valuation of the Company’s trademarks, such that it indicates that in 1997, the Company was worth over $250,500.[54] That may be so, but in my view, this evidence is of limited assistance in determining what the Company may be worth now, in very different circumstances, some 27 years later. Similarly, the fact the former band members engaged in litigation regarding the use of the trademarks in the early 2000s might demonstrate that they have some value, but does not assist in determining their value today.
[54]Stevens Affidavit, [11].
In my view, the evidence of the value of the trademarks is not of the quality of that accepted by the Court in Derma Pen, such that it is not appropriate in the circumstances to proceed on the basis that the trademarks are worth over $2 million as posited by the plaintiffs. I do, however, accept that the trademarks are valuable, and it may be that the value exceeds the security sought by the defendants. This is a circumstance that weighs in the plaintiffs’ favour.
In assessing the shares as security, regard must be had to whether they satisfy the protective objective of security for costs, namely whether the shares will provide a fund or asset against which the defendants, if successful, can readily enforce an order for costs against the plaintiffs.[55] To provide this, the shares must be a valuable asset that is able to be realised within a reasonable period of time in order to satisfy a costs order. That is, there must have a level of liquidity that will allow them to be sold within a reasonable period of time to recover a costs judgment.
[55]DIF III (n 27) [40]; NV Sumatra (n 17) 290 [15].
The plaintiffs’ valuation is described as a market valuation, meaning the estimated amount the trademarks should exchange in a hypothetical market between a willing buyer and a willing seller in an arm’s length transaction.[56] However this does not address the ‘critical question’ as to whether the trademarks can be readily converted into cash in order to satisfy an adverse costs order.[57] The evidence does not grapple with the obvious attributes of the trademarks, their exploitation through live performances of the band, and how this might affect the ability of a receiver to sell the trademarks or the shares in the Company. The difficulties that might be encountered through selling the trademarks separately from the business of the Little River Band run by Euterpe and managed by Half Nelson Music are also not addressed.
[56]Expert Report (n 10), Appendix F, definition of ‘Market Value’.
[57]Austin, Nichols (n 38) [44].
The parties agree that the current or former members of the band may well be best placed to exploit the trademarks, which provides a limited market of potential buyers. If those potential buyers present a group of people who are likely to engage in a sale process, this would reduce the complexity and uncertainty that might otherwise arise from a receivership sale of the shares or the trademarks. However, in my view, the evidence points in the other direction.
There is some evidence that the plaintiffs or entities they control may be interested participating a sale of the trademarks, and the plaintiffs submit that they are the obvious purchasers. The first plaintiff continues to perform with and manage the band, and through Half Nelson Music, has a first right of refusal to purchase the trademarks. The second plaintiff has ceased performing with the band but continues to earn an income from the band’s performances, which may mean that he, or entities he controls, would be willing to purchase the trademarks. However, there is no evidence from the either of the plaintiffs that they would participate in a sale of the trademarks. Further, in the event that the defendants are in the position of needing to enforce a judgment debt over the shares, the plaintiffs would be both the judgment debtors who have refused to pay, and the prospective purchasers of the shares or trademarks. Whether they would participate in a sale process in such circumstances appears uncertain.

It was also submitted that other former members of the band may also be interested in purchasing the trademarks, so as to enable them to perform as the Little River Band. The plaintiffs point to litigation in the early 2000s between the band members as evidence of the former band members’ interest in the trademarks. However, the litigation settled in 2002 on the basis that the former members would not carry on any trade or business using a trademark which is similar to the Company’s trademarks.[58] There is no evidence that any of the former members of the band are presently interested in purchasing the trademarks, some 22 years later.
[58]Deed of Settlement dated 13 June 2002, cl 2, Housden Affidavit, Exhibit SH-4.
The defendants submitted that a stranger to the band would have difficulty exploiting the trademarks, as they will not be able to market themselves as a long-standing member of the band. The plaintiffs object to the defendants’ evidence in support of this submission, being the following paragraph of an affidavit sworn by the defendants’ solicitor:
In the event of an adverse costs order being made against the plaintiffs, the trade marks would likely have minimal value as it would be difficult for another entity – other than former members of the band – to simply pick up those trade marks and trade under the names, “LRB” or “Little River Band”. Those names are well known and synonymous with the band formed in the 1970s and anyone else that sought to pass themselves off as LRB or The Little River Band would face many (legal and market based) difficulties.[59]
[59]Affidavit of David Vodicka affirmed on 7 February 2024, [13].
I agree that this evidence is inadmissible. The evidence is largely in the nature of submission akin to that made by counsel, having regard to the uncontested facts regarding the establishment and popularity of the band in the 1970s and 1980s, the connection of the plaintiffs to the band since the early 1980s, the first plaintiff’s continued involvement in the band to present day, and the exploitation of the trademarks through live performances of the band. I accept the defendants’ submissions that these factors may adversely affect the ease with which a receiver may be able to sell the shares or the trademarks to persons unconnected with the band, and further may adversely affect the price at which they may be sold. Whilst the plaintiffs argue that the trademarks will have value regardless of whether the lineup includes long-standing members of the band,[60] I note that this is not the manner in which the trademarks have been exploited over the many years that the band has performed in the United States.
[60]Valuer Instructions (n 1), [13].
Lastly, the valuer’s evidence is that he has not been able to identify market transaction information for the sale and purchase of assets which are similar to the trademarks.[61] This may indicate that the sale of trademarks associated with live entertainment is not common, which may lead to delay and uncertainty in any receivership sale.
[61]Expert Report (n 10), [42(a)].
There are similarities between this case and NV Sumatra and Austin, Nichols. Whilst there is some evidence as to the value of the trademarks, the evidence does not establish that the shares or the trademarks would be readily convertible into cash to satisfy an adverse order for costs. Rather, the evidence points to risk and complexity that would ensue should a receiver need to be appointed to realise the trademarks or the shares. There appears to be limited prospective buyers, and no evidence that any of them would be interested in acquiring the shares or the trademarks. Like Lindgren J found in Austin, Nichols, it may be that a receiver would eventually be able to sell the shares or trademarks, but the course of doing so would or might be fraught with difficulty and delay. Further, there is no evidence as to any liabilities of the Company that might affect the amount ultimately available to meet an adverse costs order.
The undertakings proffered by the second plaintiff and his alternate director do not address the difficulties and complexity that enforcement over the shares will likely encounter. Rather, they are directed at ensuring that the Company does not dispose of or encumber the trademarks or the shares pending the outcome of this proceeding.
Against this risk and uncertainty, there is no suggestion that an order requiring the plaintiffs to provide security for costs will hamper their prosecution of this proceeding.
The plaintiffs sought to distinguish Austin, Nichols and NV Sumatra on the basis that here the receiver would only need to sell the shares in the Company, rather than the trademarks themselves, and that there is a market in Australia for the sale of shares in private companies. I disagree that it is relevant to draw a distinction between the sale of the shares as opposed to the trademarks. The Company’s only asset is the trademarks, accordingly, whether one considers the sale of the shares or the trademarks, the heart of the matter is whether the trademarks provide sufficient security.
The plaintiffs argued that unlike Derma Pen, a further factor in favour of realising the trademarks is that some of the trademarks are registered in Australia, such that this is not a case where consideration needs to be given to any risks associated with enforcement over foreign-registered trademarks. I do not consider that this a factor which weighs in the plaintiffs’ favour, as whilst some of the marks may be registered in Australia, it is clear that these are not the marks which are being exploited by Euterpe and Half Nelson Music. The band has not performed in Australia for many years.
In my view, the shares do not satisfy the protective object of security, namely to provide a fund or asset against which a successful defendant might enforce a costs order. The justice of the case, in all the circumstances, requires that the foreign plaintiffs, who do not have any other assets in the jurisdiction, provide security by way of payment into court.
Given that I have assessed that the shares are not an asset in the jurisdiction which is readily accessible to enforcement and satisfaction of a costs order, the result is that, in effect, neither plaintiff has assets in the jurisdiction. It is therefore not necessary for me to consider the parties’ arguments as to whether the first plaintiff’s position ought to be considered separately from that of the second plaintiff.
There was no dispute between the parties as to the quantum of security sought by the defendants, which is supported by an expert opinion of an independent costs consultant. The plaintiffs have not adduced evidence of their assets in foreign jurisdictions, accordingly, it is not possible to consider whether the quantum ought to be limited to the costs of registering a judgment in a foreign jurisdiction.

E Conclusion

I will therefore order that security be provided in the amount sought by the defendants in the amount of $80,765.21 for security for costs up until the mediation. In the event of the non-payment, the proceedings will be stayed pending further order.
The parties’ counsel are directed to confer and within seven days provide a consent or competing minutes of order arising from this ruling, including on the question of costs.

SCHEDULE OF PARTIES

S ECI 2023 03601
BETWEEN:
WAYNE NELSON	First Plaintiff
STEPHEN HOUSDEN	Second Plaintiff
- v -
GRAEHAM GEORGE GOBLE	First Defendant
DAYS ON THE ROAD PTY LTD (ACN 005 440 899)	Second Defendant

[2024] VSC 388

5 July 2024