SX Projects Pty Ltd (in liquidation) v Battaglia

[2016] NSWSC 1385

Supreme Court

New South Wales

Medium Neutral Citation:	SX Projects Pty Ltd (in liquidation) and Anor v V Battaglia and Ors [2016] NSWSC 1385
Hearing dates:	7 September 2016
Decision date:	07 September 2016
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	The Court orders that the application for security for costs be dismissed. The Defendants pay the Plaintiffs’ costs of the application.
Catchwords:	Practice and procedure — Security for costs — Application for security for costs – where proceedings brought against defendants by company and liquidator of company – where company’s claim against defendants was distinct from the liquidator’s claim although the claims shared a substantially common factual basis – where defendants sought security for costs against the company – whether jurisdiction under s 1335 of the Corporations Act 2001 (Cth) or r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) established – whether security for costs should not be ordered in circumstances where there is a natural person plaintiff and corporate plaintiff in the proceedings – whether security for costs should not be ordered in circumstances that defending the company’s claim is likely to add little additional cost to the defendants beyond that which would be incurred in meeting liquidator’s claim – whether defendants’ conduct was causative of company’s impecuniosity – whether an order for security for costs would stultify the proceedings.
Legislation Cited:	- Corporations Act 2001 (Cth), s 1335 - Uniform Civil Procedure Rules 2005 (NSW), r 42.21
Cases Cited:	- Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4; 52 ALR 176 - BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 - Dalma Formwork Pty Ltd (admin appt) v Concrete Constructions Group Ltd [1998] NSWSC 472 - Funds First Pty Ltd v Owners Corporation Strata Plan 66609 (No 2) [2008] NSWSC 428 - Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2014] NSWCA 224 - Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 - Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 - Jazabas Pty Ltd v Haddad [2007] NSWCA 291; (2007) 65 ACSR 276 - Maples v Hughes [2002] NSWSC 617 Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385 - Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 - Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317
Category:	Procedural and other rulings
Parties:	SX Projects Pty Ltd (in liquidation) (First Plaintiff) Geoffrey Reidy in his capacity as liquidator of SX Projects Pty Ltd (in liquidation) (Second Plaintiff) Vince Battaglia (First Defendant) Fellmane Pty Ltd (Second Defendant) Bianca (NSW) Pty Ltd (Third Defendant) Contact Constructions Pty Ltd (Fourth Defendant) Karen Battaglia (Fifth Defendant)
Representation:	Counsel: D J Cook (Plaintiffs) M Painter SC/T L Bagley (Defendants)   Solicitors: William James (Plaintiffs) Piper Alderman (Defendants)
File Number(s):	2016/109679

Judgment – ex tempore (revised 8 sEPTEMBER 2016)

1. By Notice of Motion filed on 30 June 2016, the Defendants, Mr Vince Battaglia and others, seek an order under s 1335 of the Corporations Act 2001 (Cth) or Pt 42 r 21 of the Uniform Civil Procedure Rules 2005 (NSW) that the First Plaintiff, SX Projects Pty Limited (in liq) ("Company") provide, within 14 days, security for the costs and disbursements of the Defendants in relation to the claim made by the Company. That security is sought in the sum of $312,660.08, or such other amount as the Court deems appropriate, by way of payment into Court or in such other manner as the Court may determine. An order is also sought that the claim made by the Company be dismissed, if the security is not provided within 14 days, or otherwise that it be stayed.

The affidavit evidence

2. I will first refer to the evidence on which reliance is placed in respect of the relevant applications. I will then address the parties' submissions, before turning to the applicable law and reaching a conclusion in respect of the application. The Defendants rely on an affidavit of their solicitor, Mr Thomas Russell, dated 30 June 2016. I will not set out the content of that affidavit in full, but I will identify some aspects of Mr Russell's evidence which are relevant to the conclusions that I will reach below.

3. Mr Russell sets out the nature of the Company's claim in its Amended Summons and Points of Claim, and rightly recognises that that claim is distinct from a claim made by Mr Geoffrey Reidy, the Company's liquidator, in respect of other aspects of the proceedings. Mr Russell points out that that claim involves allegations of breach of statutory director’s duties on the part of Mr Battaglia, and also allegations that other entities which are defendants in the proceedings were involved in Mr Battaglia's alleged breach of duties. The relevant conduct involves certain payments made out of what is described as a "security account" maintained by the Company, which are in turn alleged to have funded payments to other entities. It will not be necessary, and it is not appropriate, to seek to address the substance of those allegations in this application, where it is not necessary to do so in order to determine the application for security for costs.

4. Mr Russell rightly recognises that, by contrast, Mr Reidy's claim relates to alleged voidable transactions between the Company and the Defendants, but also identifies at least a degree of overlap in respect of the respective relief sought. Ms Painter, who appeared with Mr Bagley for the Defendants, fairly also accepted in submissions that there was substantial identity of the factual matters alleged in respect of the relevant claims, although she also fairly submitted, and I accept, that the existence of that factual identity does not necessarily have the consequence that a claim for breach of director’s duties will succeed, where claims for voidable transactions by the liquidator succeed, or vice versa.

5. Mr Russell also points to evidence as to the Company's impecuniosity, which was not ultimately contested in this application, other than for a submission based on the possibility of recoveries by the liquidator to which I will refer below.

6. Mr Russell also sets out a detailed outline of his quantification of past, and estimate of future, costs and disbursements which would be incurred by the Defendants in respect of the conduct of the proceedings. I put the matter in that way deliberately, because it is plain that what Mr Russell has done is to address the costs of defending the proceedings as a whole, being both the claim maintained by the liquidator and the claim maintained by the Company, rather than undertake a separate assessment of the costs of defending the claim brought by the Company. That is perhaps not surprising since, if the underlying factual issues are substantially the same, then the costs of the conduct of the proceedings, in respect of either claim, may largely relate to the preparation of the same or substantially the same evidence. In paragraph 30 of his affidavit, Mr Russell then estimates that 60% of the costs and disbursements to be incurred by the Defendants will relate to the defence of the Company's claim and, implicitly, that 40% of those costs and disbursements will relate to the defence of the liquidator’s claim. With all respect to Mr Russell, that is no more than a bare assertion of that matter, and no attempt is made to identify the reason that such an allocation of costs is appropriate as between the two claims.

7. The Plaintiffs, the respondents on the security for costs application, in turn rely on an affidavit of the liquidator, Mr Reidy, dated 26 July 2016, which refers to the background to the proceedings and identifies several of the transactions which are in issue in the proceedings. As I have noted above, it is not generally necessary or appropriate in a security for costs application to have regard to the detail of the matters alleged, or the prospects of the allegations, at least where it is not suggested that a claim is not genuinely arguable, and no such suggestion is made here. Importantly, however, Mr Reidy also refers to the fact that he has unsuccessfully sought funding from some creditors of the Company in these proceedings. He also refers to the outcome of his initial investigations which suggest that the assets of at least three of the Defendants may have been dissipated, or are alternatively held in trust structures which he notes may make recoveries against them difficult to achieve. Mr Reidy does not there refer to any attempts which have been made to obtain litigation funding, a matter on which Ms Painter relies in submissions.

8. The Plaintiffs also rely on an affidavit of their solicitor, Mr Wyhoon, dated 2 August 2016, which advances criticisms of the basis on which Mr Russell has quantified past costs incurred, and estimated future costs, in this application and expresses the view that, if security were to be ordered, contrary to the Plaintiffs' position, the amount claimed by the Defendants is excessive and a lesser amount should be allowed, and such security should be ordered only on a staged basis. The proposition that such security should only be ordered on a staged basis, consistent with the common practice of the Court, is now common ground.

The threshold for a security for costs order

9. I turn now to the parties' submissions in respect to the security for costs application. I have been assisted by the careful written submissions provided by Counsel, and by the efficient way in which the application was addressed in oral submissions. I will limit this judgment to dealing with those matters which are ultimately necessary in order to determine the matter, and it will not be necessary to deal with all aspects of those submissions for that purpose.

10. Ms Painter submits, first, that there can be no doubt that the threshold jurisdictional issue, in respect of the Company's impecuniosity is met, so far as the Company is in liquidation and the resources available to it are likely to have been exhausted. Ultimately, that matter was not in contest, other than for the question of any recoveries that may be made by the liquidator to which I refer below. That jurisdictional requirement arises under both s 1335 of the Corporations Act and r 42.21 of the Uniform Civil Procedure Rules, and I should here refer to the relevant aspects of those provisions.

11. Section 1335 of the Corporations Act provides that, where a corporation is a plaintiff in any action or other legal proceeding, the court may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the defendant’s costs if successful in its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. Rule 42.21 of the Uniform Civil Procedure Rules in turn provides that, if in any proceedings, it appears to the court, on the defendant’s application, that there is reason to believe that a plaintiff being a corporation will be unable to pay the defendant’s costs if ordered to do so, the court may order the plaintiff to give such security as it thinks fit, in such manner as the court directs, and again authorises a stay of the proceedings until that security is given. Rule 42.21(1A) in turn identifies several matters to which the court may have regard in determining whether it is appropriate to make such an order, including the prospects of success or merits of the proceedings, the genuineness of the proceedings, the plaintiff’s impecuniosity, whether that impecuniosity is attributable to the defendant’s conduct, whether the plaintiff is effectively in a defensive position (not relevant here), whether an order for security for costs would stifle the proceedings, and whether the proceedings involve a matter of public importance.

12. I should note, for completeness, that the court also has an inherent power to order security as an incident of its control over its own practice and procedure to procure the proper and effective administration of justice: Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 at [34]. I should also note that the issues which generally arise in a security for costs application, and which are addressed by the parties in this application, were identified by Brereton J in Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 at [6] as whether the grounds referred to in s 1335 of the Corporations Act or r 42.21 of the Uniform Civil Procedure Rules are established; if those grounds are established, whether an order for security for costs should be made as a matter of discretion; and the quantum of any order to be made and the terms on which it should be made.

13. It is common ground that, putting aside any prospect of recoveries arising from success by the liquidator in its claim in the proceedings, the Company would be unable to pay the costs of the proceedings. That is not surprising where the Company is in liquidation. Mr Cook developed a submission that the Company's ultimate ability to pay the costs of the proceedings may be improved if the liquidator is successful in his claims, and contended that particular claims by the liquidator for the recovery of specified amounts had strong prospects of success. I am not persuaded by that submission for two reasons. First, it seems to me that the court should generally decline an invitation in a security for costs application, which this submission involves, to engage in an evaluative assessment of the aspects of contested claims of this kind, where that would significantly overlap with the ultimate merits of the proceedings. It seems to me that it would be very difficult to reach such an assessment, at least in this case, without either predetermining matters which ought not to be determined until after a hearing on the merits, or dealing with matters which will only arise at a final hearing. In the present case, it also seems to me that there would also be no utility in undertaking such an inquiry, even if it were otherwise appropriate to do so, because funds recovered by the liquidator would be subject to prior claims, including for the costs of the proceedings and the liquidator's remuneration, before they became available to the Company to meet a claim for costs against it. Even if it were assumed, for the sake of argument, that the liquidator had strong prospects of success in respect of parts of his claim, it would not follow that sufficient monies will be available to the Company to meet an adverse costs order against it, if it is unsuccessful in its claim against the Defendants.

The relevance of the liquidator’s claim

14. The next question which arose is whether the fact that in this case there is both a natural person plaintiff, the liquidator, and the Company as a corporate plaintiff, is such that security for costs should not be ordered. Mr Cook did not contend that the involvement of the liquidator as a natural person plaintiff had the necessary consequence that security for costs should not be ordered, but he did submit that, in the particular circumstances, it had the consequence that security for costs could not be ordered, at least in the substantial amount for which it is sought. That raises both legal and, to some extent, factual questions.

15. This issue has been considered in Maples v Hughes [2002] NSWSC 617, and, subsequently, Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 at [84], Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 and Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385 at [16]ff. In Maple v Hughes above, to which Ms Painter draws attention, the Court held that security for costs may be ordered where there is a natural plaintiff and a company joined as plaintiffs, although such an order would not generally be made if the overlap of claims is such that the natural person would, in the ordinary course, be liable in costs if the claims failed. In that case, security was refused where the claims of the relevant parties were completely interlocked, such that costs would ordinarily follow the event in the outcome. In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd above at [84], Bergin J (as her Honour then was) observed that that result depended upon the complete overlap or identity of issues, such that the outcome of the case was likely to be the same for the Plaintiffs who were a natural person and a corporate entity. In Street v Luna Park Sydney Pty Ltd above, Brereton J in turn observed that there would not be an identity of issues, for relevant purposes, if the causes of action were different. In this case, it seems to me, and I do not understand Mr Cook to have contested, that the fact of a substantial overlap of the factual issues does not have the consequence that there are not potentially different outcomes, where a claim by the liquidator succeeds and a claim by the Company fails, or vice versa. Accordingly, it seems to me that Mr Cook was correct to recognise that the Court's ability to order security for costs is available in this case.

16. There is, however, an associated aspect of that overlap to which Mr Cook refers, and which I should now address. The consequence of the recognition of a factual overlap in the liquidator’s and the Company’s cases is that, if the case were brought by the liquidator alone, the costs that the Defendants will incur in dealing with the factual matters raised by it would be substantially all of the costs that they will incur when the Company is joined as an additional party to the proceedings. That proposition remains true where, as here, the Company initiated the proceedings and the liquidator was subsequently joined as a further plaintiff in respect of additional claims. To put that proposition another way, the marginal cost to the Defendants of the defence of the proceedings is not substantially increased, where the liquidator brings claims as a party in them, by the addition of further claims brought by the Company by reference to the same facts. The significance of that matter was recognised by Brereton J in Funds First Pty Ltd v Owners Corporation Strata Plan 66609 (No 2) [2008] NSWSC 428 at [13], where his Honour, having previously dealt with the position where there is not a complete identity between the claims by a corporate plaintiff and an individual plaintiff, observed that in that case, the defendants were no worse off as a result of the joinder of the first plaintiff and their costs were not significantly increased by the inclusion of the first plaintiff among the plaintiffs. His Honour noted that the inclusion of the first plaintiff in that case had not substantially enlarged the case that would have been run were the second and third plaintiffs the only plaintiffs, and on that basis declined to make an order for security for costs against the first plaintiff.

17. In the course of submissions, I raised with Counsel whether his Honour's approach involved treating the additional costs incurred in defending a corporate plaintiff's claims as marginal costs, beyond the costs incurred in defending the natural person's claims, and whether that was an appropriate approach. I recognise that, in any subsequent assessment of costs, it is to be anticipated that a defendant who has successfully defended a claim by a corporate plaintiff may well seek to allocate costs that are incurred to that defence, and not merely the marginal costs that are incurred to that defence, in seeking to recover those costs. Having said that, Mr Cook submits that the rationale for his Honour's approach is that the jurisdiction which is here exercised is protective of a defendant faced with a claim by an impecunious corporate plaintiff. The defendant, in the case to which his Honour referred, and in this case, already faces the costs of defending the proceedings brought by a natural person, and is only worse off, so far as a corporate plaintiff is joined to a claim with a substantially identical factual underpinning, to the extent that additional costs would be incurred in defending that claim.

14. It seems to me that the approach adopted by Brereton J in Funds First Pty Ltd v Owners Corporation Strata Plan 66609 (No 2) above properly reflects the potential detriment to which a defendant is exposed, when a claim brought by a corporate plaintiff and a claim brought by a natural person with a common factual basis are joined in the same proceedings. That proposition in turn has two significant consequences. The first is that, adopting the approach which was adopted by Brereton J in that case, there is reason, in this case, not to award the very substantial sum that is sought by way of security for costs, where the Company’s claim is brought in parallel to, and has a substantially common factual substratum to, the liquidator’s claim against the Defendants and is likely to involve little real increase in the costs to which they are exposed in the defence of the proceedings. The second is to highlight the difficulty which arises from Mr Russell's approach of allocating the majority of the costs to the defence to the Company's claim in his affidavit evidence, without any explanation of why the approach should be adopted.

Whether the Defendants’ conduct was causative of the Company’s impecuniosity

19. The next issue which was raised, by way of defence to the application for security for costs, was a proposition that the conduct of the Defendants was causative of the Company's impecuniosity. Ms Painter rightly draws attention to the approach adopted in Dalma Formwork Pty Ltd (admin appt) v Concrete Constructions Group Ltd [1998] NSWSC 472, namely, that a contention that security be withheld on that basis requires that it be established that there is a real causal connection between the conduct and the impecuniosity which, in the exercise of the court's discretion, would make it unjust to require security. That approach was also adopted in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd above, where the absence of evidence as to the financial position of individual plaintiffs prior to the alleged conduct meant that such a causal connection was not established.

20. In Jazabas Pty Ltd v Haddad [2007] NSWCA 291; (2007) 65 ACSR 276 at [94]–[95], McClellan CJ at CL observed that:

“The claimants carried the onus of establishing both the adequacy of their financial position before their dealings with the opponents and that the opponents’ actions have caused or at least materially contributed to the claimants’ inability to meet an order for security for costs: see Fiduciary Ltd v Morningstar Research Pty Ltd at [100].

In Law of Costs, G E Dal Pont says (at [29.96]):

[T]he plaintiff must be able to support the allegation with relatively straightforward and unambiguous evidence of a fairly compelling nature, because otherwise the hearing of the issue of security might become a trial within a trial. For this reason, 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.” (emphasis added)

I should note, for completeness, that Counsel made no submissions as to any relationship between this question and any risk that an order for security would stultify the proceedings: compare BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 346.

21. Ms Painter submits, with considerable force, that there is a considerable amount of evidence that suggests, and it appears to be the liquidator's case that, the Company was impecunious well before the latest of the transactions which are challenged in these proceedings, which involve payments made out of the Company to Mr Battaglia and related parties immediately before it was placed in administration. There is no contest between the parties as to the fact of those payments, although I should record that both Mr Battaglia, and the Defendants generally, raise defences as to the extent of their involvement in, and knowledge of, the payments generally. It is not entirely clear, for the purposes of this application, whether those defences extend to the last of those payments. It seems to me that, as Ms Painter rightly contends, if the test is whether the relevant payments gave rise to the Company's weak financial position generally, then there would be a strong case that the conduct did not do so, because the Company had been in a weak financial position before they were made. I also accept that, in many of the cases that deal with impecuniosity, the proposition that a company had been impecunious prior to the conduct that is in issue has been treated as a substantial factor that tends against refusing security for costs on the basis that that conduct was causative of that impecuniosity.

22. However, it seems to me that somewhat different considerations arise in a case where, as here, the conduct which is in issue is the making of substantial (and allegedly improper) payments out of the Company, immediately before it was placed in administration. That may be tested against a relatively straightforward case, which I should emphasise is hypothetical in character. Assume that, immediately prior to a company being placed into voluntary administration, a very substantial payment is improperly made out of the company, leaving the voluntary administrator and a subsequent liquidator in a position that he or she has no funds. It may be the case, in that situation, that the company was impecunious, or at least was insolvent or likely to become insolvent, before the voluntary administrator was appointed, since that is the prerequisite to such an appointment. It seems to me there is little attraction, as a matter of the principles applicable to security for costs or wider public policy, in a proposition that a payment out of a company, which deprives a liquidator of funds that would have been available to meet a claim for costs in proceedings to challenge that payment, or could have been applied to provide security for costs in such proceedings, should place a defendant in a stronger position to resist the recovery of that payment, without security for costs being lodged, than if that improper payment had not been made. That approach would create a perverse incentive to dissipate a company’s funds prior to it being placed in an insolvency administration, since the practical risk of proceedings to recover such monies would then be minimised by ensuring that no monies were left in the company after such payments.

23. To put that proposition in another way, it seems to me that, at least in the context of a transaction that involves the payment out of the company’s available funds, immediately prior to it being placed in liquidation or other insolvency administration, a causal connection between the conduct and the relevant impecuniosity exists, if the payment out deprives the company of funds that would otherwise have been available to it in order to meet an order for costs against it in the proceedings. That is not, in my view, inconsistent with the principles adopted in the wider case law, but simply an application of those principles in the particular factual circumstances where the company’s funds are paid away immediately prior to an insolvency administration, which deprives the company of monies that would otherwise be available to it. In these circumstances, it seems to me that the uncontested fact of substantial payments made out of the Company, immediately before it was placed in insolvency administration, is a factor which tends strongly against the order for security for costs that is sought in this case.

Whether an order for security for costs would stultify the proceedings

24. Mr Cook also submits that, in the present case, an order for security for costs will stultify the present proceedings. I turn now to the question whether an order for security for costs would stultify the proceedings. In Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 4; 52 ALR 176, the Full Court of the Federal Court observed that:

"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."

Several other authorities support that approach, including Green (as liquidator of Arimco Mining Pty Ltd v CGU Insurance Ltd above at [45]; Golden Mile Property Investments Pty Ltd (in liq) v Cudgegong Australia Pty Ltd [2014] NSWCA 224 at [45].

25. I have referred above to Mr Reidy's evidence that he has unsuccessfully sought funding from some creditors of the Company for the proceedings. Mr Reidy's evidence in that respect is given in somewhat short form, and there is little identification, by way of detail, of the extent to which inquiries have been made of those creditors, and, as Ms Painter rightly points out, no identification of attempts that have been made to raise litigation funding for the proceedings. On the other hand, the matters to which Mr Reidy refers in respect of the asset position of the First–Third Defendants suggest that a litigation funder may well have approached the matter with a degree of caution.

26. It is by no means clear that Mr Reidy’s evidence as it stands is sufficient to establish that the proceedings would be stultified by an order for security for costs, although the material before me does suggest at least a real possibility that that would occur. It is ultimately not necessary to determine that matter, given the findings which I have reached on other grounds. Had I otherwise been inclined to make an order for security for costs, then it is likely that I would have permitted a short further opportunity for Mr Reidy to supplement his evidence, to indicate the extent to the which litigation funding had been sought, or the reasons he considered that litigation funding could not be obtained, rather than determining the matter without adequate evidence of that matter. I would have taken that course because the delay involved in such further evidence would have been limited, and the risk of stultification of the proceedings, if such funding was not available, would have been substantial. In the event, given the findings I have reached on other grounds, it is not necessary to take that course.

Quantum of security claimed

27. As I noted above, the liquidator also advanced criticisms of the quantum of security for costs that is sought in this application, particularly in the affidavit of Mr Wyhoon dated 2 August 2016. It is ultimately not necessary to address those criticisms in detail, given the conclusion which I have reached on other grounds. I should note, however, that it seems to me Mr Russell's affidavit involved a detailed estimate of the amount of costs that had been and were likely to be incurred, across various stages of the proceedings although, necessarily, it made assumptions as to steps that will be taken in the proceedings, including, for example, the giving of discovery. No doubt, there may be room for minds to differ as to the costs to be allocated to particular stages of the proceedings, but I would not have concluded that, across the proceedings as a whole, Mr Russell's estimate was necessarily an unreasonable one.

28. However, it does not seem to me that that assists the Defendants in this application, because it seems to me that Mr Russell's approach failed at the point at which he made an allocation of costs calculated by reference to the proceedings as a whole to the costs which would be incurred by the Defendants in respect of the Company's claim. It seems to me that that approach failed in two respects at that point. The first is that, as I have noted above, no grounds for that allocation are established, so far as it seems to me to be no more than an assertion that a particular percentage of costs will be attributed to one claim, rather than the other, without a basis for that allocation having been identified. Second, it seems to me that that assertion is, on any view, questionable, in circumstances that the liquidator's claim appears to cover a range of matters, and there is no particular reason to think that it will be cheaper to defend than the Company's claim, particularly given the substratum of facts is substantially common between those claims. Quite apart from the issue as to whether the costs attributable to the Company's claim should be treated as marginal costs, it seems to me that Mr Russell's approach in attributing the majority of the costs and disbursements to the Company's claim should not be accepted, and there is no basis for determining the quantum of costs which should be awarded, where he has not sought to determine that quantum by reference to the particular steps which will be taken in defence of the Company's claim. However, ultimately, that matter is not determinative, by reason of the views which I have reached on other grounds.

Summary

29. The Court has, of course, a discretion to be exercised under s 1335 of the Corporations Act and r 42.21 of the Uniform Civil Procedure Rules in an application for security for costs, although that discretion must, of course, be exercised judicially, as Ms Painter rightly points out. In the present case, it seems to me that two factors provide strong reasons not to order security for costs, balancing the discretionary considerations to which I have referred.

30. The first of those factors is that, for the reasons that I have noted, there is no reason to think that the Defendants will incur substantial additional costs in meeting the Company's claim, beyond those which they would incur in meeting the liquidator's claim. While I accept that those claims are not identical, at least in the sense that their outcomes may differ, it is common ground that they have a substantially common factual basis, and it is unlikely, or highly unlikely, that additional costs will be incurred in meeting the Company's claim that would not already be incurred. In those circumstances, it seems to me that there is a strong discretionary reason not to order the substantial security for costs claimed, where the costs that are incurred in defending the Company's claim can properly be treated as marginal costs.

31. Second, it seems to me that in the present circumstances, in the particular case of a significant payment out of the Company, shortly before it was placed in insolvency administration, there is reason to think that that conduct contributed to the Company's inability to meet an order for costs against it, and that is a further discretionary reason not to order security for costs.

Orders

32. For these reasons, the application for security for costs should be dismissed. The Defendants should pay the Plaintiffs’ costs of the application.

**********

Decision last updated: 12 October 2016