Re Southbank Liquor Stores Vic Pty Ltd
[2021] VSC 404
•6 July 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 03607
IN THE MATTER of SOUTHBANK LIQUOR STORES VIC PTY LTD (ACN 112 033 771)
| ACN 166 269 629 PTY LTD (ACN 166 269 629) | Plaintiff |
| v | |
| BILLY ARDILA | Defendant |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 May 2021 |
DATE OF JUDGMENT: | 6 July 2021 |
CASE MAY BE CITED AS: | Re Southbank Liquor Stores Vic Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 404 |
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CORPORATIONS – Security for costs – Impecunious plaintiff company claiming relief for alleged oppressive conduct by the defendant under s 233 of the Corporations Act 2001 (Cth) – No material in opposition to the oppression claim filed by defendant to date – Application for security pursuant to s 1318 of the Corporations Act 2001 (Cth), r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) and Court’s inherent jurisdiction – Jurisdictional threshold passed – Several discretionary factors considered – Several persons standing behind plaintiff who are overseas residents deposing to having no assets in Australia but not deposing to their asset position overseas – Beneficiaries have not offered undertaking to cover any adverse order as to costs – Stultification not established – Security ordered – Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311 – KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189.
COSTS – Security for costs – Quantum of security – Security ordered on basis of two day trial for preliminary issue and minor discount applied - Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293 – Coonwarra Pty Ltd v Cornonero Pty Ltd [2018] VSC 333.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Clement | Macpherson Kelley |
| For the Defendant | Mr J F Richardson | Baraka Lawyers |
HIS HONOUR:
By summons filed 8 February 2021, the defendant, Billy Ardila[1], seeks security for his costs against the plaintiff (identified in the heading to the proceedings by its ACN but which was formerly known as Laguna Group Pty Ltd) (‘Laguna’).
[1]At the hearing on 7 May 2021 it was indicated that an amendment to the defendant’s name may be required as there was a discrepancy between the originating process filed 15 September 2020, which identifies the defendant as Billy Ardila, whereas the summons of the defendant filed 8 February 2021 identifies the defendant as Billy Ardila Garcia. These reasons will use the name of the defendant as specified in the originating process.
The proceeding is brought by Laguna under s 233 of the Corporations Act 2001 (Cth) (‘the Act’), claiming relief for alleged oppressive conduct on the part of Mr Ardila. Laguna seeks a declaration that Mr Ardila holds 50 of the 100 shares issued in Southbank Liquor Stores Vic Pty Ltd (‘Southbank’) on trust for Laguna and an order that Mr Ardila purchase those shares following an independent valuation. Laguna also seeks access to the books, records and physical premises of Southbank.
Factual background
Southbank operates a Thirsty Camel bottle shop franchise from leased premises at Caulfield South in Victoria (‘the business’). One of its directors and shareholders, Mauricio Alecchi,[2] deposes that in 2013 there was an oral agreement reached with Mr Ardila that Mr Alecchi and an associate, Aron Sinclair, would fund the purchase of the business. The agreement was never documented. It was agreed that Mr Ardila would operate the business as he had experience in running similar concerns. It appears he made no capital contribution to the business. Mr Alecchi states that approximately $700,000 was paid for the purchase of the business together with $180,000 for the stock. Mr Alecchi states that he personally contributed approximately $350,000. It was agreed that the payment for the purchase of the stock would be funded from profits generated through the business over time. Mr Alecchi states that the stock has now been paid for in full.
[2]The balance of the directorship and equal shareholders are family members of Mr Alecchi, Mariella Alecchi Ciamarra (his mother), Renato Mayta Alecchi (his brother) and Mariana Mayta Alecchi (his sister).
Laguna was incorporated in October 2013. Mr Alecchi states that on 14 November 2013, in return for the payment of its contribution, Laguna received 33 shares in Southbank. On 30 January 2014 it received a further 17 shares, bringing its total holdings to 50 shares, 50 per cent of the issued shares in the company.
Mr Alecchi states that he was assigned the role of store manager while Mr Ardila operated the business on a day-to-day basis. Mr Sinclair ultimately decided to sell his shares and, while Laguna paid him $175,000 for its proportion of the purchase price for the shares, Mr Alecchi says Mr Ardila has only paid Mr Sinclair $70,000 and the balance of the amount owing to Mr Sinclair remains unpaid.
Laguna alleges that the following matters constitute oppressive conduct on Mr Ardila’s part:
(a) on 27 March 2017, without Laguna’s knowledge or consent, Mr Ardila caused a transfer of Laguna’s shareholding in Southbank to himself;
(b) in or around April 2020, after a falling out with the interests associated with Laguna, Mr Ardila unlawfully excluded Laguna from the business, and stopped all payments of wages and distributions; and
(c) Mr Ardila refuses to return the shares seized by him to Laguna nor allow it access to the premises or the books and records of the Southbank.
At the initial conference of this matter that I conducted on 22 October 2020, I adjourned the proceeding to a date to be fixed to enable the parties to agree upon orders in respect of the scope of discovery and for the timetabling of the filing of evidence in relation to a preliminary issue, whether Laguna had an entitlement to 50 per cent of the issued shares in Southbank. It was not until 14 December 2020 that the parties reached agreement and provided minutes of consent in regard to such matters. Those minutes provided for discovery to be completed that day and for Mr Ardila to file his affidavit evidence by 5 February 2021.
Instead of filing evidence in opposition to the substantive relief sought as provided by the orders, Mr Ardila filed the present application seeking security for his costs.
Evidence filed by the parties
In support of his summons, Mr Ardila relies on affidavits of his solicitor, Nabila Baraka of 8 February 2021, 3 March 2021 and 15 April 2021. Laguna relies on affidavits of Mr Alecchi of 15 September 2020, 23 December 2020, 22 March 2021, and 28 April 2021, an affidavit of Mariana Alecchi of 24 December 2020 and of its solicitor, Victoria Keller sworn 22 March 2021.
Aside from an affidavit of documents sworn 14 December 2020 and the evidence filed in support of this application, Mr Ardila is yet to file any substantive evidence in opposition to Laguna’s claim.
Mr Ardila’s evidence
In her affidavit of 8 February 2021, Ms Baraka deposes that on 1 October 2020 she wrote to Laguna’s solicitors, Macpherson Kelley, outlining a concern as to Laguna’s ability to meet any adverse costs orders which might be made against it in the event that it was not successful in the proceeding. On 13 October 2020, Macpherson Kelley responded indicating that Laguna would resist the provision of security for costs.
Ms Baraka noted that the issue of security for costs was raised by counsel for Mr Ardila at the initial conference conducted on 22 October and that the Court had declined to make specific orders setting down a timetable for any such application. Instead, the parties were to agree on orders for the scope of discovery as mentioned and the delivery of affidavit material. Discovery was completed on 14 December 2020.
Ms Baraka states that amongst the documents discovered by Laguna was a 2017 financial statement which recorded that Laguna had a total equity of $1,463 and an income of $39,000 at the end of the 2017 financial year. No other financial documents from 2013 on were discovered.
Ms Baraka states that on 24 December 2020 she wrote to Macpherson Kelley reiterating her concerns as to Laguna’s ability to comply with any adverse costs orders in the event of Mr Ardila successfully defending the hearing of the preliminary issue. She noted that Laguna did not own any real property in Victoria or any other Australian state or territory, only had a paid-up share capital of $5 and that, having regard to the discovered financial documentation, Laguna was not a going concern nor was it a corporate trustee with access to underlying assets or indemnities. On this basis, Ms Baraka requested Laguna provide security for costs in relation to the determination of the preliminary issue. An estimate was made by Ms Baraka that the reasonable costs of Mr Ardila would be approximately $100,932 but indicated that Mr Ardila would be agreeable to accepting the sum of $80,000 as security for the period up to and including the trial of the preliminary issue. Ms Baraka set out in spreadsheet form how the amount of $100,932 being claimed for security was comprised. I shall return to that aspect of the evidence later in these reasons.
In response, Laguna’s solicitors indicated that objection was taken to providing security on the basis that the Court would be reluctant to grant an application for security where the effect would be to stifle Laguna’s right to demonstrate that it was a legitimate shareholder. Macpherson Kelley also stated that the amounts detailed as making up the amount claimed for security were not reasonable or conservative and that Mr Ardila had not demonstrated an arguable basis for seeking such an order.
In her second affidavit Ms Baraka exhibits an extract of the records of the Australian Securities and Investments Commission (‘ASIC’) which disclosed that the directors of Laguna are also directors of a related entity, Realty Laguna Group Pty Ltd (‘Realty’). The relevance of this evidence is that the involvement of the directors of Laguna in that company had not been disclosed by Laguna, nor had their shareholding. Each of the directors of Laguna hold 10 shares in Realty.
Laguna’s evidence in opposition to the application
In his affidavit Mr Alecchi details the directorship and shareholding of Laguna. His mother, Ms Ciamarra, lives in Lima, Peru and has no assets in Australia; similarly, Renato Alecchi, his brother, who lives in Cuzco, Peru and Mariana Alecchi, his sister, who lives in Lima, Peru have no assets in this country. As to his personal position, Mr Alecchi says that he owns no property in Australia and has no more than $330 in his bank accounts. From the beginning of 2021, he has been receiving JobSeeker payments and these have been paid into his Bendigo Bank account. Mr Alecchi states that if Laguna was ordered to pay security for costs, neither he nor any of Laguna’s other shareholders have assets within Australia to satisfy such an order.
Mr Alecchi states that he has an account with the Commonwealth Bank of Australia (‘CBA’) but by reason of the legal fees he has incurred in this proceeding, he is in debt to that bank for $10,827.95. On 13 November 2020, Credit Corp Group wrote to Mr Alecchi informing him that the CBA had assigned all its rights and interests in the debt to Credit Corp Services Pty Ltd and, after observing that he may be experiencing financial hardship, indicated that Credit Corp was prepared to negotiate a payment arrangement to assist in meeting this obligation.
Mr Alecchi states that he commenced employment at the business in around March 2013 as the store manager, with his responsibilities involving banking, payroll and store maintenance. Prior to June 2016, he received payslips which confirmed his gross payment as being $2,080 with a net payment of $1,500. Between June 2016 and April 2018, the payments he received changed and Mr Ardila told him that for tax purposes and to assist with difficulties he was experiencing with his ex-partner, he would pay him $750 a week which would be deposited into his ANZ account. In addition, Mr Ardila said that he would make cash payments to him and these would vary between $1,500 and $2,500 per week. Mr Alecchi states that he considered those payments to be either wages or distributions of profit from the business.
After April 2018, the payments to the ANZ account ceased however he continued to receive cash payments. All payments stopped in around April 2020 and since then he has had no form of income.
In her affidavit of 24 December 2020, Mariana Alecchi deposes that it was always the intention of her family for the business to be a long‑term business investment with Mr Ardila. She states that when she travelled to Australia for the second time with her mother, she had discussions with Mr Ardila about Laguna and Mr Ardila purchasing the freehold at the property at which the business was conducted in Caulfield South. Mr Ardila had suggested that purchasing the land was a good investment and Ms Alecchi prepared a budget relating to it with Laguna and Mr Ardila as business partners. Based on that budget, two options were considered; either a purchase of the land by Laguna and Mr Ardila, or by Laguna, Mr Ardila and another investor. While she was in Australia there was a meeting between herself, Mr Ardila, her brother Mauricio, and the owner of the property at which the business was operated to discuss the purchase. Ultimately, because of taxation advice which had been received, coupled with the unfavourable exchange rate which prevailed at the time it was decided that that the purchase of the property would be too costly and it was decided to lease the premises from which the business was conducted.
Ms Alecchi states that in or around September 2016 to June 2017, on behalf of her brother Mr Alecchi, she discussed the share structure of Laguna with Mr Ardila, who said he wanted to change the structure and create a family trust. It is not clear from the context whether such a family trust would be established to protect the interest of the Alecchi family or Mr Ardila. Ms Alecchi said Mr Ardila told her that he could assist with documents to protect the interest of her family in the partnership. She states that at no point did Mr Ardila mention a transfer of shares.
In her affidavit, Victoria Keller, a principal solicitor with Laguna’s solicitors Macpherson Kelley, deposes as to matters going to what the quantum of any order for security should be. I shall return to that subject later in these reasons.
Legal principles
The application for an order for security for costs against Laguna is brought pursuant to r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), s 1318 of the Act and the Court’s inherent jurisdiction. Rule 62.01(1)(b) provides that where there is reason to believe that the corporate 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 gives security for costs. Section 1335(1) is in similar terms and 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.
Threshold issue
The first matter requiring consideration is whether the threshold condition for the exercise of the power to order security is satisfied, that is, whether there is credible evidence that there is reason to believe that Laguna will be unable to pay Mr Ardila’s costs if Laguna is unsuccessful. That jurisdictional condition must be satisfied before the discretionary power to order for security is enlivened.
In its written submissions, Laguna conceded that the evidence demonstrates that Laguna is a limited liability company with paid-up share capital of only $20 and that it owns no real property. As such, it accepts there is no dispute that, save for the shares it contends that it holds in Southbank, it has no assets to satisfy an adverse costs order and that the jurisdiction to order security is therefore enlivened.[3]
[3]Plaintiff’s submissions filed 28 April 2021, [26].
Exercise of the discretion
The terms of s 1335(1) of the Act direct the Court to consider the plaintiff’s lack of means and its likely inability to meet an order for costs.[4] It was contended by Mr Clement, counsel for Laguna, that there is no rule of law that requires security to be ordered merely because Laguna is impecunious, rather Mr Ardila bears the onus of establishing that an order for security should be made. There are, of course, some discretionary matters in which a plaintiff resisting security is required to establish, for example the discretionary ground commonly called stultification.
[4]See G E Dal Pont, Law of Costs (LexisNexis Butterworths, 4th ed, 2018), [29.5].
The authorities indicate that a corporate plaintiff’s impecuniosity is both a threshold condition to the making of an order and also a substantial factor to be weighed in the exercise of the Court’s discretion as to whether to award security for costs. The Court of Appeal in this State in Ariss v Express Interiors Pty Ltd,[5] stated:
Although of course, like any discretion inferred upon a court, it must be exercised judicially, the discretion confirmed 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.
[5][1996] 2 VR 507, 514 (‘Ariss’).
Mr Richardson, counsel for Mr Ardila, referred to another decision of the Court of Appeal, Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd[6], where Winneke P and Phillips JA observed:
The authorities tend to suggest that the discretion given to the court by s. 1335 to make an order for security against an impecunious company is “open ended” and not to be fettered by rigid guidelines or principles...[7]
[6][1999] 2 VR 191.
[7]Ibid 195.
Despite it being said that the discretion is unfettered, there are numerous authorities considering the exercise of the Court’s discretion to award security for costs which proceed to identify various discretionary categories for consideration.
In Colmax Glass Pty Ltd v Polytrade Pty Ltd,[8] Derham AsJ identified some of the prominent discretionary factors discussed and considered in the authorities. In the context of the present application, the following have particular relevance:
[8][2013] VSC 311 (‘Colmax’).
(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;
(ii)Assessing the plaintiff’s prospects of success is not really a practicable test in any case of reasonable complexity… 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 …
(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 …
(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… In this regard, the authorities make the following points:
(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 …
(ii)There must be a solid foundation for that conclusion …
(iii)The plaintiff carries the onus of satisfying the court on the basis of admissible evidence …
(c)…
(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…
(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…
(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. …[9]
[9]Ibid [20].
Submissions as to the exercise of the discretion
In their submissions, the parties made contentions in respect to the various discretionary factors identified in the authorities which they respectively considered had particular relevance in the circumstances of this case. They collectively identified those as being (i) the merits of Laguna’s claim, (ii) any assumption of risk by Mr Ardila to enter into commercial arrangements with Laguna, (iii) the financial circumstances of those who stand behind Laguna and potential stultification (iv) the cause of the Laguna’s impecuniosity, and (v) delay.
Prospects of success
Mr Richardson made reference to the principle identified in the authorities which pays regards to the merits of the claim and prospects of success. He submitted that courts have typically been reluctant to explore the merits of a case at an interlocutory stage and that the prospects of success are ordinarily regarded only as a neutral matter, particularly where the issues are difficult or complex. He contended that what he described as the default position, namely that the prospects are neutral, is only displaced where “it can be clearly demonstrated ... that there is a high degree of probability of success or failure” or that the case is “hopeless” or “doomed to failure”.[10] I did not understand Mr Richardson to contend that Laguna’s case was not bona fide or arguable or that it was hopeless or doomed to fail.
[10]Citing Dal Pont (n 4) [29.85]; Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276, [83]-[84].
Mr Ardila has not filed substantive material in opposition to the proceeding but as far as it can be gleaned from open correspondence and the submissions of counsel for Mr Ardila at the initial conference on 22 October 2020, he will apparently contend that Laguna was never a beneficial shareholder of the shares in Southbank, rather Laguna’s shareholding was security for a loan which has since been repaid. Mr Ardila would have it that when such loan was repaid, he was personally entitled to appropriate the shares. I note that the ASIC extract in respect of Southbank records that Laguna’s shares were fully paid but states that they were not beneficially owned by it.
Mr Clement pointed to the discovery made by Mr Ardila which included minutes of meeting of Southbank, ASIC Form 484 Change to company details, and a transfer of Laguna’s shares to Mr Ardila, all dated 27 March 2017 and which documented the alleged unilateral transfer by Mr Ardila of Laguna’s shares. The minutes record that Mr Alecchi was in attendance on 27 March 2017 where it was agreed that Laguna would sell its shares to Mr Ardila for ‘$0.00’ consideration. Mr Alecchi disputes that such a meeting ever occurred and denies that such an agreement was ever reached. Indeed, he says, it came as a surprise to him to learn that Laguna was no longer a shareholder in Southbank and he states that he would never have agreed to transfer the shares for no consideration to Mr Ardila or any other person. Similarly, in respect of the transfer of shares, he states that he has never seen that document prior to it being discovered and it does not bear his signature, noting Mr Ardila’s signature is witnessed by his mother.
Mr Alecchi states that it was always his understanding that Laguna held the shares in its own right and in consideration of the contribution made for the purchase of the business. Mr Alecchi states that on 29 April 2020, he received a text message from Mr Ardila the substance of which was that the loan had been repaid with interest and that there was no need for him to attend the business. Mr Ardila also stated in the message that the locks had been changed and that Mr Alecchi should arrange a meeting to “negotiate a goodwill payment from [him] to move on”. Mr Alecchi attended the premises with an associate and says Mr Ardila offered him $300,000 to leave the business.
Mr Clement submitted that the evidence supporting Laguna’s claim is stronger than that which might typically have emerged at an interlocutory stage. Orders were made by consent for Mr Ardila to file his evidence in opposition to Laguna’s claim but he has not done so. As such, he says there is a complete absence of any evidence confronting the claim. In such circumstances Mr Clement submits that the uncontradicted merits of Laguna’s claim are a compelling factor which should be weighed against an order for security; it is more than a neutral case, it is what Mr Clement described as a “radiant feature” weighing against an order of security.
The scenario described in Mr Alecchi’s evidence is a conventional and plausible commercial scenario and on the evidence filed to date, I would not describe the case as a weak one; it has reasonable prospects of success. Despite the opportunity to do so, Mr Ardila has not filed any evidence contradicting it and his position is only to be gleaned from his counsel’s submissions.
I agree with Mr Clement’s submission that this feature is more than a neutral one and should be weighed against an order for security. However, having regard to the fact that Mr Ardila has not filed his evidence and, coupled with the authorities dealing with this issue that state that a Court must be careful in making anything other than a superficial assessment of the parties’ prospects at an interlocutory stage, this is not a feature of significant weight as some others to which consideration ought to be given in the exercise of the discretion whether or not to award security.
Assumption of risk of impecunious plaintiff
In his submissions, Mr Clement contended that it would be reasonable to assume that Mr Ardila considered that it was financially prudent and worthwhile to do business with Laguna, a company with only nominal share capital, at the time of entering into the transaction which is the subject of this proceeding; he considered the risk that litigation might arise from that transaction and chose to proceed. This discretionary factor was the subject of consideration by Derham AsJ in ACN 006 577 162 Pty Ltd (formerly Harrop Engineering Australia Pty Ltd) v Beauville Pty Ltd.[11] Mr Clement submitted that Mr Ardila’s “eyes were wide open that [Laguna] was a limited liability company”, yet he voluntarily entered into the arrangement which is now the subject of Laguna’s claim. He contended that Mr Ardila bore the onus of addressing this factor but has not filed evidence about it and that onus has not been discharged.
[11][2014] VSC 298, [11]-[16] (‘Harrop’).
In response, Mr Richardson submitted that there was no evidence in this instance that Laguna’s financial position would have been evident to Mr Ardila at the time that the relevant transaction, the nature of which is disputed, was entered into in 2013. He also submitted that Laguna’s submission conflates the parties and that in this context the relevant contracting parties are Laguna and Southbank.
In my view, the authorities which were referred to by Derham AsJ in Harrop are set in quite a different context to the circumstances of this case. Those authorities concern proceedings with substantive claims arising from agreements for the supply of goods and services and a hire purchase agreement. The primary claim made by Laguna in this proceeding is that of oppressive conduct; Laguna does not contend that it had a contractual relationship with Mr Ardila of the kind the subject of those authorities. Laguna’s case is that it invested capital in Southbank and Mr Ardila’s contribution was to operate the business. These are not circumstances of the type the subject of consideration, for example, by the Court of Appeal in Coca-Cola Amatil Victoria Ltd v PAA Enterprises Pty Ltd[12] where a significant enterprise, Coca-Cola Amatil, chose to contract with a corporation with little or no assets. Here, there is not such an obvious disparity of financial resources between the parties.
[12][2003] VSCA 135.
Mr Ardila’s case is apparently that the funds advanced by Laguna were in the nature of a loan to Southbank and that the shares were to be held as security for Laguna for repayment of that loan. It would seem that the parties to the alleged loan are Laguna and Southbank and not the parties to this proceeding, Laguna and Mr Ardila.
There is, in any event, no evidence that Mr Ardila was aware of the impecuniosity of Laguna and those associated with it. Rather, the only thing that is clear is Mr Ardila’s presumed awareness that the persons associated with Laguna had the wherewithal to provide $350,000, be it by way of share capital in Southbank as Laguna contends or by way of loan as Mr Ardila would have it. Even if this discretionary factor had application in the context of the subscription of share capital by Laguna in Southbank, it could not be said that Mr Ardila, in the relevant sense, “had his eyes open” when embarking on his involvement in Southbank with Laguna.
I do not accord any weight to this factor in exercising the discretion whether or not to order security.
The wherewithal of those behind Laguna and whether an order for security would stultify Laguna’s claim
These are the predominant discretionary factors Laguna relies on to resist an order for security.
Mr Richardson contended that there is a principle that the Court will ordinarily not decline to order security on the ground it would stultify the litigation unless the impecunious plaintiff can demonstrate that those who stand behind it and who stand to gain from the litigation also lack the financial means to provide security.[13]
[13]Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1, 4; Dal Pont (n 4) [29.22]-[29.26].
In the context of this ground, Mr Richardson made particular reference to the decision of Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd,[14] where her Honour identified two additional features pertinent in this context being:
(a) whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security; and
(b) whether the persons standing behind the company have offered any personal undertaking to be liable for the costs, and if so, the form of any such undertaking.[15]
[14](1995) 56 FCR 189 (‘KP Cable’).
[15]Ibid 197-198.
In Wollongong City Council v Legal Business Centre Pty Ltd,[16] referring to her earlier decision in KP Cable, Beazley JA stated:
There is a further matter to which reference should be made. In some cases, persons who stand behind the plaintiff corporation, or who otherwise stand to benefit from the litigation, may offer to be responsible for the costs. Should that occur, it may provide a reason for the court to exercise its discretion in the plaintiff’s favour and not order security…[17]
[16][2012] NSWCA 245.
[17]Ibid [34].
Mr Richardson made reference to Professor Dal Pont’s work Law of Costs where the author stated:
The Court may, in assessing whether or not to order security, thus pay regard to the financial resources of the persons likely to benefit should the claim succeed. This is in no way inconsistent with s 1335(1) which by its terms contains no requirement that the company itself provide the security. The law’s concern here is the injustice to a defendant, an injury to public confidence in the litigation process, in allowing a third party to finance a plaintiff’s action in the knowledge that it proves unsuccessful, the defendant will be unable to recover his or her costs.[18]
(citations omitted)
[18]Dal Pont (n 4) [29.20].
In Cameron’s Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd[19] Burchett J observed:
What is relevant is that the company is not a stalking horse to enable someone else to evade personal responsibility. If he accepts responsibility, an impecunious natural person is entitled to rely on the general rule that poverty is no bar to a litigant: Barton v Minister for Foreign Affairs (1984) 2 FCR 463 at 469.[20]
[19](1986) 13 FCR 46.
[20]Ibid 53.
In Bell Wholesale Co Ltd v Gates Export Corporation[21], the Full Court of the Federal Court stated:
In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.[22]
(emphasis added)
[21](n 13).
[22]Ibid 4.
Mr Richardson pointed to the evidence given on behalf of Laguna to the effect that those standing behind the company would not be able to meet an adverse costs order from assets in Australia, confining the position to their wherewithal in this country without deposing to what assets they may hold in Peru. He submitted that Laguna, a company without assets, was a stalking horse of the kind referred to in the authorities above and contended that those standing behind the company were not making a full disclosure in respect of their assets. Mr Richardson also pointed to the absence of any statement on their part that if an order for security was made that they would be stultified and unable to proceed with their claim.
Further, he says, Mr Alecchi and the others associated with the company have provided no evidence as to how they are funding their own costs of the proceeding, significant litigation in the State’s most senior Court. On this issue, reference was made by Mr Richardson in this context to the observations of Ormiston JA in Ariss where his Honour stated:
It seems unfair, where this insolvent company has not considerable assets, that, if the defendants are successful, they would be at risk for their costs when substantially all available assets may well have been expended on the plaintiff’s unsuccessful case.[23]
[23]Ariss (n 5) 508.
In this regard, in Harpur v Ariadne Australia Ltd[24] the Full Court of the Supreme Court of Queensland identified the policy underlying this factor as follows:
The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play. If however he is already available for whatever he is worth, the object of the legislation is seen to be satisfied.[25]
[24][1984] 2 Qd R 523.
[25]Ibid 532.
Laguna does not disagree with the proposition that, in order to establish that Laguna’s claim would be stultified, it must not only show that it is without means but that those standing behind it are likewise unable to finance the litigation. Mr Clement submits, however, that Mr Alecchi’s affidavit of 22 March 2021 contains the requisite disclosure of all relevant parties’ financial position including Mr Alecchi’s personal bank statements and that the submission that Mr Alecchi’s disclosure is short of the requisite quality is misplaced.
In response to Mr Richardson’s written submissions that shareholding in another entity, Realty, has not been disclosed, Mr Alecchi states in his affidavit of 28 April 2021 that he, together with Ms Ciamarra, Renato Alecchi and Ms Alecchi are Realty’s directors and shareholders. That company does not own any property or have any other assets and it has no value to its shareholders. He states that there was no reference to it in his earlier affidavit by reason that it had no assets and therefore had no value. I regard that explanation as being plausible and would not draw any adverse conclusions from Laguna’s failure to advert to the existence of Realty and its shareholding in its earlier evidence.
I consider it significant, however, that those standing behind Laguna have, apparently advertently, confined the statements in regard to their asset position to their assets in this country. I am also influenced by the fact that those standing behind Laguna have not offered to guarantee or personally undertake to be liable for any adverse orders as to costs. Other than Mr Alecchi, they all reside in Peru and have not deposed to their asset position or general financial position and income in that country. If there were assets in Peru, they could potentially be encumbered to raise funds to put up security but the position in that regard is not disclosed. Other than Mr Alecchi’s statement that he is indebted for some $10,000 in respect of payment of legal fees, those standing behind Laguna are silent as to how Laguna is presently funding the proceeding and it is not, as Mr Richardson points out, expressly said that if an order for security was made Laguna would be unable to proceed with its claim. It is to be remembered that Laguna bears the onus of establishing this as a discretionary factor which should be weighed against the making of an order for security.
I also note at this point that there is no principle that emerges from the authorities which indicates that further consideration ought to be given to the nature of the proceeding, namely a claim for oppressive conduct under s 233 of the Act, and any increased chance of stultification or other adverse impact on the proceeding if security was to be ordered.[26]
[26]See, for example, Jebb (as trustee for the Trafalgar West Investments Trust) v Superior Lawns Australia Pty Ltd [2019] WASC 121, a decision of Vaughan J who increased the order for security against a self‑represented solicitor plaintiff making a claim for oppressive conduct; Yu v Xu [2018] WASC 4, a decision of Allanson J awarding security for a misleading or deceptive conduct claim, with ss 233 and 461 of the Act claimed in the alternative; Barjeba Pty Ltd v Bogg [2019] WASC 368, a decision of Registrar Whitby to order security for costs for claims which included oppressive conduct; Re Australasian Hail Network Pty Ltd [2020] NSWSC 44, a proceeding claiming relief for oppression and other remedies in which Rees J dismissed an application for security due to the undertaking offered by the natural person plaintiff to cover any adverse costs orders made against the corporate plaintiff. In the consideration of the discretionary factors by Rees J there was no point raised that an oppression proceeding would fall into a special category which weighed against an order for security.
I do not consider that Laguna has established that the proceeding would be stultified by reason that it has not satisfactorily established that those who stand behind it are also without means to provide security. As such this discretionary factor does not weigh against an order for security.
Was the conduct of Mr Ardila the cause of Laguna’s current impecuniosity
Mr Clement submitted that an order for security would be manifestly unfair by reason that Mr Ardila’s unexplained and uncontradicted conduct caused Laguna’s impecuniosity.
Mr Clement noted that Laguna’s case is that, but for the actions of Mr Ardila, it would have a valuable asset, being the shares in Southbank. Further, Mr Alecchi was receiving what are said to be distributions or wages from Southbank which have ceased since the parties fell into dispute. Mr Clement submits that this is a key consideration which weighs against the ordering of security.
This discretionary factor is based on the principle that a Court is unlikely to order security on the ground of the plaintiff’s impecuniosity where that has been caused by the defendant. This enquiry into the defendant’s conduct involves making a judgment as to what would have been the course of events had the alleged cause of action not arisen, and requires at least a provisional determination of the substantive issue of whether the defendant’s acts or omissions caused the plaintiff’s loss.[27]
[27]Dal Pont (n 4) [29.100].
Laguna carries the burden of establishing, by reliance on a solid evidentiary foundation, that Mr Ardila’s conduct was a cause of its current financial position. In Coonwarra Pty Ltd v Cornonero Pty Ltd (No 2)[28] the Court observed:
The fact that the plaintiff’s impecuniosity was caused by the defendant must have a strong evidentiary foundation. This includes, in certain situations, the plaintiff proving through evidence that they were in a good financial state before interacting with the defendant.[29]
(citations omitted)
[28][2019] VSC 702 (‘Coonwarra No 2’).
[29]Ibid [52(b)].
The Court must be satisfied that the defendant’s conduct is the cause of the impecuniosity because otherwise the hearing of the issue for the application for security might become a trial within a trial. It is not enough that the defendant’s conduct is merely a contributing factor, it must be the material contributor to, or cause of the plaintiff’s impecuniosity.[30]
[30]Haskins Contractors Pty Ltd (in liq) v Sydney Airport Corporation Ltd [2002] NSWSC 267, [52].
In this instance, Laguna’s case is that it was incorporated for the purpose of acquiring an asset, namely shares in Southbank which conducted the business and as such, shortly after Laguna’s incorporation it would have it that it had assets of the order of $350,000, being the consideration it paid for its shares in Southbank. Laguna says that Mr Ardila, by appropriating its shares, wrongfully deprived it of that asset when he engaged in the conduct the subject of its claim in this proceeding.
In my view, weighing this factor involves similar considerations to that of prospects of success. If Laguna establishes the wrongful conduct it ascribes to Mr Ardila in its claim then, prima facie, Laguna’s asset position has been rendered parlous by such conduct by reason of the deprivation of its major asset.
Like the factor of prospects of success, in the absence of any compelling feature of Laguna’s position which would render it a fanciful or implausible, I would consider this factor to weigh against an order for security. However, I would not afford it significant weight by reason that to do so would require a more detailed and comprehensive finding as to the merits, an approach which the authorities indicate is not appropriate at an interlocutory stage.
Delay
Mr Clement submitted that Mr Ardila delayed in making the application for security and this has resulted in prejudice to Laguna. Mr Clement stated that it was not sufficient that notice that an application would be made for security was given in October 2020, as the application was not filed for a significant period after that. He submitted that, as the application for security was only made after the defendant’s evidence-in-chief was due, it was open to the Court to infer that the application is being used strategically to stifle a valid claim.
Mr Clement contended that Laguna was entitled to know Mr Ardila’s position as to the requirement of security at an early stage in the proceeding and, importantly, prior to it expending significant funds and resources on the litigation; the expenditure incurred by Laguna will be lost if security is ordered and cannot be provided by Laguna or those that stand behind it. In this regard Laguna has gone to the expense of completing discovery and filing its evidence-in-chief for determination of the preliminary issue.
Orders were made on the papers by consent of the parties in December 2020 for discovery and for the filing of evidence in regard to the preliminary issue. Instead of adhering to those orders which had been agreed to, Mr Ardila commenced the application for security after the date his evidence‑in‑chief was due. Mr Clement identified the period of delay as between 22 October 2020, being the date of the initial conference I conducted in this proceeding, and 8 February 2021, the date on which the summons for the application was filed by Mr Ardila. During that time, it was submitted, Mr Ardila actively agreed to orders being made in relation to the future carriage of the proceeding and the determination of the preliminary issue and allowed Laguna to comply with those orders, with all the costs involved, but did not comply himself. Mr Ardila allowed the time for compliance by him with the orders to run and expire and shortly afterwards, Mr Clement says without any proper explanation, made the present application. Mr Clement contended that in the circumstances Mr Ardila should not be permitted to change tack and seek security.
Mr Richardson contended that there was an absence of any evidence of prejudice of the relevant kind, which Laguna bore the onus of establishing.[31]
[31]Citing United Commercial Projects Pty Ltd v PHHH Investments No 2 Pty Ltd [2019] VSCA 192.
In response, Mr Clement contended that Laguna had suffered prejudice by reason of the expenditure of the costs involved in discovery and the filing of evidence. Mr Clement indicated that Laguna’s evidence-in-chief has been filed so, in that way, it has incurred a majority of its costs save for the costs of the trial of the preliminary issue itself. In exchanges I had with Mr Richardson in the course of the hearing in this application, he accepted that the determination of the preliminary issue was the predominant issue to be determined in the proceeding and its resolution, in practical terms, would mean either that Laguna’s claim failed or, if it was successful, require Mr Ardila to come to terms with Laguna or confront the spectre of Southbank being wound up on the just and equitable ground by reason of deadlock.[32]
[32]Transcript of hearing on 7 May 2021, 4-5 (‘Transcript’).
Although I did voice the view in the initial conference conducted of this matter on 22 October 2020 that an application for security for costs before resolution of the preliminary issue was to be discouraged by reason that it was a distraction to the resolution of the proceeding and by reason of the costs involved in such an application, it was still open to Mr Ardila to bring such an application and the views expressed at that hearing did not prevent such a course.
Mr Richardson submitted that the period of delay described by Mr Clement was not of the order the subject of consideration in the authorities dealing with this discretionary factor, such as applications being made on the eve of trial or when preparation for the hearing of the proceeding was well advanced. Mr Richardson sought to explain the decision to bring this application rather than comply with the Court orders by reference to documents discovered by Laguna. These included its financial statements which he said alerted Mr Ardila and his solicitors to Laguna’s impecuniosity. On 24 December 2020, Mr Ardila’s solicitors wrote a detailed letter to Laguna’s solicitors revisiting the subject of security. Laguna was invited to demonstrate that it would be able to meet any adverse order as to costs otherwise Mr Ardila would persist in seeking security.
I would accept that Laguna has been prejudiced in that it has incurred costs by proceeding with preparing and filing its material concerning the preliminary issue but I also agree with Mr Richardson’s submission that the application has still been made at a relatively early juncture and, when regard is had to the authorities dealing with this discretionary category, I do not consider that the delay is contumelious. The proceeding is ‘front loaded’ in that the preliminary issue, the predominant issue, is being dealt with at an early stage; the criticism which can be made against Mr Ardila is that he did not press his application several weeks earlier and made his decision to do so after consenting to the orders for filing of evidence in mid-December. I would attribute some but not a great deal of weight against the ordering of security to this factor.
Conclusion on discretionary factors
It is necessary at this point to weigh the various discretionary factors that I have considered in determining whether an award for security should be made. I have already described the weight which should be afforded to each discretionary factor but for convenience my opinion is summarised as follows:
(a) Financial position of Laguna: this factor is a very significant one and as well as constituting the satisfaction of the jurisdictional threshold for the making of an order for security weighs predominantly in favour of an order for security;
(b) Prospects of success: this factor is one which weighs against the order of security but not significantly;
(c) Assumption of risk of impecunious plaintiff: I would not attribute any weight to this factor;
(d) The wherewithal of those that stand behind Laguna and whether an order for security would stultify its claim: Laguna has not satisfactorily established that those that stand behind it are also without means and therefore any order would stultify Laguna’s claim and so I do not consider this weighs against the order of security;
(e) Conduct of Mr Ardila being the cause of Laguna’s impecuniosity: I consider that this factor weighs against an order for security but not significantly;
(f) Delay: I consider that this factor weighs against an order for security but not significantly.
The position is finely balanced but in my view results in a conclusion that Laguna should be ordered to pay security.
Quantum
In Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd[33], the Court of Appeal of this State identified the relevant principles for application in the assessment of the quantum of an order for security for costs. It stated:
In deciding what constitutes ‘sufficient security’ for the purposes of s 1335(1), the court does not seek to provide full protection for the estimated costs of the party seeking security. Rather, having regard to the fact that the order for security is usually made at an early stage of a proceeding and there are many contingencies that will affect the actual costs incurred by that party, the court fixes an amount that it considers adequate in all the circumstances of the case. Those circumstances include the nature of the proceeding, the nature and complexity of the steps that need to be undertaken by the party seeking security, the likely costs in undertaking those steps, the length of the trial, any security already provided, and the possibility that the proceeding may settle.
In determining a sufficient amount for security for costs, the court does not undertake precise mathematical calculations. Rather, it adopts a ‘broad brush’ approach involving ‘guesstimates as much as estimates’. However, the broad brush approach does not involve an abstract process. It must have an evidentiary basis. The court must have regard to the evidence adduced by the parties as to quantum — whether in the form of an affidavit by an experienced litigation lawyer or an expert report by a costs consultant — although it is not bound by the parties’ estimates. The court may scrutinise the individual items in the parties’ estimates, but not to the extent of minute examination akin to a taxation.
The amount ultimately fixed by the court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide the security. The amount must be ‘just and reasonable’ in all the circumstances of the particular case.[34]
(citations omitted)
[33][2017] VSCA 293.
[34]Ibid [63]-[65].
In Troiano v Voci,[35] Riordan J observed that it was appropriate to make an allowance for the likelihood that the amounts claimed by the defendant on a taxation would be reduced by the Costs Court.
[35](2019) 61 VR 511, 526[46].
The New Zealand Court of Appeal in National Bank of New Zealand v Donald Export Trading Ltd, [36] after weighing a number of discretionary factors, determined to order that security be provided but observed that when fixing the quantum of security it was appropriate to consider the more meritorious matters put forward in consideration of the discretionary factors that weighed against an award for security.In Bruce Pie & Sons Pty Ltd v R H Mainwaring, English and Peldan[37], McPherson J observed that:
… the quantum of the security to be provided is a matter for discretion. Among the considerations relevant to the exercise of that discretion are the apparent prospects of success, or absence of them, if discernible; and that the order for security should not be the means of effectively denying the plaintiff his right to pursue his claim. That consideration must necessarily carry less weight where the plaintiff is not an individual but an insolvent corporation, and where, as here, no offer has been made by those (whether they be secured creditors or the shareholders) who are evidently providing the plaintiff with sinews of war to meet any costs that may be awarded against the plaintiff. It follows that, without provision of adequate security, the defendants cannot hope to recover anything, not even so much as a dividend from the assets of that company, in satisfaction of any costs order that they may obtain.[38]
[36]National Bank of New Zealand Ltd v Donald Export Trading Ltd [1980] 1 NZLR 97, 103.
[37][1985] 1 Qd R 401.
[38]Ibid 404-405.
It would seem to follow that the weaker the plaintiff’s case appears to be on the merits, the stronger the defendant’s case for security and the less chance that the court will discount quantum, with the reverse also true.
Mr Richardson contended that the Court has jurisdiction when fixing the quantum of security to include costs which have already been incurred. As has been mentioned, Mr Ardila’s solicitors wrote to Laguna’s solicitors on 1 October 2020 and 24 December 2020 in relation to the position as to security for costs but were rebuffed. At the initial conference of the matter on 22 October 2020, it is fair to say that I discouraged Mr Ardila from making such an application and instead encouraged the parties to agree on orders for the expeditious hearing of the preliminary issue.
In my view, the delay in this context is not of the degree which would warrant reduction of the quantum of security. In any event, other than discovery (and those costs associated with the making of this application which is a separate matter) Mr Ardila has not incurred significant legal costs in defending the matter.
Mr Ardila’s evidence as to quantum
In her affidavit of 8 February 2021, Ms Baraka, who is the solicitor having the conduct of the proceeding on behalf of Mr Ardila, describes her experience in litigation. Ms Baraka indicates that since commencing practice in 2008, she has prepared many cases for trial and also been involved with the question of costs of proceedings and participated in the preparation of costs estimates and taxations.
Ms Baraka wrote to Macpherson Kelley on 24 December 2020 she indicated that the quantum sought by Mr Ardila up to and including the trial would of the order of $100,000 but stated, as mentioned, that Mr Ardila would accept the sum of $80,000 as security up to and including the trial of the preliminary issue.
Mr Ardila seeks security of approximately $100,000 in this application. Ms Baraka details the amount as comprising several categories, being discovery, affidavit evidence, directions and trial. Certain of the items for which a claim for security is made are in respect of costs which have already been incurred. Discovery was completed on 14 December 2020 and is estimated to be an amount of nearly $7,700. Despite that cost having been incurred in December 2020, it is expressed in terms of being an estimate only.
A total of just over $36,000 claimed for security is in respect of affidavit evidence. Of that sum, approximately $7,000 is in respect of consideration of Laguna’s evidence including the affidavits in reply. An amount of approximately $17,000 is claimed for the drafting of affidavit evidence and preparation of exhibits. It is said that this will occupy a partner for 11 hours and 30 hours for a lawyer assisting that partner. An amount of $4,500 is claimed in respect of counsel settling that affidavit evidence and $7,500 is claimed for seeking instructions from the client, correspondence and advice to the client. This is said to be comprised of 10 hours of a partner’s time with eight hours for a lawyer assisting that partner.
The amount claimed for directions, approximately $5,500, is unclear as to whether this is for a directions hearing already conducted or a future cost. A claim is made for three hours for a partner engaged in that task and five hours for a lawyer assisting the partner. An amount of $2,250 is claimed for counsel, the same figure as that said to be appropriate by Ms Keller, Laguna’s solicitor.
Ms Baraka estimates that the trial of the preliminary issue will require a four day hearing at a cost of approximately $51,500. Ms Baraka estimates that the preparation for that trial will require two days of partner time, with that partner also attending all four days of the trial, approximately $20,000. Counsel’s fees are claimed for three days preparation and there is an allowance for an appearance for four days at the hearing of the matter, a total of approximately $31,500.
Laguna’s evidence as to quantum
In her affidavit, Ms Keller states that she is a principal solicitor at Macpherson Kelley, Laguna’s solicitors. She describes her experience as a litigator extending back 15 years both in Australia and in the United Kingdom. She has been a director or principal solicitor for approximately six years and has acted in and had conduct of numerous Supreme and Federal Court proceedings that have gone to trial as well as matters which have proceeded to the High Court. Like Ms Baraka, she is an experienced commercial litigator.
Ms Keller critiques Ms Baraka’s affidavit evidence as to quantum. In particular, she observes that Ms Baraka’s estimate seeks to capture costs incurred in respect to discovery and Laguna’s evidence, which she contends is not reasonable or appropriate as those steps were undertaken prior to the filing of the application for security. She observes that the parties made discovery by 14 December 2020 and Laguna filed further evidence-in-chief on 21 December. Each party filed and served an affidavit of documents in mid-December and Laguna filed further evidence-in-chief on 23 and 24 December 2020.
Ms Keller estimates that Mr Ardila’s future costs in defending this proceeding up to and including the trial on the preliminary issue are approximately $41,000. She makes no allowance for costs which have already been incurred. Ms Keller estimates Mr Ardila’s affidavit evidence will entail a cost of $10,350. She allows a total of $2,750 in respect of directions hearings, which includes a component of $2,250 for counsel.
Ms Keller makes no allowance for discovery, presumably because she makes allowances only for costs to be incurred in the future. She also makes significantly less allowance for the preparation of affidavit evidence than Ms Baraka and only makes allowance at the directions hearings for the attendance of an employed solicitor and not a partner. Ms Keller only allows for a trial of the preliminary issue of two days rather than four as claimed by Mr Ardila and allows a total cost of approximately $28,000 for the trial of the preliminary issue. Those costs include two days’ preparation for counsel, and two days counsel’s fees for appearance at the same rate as that claimed by Ms Baraka.
The figure allowed for preparation for the trial by the solicitors involved is significantly less than that claimed by Mr Ardila and rather than a partner instructing at the trial, a employed solicitor is allowed for.
Ms Keller contends that her estimate of Mr Ardila’s costs is reasonable for several reasons. First, it presumes that a lawyer will undertake the majority of the preparatory work with the partner attending to the settling of matters. Secondly, it presumes costs will be kept proportionate to the issues in dispute and the fact that the parties are concerned with the determination of the preliminary issue. Thirdly, it does not capture costs incurred with respect of discovery, or that of considering Laguna’s evidence-in-chief.
She concludes her affidavit by contending that in her experience the amounts claimed are often ‘discounted’ to account for, amongst other things, the principle that a defendant ought not to obtain a complete indemnity for their anticipated future costs and the possibility that the proceeding may settle. Ms Keller states that her estimate of $41,050 does not incorporate such a discount and that if a 20 per cent discount were applied to that figure the amount which is appropriate to be allowed would be $32,840.
Submissions
Mr Clement submitted that Mr Ardila bears the onus of establishing his claim for security and that this includes quantum.
Mr Richardson submitted that, as to the quantum of the security which should be provided, there is no principle which prohibits ordering security for past costs and contended that, in fact, in almost all circumstances an order for security will include some past costs. He stated that consideration of that issue will an enquiry as to whether there has been delay, and if there has not, there can be no objection to the award of security for past costs. In addition, if a plaintiff seeks to contend that there has been a delay which warrants a denial for an order for past costs, the plaintiff bears the onus of establishing the existence of prejudice of the relevant kind such as, for example, demonstrating that the plaintiff has already incurred substantial legal costs in bringing the proceeding which would be wasted if an order for security was not able to be met and the proceeding was stayed.
Mr Richardson submits that Ms Baraka’s estimate as to quantum should be preferred because Ms Keller makes no allowance for discovery and her allowance for solicitors in relation to directions is “woefully inadequate”. Further, Ms Keller predicates her costs for the preliminary trial on a two day hearing, however, he contended, the preliminary issue will require viva voce evidence from several witnesses on significant disputes as to the facts and Ms Baraka accurately assumes that the trial of the preliminary issue would take four days. Ultimately, when pressed at the hearing of this application on the duration of the preliminary issue, Mr Richardson accepted that it would take between three and four days.[39]
[39]Transcript, 42:15.
As to duration of the trial of the preliminary issue, Mr Clement states that two witnesses will be called by Laguna, each of whom have already filed short affidavits. By way of contrast, Mr Clement submits, Mr Ardila has filed no evidence or material on oath as to how many witnesses he will call and as such there is no evidence to support the submission that the preliminary issue would require a four day hearing. The orders contemplated, in the usual manner, that evidence-in-chief be given by affidavit and as such an estimate as to how long cross-examination will take is near impossible without Mr Ardila explaining what evidence will be given by whom. As a result, submits Mr Clement, Mr Ardila has not discharged his onus in this regard.
Further, Mr Clement submitted, the Court can draw an adverse inference from the absence of any material from Mr Ardila, namely that the evidence relied on by him in the proceeding will not be substantial. I am not prepared to accept that submission.
Mr Clement submits that the preliminary issue raises no complex legal issues and as such a two day estimate is appropriate for the hearing but that ultimately it is for the Court to decide on its anticipated length to inform the question of quantum. In response, Mr Richardson says it would defeat the principles underlying security applications if those seeking security were required to put on their evidence in order to succeed with their application for security. It could, submitted Mr Richardson, result in a catch-22 situation.
I accept the submissions of Mr Clement as to the duration of the trial of the preliminary issue. I observe at this junction that the trial will be conducted by affidavit and court time will be predominantly preoccupied with cross-examination on those affidavits. The parties will be required to file written submissions to which they will be entitled to speak but written submissions are designed to truncate court time. Taking those factors into account I consider, for the purpose of the present exercise, that assessment of the quantum should assume that the trial of the preliminary issue will occupy two days.
As to who should perform the tasks involved in the preparation of the trial of the preliminary issue, Mr Clement submitted that the majority of such tasks should be performed by an employed solicitor and not a partner; that solicitor’s work would be settled by the partner. Mr Richardson responded that according to the Supreme Court Scale of Costs[40], which forms the basis of Ms Baraka’s estimates as to quantum, there is no difference between the costs claimed by a partner as opposed to a junior solicitor.
[40]Appendix A of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
As to past costs, Mr Clement submits that Laguna understood from the hearing on 4 March 2021, being the hearing at which directions were made for the security application, that Mr Ardila would not be claiming past costs and Laguna prepared its application accordingly. Mr Clement observes that there could be no estimate as to discovery costs by Mr Ardila as these costs have already been incurred and as such there needs to be disclosure as to actual costs. Further, he submits that the authorities show a reluctance of Courts to award security for past costs and that past costs are not warranted in this case.[41]
[41]See Manderson M&F Consulting v Incitec Pivot Ltd [2012] VSC 618, [19]-[23].
Mr Clement submits that Ms Nabila’s evidence ought not be accepted because:
(a) it improperly includes estimates for past costs relating to discovery;
(b) it does not identify how many witnesses Mr Ardila will call, therefore the estimates relating to affidavit evidence are impossible to assess. Further, the estimate for the preparation of affidavit material, $36,192, was excessive and unrealistic for a preliminary issue on a narrow point;
(c) the claim for costs of $3,336 for solicitors’ preparation (employed solicitor and partner for a total of eight hours) for an unspecified directions hearing is excessive. He contended that two hours’ work by one lawyer is sufficient, given that an allowance is accepted for one half day for counsel to do the same work;
(d) an estimate of $51,516 relating only to preparation for trial and attendance at trial of a preliminary issue is excessive and not justified on the evidence before the Court. As it stands, there are two witnesses for the hearing of the preliminary issue and the estimates of Ms Keller ought to be preferred as they are realistic and make appropriate concessions. I will again note that I consider it is appropriate to assume for the purpose of this exercise that the trial of the preliminary issue will only occupy two days and not four; and
(e) if the defendant indeed seeks security in the sum of $100,000, such a claim would represent a complete indemnity, rather than standard costs (i.e., party‑party on taxation) and without discount, which is not the approach the Court is required to take in fixing quantum.[42]
[42]Coonwarra Pty Ltd v Cornonero Pty Ltd [2018] VSC 333 (‘Coonwarra’).
Mr Clement further submits that Ms Keller’s estimate of costs of Mr Ardila totalling $41,050 is the upper limit and the Court should adopt the “usual discount” that is applied in security applications. Mr Clement says this discount should be at least 25 per cent, although a higher discount could be applied if regard is had to the deficiencies in Mr Ardila’s material. In response, Mr Richardson contended that the Supreme Court scale of costs is itself the conservative approach and that discounts are not applied to costs quantified on that basis.
As to the form of security, Mr Clement submits that payment into Court or bank guarantee are the usual form security takes and that this should be the form if security is ordered.
Consideration of quantum
Derham AsJ observed in Coonwarra:[43]
In ordering security for costs the Court does not set out to give complete and certain indemnity. It is necessary to look at costs both in the broad, as well as scrutinizing the individual items – but not to the extent of minute examination. Descending into too much detail does not assist in the conduct of the exercise because by its nature it is necessarily imprecise and requires guesstimates as much as estimates. The process of estimation embodies, to a considerable extent, necessary reliance on the feel of the case after considering relevant factors. There must, however, be some substantiation of the likely standard costs to enable the Court to determine an appropriate amount of security based on estimated probable costs, insofar as those costs can be ascertained.[44]
(citations omitted)
[43]Ibid.
[44]Ibid [71].
For the purpose of consideration of what amount will be ordered to be provided for security, I will adopt the categories of costs used by Ms Baraka in her affidavit. At the outset it is to be remembered that the applicant for security bears the onus and this includes the quantum of security to be ordered, as the Full Court of the Supreme Court of South Australia observed in Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd:
It may be accepted as a matter of principle that a party seeking security for costs should be required to provide to the court all information in its possession which is relevant to the question whether security should be ordered and the amount thereof.[45]
[45]Remm Construction (SA) Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180, 185.
Discovery
This task has been completed and as such the cost had been incurred by the time of the making of the application for security. The amount sought by Mr Ardila is expressed by Ms Baraka to be an estimate[46] whereas the actual figure should be known. Further, it is not clear if the claim made for counsel perusing is in respect of a cost that has already been incurred or is a prospective claim. I do not consider the evidence to have discharged Mr Ardila’s onus and it does not appear that he has provided the Court with all information in his possession relevant to the quantum of this category. I am not persuaded that Mr Ardila should be awarded security for this item.
[46]Affidavit of Nabila Baraka sworn 8 February 2021, [18].
Affidavit evidence
Ms Baraka’s affidavit did not provide detail as to how many witnesses would be called on behalf of Mr Ardila; Mr Richardson stated from the bar table that there would be three or four witnesses. The composition of the amount claimed for affidavit evidence, approximately $36,000, is described in paragraph 88 above. On my calculation this task is said to occupy some 76 hours. A total of 41 hours is claimed by Mr Ardila for drafting of affidavits together with some 18 hours for obtaining instructions. This, to my mind, is an extraordinary figure for a hearing which in my estimation will only occupy two days. A further 17 hours is claimed by Mr Ardila for consideration of Laguna’s evidence. Laguna’s evidence-in-chief has apparently been filed and it could not be said, in my opinion, to be anywhere near such extent to require such examination, consideration and reflection.
Ms Keller’s evidence is that an amount of only $10,350 should be allowed in respect of such matters. On my calculation she allows only approximately 26 hours for obtaining instructions, drafting, counsel fees, perusal and consideration of affidavits in reply, both by the solicitors and counsel. I consider that estimate to be unrealistically low.
I consider that an appropriate amount to be ordered in respect of this category is $20,000.
Directions hearing
Mr Ardila makes a claim for $5,586 for a directions hearing, an allowance of eight hours of solicitor time together with an allowance for counsel. Ms Keller regards the appropriate allowance for this category as being $2,800. The disparity in these two figures arises by reason that Ms Keller makes an allowance only for an employed solicitor for two hours in preparation for attendance at the directions hearing whereas Ms Baraka claims three hours for a partner’s time and five hours for an employed solicitor. Both parties are agreed that counsel’s fees should be allowed at $2,250. I accept Ms Keller’s contention that it is only appropriate to allow two hours preparation by a solicitor. I will allow $2,800 for this item.
Hearing of the preliminary issue
As I have said, I consider it appropriate that quantum should be set on an allowance of a two day trial for the preliminary issue. I consider that Ms Keller’s estimates, for the most part, should be adopted. In this regard, I consider the estimates made by Ms Baraka for preparation by the solicitors for trial, 16 hours, to be excessive. Ms Keller allows 1 day and three hours for a total of $4,400, which in my view is an appropriate allowance.
I also agree with Ms Keller’s estimate for the attendance of a solicitor at the trial of the preliminary issue, a total of $5,500.
I also consider that the amounts estimated by Ms Keller for counsel for preparation of two days and attendance at a trial of two days, a total of $18,000, are within an acceptable range.
The total quantum for security in light of the above consideration is $50,700.
Discount
Mr Clement submitted that the Court, in exercising its discretion, should apply a discount to the amount initially arrived at. That submission would seem to be based on the authorities referred to in this context by Derham AsJ in Coonwarra.[47] The application of the discount is designed to take into account the vicissitudes of litigation including the chance of the matter resolving prior to trial, the prospects of success and the probability that on a taxation of costs the amount ordered in favour of the defendant may be reduced.
[47]Coonwarra (n 42) [76]-[77].
I note that because Laguna has not established the stultification factor, that cannot be brought to account in the application of the discount here. I also take into account the fact that the Court is not required to give Mr Ardila complete indemnity for his costs and the Court adopts a broad brush assessment having regard to the evidence before it. I consider that a discount of 10 per cent should be applied and I will order that Laguna provide security of $45,630.
The parties should attempt to reach a form of order in compliance with these reasons. My preliminary view is that the costs of the application should be reserved but if the parties wish to agitate that issue, they should each file and serve a short submission directed to that issue and I will determine the matter on the papers.
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