Tex Onsite Pty Ltd & Ors v Cornwalls (a firm) & Ors (Security for Costs)
[2024] VSC 93
•6 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROFESSIONAL LIABILITY LIST
S ECI 2022 04677
BETWEEN:
| TEX ONSITE PTY LTD (ACN 126 736 276) & ORS (according to the attached Schedule) | Plaintiffs |
| v | |
| CORNWALLS (A FIRM) & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Gobbo AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 24 October 2023 |
DATE OF RULING: | 6 March 2024 |
CASE MAY BE CITED AS: | Tex Onsite Pty Ltd & Ors v Cornwalls (a firm) & Ors (Security for Costs) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 93 |
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PRACTICE AND PROCEDURE — Application for security for costs by one defendant — Whether application is functionally futile — Costs incurred prior to application for security — Principles to be applied — Broad brush evidentiary assessment of what is just and reasonable in all the circumstances —Exercise of Court’s broad discretion.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C Hibbard of counsel | Rothwell Lawyers Pty Ltd |
| For the Second Defendant | Dr O Bigos, one of His Majesty’s counsel with Mr H Hill-Smith of counsel | Altus Lawyers |
| No appearance for the First, Third, Fourth, Fifth, Sixth and Seventh Defendants |
TABLE OF CONTENTS
The application................................................................................................................................... 1
Principles............................................................................................................................................. 2
Is the Court’s discretion enlivened?............................................................................................... 2
Exercise of Discretion...................................................................................................................... 10
Submissions as to the exercise of the discretion..................................................................... 13
Prospect of success............................................................................................................ 13
Impecuniosity..................................................................................................................... 14
Delay.................................................................................................................................... 15
Futility................................................................................................................................. 16
Conclusion on discretionary factors......................................................................................... 18
Quantum............................................................................................................................................ 19
Quantum of Past Costs............................................................................................................... 22
Quantum of Future costs........................................................................................................... 25
Conclusion......................................................................................................................................... 28
HER HONOUR:
The application
By his summons filed on 31 August 2023, the second defendant, Andrew Dugan seeks security for his costs up to and including mediation. He relies on the affidavits of Brendan Peter Swift sworn on 22 August 2023 (‘First Swift Affidavit’), 31 August 2023 (‘Second Swift Affidavit’) and 23 October 2023 (‘Third Swift Affidavit’) (collectively ‘Swift Affidavits’).
The plaintiffs in this matter are:
(a) first plaintiff: Tex Onsite Pty Ltd (ACN 126 736 276) (Subject to a Deed of Company Arrangement) (‘Tex Onsite’);
(b) second plaintiff: Kirwan Training Pty Ltd (ACN 113 485 804) (‘Kirwan Training’);
(c) third plaintiff: Tex Assets Pty Ltd (ACN 151 203 799) (‘Tex Assets’); and
(d) fourth plaintiff: Tex High Voltage Pty Ltd (ACN 612 791 858) (‘Tex Voltage’),
(collectively the ‘Tex Group’).
Each of the plaintiffs oppose the application and rely on the affidavits of:
(a) Tracey Rothwell sworn on 3 October 2023 (‘Rothwell Affidavit’);
(b) Winston Chau affirmed on 3 October 2023 (‘Chau Affidavit’); and
(c) Michael Kirwan sworn on 3 October 2023 (‘Kirwan Affidavit’).
Mr Kirwan has effective control of the companies in the Tex Group. He owns 50 percent of the shares in Kirwan Training and has been that company’s sole director and secretary since 22 March 2005. Since 26 July 2007, Mr Kirwan has been the sole director and secretary of Tex Onsite. Kirwan Training is the shareholder of Tex Onsite. Since 3 June 2016, Mr Kirwan has been the sole director and secretary of Tex Voltage. Since 13 September 2013, Mr Kirwan has been a director, the secretary and sole shareholder of Tex Assets.[1] Mr Kirwan is also the seventh named defendant, although no claims are pleaded against him by the Tex Group.
[1]First Swift Affidavit, [27].
Since 12 December 2019, Mr Kirwan has been the sole director of Tex@Site Pty Ltd (ACN 638 020 578) (‘Tex@Site’). Tex@Site is not a party to the proceeding.[2]
[2]Ibid, [28].
Principles
The application for security is brought pursuant to r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘Rules’), s 1335 of the Corporations Act 2001 (Cth) (‘Act’) and the Court’s inherent jurisdiction. Each of the plaintiffs is a corporation.
The relevant part of r 62.02(1)(b) of the Rules provides that the Court may order that a plaintiff give security for a defendant’s costs of the proceeding where:
(a) the plaintiff is a corporation; and
(b) there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to so.
Section 1335(1) of the Act 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.
The Court’s inherent jurisdiction exists separately to r 62.02 of the Rules and s 1335 of the Act.[3] The inherent jurisdiction may be exercised whenever the interests of justice require in all of the circumstances of the case. [4]
[3]Stuart v Said (2021) 65 VR 50, [5]-[6].
[4]Ibid, [35].
Is the Court’s discretion enlivened?
The first matter requiring consideration is whether the exercise of the power to order security is enlivened, that is to say is there credible evidence that there is reason to believe that the plaintiffs will be unable to pay Mr Dugan’s costs if Mr Dugan is successful. That condition must be satisfied before the discretion to order security is enlivened.
In Livingspring Pty Ltd v Kliger Partners,[5] the Court of Appeal held (citations omitted):
The phrase ‘reason to believe’ is the touchstone of jurisdiction. It requires a rational basis for the belief – and no more. The wording adopted may be contrasted with other familiar formulations such as ‘If the court is satisfied that ... ‘ or ‘If in the view of the court it is likely that ...’. The section requires the making of a judgment, a risk assessment: is there a risk that the corporation will be unable to pay? (It adds nothing, in our view, to say that it must be a “real risk”.) A risk assessment is, of necessity, imprecise. The section calls for a practical, commonsense approach to the examination of the corporation’s financial affairs.
It may be said, with justification, that this is a low threshold. But the test simply reflects the policy of the provision, which is to protect a defendant against the risk of the plaintiff corporation’s impecuniosity. The provision equips the court with the means to require that the defendant be secured against that risk.
The power being enlivened, the court must consider whether it should be exercised. Foremost amongst discretionary considerations will be any contention on behalf of the plaintiff that an order for security would work an injustice. We turn to consider the question of onus.
[5](2008) 20 VR 377, [15]-[17].
In assessing whether there is a ‘reason to believe’, the Court is not required to make an assessment on the balance of probabilities of whether there will be a default in the payment of a costs order. Rather, the Court must consider whether there is a risk that a costs order will not be paid. It is necessarily a low threshold where it is sufficient to identify a risk.
Mr Dugan contends that the jurisdiction to award security is enlivened here because there is reason to believe that the plaintiffs, each of which is a corporation, will be unable to pay Mr Dugan’s costs. Tex Onsite, Kirwan Training and Tex Voltage are all dormant entities and do not hold any assets. This was not challenged by the plaintiffs.
It was not disputed that none of the Tex Group own property within Australia.[6]
[6]First Swift Affidavit, [15]-[24].
Tex Onsite and Tex Assets were insolvent and all of the plaintiffs went into receivership and administration in 2019.
On 7 November 2019, Mr Sam Kaso and Mr Barry White of Cor Cordis were appointed by the Commonwealth Bank of Australia (‘CBA’) as receivers and managers over both Kirwan Training and Tex Onsite.[7] The receivers and managers took control of the business and assets of those companies.
[7]First Swift Affidavit, [30].
On 16 December 2019, Mr Stephen Dixon, and Mr Richard Rohrt (‘Administrators’) were appointed joint and several administrators of Kirwan Training pursuant to s 436C of the Act and joint and several administrators of Tex Onsite pursuant to s 436A of the Act. The appointment over Kirwan Training was made by the secured creditor, Mr Kirwan, and by Mr Kirwan in his capacity as the director of Tex Onsite following concern that the companies may become insolvent.[8] On 16 December 2019, the Administrators were also appointed joint and several administrators over Tex Assets and Tex Voltage.[9]
[8]Ibid.
[9]Ibid.
On 21 May 2020, the Administrators produced a report in relation to the affairs of the Tex Group (‘Administrators’ Report’). The Administrators’ Report recorded the following:[10]
[10]Ibid, BPS 150.
(a) the Tex Group operated as a testing and instrument calibration business. The Tex Group business was traded by Tex Onsite. Tex Onsite traded in every state of Australia. Tex Assets is a special purpose vehicle that holds a number of motor vehicles, aircraft and various items of machinery, plant and equipment which is utilised by Tex Onsite in carrying on the business. Tex Voltage owns various motor vehicles and items of machinery, plant and equipment, and also provides electrical equipment test and tag services. Tex Voltage was set up to service the electrical industry. The business operated from Bayswater in the State of Victoria. Kirwan Training owned the premises the Tex Group business was trading from;
(b) the CBA was owed approximately $4.8 million across the Tex Group;
(c) according to Mr Kirwan, the companies became insolvent due to trading losses incurred for the financial year ending 30 June 2019 and the appointment of receivers and managers to part of the Tex Group in November 2019. Whilst the Administrators agreed with the director’s opinion, the Administrators were also of the opinion that the companies became insolvent from at least 2019 if not earlier due to poor cash flow management and a high trade debtor position, and poor strategic management of the business; and
(d) under a pooled deed of company arrangement (‘DOCA’) the likely return to priority creditors was 100 cents with a 5.5 cent return to unsecured creditors. This was compared with a likely return of 0 cents in a liquidation scenario.
Mr Kirwan did not challenge the findings and observations in the Administrators’ Report.
The Administrators have also filed end of administration returns (‘Returns’). Those Returns record that:
(a) the gross amount of assets realised for Kirwan Training was $118,181.82. There were secured creditors in the sum $1,342,187.28 and unsecured creditors of $608,315.28. Total payments from the commencement to the end of the report were $269,574.60 and there was $0.00 in cash at bank holdings;[11]
[11]Ibid, [48].
(b) the gross amount of assets realised for Tex Assets was $44,058.53. There were secured creditors in the sum $124,713.87 and unsecured creditors of $699,165.59. Total receipts and total payments from the commencement to the end of the report were $250,228.78 and there was $0.00 in cash at bank holdings;[12]
(c) the gross amount of assets realised for Tex Voltage was $118,181.82. There were secured creditors in the sum $124,713.87 and unsecured creditors of $163,591.60. Total receipts and payments from the commencement to the end of the report were $56,843.86 and there was $0.00 in cash at bank holdings;[13] and
(d) in respect of Tex Onsite, substantial creditors were incurred prior to it entering into a DOCA. Priority creditors (wages & superannuation) were in the sum of $573,769.30; priority creditors (leave of absence) were $338,930.03; priority creditors (retrenchment) were $3,365.50; secured creditors were $1,014,713.87 and unsecured creditors were $3,430,915.96. The total amount the company received during the period from Tex@Site was $49,400.00. The total bank holdings were $284,587.68.[14]
[12]Ibid, [49].
[13]Ibid, [50].
[14]Ibid, [51].
Kirwan Training, Tex Onsite and Tex Voltage all remain dormant. None own any real estate.[15]
[15]Chau Affidavit, [8]-[11].
As noted in the Administrators’ Report, Tex Assets was a special purpose vehicle that held a number of motor vehicles, aircraft and various items of machinery, plant and equipment which was utilised by Tex Onsite in carrying on the business. The financial reports for Tex Assets record that as at the end of the 2023 financial year:
(a) Tex Assets had no current assets;[16]
[16]Ibid, [12].
(b) Tex Assets had a profit from ordinary activities before tax of $18,248.00. This had fallen from a profit of $350,733.00 in 2022;[17]
[17]Ibid, WC1.
(c) under non-current assets, Tex Assets had $869,739.00 being motor vehicles, plant and equipment and aircraft.[18] Tex Assets’ current liabilities were $39,277.00 and non-current liabilities were $505,516.00 leaving a net non-current asset position of $324,946.00;[19]
(d) the non-current assets were described by the accountant for the Tex Group as being ‘non-current due to their age’ however they were, it was claimed, particularly in the case of the vehicles and aircraft, to be ‘reasonably liquid in that they can be listed and auctioned within 45-60 days’.[20] These assets were ‘noted at historical cost less depreciation’ and as such it was submitted by the plaintiffs that the book value may be significantly less than their current fair market value which may be three or more times than the book value’.[21] That submission is problematic for two reasons. First, it is no more than a mere assertion. Second, if these assets were to be realised to meet an adverse costs order, by necessity, that would be in circumstances where the sale of the assets would not be a traditional sale but rather in circumstances of financial distress. Positing that assets can be auctioned within 45 to 60 days is unhelpful. Any asset can be sold quickly; the real issue is for what amount. Despite both Mr Kirwan and the accountants for the Tex Group providing affidavits, no information was put before the Court as to what assets constitute the ‘vehicles and aircraft’ including how many, their make and model and/or their age. Similarly, no information was provided as to what makes up the plant and equipment and the age of these items. Further, no evidence was provided as to the auction realisable value of these assets, either in a normal or distressed sale scenario. This evidence was within the domain of the plaintiffs to adduce; and
(e) Tex Assets had a debt to equity ratio of 0.63.[22] The quick ratio, as this is also known, is an assessment of a company’s ability to cover its short term liabilities using its most liquid assets. As at 30 June 2023, Tex Assets held a quick ratio of 0.63 which means it only held 63 percent of the amount required to cover its current liabilities in liquid assets, which had declined from 0.69 as at 30 June 2022.
[18]Ibid, WC1.
[19]Ibid.
[20]Ibid, [14]. No basis for the opinion expressed by Mr Chau was offered. I regard his evidence on this point to be of no value, particularly in the absence of proper particulars as to what comprises the aircraft and vehicles.
[21]Ibid. Again, no basis for the opinion expressed by Mr Chau was offered. I regard his evidence on this point to be of little value particularly in the absence of proper particulars as to what comprises the aircraft and vehicles.
[22]Ibid, [15].
The balance of the financial evidence put before the Court by the plaintiffs concerned Tex@Site, which is not a party to the proceeding.
Tex@Site is the main operating company within the Tex Group and for the 2023 financial year recorded a profit before tax of $172,533.00.[23] Its trade debtors were $984,314.00 as at 3 October 2023. It has a debt factoring facility with Scottish Pacific with a facility limit of $1.5 million and Tex@Site is able to draw down 80 percent of its debtors.[24] According to the company’s accountant, Mr Chau, Tex@Site is solvent and can pay its liabilities as and when they fall due. However, that evidence, even if it be correct, is of no relevance in the risk assessment that this Court must perform. Tex@Site it not a party to the proceeding and it has not offered an indemnity in respect of any adverse costs order.
[23]Ibid, [17]-[18].
[24]Ibid, [20].
Mr Hibberd contended that Tex@Site was inextricably linked to the Tex Group. He submitted that Tex Assets relies on Tex@Site entirely to conduct the business and lease out its assets and Tex@Site relies on Tex Assets to hold the assets in which it operates. Mr Hibbard further submitted that the commonsense reality was that Tex@Site has no incentive to allow Tex Assets to be unable to pay a costs order and become insolvent because it would lose the assets it relies on for its business.[25] I regard that submission as speculative and I reject it. There was no evidence before me of which assets were leased. The leases were not in evidence. There was no evidence as to what might happen to the leased assets if Tex Assets were to go into administration.
[25]Transcript of Proceedings (24 October 2023) 27.12-27.31.
In unexplained evidence, the profit and loss statement for Tex@Site recorded expenses for motor vehicle repairs of $175,719.00 and aircraft repairs of $198,318.00 despite these assets being recorded as non-current assets in the financial reports of Tex Assets. The significant expenses associated with these non-current assets was not addressed in the evidence filed by the plaintiffs.
In the absence of Tex@Site offering an undertaking in respect of any liability of the Tex Group for Mr Dugan’s costs, the evidence concerning Tex@Site’s financial circumstances is of no persuasive value.
In their written submissions, the plaintiffs did not concede that the jurisdiction was enlivened. Rather, they contended that ‘[t]he evidence establishes that the plaintiffs will be able to pay Mr Dugan’s costs up until mediation if ordered’. They do not say in their submissions that the plaintiffs will be able to pay Mr Dugan’s costs of the trial if he is successful.
Mr Kirwan deposed in his affidavit that ‘Tex Assets is able to meet a costs order from its own resources should the plaintiffs be unsuccessful in this action’ and that Tex Assets owns ‘motor vehicles, plant and equipment and aircraft’. I repeat my observations at paragraph 22(d) as to the utility of this evidence. I otherwise observe that nowhere does Mr Kirwan depose to the Tex Groups’ ability to also meet their own costs of the proceeding, nor does he address the plaintiffs’ ability to meet other adverse costs orders of the remaining defendants. This information was undoubtedly within Mr Kirwan’s ability to adduce. He did not do so.
Having regard to:
(a) the previous appointment of receivers and managers and the Administrators;
(b) the fact that Mr Kirwan has previously, as the secured creditor, appointed Administrators over Kirwan Training and, as a director, appointed Administrators to Tex Onsite following a concern that the companies may become insolvent;
(c) the fact that Tex Onsite, Kirwan Training and Tex Voltage are all dormant and do not own any assets;
(d) the matters set out in the Administrators’ Report;
(e) the Administrators’ Returns;
(f) the paucity of evidence and explanation provided by the plaintiffs as to the precise asset position of the Tex Group, particularly the realisable value of the non-current assets of Tex Assets;
(g) a declining quick asset ratio for Tex Assets; and
(h) the failure of Mr Kirwan to cogently explain how Tex Assets would be able to meet a costs order from its own resources, including what those assets comprise and how those assets might be realised and for what amount,
I am of the view that there can be no dispute that the jurisdiction to order security for costs is enlivened. Contrary to the plaintiffs’ written outline of submission, a common sense approach to an examination of the Tex Group’s financial affairs leaves little doubt that there is a ‘reason to believe’ that the plaintiffs will be unable to pay Mr Dugan’s costs if ordered.[26]
[26]Plaintiffs’ written outline of submissions, [4], [6], [8], [10].
Exercise of Discretion
Once the jurisdiction is enlivened, the Court has a discretion as to whether security ought to be awarded. That discretion is unfettered, although it must be exercised judicially, having regard to all of the circumstances.[27] Exercising the discretion involves the Court carrying out a balancing exercise between the injustice to the plaintiffs if the grant of security prevents them from pursuing proper claims, and the injustice to Mr Dugan if no security is ordered and he is ultimately successful but unable to recover his costs.[28]
[27]Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577, [11] (Croft J) (‘Trility’).
[28]US Realty Investments LLC #1 v Need [2013] VSC 590, [22] citing Tradestock Pty Ltd v TNT (Management) Pty Ltd(1977) 14 ALR 52, 56.
In Colmax Glass Pty Ltd v Polytrade Pty Ltd,[29] Derham AsJ identified some of the prominent discretionary factors discussed and considered in the authorities as follows:
[29][2013] VSC 311, [20] (citations omitted). See also Trility (n 27), [15]-[16].
(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: Interwest Ltd v Tricontinental Corp Ltd; Although it will ordinarily not be practicable to reach any clear view about the merits of the plaintiff's claim, that is not to say that the merits are always irrelevant (unless totally lacking) or that the bona fides of the claim may be disregarded: Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd;
(iii) The court is not obliged to consider at length the merits of the claim, and to do so would ordinarily be a waste of resources: Impex Pty Ltd v Crowner Products Ltd;
(b) Plaintiff’s impecuniosity caused by defendant: Whether the plaintiff’s lack of funds has been caused or contributed to by the conduct of the defendant in relation to the transaction the subject of the claim: Sir Lindsay Parkinson & Co Ltd v Triplan Ltd. 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: BPM Pty Ltd v HPM Pty Ltd;
(ii) There must be a solid foundation for that conclusion: Right Home Improvements International Pty Ltd v Imperial Alarm Screens (Aust) Pty Ltd, referred to in Sandl Trading Pty Ltd v North American Oil Co;
(iii) The plaintiff carries the onus of satisfying the court on the basis of admissible evidence, see Ninan v St George Bank Ltd;
(c) Plaintiff’s proceeding merely defensive: Whether the plaintiff's proceeding is merely a defence against “self-help” measures taken by the defendant: Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq); Sydmar Pty Ltd v Statewise Developments Pty Ltd; Interwest Ltd v Tricontinental Corp Ltd. Each case must be looked at to see whether in substance the claim set up is by way of defence such that the plaintiff’s claims are properly characterised as defensive;
(d) Security order would stultify pursuit of legitimate claim: Whether the making of the order would unduly stultify the ability of the plaintiff to pursue an arguable case legitimately instituted: See MA Productions Pty Ltd v Austarama Television Pty Ltd; Drumdurno Pty Ltd v Braham; Ariss v Express Interiors Pty Ltd (in liq); Excelsior Run Pty Ltd (in liq) v Nelius Pty Ltd;
(e) Contribution by shareholders or creditors to security ordered: The extent to which it is reasonable to expect shareholders or creditors (or beneficiaries, if the company is a trustee) to make funds available to satisfy any order for security which is made: National Bank of New Zealand Ltd v Donald Export Trading Ltd; Pacific Acceptance Corp Ltd (t/as Flack & Flack) v Forsyth (No 2); Drumdurno Pty Ltd v Braham; Newtons Travel Services Pty Ltd v Ansett Transport Industries (Operations) Pty Ltd;
(f) Delay in applying for security: Delay in applying for security may be ground for refusing to order security. The company, which can be assumed to be in financial difficulties, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it makes a substantial financial commitment toward litigating the claim. See Buckley v Bennell Design & Construction Pty Ltd; Smail v Burton; Re Insurance Assocs Pty Ltd (in liq);
(g) Defendant’s cross-claim raising same facts: where the defendant has raised a cross-claim, whether substantially the same facts are likely to be canvassed in determining the claim and cross-claim. The court would ordinarily seek to avoid the situation where the claim is stayed because of the inability of the plaintiff to provide security while the defendant’s cross-claim covering the same factual areas proceeds: Sydmar Pty Ltd v Statewise Developments Pty Ltd.
The terms of s 1335(1) of the Act direct the Court to consider the plaintiffs’ lack of means and its likely inability to meet an order for costs.[30]
[30]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 Ariss v Express Interiors Pty Ltd,[31] 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.
[31][1996] 2 VR 507, [514].
Submissions as to the exercise of the discretion
Before me, the parties made limited submissions in relation to the various discretionary factors identified in the authorities.
Whilst Mr Dugan contended that there were no discretionary factors against the award of security, the plaintiffs identified two factors, namely:
(a) the merits of the plaintiffs’ claim (albeit that the submissions on this discretionary ground were general); and
(b) Mr Dugan’s conduct was the cause of the plaintiffs’ impecuniosity. In their written outline, the plaintiffs also made reference to Mr Dugan’s delay in applying for security, although this principally directed to the issue of a grant of security for past costs rather than more broadly as a basis not to award security.[32]
[32]Transcript of Proceedings (24 October 2023) 37.30-38.11.
In addition, although not recognised in the authorities as an established discretionary factor in security for costs applications, the plaintiffs sought to rely on the principle of futility, which they contend is ‘a well-established factor in determining whether to grant discretionary relief.’[33] It was the plaintiffs’ contention that the principle of futility should be applied in the unusual circumstances of this case.[34]
[33]Plaintiffs’ written outline of submissions, [12].
[34]Ibid.
Prospect of success
As to the prospect of success, the plaintiffs only touched on this issue in the most general of fashion in the Kirwan Affidavit[35] where it was broadly asserted, by reference to paragraphs 66 to 83 of the amended statement of claim, that Mr Dugan had caused the plaintiffs’ alleged loss. The argument was not developed in oral submission before me. Conversely, Mr Dugan submitted that it this was ‘a very difficult ground to prove’ and ‘there was no evidence before the Court to make any such finding’.
[35]Kirwan Affidavit, [28].
Prospects of success are ordinarily regarded only as a neutral factor, particularly where the issues are difficult or complex. Prospects of success being a neutral factor 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 fail.[36] I did not understand senior counsel for Mr Dugan to contend that the plaintiffs’ case was hopeless or doomed to fail. I regard this as a neutral factor.
[36]Jazabas Pty Ltd v Haddad(2007) 65 ACSR 276, [83]-[84].
Impecuniosity
This discretionary factor is based on the principle that a Court is unlikely to order security on the ground of a plaintiff’s impecuniosity where that has been caused by the defendant. This enquiry into a 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 a defendant’s acts or omissions caused a plaintiff’s loss.
The plaintiffs carry the burden of establishing by reliance on a solid evidentiary foundation that Mr Dugan’s conduct was a cause of its current financial position.[37] This includes, in certain situations, a plaintiff proving through evidence that they were in a good financial state before interacting with a defendant. It is not enough that a defendant’s conduct is merely a contributing factor, it must be the material contributor to, or cause of a plaintiff’s impecuniosity.[38]
[37]Coonwarra Pty Ltd v Cornonero Pty Ltd (No 2) [2019] VSC 702, [52] (‘Coonwarra’).
[38]Haskins Contractors Pty Ltd (in liq) v Sydney Airport Corporation Ltd[2002] NSWSC 267, [52].
In his affidavit, Mr Kirwan refers to paragraphs 66 to 83 of the amended statement of claim and paragraphs 69 to 78 of the first defendant’s defence, in particular paragraphs 69(b) and (c) which make allegations against Mr Dugan, in support of an assertion that ‘both the plaintiffs and first defendant make allegations against [Mr Dugan’s] own conduct causing loss to the plaintiffs’.[39] This was not developed further in oral argument before me.
[39]Kirwan Affidavit, [28]-[30].
In my view, this factor involves similar considerations to that of prospects of success. Like the prospects of success, I would consider this factor to be neutral. I do 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.
Moreover, it is my view that the plaintiffs have not discharged their burden by reliance on a solid evidentiary foundation that Mr Dugan was the cause of the plaintiffs’ current financial position, rendering it inappropriate for me to give this factor any weight.
Delay
In their written submissions, the plaintiffs’ contend that Mr Dugan’s ‘delay and the substantial costs incurred ought to disentitle Mr Dugan to any security for past costs.’[40] The issue of any alleged delay as a factor against the award of security was not developed further in oral argument.
[40]Plaintiffs’ written outline of submissions, [14].
The proceeding was commenced on 16 November 2022. On 15 June 2023, the writ and statement of claim were amended to join Mr Dugan as a defendant. On 25 July 2023, Mr Dugan filed a defence. On 31 August 2023, Mr Dugan filed his application for security for costs. That application followed letters from Mr Dugan’s solicitors to the plaintiffs’ solicitors on 12 July 2023,[41] 18 July 2023[42] and 1 August 2023[43] wherein Mr Dugan’s solicitors sought information from the plaintiffs as to their capacity to meet an adverse costs order. In the circumstances, I do not accept that there has been any delay in the making of the application for security.
[41]First Swift Affidavit, [4].
[42]Ibid, [10].
[43]Ibid, [13].
An order for security for costs may extend not only to future costs but also to costs already incurred, if an application for security for costs is made promptly.[44] Given the absence of any delay in making the application, orders in respect of past costs are appropriate. Such orders would not, in my opinion, lead to an unacceptably oppressive result.
[44]Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd[2009] NSWSC 563, [35]-[40]. See also Jabiru Satellite Ltd (in liq) (recs & mgrs apptd) & Anor v Societe Generale & Ors [2022] VSC 521, [97].
Futility
The ground upon which the plaintiffs primarily focused was futility.
The plaintiffs submitted before me that:
(a) in the circumstances of this particular case, the discretion to order security ought not be exercised because the orders sought by Mr Dugan would be functionally futile. Mr Dugan only seeks a stay of the plaintiffs’ proceeding as against him. However, Mr Dugan’s participation in the proceeding is not limited to the claims made against him by the plaintiffs, with proportionate liability raised in the first defendant’s defence. It was said that Mr Dugan’s involvement in the case was initiated by the first defendant invoking the proportionate liability regime under s 24AI of the Wrongs Act 1958 (Vic) and that the allegations against Mr Dugan would survive any stay which may be obtained against the plaintiffs;
(b) futility is a well-established factor in determining whether to grant discretionary relief. The plaintiffs relied on the decisions in Deputy Commissioner of Taxation v Huang,[45] Hobart International Airport Pty Ltd v Clarence City Council[46] and SZBYR v Minister for Immigration and Citizenship.[47]In so doing, the plaintiffs conceded that these authorities did not involve applications for security for costs.[48] Rather, the authorities were cited in support of the broader principle that where the Court is exercising a discretion, as it is in the determination of whether to order security, it is unconstrained by any factors. In that context, the utility or the futility of making an order was submitted to be a relevant factor to be taken into account – the plaintiffs maintaining that it ought to weigh very heavily in exercising the Court's discretion against awarding security in this matter;[49] and
(c) the futility principle should be applied in the ‘unusual circumstances’ of this proceeding. The purpose for which orders are made requiring security for a party’s costs is to protect a defendant against the loss which may result from an inability to recover costs from a plaintiff if the defendant is successful. It was contended that this purpose would be frustrated. It was submitted that even if a stay was granted, following an order for security, Mr Dugan would remain enmeshed in the proceeding in any event. It was said he was likely to be called or subpoenaed as a witness, and he is a defendant in his capacity as a purported concurrent wrongdoer. For these reasons, it was contended that Mr Dugan would likely need to complete work substantially similar to the work referred to in the Swift Affidavits.[50]
[45](2021) 273 CLR 429, [30].
[46](2022) 96 ALJR 234, [33]-[42], [77], [142].
[47](2007) 235 ALR 609, [29], [87]-[90], [91]-[92].
[48]Transcript of Proceedings (24 October 2023) 37.12-37.17.
[49]Transcript of Proceedings (24 October 2023) 37.18-37.25.
[50]Plaintiffs’ written outline of submissions, [12].
Conversely, on behalf of Mr Dugan it was contended that:
(a) there were no authorities which provided that ‘futility’ was a discretionary factor the Court ought to consider on an application for security;[51]
[51]Transcript of Proceedings (24 October 2023) 15.1-6.
(b) the counterfactual advanced by the plaintiffs was essentially misconceived as it assumed that that security would be ordered and that the order would not be complied such that the proceeding would be stayed;[52]
[52]Ibid, 54.5-54.17.
(c) that it would be improper to assume that a Court order will not be obeyed. I accept this submission. Such reasoning must be flawed;
(d) the analysis offered by the plaintiffs fails to grapple with r 62.04 of the Rules, whereby the Court would have the power to dismiss the proceeding;[53] and
(e) the fact that Mr Dugan would continue to be a defendant for proportionate liability reasons is irrelevant. If no direct claim was made against Mr Dugan then he would not have to participate in the proceeding at all, however, if he elected to participate in the proceeding, there was no reason to infer that he would play a substantive role. In that instance, where there was no direct claim by the plaintiffs against him, Mr Dugan would be entitled to choose what costs he incurred and the Court could infer that it is unlikely that he would defend the matter if there was no monetary relief claimed against him by the plaintiffs.[54]
[53]Ibid, 13.24-14.25; 52.27-53.6.
[54]Atkins v Interprac and Crole [2007] VSC 445, [36].
In my view, the functional futility argument is of little persuasive value in the present matter. The purpose of an order for security for costs is to ensure justice between the parties, and in particular to ensure that unsuccessful proceedings do not disadvantage a defendant with the plaintiff having chosen to bring them before the Court.
If security is ordered, and that order is not met, it is open to Mr Dugan to apply under r 62.04 of the Rules to have the proceeding dismissed. If the proceeding is dismissed, Mr Dugan would thereafter be entitled to choose the extent to which he might participate in the proceeding as an alleged concurrent wrongdoer. To suggest that an order for security is functionally futile is, in my view, wrong.
Conclusion on discretionary factors
I have already described the weight which should be afforded to each discretionary factor but for convenience my opinion is summarised as follows:
(a) Prospects of success: this factor is neutral;
(b) Conduct of Mr Dugan being the cause of the plaintiffs’ impecuniosity: the plaintiffs did not discharge their burden of establishing ‘by reliance on a solid evidentiary foundation’[55] that Mr Dugan’s conduct was a material cause of its current financial position. I consider that this factor is neutral;
(c) Delay: there was no delay in the making of an application for security; and
(d) Futility: I am not persuaded that the alleged ‘futility’ is a matter that weighs against the grant of security.
[55]Coonwarra (n 37).
In my view the position results in a conclusion that the plaintiffs ought to be ordered to pay security.
Quantum
The total amount of security sought up to and including mediation is $134,357.58 (GST exclusive).[56] That figure is:
(a) Mr Swift’s estimate of Mr Dugan’s recoverable costs on a taxation (including past costs); and
(b) represents 60 percent of the total costs (of $223,929.30 GST exclusive) which Mr Swift has estimated Mr Dugan will incur up to mediation.[57]
[56]First Swift Affidavit, [60].
[57]Ibid. Mr Swift is an experienced litigator, having spent more than 25 years conducting large, complex commercial litigation.
In Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd,[58] the Court of Appeal identified the relevant principles for application in the assessment of the quantum of an order for security for costs, stating at [63]-[65]:
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.
[58][2017] VSCA 293 (citations omitted).
On an application for security, the Court is not bound by the evidence put forward by the parties. It is not compelled to choose which of the parties’ competing evidence to accept. Instead, in exercising its discretion to order security for costs, the Court must stand back from the precise estimates put forward and form its own view based upon the facts, making an order that is just and reasonable in the circumstances.[59]
[59]Wollongong City Council v FPM Constructions Pty Ltd[2004] NSWSC 523, [50] (Einstein J).
The authorities make clear that as to quantum of security, a conservative approach should be taken while having regard to the estimate of the respondents. It is not required that an order for security provide a complete indemnity. In a sense it is a balancing of risks and burdens between the parties.[60]
[60]Carey-Hazell v Getz Bros & Co (Aust) Pty Ltd [2004] FCA 1334 (French J as his Honour then was).
In Bogan v The Estate of Peter John Smedley (Deceased) (‘Bogan’),[61] Hetyey AsJ distilled the various authorities as to what discount should be applied and conveniently summarised the factors at [42] as follows:
[61][2023] VSC 105 (citations omitted).
It is therefore possible to distil from the above authorities the following principles concerning the proper application of a global discount when determining an adequate amount of security for a defendant’s costs:
(a) a global discount may be applied in addition to an evidentiary assessment of what may be recoverable in respect of individual items or categories of work within the costs estimate proffered by the applicant seeking security. In other words, the two approaches are not mutually exclusive;
(b)as a matter of discretion, both methods may be utilised in combination so that individual tasks are separately discounted after broadly having regard to the evidence at a more granular level, with a global discount being applied at the end of the exercise;
(c) depending on the extent of individual reductions applied on a category-by-category basis, the Court may determine, as a matter of fairness, to not also apply a global discount, apply a nominal global discount, or to only apply a global discount in respect of certain categories;
(d) conversely, if the global discount is significant, it may not be necessary to also undertake an evidentiary assessment and adjustment of certain work categories and items claimed;
(e) the global discount should be calibrated to ensure the costs estimate is appropriately reduced to bear some relationship to the party–party costs that would ultimately be recoverable on taxation;
(f) one of the factors that may justify a substantial discount on the amount of security sought is the margin of difference between the estimates obtained by the parties where there is no significant error in the reasoning process demonstrated;
(g) similarly, where the costs are claimed up to the commencement of trial, a substantial discount may be warranted to account for the prospect that the matter may well resolve at mediation or prior to the hearing of the matter;
(h) where the fees charged by the defendant’s lawyers are expensive, or where a deluxe defence is being run, a larger discount may be applied. At the same time, a defendant in complex litigation is not expected to run a defence on a shoestring budget; and
(i) whatever the approach taken in a particular case, the Court must arrive at a reasonable estimate of the defendant’s costs, which the plaintiff would, if unsuccessful at trial, be ordered to pay.
As to past costs, in Oswal v Australia and New Zealand Banking Group Ltd (Security for Costs – Stage 2) [62] (‘Oswal’), Sifris J (as his Honour then was) assessed past costs in the context of an application for security for costs. His Honour approached the assessment of past costs by:
(a) considering the solicitor–client costs actually billed and the evidentiary foundation and level of detail provided. Reductions were made, including in respect of the period over which the past costs were claimed and the number of practitioners recording billable hours, before applying a further global discount of 25 percent to the already reduced sum; and
(b) then applying discounts to past and future disbursements, including the number of counsel retained and time for preparation, to arrive at figures that were reasonable and recoverable.
[62][2016] VSC 119, [26], [29]-[31], [34]-[35].
Quantum of Past Costs
Mr Swift deposes that Mr Dugan has incurred past costs of $77,199.51 (GST exclusive). That sum is comprised of:
(a) an amount of $23,727.00 for counsel’s fees associated with considering an application for joinder, considering the first defendant’s defence and drafting a defence. Counsel’s fees include both senior counsel at $1,000.00 per hour and junior counsel at $300.00 per hour; and
(b) a balance of $55,629.51 (GST exclusive) for professional fees where the work has been undertaken by Mr Swift at $600.00 per hour and a lawyer from his firm at $330.00 per hour.
The First Swift Affidavit was criticised on the basis that there was no information provided to be able to determine which tasks were performed by Mr Swift or his junior solicitor, or as between senior and junior counsel. This was a valid criticism. However, by his third affidavit, Mr Swift identified the number of hours spent by him, his junior solicitor and each of senior and junior counsel.
The plaintiffs are otherwise critical of the broad descriptions of the categories of work Mr Swift refers to in his first and third affidavits. I am satisfied that the broad descriptions of the type of work undertaken and explanations given provide a sufficient evidential foundation for the purpose of the Court assessing quantum on a security for costs application.
The plaintiffs submit that Mr Dugan has delayed and incurred substantial costs of approximately $80,000.00 over a number of months prior to making his application. The amount sought for past costs by Mr Dugan is $77,199.51 (GST exclusive). The plaintiffs are also critical of the First and Third Swift Affidavits as there is no indication as to when the past work was undertaken. It was further contended that Mr Dugan’s past costs fail to take account of the fact that Mr Dugan’s involvement in the proceeding first arose when the first defendant, not the plaintiffs, alleged that Mr Dugan was a concurrent wrongdoer.
I do not consider that the absence of dates as to when the past costs were incurred is determinative. The past costs were incurred within a short period of time and, it is my view, that the application for security has been made without delay. The narrations provided by Mr Swift in his third affidavit are sufficient in my view to identify that the past costs claimed are referable to the claims by the plaintiffs against Mr Dugan.
Against Mr Dugan, it was also said that by virtue of his involvement with the Tex Group, Mr Dugan must have been aware of the plaintiffs’ financial position from the very outset of the proceeding. This is a curious submission given that the plaintiffs otherwise resist the grant of security on the basis that there is ‘no reason to believe’ that the plaintiffs would not be able to pay Mr Dugan’s costs if ordered.
It was also contended that it is difficult to consider Mr Dugan’s past costs to be proportionate with it said that Mr Dugan’s solicitor and counsel rates exceed those amounts referred to in the Supreme Court Scale of Costs. Whilst that may be correct for both Mr Swift and senior counsel, it is not so for Mr Swift’s employee solicitor or for junior counsel, whose rates are both less than the scale amounts. The Third Swift Affidavit makes it clear that a significant amount of the past costs relate to work performed by a junior solicitor and junior counsel. That is to be so for the future costs. Moreover, the Third Swift Affidavit also makes it clear that in arriving at the figure sought for security, he has already applied a global discount estimating that approximately 60 percent of his client’s costs would be recoverable on a taxation.[63] The effect of Mr Swift’s global discount means that his hourly rate is less than the scale amount. Accordingly, I do not accept that it is appropriate to apply an additional global discount of 25 percent as proposed by Ms Rothwell, solicitor for the plaintiffs.[64]
[63]First Swift Affidavit, [60]; Third Swift Affidavit, [3].
[64]Rothwell Affidavit, [16].
Having regard to:
(a) the amount of time spent by each of Mr Dugan’s lawyers on the specific tasks constituting the past costs;
(b) the preliminary stage that had been reached in the proceeding when the past costs were incurred;
(c) the complexity of the matters raised in statement of claim, and those allegations specifically made against Mr Dugan;
(d) the work undertaken by senior and junior counsel in relation to the defence; and
(e) the fact that Mr Swift has already applied a global discount to the past costs, estimating that 60 percent of those costs are likely to be recoverable,
and applying the factors set out in Bogan and Oswal, the Court is left with the impression that the amount of solicitors’ costs claimed for past costs is, at best, slightly high. In the exercise of my discretion, and taking a broad brush approach, without engaging in a precise mathematical exercise or embarking on a taxation, I consider that the past costs claimed by Mr Dugan should be discounted by a further 10% with the result that security for past costs be fixed in the sum of $41,687.74 (GST exclusive).[65]
[65]Past costs of $77,199.51 GST exclusive, less 40 percent ($30,879.80), totalling $46,319.71, less a further 10 percent ($4,631.97), totalling $41,687.74.
Quantum of Future costs
As to future costs, the plaintiffs contend that many of the future costs identified by Mr Dugan were ‘unduly speculative’,[66] ‘wildly inaccurate and over inflated’[67] or ‘lacking a sufficient evidentiary basis’.[68]
[66]Plaintiffs’ written outline of submissions, [18].
[67]Rothwell Affidavit, [10].
[68]Plaintiffs’ written outline of submissions, [18].
First, a complaint was made that costs estimated at $12,779.79 (GST exclusive) for discovery, which includes a modest sum for licensing costs of an e-discovery platform, were significantly overstated. Ms Rothwell suggests that, taking account of the documents already exchanged, any further discovery is not likely to exceed three lever arch folders.[69] That suggestion, in the context of the pleadings, is, in my view, misplaced.
[69]Rothwell Affidavit, [20].
The transactions which form the basis of the claims advanced by the plaintiffs involve multiple people including: Mr Kirwan; employees of Cornwall Stodart; Mr Kaso and Mr Wright, the receivers; employees of the CBA; Mr Dixon and Mr Rohrt, the Administrators; Mr Dugan; Ms Kirwan; representatives of the security holders; employees of Indovino Lawyers (who provided a power of attorney for Ms Kirwan) and Mr O’Neill, the financial controller of Tex Onsite.
Given the numerous parties involved, I expect that discovery will be more extensive than three further folders. Discovery will also involve at least the provision of documents going to the plaintiffs’ financial position, communications between Mr Kirwan and his financial advisers, communications with the insolvency practitioners and communications with the CBA. Discovery will also include documents relating to Mr Kirwans’ health and psychiatric state. Given that, I do not consider that Mr Swift’s estimate of $6,000.00 (GST exclusive) in professional fees for discovery to be unduly speculative, wildly inaccurate or over inflated.
As to the e-discovery platform, it was contended by Ms Rothwell that a disbursement in the modest sum of $2,377.91 (for licensing) and $4,401.88 (for 3 months use) for use of an e-discovery platform was not a proper disbursement on a standard basis.[70] In its stead, it was proposed that a service such a Dropbox be used. I reject Ms Rothwell’s position. Dropbox is not a discovery platform. It is a cloud based storage system that allows files synced across multiple devices to be shared. There are obvious efficiencies to be obtained by utilising professional discovery platforms such as the platform proposed to be used by Mr Dugan. The modest disbursement is, in my view, entirely proper. It is proportionate, reasonable and will lead to efficiencies in the management of discovery.
[70]Ibid, [22].
Second, the plaintiffs contended that Mr Dugan’s estimate of $9,100.00 (GST exclusive) for subpoenas was unreasonable and unexplained. Before me, senior counsel for Mr Dugan submitted that it was likely that subpoenas would be necessary to obtain records from the CBA, receivers, voluntary administrators, second secured lenders (Brine Craft) and the second set of solicitors (Indovinos). I accept that submission. The sum of $9,100.00 (GST exclusive) for subpoenas is not in my view unreasonable.
Third, the plaintiffs contend that Mr Dugan’s estimate of $89,195.00 (GST exclusive) for expert evidence and $8,470.00 (GST exclusive) for lay evidence is premature and, in the case of expert evidence, grossly overstated.[71] The plaintiffs’ primary complaint in relation to the estimates for evidence are that the cost should be deferred until after mediation. This is notwithstanding that the plaintiffs’ previously proposed orders which saw the filing of evidence, expert and lay, occur prior to mediation. In my view there is no reason why Mr Dugan should have to wait until after mediation to engage his experts. Undoubtedly, any mediation is likely to be more productive if the parties have expert evidence available that addresses loss and damage.
[71]Ibid, [23].
The further complaint in relation to expert evidence was a suggestion that it would be unreasonable or unnecessary for Mr Dugan to independently engage his own forensic accountant when he could otherwise rely on the first defendant’s expert. I reject this suggestion. There was no material before me from which I could conclude that it would be appropriate to confine Mr Dugan to the expects engaged by the first defendant. The first defendant’s defence suggests that its interests are not aligned with Mr Dugan. In those circumstances, I reject the plaintiffs’ submission.
Criticism was also made by the plaintiffs of the likely cost of engaging a forensic psychiatrist and accountant. I do not accept Ms Rothwell’s suggestion that the costs of an expert psychologist would be $5,000.00 and that a forensic accounting expert in a matter such as this would be $15,000.00 to $25,000.00.[72] There was no evidence led by the plaintiffs of the likely costs of these experts other than Ms Rothwell’s suggestion. Having regard to the factual complexities in this case, and the time period involved, I regard Ms Rothwell’s estimate as being unpersuasive.
[72]Ibid, [24].
I consider that there is little doubt that expert evidence will be required in this case. The case brought by the plaintiffs will necessitate expert psychiatric evidence as to Mr Kirwan’s competency over a number of months. The case will also require expert evidence as to the financial outcomes for the plaintiffs under an administration as compared with the appointment of receivers, as well as an examination of whether the appointment of the receivers and the plaintiffs’ alleged losses would have occurred in any event. For that reason, it is appropriate to allow the costs estimated by Mr Dugan. However, I will apply a modest discount for the possibility that some expert evidence may be obtained by the first defendant.
Again, applying the factors set out in Bogan and Oswal and:
(a) taking into account the global discount of 40 percent to the party-party costs already applied by Mr Dugan to the sum he seeks for security;
(b) recognising the inherently uncertain nature of estimating costs that may be incurred in the proceeding and predicting the extent to which those costs are recoverable; and
(c) allowing for a modest discount to the amount estimated for expert evidence,
in the exercise of my discretion, and taking a broad brush approach, I consider that the future costs claimed by Mr Dugan should be discounted by a further 15 percent with the result that security for future costs be fixed in the sum of $74,832.19 (GST exclusive).[73]
[73]Future costs of $146,729.79 GST exclusive, less 40% ($58,691.91), totalling $88,037.87, less a further 15% ($13,205.68), totalling $74,832.19.
Conclusion
Having regard to the matters set out in these reasons, it is just and reasonable in all the circumstances that the plaintiffs pay security for Mr Dugan’s costs in the amount of $116,519.93 (being the total of past costs of $41,687.74 and future costs of $74,832.19 (GST exclusive)) up to and including mediation.
The parties are directed to confer as to an appropriate form of order to give effect to these reasons, including in respect of the timing and amounts of this tranche of security and the costs of the application. In the event the parties are unable to reach agreement about those matters, the matter will be listed for a brief further hearing and the parties will be required to set out their respective positions in short written submissions.
SCHEDULE OF PARTIES
| S ECI 2022 04677 | |
| BETWEEN: | |
| TEX ONSITE PTY LTD (ACN 126 736 276) (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) | First Plaintiff |
| KIRWAN TRAINING PTY LTD (ACN 113 485 804) | Second Plaintiff |
| TEX ASSETS PTY LTD (ACN 151 203 799) | Third Plaintiff |
| TEX HIGH VOLTAGE PTY LTD (ACN 612 791 858) | Fourth Plaintiff |
| - v - | |
| CORNWALLS (A FIRM) | First Defendant |
| ANDREW JOHN DUGAN | Second Defendant |
| JOANNE KIRWAN | Third Defendant |
| SAM KASO | Fourth Defendant |
| BARRY WIGHT | Fifth Defendant |
| COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) | Sixth Defendant |
| MICHAEL JOHN KIRWAN | Seventh Defendant |
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