Vertical Australia Pty Ltd v Air Company Vertical-T LLC; Air Company Vertical-T LLC v Vertical Australia Pty Ltd

[2012] NSWSC 719

Supreme Court

New South Wales

Medium Neutral Citation:

Vertical Australia Pty Ltd v Air Company Vertical-T LLC; Air Company Vertical-T LLC v Vertical Australia Pty Ltd [2012] NSWSC 719

Hearing dates:

20 June 2012

Decision date:

27 June 2012

Jurisdiction:

Equity Division

Before:

Ward J

Decision:

Order for payment of moneys out of Court in interpleader proceedings (11/408815)

Order for security for costs in the Breach of Agency proceedings (11/411472)

Catchwords:

PRACTICE AND PROCEDURE - application for payment of moneys out of Court - application pursuant to r 25.3(3) Uniform Civil Procedure Rules 2005 (NSW) or in the alternative pursuant to s 95 Trustee Act 1925 (NSW) - application by Vertical-T with respect to moneys held by Vertical Australia, initially Australian agent for Vertical-T - other potential claimant Wellman Limited, a company incorporated in Cyprus, which had previously acted as intermediary between Vertical Australia and Vertical-T - HELD - satisfied that Vertical-T has established claim to moneys

COSTS - application for payment out of Court brought by Vertical Australia on interpleader procedure - Vertical Australia seeks costs of application - whether unreasonable or premature for Vertical Australia to commence proceedings - HELD - proceedings were not commenced unreasonably or prematurely - cost application granted

PRACTICE AND PROCEDURE - application for security for costs by Vertical Australia - claim for retention of moneys paid into Court in the interpleader proceedings - whether position of Vertical Australia is analogous to a trustee with respect to right of indemnification from trust property - whether in analogous situation trustee would have right to indemnification - no equitable lien claimed - power to order security for costs is discretionary - objective is to assess sufficient security that is just in all the circumstances of the case - where uncertainty as to actual costs which will be incurred in conduct of proceedings - HELD - security for costs to be provided on a staged basis

Legislation Cited:

Corporations Act 2001 (Cth)
Trustee Act 1925 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Agar v Hyde (2000) 201 CLR 552
Agusta Pty Ltd v Official Trustee In Bankruptcy As Trustee of Estates of Gustavo Ferella and Angelo Ferella [2009] NSWCA 129
Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 19) (1995) 134 ALR 187
ANZ v Maunder [2009] NSWSC 1356
Australian Building & Technical Solutions Pty Ltd v Boumelhem; Boral Australia Ltd v Boumelhem; Boumelhem v Jones [2009] NSWSC 460
Australian Iron & Steel Pty Ltd v Jumbo Scheepvaart Maatschappij (Curacao) NV (1988) 13 NSWLR 507
Brocklebank & Co v King's Lynn Steamship Co (1878) 3 CPD 365
Brundza v Robbie & Co (No 2) (1952) 88 CLR 171
Bryan Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Commonwealth Bank v Estate of late Slieman [2010] NSWSC 661
Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516
Del Bosco v Outtrim [2008] NSWSC 105
Electrona Carbide Industries Pty Ltd v Tasmanian Government Insurance Board [1985] Tas R 68
Equity Access Ltd v Westpac Banking Ltd [1989] ATPR 40-972
Fiduciary v Morningstar Research [2004] NSWSC 664
Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264
Harvey v Jacob (1817) 106 ER 59
Idoport Pty Ltd v NAB Ltd [2001] NSWSC 744
In re Rhodesia Goldfields, Limited Patridge v Rhodesia Goldfiends, Limited [1907 R 454] [1910] 1 Ch 239
JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691
JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64
K P Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
Kennett v Charlton [2007] NSWSC 190
Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344
MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97
McPherson Thom & Co v Coombie Pastoral Co Pty Ltd [1929] VLR 295
Massey v Allen (1879) 12 Ch D 807; JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64
Menhaden v Citibank NA (1984) 1 FCR 542
MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Ltd [2002] FCA 821
Mokau Timber Co v Berry (1908) 11 GLR 212
Morris v Hanley [2001] NSWCA 374
Nelson Capital Pty Ltd v Short [2003] WASC 152
Plaza Print Pty Ltd v South British Insurance Co Ltd (1984) 68 FLR 340
Re Application of Macedonian Orthodox Community Church St Petka Inc [2006] NSWSC 392
Re PILT Nominees Pty Ltd (Unreported, 2909/2009, White J)
Ruth Chong v Super Equity Invests Pty Ltd & Anor [2012] NSWSC 27
Sharjade v Darwinia Estate & Anor [2006] NSWSC 708
Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114
Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162
Sunday Times Newspaper Company Ltd v Mcintosh (1933) 33 SR (NSW) 371
Szanto v Bainton [2011] NSWSC 985
Transocean Capital Pty Ltd v AFSIG Pty Ltd [2006] NSWSC 806
Tyne Improvement Cmrs v Armement Anversois S/A (The Brabo) [1949] AC 326
Westpac Banking Corporation v Commonwealth Steel Ltd [1983] 1 NSWLR 735
William Buck Pty Ltd v Perception Pty Ltd [2006] VSC 385
Wollongong City Council v FPM Constructions Pty Ltd [2004] NSWSC 523
X v A [2000] 1 All ER 490
Xebec Pty Ltd (in liq) v Enthe Pty Ltd (1987) 18 ATR 893

Texts Cited:

J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (7th ed, 2006)

Category:

Interlocutory applications

Parties:

10/411472
Air Company Vertical T-LLC, a company registered in the Russian Federation, No 102690191450 (Plaintiff)
Vertical Australia Pty Ltd (ACN 147 916 961) (First Defendant)
Yuri Tchernobryvko (Second Defendant)

11/408815
Vertical Australia Pty Limited (Plaintiff)
Vertical-T LLC (First Defendant)
Wellman Limited (Second Defendant)

Representation:

Counsel:
N Kidd (Plaintiff 11/408815; Defendants 11/411472)
A Lo Surdo SC with D Tynan (First Defendant/Cross-claimant 11/408815; Plaintiff 11/411472)
Solicitors:
Swaab Attorneys (Plaintiff 11/408815; Defendants 11/411472)
Colquhoun Murphy (First Defendant/Cross-claimant 11/408815; Plaintiff 11/411472)

File Number(s):

11/408815, 11/411472

Judgment

1. HER HONOUR: Before me for hearing on 20 June 2012 were two applications brought in separate but related matters. The two proceedings in question are, first, proceedings (to which I will refer as the Interpleader proceedings, 11/408815) commenced by Vertical Australia Pty Limited (Vertical Australia) for the payment into Court of a sum of $2,371,195.61 and, second, proceedings (to which I will refer as the Breach of Agency proceedings, 11/411472) commenced by Air Company Vertical-T LLC (Vertical-T) in which Vertical-T seeks damages against Vertical Australia for breach of an agency agreement and breach of fiduciary duty.

1. The respective applications before me for hearing are, first, an application by Vertical-T in the Interpleader proceedings (by way of cross-claim/cross summons filed on 1 May 2012) for an order that the funds paid into Court in December 2011 by Vertical Australia (together with any interest accrued thereon after the payment of those funds into Court) be paid out of Court to Vertical-T (an application not opposed by Vertical Australia, which claims no interest in the funds, though it seeks an indemnity for its costs associated with the commencement of the Interpleader proceedings) and, second, an application by Vertical Australia for security for costs in respect of the Breach of Agency proceedings (on the basis that Vertical-T is a foreign company).

1. In relation to the second application, Vertical-T does not dispute the entitlement of Vertical Australia to an order for security for costs (having regard to the fact that Vertical-T is a company registered in the Russian Federation and does not carry on business in this jurisdiction otherwise than through an agent) but it asserts that the amount claimed is excessive and not presently warranted. Issue is also taken as to the manner in which security is sought to be provided (ie, by way of the retention of part of the sum presently held in Court in the Interpleader proceedings).

Background Facts

1. As noted above, Vertical-T is a company registered in and carrying on business in the Russian Federation. It leases and supplies military support aircraft. Mr Vladimir Skurikhin is the General Director of Vertical-T.

1. Vertical Australia was incorporated in Australia in December 2010 to act as Vertical-T's agent and to develop Vertical-T's business in Australia. Mr Yuri Tchernobryvko was appointed as Vertical Australia's sole director and shareholder. The agency arrangement was initially documented in a letter dated 10 September 2010 under which Mr Tchernobryvko was appointed to undertake on behalf of Vertical-T all actions as may be necessary or reasonable in connection with, inter alia, (a) the performance of all activities in the region in relation to commercial development; (c) participation in tenders; and (f) the submission, signing (upon receipt of approval from Vertical-T), receipt of documents and data, and execution of other acts in connection with commercial activities of the company in the region. It was contemplated at that time that Mr Tchernobryvko would establish a company to act as agent, as he did.

1. On about 22 February 2011, Vertical-T entered into a Services Contract with the Commonwealth of Australia for the supply by Vertical-T of a number of cargo helicopters for use by the Commonwealth in Afghanistan. This followed the submission by Mr Tchernobryvko on Vertical-T's behalf of a tender for the provision of rotary wing (helicopter) services for sustainment operations in Afghanistan. The aircraft details were specified in Item 1 of Schedule 2 by reference, inter alia, to the aircraft make, type and model; and the aircraft's specific registration marks. The Services Contract required the contractor (Vertical-T), among other things, to provide "Transport Services", as defined, up to a maximum number of Block Hours per month and to provide, operate and maintain the aircraft (and provide the personnel) for the provision of the Transport Services).

1. The Services Contract was due to expire in accordance with its terms on 31 August 2011 (see clause 2.1) but was extended on 1 August 2011 to 30 June 2012 (the Commonwealth exercising an option it had under clause 2.2 of the Services Contract in that regard).

1. Pursuant to clause 19.1 of the Services Contract, Vertical Australia was appointed as Vertical-T's agent for the purposes of receipt of payments due from the Commonwealth under the contract.

1. Mr Tchernobryvko has deposed that it was Ms Ludmila Baraney, the then Deputy Director, International Department at Vertical-T, who had responsibility for managing the relationship with Vertical Australia. There was an arrangement (apparently established by Ms Baraney) whereby the amounts paid to Vertical Australia (as Vertical-T's agent under the Services Contract) were remitted to Vertical-T through a series of intermediary companies. The payments were first transmitted by Vertical Australia (after deduction of fees) to Wellman Limited (the second named defendant in the Interpleader proceedings), which is a company incorporated in Cyprus, and from it to KBL Ltd (a company incorporated in the United Kingdom) and thence to Vertical-T in Russia. According to Mr Skurikhin, Ms Baraney explained the need for this as being due to a prohibition under Australian law on the making of payments direct from Australia to Russia. (He says it was not until November 2011, when Vertical Australia was replaced by a new agent in Australia, that he discovered there was no such prohibition.)

1. By letter dated 15 February 2011 (prior to the execution by Vertical-T on 22 February of the Services Contract), Vertical-T instructed Vertical Australia "to transfer any funds received by [Vertical Australia] for services, aircraft and personnel provided by [Vertical-T] where [Vertical Australia] nominated as the agent, to Wellman LTD". In that letter, Wellman was described as the "subsidiary and funds Management Company of Vertical-T". (This letter is now said by Vertical-T to be a forgery. It purports to bear the signature of Mr Skurikhin under the seal of Vertical-T.) The letter concluded by stating that Vertical Australia "will accept invoices issued by Wellman LTD based on proposed agreement between" Vertical Australia and Wellman.

1. Mr Tchernobryvko has deposed that in early February 2011, Ms Baraney requested that Vertical Australia enter into a contract with Wellman for the provision of "Rotary Wing Aircraft services to be provided by Vertical-T under the Services Contract". He understood that it was this contract that was the "proposed agreement" contemplated in the 15 February 2011 letter. Exhibited to his affidavit is a copy of the document described by him as the Wellman contract. On its face this is a contract dated 21 February 2011 between Vertical Australia and Wellman "for the fulfilment of aviation works on helicopters of [the two types specified by aircraft make and registration number in the Services Contract between the Commonwealth and Vertical-T]".

1. The term of that contract was specified as being for 6 months from the date of signature (clause 3.1) though there was provision in that clause for the contract to be extended "upon bilateral agreement of the Parties". There is perhaps room for ambiguity in the construction of this document as to whether what Wellman was contracting to provide were the aircraft themselves (which there is no suggestion that it owned) or services for the operation of the aircraft owned by Vertical-T. Nevertheless, what is apparent is that the aircraft registration details referred to in the Wellman contract are the same as those in the Services Contract, so that the respective contracts related to the same aircraft.

1. On 1 August 2011, the Commonwealth extended the Services Contract to 30 June 2012.

1. From February 2011 until about September 2011, Vertical-T received all amounts payable to it pursuant to the Services Contract and the arrangement with Vertical Australia. That ceased from about September 2011. (Vertical Australia does not deny that it retained the Commonwealth payments made pursuant to invoices dated September 2011 and October 2011 respectively. However, it says in effect that it did not act improperly in retaining those payments, in circumstances where it was faced with competing demands from Vertical-T and Wellman in relation to those moneys.)

1. In the period from September to November 2011, Vertical-T issued a number of directions to Vertical Australia (on which Vertical-T relies for the proposition that Vertical Australia was no longer authorised to deal with Wellman).

1. Mr Tchernobryvko deposes that on 21 September 2011 he received a telephone call from Mr Andrey Makarov of Vertical-T advising him that Ms Baraney had left her employment at Vertical-T and that he must cease communication with her and deal only with Vertical-T "in all matters" ([12] of his affidavit). Mr Tchernobryvko deposes that he was aware that Ms Baraney is a shareholder of Wellman "together with Director General of Vertical-T Mr Skurikhin". (Vertical-T denies that Wellman is a subsidiary of or associated with it.)

1. On 26 September 2011, Mr Skurikhin wrote to Vertical Australia (on Vertical-T letterhead) advising Mr Tchernobryvko that Ms Baraney was no longer an employee of Vertical-T and did not represent Vertical-T's interest anymore. The letter requested that in future all email letters concerning a relationship between the companies be forwarded to three named individuals (including Mr Skurikhin and Mr Makarov). Vertical-T characterises this (not unreasonably) as a direction to Vertical Australia not to deal with Ms Baraney any more.

1. Mr Skurikhin has further deposed that on 30 October 2011 he met with Mr Tchernobryvko at a hotel in Dubai and directed him to transfer the payments under the Service Contract directly to Vertical-T, excluding Wellman from the payment chain (at [18] of his affidavit).

1. In the period from September 2011, Vertical Australia continued to receive payments from the Commonwealth pursuant to the Services Contract. Mr Tchernobryvko has deposed that he did not pay those funds on to Wellman due to the instructions that he had received in the 26 September letter) ([13]).

1. The funds paid into Court represent, in substance, the Australian dollar equivalent of the total of two invoices rendered by Vertical Australia and paid by the Commonwealth pursuant to the Services Contract: an invoice dated 11 September 2011 (comprising monthly service charges for the period from 11 September 2011 to 10 October 2011 for the primary aircraft the subject of the Services Contract) in the sum of US$1,642,373.70; and an invoice dated 12 October 2011 (comprising similar charges for the period from 11 October 2011 to 10 November 2011) in the sum of US$1,488,214.10. (Mr Tchernobryvko explains that deducted from the invoice payments as paid into Court are service fees payable to Vertical Australia as well as payments due to PME International LLC, an approved subcontractor under the Services Contract.) Relevantly, I note that the respective monthly service charges in each case included a component referable to rates in excess of 50 Block Hours for the previous month, (ie August/September and September/October respectively).

1. By letter dated 1 November 2011 (a copy of which Mr Tchernobryvko says his solicitors first received by email on 9 November 2011), Vertical-T wrote to Wellman referring to a contract signed on 15 September 2011 between Vertical-T and Wellman on participation in aviation works. (That contract was referred to as Contract # VT 09 11 AF, whereas the 21 February 2011 contract document was headed Contract No WN/VT Aust/02/11/AF.) No copy of a 15 September contract was in evidence. The letter referred to clause 13.2 of the Contract and a "Settlement Report to the Discrepancy Agreement Report to the Contract" and unilaterally notified Wellman of the termination of the contract "in connection with the violation of more than 15 days of payments provided for in Article 12". The letter concluded:

Hereby notify that the CONTRACT # VT September 11 AF on participation in aviation works from 15th September, 2011, is considered terminated from November 1, 2100

1. That letter was sent under the signature of Mr Skurikhin. Wellman responded thereto by email on about 9 November 2011 in which it denied that there had been non-compliance with the "settlement procedure" under the 15 September 2011 contract (asserting that Vertical-T had been in breach of an obligation to provide Wellman with a duplicate "Act" (by which I assume the writer has abbreviated the word "account") of rendered services and that, as the relevant accounting period was from the 11th of the previous month to the 10th of the current month, any delay in payment (provided that the "Act of rendered services" were to be presented) would only commence from 13 November 2011). The letter contended that the decision on termination was "illegal" and called upon Vertical-T "to take measures and read [the contract] more attentively and fulfil the obligations on your [Vertical-T's part] part, first of all".

1. On 10 November 2011, Mr Tchernobryvko received a letter by email from Wellman referring to the 21 February 2011 contract between those two entities and requesting payment within 3 days of the "delayed payment for the rendered services" those being described as for the months from 11 August 2011 and 11 September 2011 respectively (in the sums of US$524,448 and $724,000), totalling $1,248,448. (The amounts there demanded do not correspond precisely with the amounts in the Vertical Australia invoices but it is possible that they represent the amount invoiced for excess block hours in the 11 September invoice (of $585,633.60) and the charges for the month of September for block hours flown (of $780,000), to which they roughly correspond. (The three-day time limit may be because Wellman considered that the time delay would not have contractual consequences since then but this is mere speculation on my part.)

1. On 11 November 2011, Vertical Australia, through its lawyers, wrote to each of Vertical-T and Wellman in similar terms, referring to the Services Contract, the 21 February Wellman Contract and various other correspondence, and asserting that Vertical Australia and Mr Tchernobryvko were "in a position of trust, respect and high regard in the eyes of the Commonwealth" which relationship "is the principal catalyst for how the Services Agreement was negotiated and entered into". The letter noted that the instruction to cease communication with Ms Baraney and only to deal with Vertical-T directly had placed Vertical Australia and Mr Tchernobryvko in a position of conflict and had made it impossible to execute their rights and obligations under the various contracts. A way forward was proposed, involving the recommendation that Wellman and Vertical-T immediately negotiate in good faith to resolve the issues between them and to advise Vertical Australia and Mr Tchernobryvko the way that funds were to be remitted. Failing this, it was said to be likely that Vertical Australia and Mr Tchernobryvko would inform the Commonwealth of the issues (at a meeting scheduled on 17 November 2011) and the view was expressed that it was possible that the Commonwealth would terminate the Services Contract "upon hearing of the change in circumstances". (There is no evidence that the Services Contract has in fact been terminated and this correspondence has rather an in terrorem flavour.)

1. The response from Wellman to this correspondence (on 11 November 2011) seems to have been to issue a further demand for payment from Vertical Australia (the letter somewhat confusingly going on to recommend that the "right" be granted to Wellman and Vertical-T to settle the disputes between them, the very thing that Vertical Australia's lawyers seem to have suggested as the way forward). In any event, the letter concluded with a threat by Wellman to commence proceedings against Vertical Australia.

1. Vertical-T, by notice dated 22 November 2011, then terminated the agency relationship between its company and Vertical Australia (and/or Mr Tchernobryvko) with immediate effect, expressly revoking all authorities and powers that were ever given to them and calling for all moneys held by them to be remitted to DynCorp (Aust) Pty Ltd, its new agent in Australia.

1. By letter dated 23 November 2011, Vertical-T's solicitors advised Vertical Australia's solicitors that the basis for the termination was the failure of Vertical Australia to follow the instructions that had been given regarding the remittal of the moneys received from the Commonwealth (which it was said had led to a loss of confidence and the irretrievable breakdown of the relationship between the parties). That letter conveyed Vertical-T's instructions that the 15 February letter was a forgery (that being the first intimation of this, as far as I can see on the material before me) and stated that Wellman was not an entity controlled by Vertical-T, but was an entity established by Ms Baraney. A further demand for the remittal of the moneys payable under the Services Contract was made, failing which proceedings were foreshadowed.

1. On 24 November 2011, Vertical Australia sought further time to respond to that demand but gave an undertaking to give 72 hours' notice before it distributed any funds received from the Commonwealth that were currently in its control.

1. A further demand was made by Vertical-T's lawyers by letter of 28 November for the remittal of the moneys (on the basis that any arrangement with Wellman was irrelevant and that the situation was, rather, said to be one whereby Vertical Australia as agent (and acknowledged agent) of Vertical-T was obliged to comply with its directions).

1. By letter dated 2 December 2011, Vertical Australia's solicitors wrote, amongst other things, denying that their client had any reason to believe that the 15 February letter was a forgery and advising that it intended to pay the moneys into Court (on the basis that the entitlement to the moneys as between Vertical-T and Wellman was a matter for determination by the Court). A similar letter was sent to Wellman. Relevantly, in that letter, Vertical Australia's lawyers concluded as follows:

In the meantime, as our client's agency on behalf of Vertical-T LLC has been terminated, our client hereby terminates the contract between Wellman Ltd and Vertical Australia Pty Limited dated 21 February 2011, which we note in any event expired on its terms on 21 August 2011. (my emphasis)

1. Vertical-T, through its lawyers, took issue with this course of action (on the basis that there was no relationship between Vertical-T and Wellman which would entitle the latter to any of the moneys and that the relationship between Vertical-T and Vertical Australia was one of agency. Hence it was emphasised that the latter was required to comply with Vertical-T's directions. (Pausing there, if, as Vertical Australia contends, it entered into the Wellman contract pursuant to what on their face appeared to be Vertical-T's directions, then the fact that it was seemingly not prepared at face value later to accept Vertical-T's assertions as to the forgery may not of itself be unreasonable. Vertical Australia seems (not surprisingly) to have been concerned not to expose itself to claims by either of the parties then demanding the moneys from it.)

1. In any event, in December 2011 there was further correspondence between the respective lawyers in which proceedings by Vertical-T were foreshadowed and the intention of Vertical Australia to pay the moneys into Court was reiterated. A draft of Mr Tchernobryvko's affidavit was provided to Vertical-T's solicitors on 16 December 2011. Their response was that the foreshadowed application would be unnecessary as they anticipated receiving instructions to commence proceedings the following Monday (and that to save costs Vertical Australia should take no further steps for preparation of proceedings - foreshadowing an application for costs in the event that the interpleader application was nevertheless brought). No proceedings were issued on the Monday and the following day (20 December 2011) Vertical Australia commenced the Interpleader proceedings and paid the moneys held by it (being the invoice sums US $3,130,587.8 less the Vertical Australia agency fee of $US 266,595 and a subcontractor fee of US$505,480) as converted to Australian dollars into Court.

1. On 22 December 2011, Vertical-T commenced the Breach of Agency proceedings against Vertical Australia and Mr Tchernobryvko seeking declaratory relief (including that 'Vertical Australia had held all moneys received from the Commonwealth in connection with the service contract (less agreed fees and expenses) on trust for Vertical-T and that Vertical Australia was in breach of trust and in breach of contract by failing to remit those moneys to it. An account was sought of all moneys paid the Commonwealth or any other entity in connection with the Service Contract.

1. Equitable compensation is sought (in the alternative to the declarations of breach of trust/contract) as well as damages. An order is sought that the defendants deliver up and cancel all documents, authorities, power of attorney and letter of instructions sent to each of them by Vertical-T.

1. The alleged breaches of the agency agreement comprise the failure of Vertical Australia to provide to Vertical-T the money received from the Commonwealth under the Services Contract and to provide documentation evidencing receipts and payments under the Services Contract [14]; its failure to remit moneys to DynCorp as directed [18]; and the fact that it had not "returned all documentation" to Vertical-T [19]).

1. The allegation of breach of fiduciary duty is set out in [21]-[23]. The fiduciary obligations particularised in [21] (being obligations to avoid conflict of interest, of good faith and fidelity to account for moneys received) are said to arise by reason of the agency relationship. The breaches of fiduciary obligations are those matters relied upon for the breaches in [14] and [18] respectively (largely, the failure to remit moneys though in [14] there is an alleged failure to provide receipts and documentation evidencing payments).

1. At [23] it is alleged that at all material times Vertical Australia received the moneys from the Commonwealth as a constructive trustee for the benefit of Vertical-T. This allegation is denied by Vertical Australia.

1. The loss and damage claimed for both breach of contract and breach of fiduciary duty is the same - loss of moneys, loss of use of documentation and loss of profit, with a statement that further particulars are to be provided before trial. (The loss of profit claim is, in effect, what is said by Vertical Australia to give rise to the likely need for expert evidence, as I understand it.)

1. Vertical Australia, in its defence, denies the allegation it was a constructive trust on behalf of the plaintiff and the administrator of moneys.

1. Wellman is named as a party to the Interpleader proceedings but was not served with those proceedings by Vertical Australia. Vertical-T has issued a Cross-claim/Cross-Summons against both Vertical Australia and Wellman and has effected service on the latter in Cyprus in the manner outlined later in these reasons. Wellman has not entered an appearance in these proceedings and did not appear on the hearing of the applications before me.

Application by Vertical-T for payment out of Court of the funds

1. The moneys in question were paid into Court in proceedings commenced by Summons in which Vertical Australia seeks an order pursuant to rule 25.3(3) of the Uniform Civil Procedure Rules 2005 (NSW) for that to be done or, in the alternative, that the funds be paid into Court pursuant to s 95 of the Trustee Act 1925 (NSW). As noted, Vertical Australia claims no entitlement to the funds (but seeks an order for the payment of its costs of the Interpleader proceedings on an indemnity basis).

1. While leave was not necessary in order for Vertical-T to serve Wellman out of the jurisdiction (rule 11.5), it is necessary (in circumstances where there has been no appearance by Wellman) pursuant to rule 11.4 of the Uniform Civil Procedure Rules for Vertical-T to obtain leave to proceed against it. I deal first with that application.

1. Senior Counsel for Vertical-T (Mr Lo Surdo SC) submits that service of the originating process was properly effected on Wellman, on the basis that the Interpleader proceedings fall within either paragraph (i) of Schedule 6 (which applies where there are proceedings properly commenced against a party in New South Wales and the person served outside New South Wales is properly joined as a party to the proceedings) or paragraph (j) (which applies where the subject matter of the proceedings concerns property in New South Wales, it being submitted that the fund in Court constitutes property for that purpose).

1. As to the steps taken to effect service, the Cross-claim/Cross-summons clearly contains a statement that the originating process is intended to be served on a defendant overseas (as required by rule 11.3(1)). Pursuant to rule 11.6 it is sufficient that service be effected in accordance with the law of the country in which it is served.

1. In this regard, reliance is placed on the affidavit sworn by Vertical-T's solicitor, Ms Karen Fogarty, who deposes to the receipt of advice from a law firm in Cyprus (Michael Kyprianou & Co) as to the requirements in that jurisdiction for service of court documents on a company situated in Cyprus. The advice received is annexed to Ms Fogarty's affidavit, as is a translation of the relevant Civil Procedure Rules which regulate the service of Court process in that jurisdiction. Those Rules provide, relevantly, that service is deemed to have been properly effected on a legal entity if the court document is served on the chairman or other senior employee or the treasurer or the secretary of the legal entity or if the document is left at the office of the legal entity (rule 5(7)) (my emphasis). Rules 5B(1) provides that service of court documents (which term includes any document of an overseas judicial authority) is to be effected by a process server to whom a licence has been granted for this purpose by the Supreme Court.

1. There is evidence from a licensed process server in Cyprus (Mr Stavros Constantinou) as to the service by him of the Cross-Summons and affidavit in support (as well as a Greek translation of those documents) at the registered address of Wellman on 3 May 2012. Mr Constantinou deposes that he left the documents with Mr Stelios Giordamlis, a lawyer employed there. (Mr Giordamlis is, I note, the signatory on some of the correspondence issued by Wellman to Vertical Australia demanding remittal of the moneys in question.)

1. I am satisfied that Wellman has been properly served in accordance with the rules regarding service of Court process in Cyprus. I am also satisfied that the proceedings fall within paragraphs (i) and (j) of Schedule 6 to the Uniform Civil Procedure Rules.

1. As to para 6(i), there is no suggestion that the Interpleader proceedings were not properly commenced by Vertical Australia against Vertical-T (although Vertical-T maintains that they were commenced prematurely). While Vertical-T is not incorporated in New South Wales, it is carrying on business (through Vertical Australia and now DynCorp) in this jurisdiction and it is a proper party to proceedings in relation to the moneys paid into Court. It has clearly submitted to the jurisdiction of the Court. As to the cross-claim/cross-summons filed by Vertical-T against Wellman, Mr Lo Surdo submits (and I accept) that Vertical Australia was properly joined as a first cross-defendant to that claim to ensure that it was bound by the orders made for payment out in these proceedings (even though no substantive relief is sought against it). It is submitted that Wellman was properly joined to the proceedings to ensure that all matters in issue in the proceedings are properly determined. The Rule permits joinder of foreign parties whether as defendants to the plaintiff's claim or as a defendant to a cross-claim (Australian Iron & Steel Pty Ltd v Jumbo Scheepvaart Maatschappij (Curacao) NV (1988) 14 NSWLR 507 at 518).

1. For completeness, I note that my attention was drawn to Agar v Hyde (2000) 201 CLR 552 for the proposition that, on an application for leave to proceed, the Court is not required to assess the prospects of success of the claim (provided that there is factual material on affidavit in support of the claim, as there is in this case, and the claim against the foreign defendant is genuine and cannot be said to be doomed to failure - Tyne Improvement Cmrs v Armement Anversois S/A (The Brabo) [1949] AC 326).

1. There is nothing to suggest that the claim brought against Wellman is not genuine. I note that on an application for payment out under the procedure provided for in Part 55 of the Rules (though the present application is not one made expressly pursuant to that process), it is incumbent on an applicant for payment out to notify any other competing claimant of the application and strict proof thereof is required. Hence on any view of the application Wellman would have been a proper and necessary party to be joined had it been resident in the jurisdiction. That is said to be sufficient for the purposes of the requirement that the claim be genuine (see Westpac Banking Corporation v Commonwealth Steel Ltd [1983] 1 NSWLR 735).

1. As to 6(j), there is no suggestion that "property" for the purposes of Schedule 6 is confined to real property (although Mr Lo Surdo concedes that a number of the relevant cases do concern real property). Ritchie's Commentary to Part 11 r 11.2 notes that for the purposes of 6(j) the property within the State must be the subject matter of the proceedings (and not indirectly the subject of the claim for relief), drawing a distinction with cases where claims for recovery of moneys (such as rent or proceeds of a policy of insurance or stamp duty on a conveyance) or for compensation in relation to matters concerning property (such as for breach of a covenant to repair) have been held not to be within the relevant subrule. There is no suggestion in Ritchie's that the "property" the subject of the claim for relief must be real property nor have I been taken to any authority to that effect.

1. Here, the claim is to a fund comprising moneys in respect of which a constructive trust is claimed. The fund is directly the subject of the proceedings. I consider that moneys paid into Court, over which it is contended that there was a constructive trust in favour of the applicant who is now seeking payment out of that fund, would fall within property for the purposes of 6(j).

1. I am therefore satisfied both that Wellman has been properly served and is on notice of this application and that the proceeding is one falling within the provisions of schedule 6. There is no explanation for its absence on the hearing of the application. I consider that Vertical-T has established the basis for leave to be granted to proceed against Wellman in those circumstances and I give leave accordingly.

1. Turning then to the substance of the application, I am satisfied that Vertical-T has established its entitlement to the funds in question (those representing payment of moneys due to it under its Service Contract with the Commonwealth and paid to Vertical Australia as agent for Vertical-T). Insofar as Wellman has (in correspondence with Vertical Australia) demanded the payment to it of those moneys, it has based that claim on a contract with Vertical Australia (one that Vertical Australia says was entered into at Vertical-T's direction), which contract on its face expired in accordance with its terms in August 2011. There is no evidence that there was any bilateral agreement between Vertical Australia and Wellman to extend its operation (and, indeed, the correspondence in November between Vertical-T and Wellman suggests that any subsequent contractual arrangement was directly between Vertical-T and Wellman).

1. Around five-sixths of the time covered by the first of the two invoices relates to a period in which the written contract seems to have expired and there is no evidence as to any services rendered by Wellman to support any claim to moneys for that period. As to the 10 day period in which the Wellman contract seems to have been on foot (between 11 August 2011 and 21 August 2011), for which it is possible that services were rendered for which payment would be due under the Wellman contract (and hence in respect of which it is conceivable that Wellman might have a claim as against Vertical Australia under that contract), there is no evidence as to what services if any were rendered by Wellman or what portion of the invoiced fees would referable to any such services.

1. The evidence by Mr Skurikhin as to the circumstances in which Ms Baraney explained the need for arrangements to be entered into through Wellman strongly suggests that the latter was no more than a repository for funds passing through from Vertical Australia to Vertical-T (and the tenor of the demand made on Vertical Australia by Wellman seems to me to support such a conclusion). (Mr Lo Surdo noted that the helicopter registration details on the respective contracts were identical, so that it cannot be that Wellman owned the helicopters which were being provided for the use of the Commonwealth (unless there was some other as yet undisclosed arrangement by which it had obtained ownership or usage rights in relation to the same aircraft as those the subject of the Services Contract). It may have provided personnel or maintenance services or the like to assist in the provision of the services the subject of the Services Contract but there is no evidence of that (and any such arrangement is not documented in the manner in which the approved subcontractor arrangement was documented).

1. There is also a suggestion that there was a contract entered into between Vertical-T and Wellman in September 2011 pursuant to which moneys were then to be remitted to Vertical-T via Wellman (though apparently without the direct involvement of Vertical Australia, which does not explain how the moneys were to be remitted from Vertical Australia to Wellman. However, there is no evidence of the terms of that alleged contract (other than that the clauses referred to in Wellman's correspondence, denying the legality of the termination by Vertical-T of that arrangement, seem to accord with similar clause numbers in the earlier Vertical Australia/Wellman contract).

1. As between Vertical Australia and Vertical-T, it was made clear by Counsel for the former, Mr Kidd, at least on the interpleader application (since the submissions on the security for costs application to some extent withdrew from this submission) that there is no claim by Vertical Australia to any of the funds now held in Court (and which were clearly received as agent for Vertical-T). In the course of submissions on the security for costs application, Mr Kidd informed me that his client acknowledged that it had been holding those moneys on trust (T 22.37). (While in the course of that exchange it was not there made clear as to the party for whom it accepts it was holding the moneys on trust (and in the defence to the Breach of Agency claim there is an express denial that the moneys were received as constructive trustee for the benefit of Vertical-T), the very invocation of the interpleader procedure (if not also the alternative claim for payment in under s 95 of the Trustee Act) makes it clear that Vertical Australia does not dispute Vertical-T's entitlement to the funds. It simply leaves it to the Court to determine as between Vertical-T and Wellman the entitlement thereto.)

1. I am satisfied on the interpleader application that (Wellman not having sought to establish in Court any claim to those funds on the present application) the funds should be paid out to Vertical-T (subject only to the question of Vertical Australia's costs of the Interpleader proceedings and to its claim for security to be provided for its costs of the Breach of Agency proceedings out of those funds).

1. In summary, the funds were clearly paid to Vertical Australia by the Commonwealth pursuant to the Services Contract as agent for Vertical-T. In Vertical Australia's hands (subject to any entitlement to deduct moneys therefrom for its agency fees, which seems to have been disputed at least as at November 2011, or for approved subcontractor's fees), the funds were held by Vertical Australia on behalf of Vertical-T. Arguably, it was open to Vertical-T to countermand instructions or directions given to its agent as to the manner in which the funds were to be remitted by the agent. (I say "arguably" because there may also be an argument as to whether, if those new instructions placed the agent in a position of breach of other contractual obligations entered into on the direction of the principal, the agent would be bound to comply with those new directions.) However, it is neither necessary nor appropriate in the context of the present application to comment further on that issue.

1. Whatever may have been the then status of the contract between Vertical Australia and Wellman, to the extent that it was entered into as agent for Vertical-T, then any liability that Vertical Australia might incur in paying the funds to Vertical-T at its direction (following the instruction to exclude Wellman from the payment chain) would be one for which Vertical Australia would presumably be entitled to look to Vertical-T for indemnity. (Vertical-T relies on this for the proposition that Vertical Australia should not have refused to comply with the direction to remit the moneys to it and was acting unreasonably in paying those moneys into Court, though no confirmation of any such indemnity seems to have been proffered in writing at the time.)

1. The Wellman contract had expired in accordance with its terms (by effluxion of time) in August 2011. There is no evidence as to the provision of any services by Wellman to sustain a claim for moneys referable to the 10-day period in which it may still have been operative. Nor is there evidence to support any claim for payment under the terms of a new arrangement of the kind referred to in the November correspondence between Vertical-T and Wellman.

1. As between Vertical-T and Wellman, on the evidence before me I cannot conclude that Wellman has any contractual entitlement to the funds presently in Court.

1. I interpose to note that, insofar as the Interpleader proceedings amount to a claim as such under Part 42 of the Rules (which is the basis on which Vertical Australia maintains its claim to indemnity costs in relation to the institution of those proceedings), the relevant question for determination is as to the entitlement to the funds as between the competing claimants (Vertical-T and Wellman). That seems to be the basis on which Vertical Australia has maintained (in its correspondence with Vertical-T) that it was justified first in retaining the funds (pending determination of the dispute between Vertical-T and Wellman as to those funds) and ultimately in commencing the proceedings. It is consistent with the matters to which Mr Tchernobryvko has deposed in paragraph [34] of his affidavit in support.

1. The alternative basis on which payment into Court was sought to be made (namely, as a payment pursuant to s 95 of the Trustee Act) is relied upon by Mr Kidd when considering the application for security for costs (and this is consistent with the description on the tax invoice issued by the Registry at the time of payment into Court). I note that s 95 gives to a trustee a right to pay money into Court and, relevantly, provides as follows:

(1) Where trustees, or the majority of trustees, have in their hands or under their control money or securities belonging to a trust, they may pay the same into court.

...

(4) Every transfer payment and delivery made in pursuance of any such order shall be valid and take effect as if the same had been made on the authority or by the act of all the persons entitled to the money or securities so transferred paid or delivered.

1. As noted by the authors of Jacobs' Law of Trusts in Australia (7th ed, 2006), in Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 the High Court emphasised that the payment of trust money into court does not, of itself, affect the rights and duties attached to the pre-existing trust, such that the funds will still remain subject to the trust. Hence, if these moneys had the characteristic of trust moneys when paid into Court then they would retain that characteristic.

1. The test for payment out of Court of moneys paid into Court pursuant to Part 4 of the Trustee Act has been considered by Slattery J in a number of cases (including Ruth Chong v Super Equity Invests Pty Ltd & Anor [2012] NSWSC 27 where his Honour noted what the procedure provided for under Part 55 rules 8-11 required). His Honour there restated the requirements of proof in the ordinary case under Rule 55.11, where a party seeks payment out of court, that his Honour had earlier identified in Commonwealth Bank v Estate of late Slieman [2010] NSWSC 661 from [8]:

An applicant under UCPR r 55.11 must establish three matters to justify an order for the payment of money out of court. The first is to identify the person who is primarily entitled to any funds paid into court and the basis of that entitlement. It is fundamental that the person be identified from the best evidence available, so that the court can be sure that the person has been given appropriate notice of the application and can if necessary contest it.

The second matter that needs to be proved by a claimant is that he or she is not merely an unsecured creditor against the person primarily entitled to the fund but is a person who has a beneficial interest in the very fund that has been paid into court. The same evidence that demonstrates a person's primary entitlement to the funds in court often establishes this second matter.

Thirdly, it is necessary for an applicant to identify the other potential claimants to the fund in court and to prove that those persons were notified of its claim. Those persons may consent to the claim. Alternatively, the applicant may prove that those persons either do not have valid claims against the fund or that their claims do not have priority over the applicant's claims.

The court requires strict proof as to who has the entitlement to the funds in court. There is a heavy burden placed on a party seeking payment of money out of court under Trustee Act s 98 and UCPR r 55.11. It is necessary for that party not only to prove his or her entitlement to the funds but also to prove that all other potential claimants to the funds in court have been properly notified. Otherwise there is a risk of incorrect payments being made.

1. As I have already noted, it is by no means apparent that the present application is, or is one required to be, made under the Rule 55 procedure. Rather, the primary position of Vertical Australia seemed to be (as its Summons reflects) that the payment was made under the interpleader procedure. It has been dealt with as such.

1. If this were to have been dealt with as an application under Part 55 of the Rules then Vertical-T has established a number of the matters it would be required to prove, there being clear evidence as to its claims to the fund. It has asserted a beneficial interest therein by reference to the constructive trust on which it contends the funds were held and it has notified the other competing claimant to the funds and joined it to the proceedings (and has established that that party, Wellman, has no valid claim that would preclude payment out to it. However, there is a deafening silence as to the position of the UK company that was also apparently part of the payment chain. While there is no evidence of any claims asserted by it to any moneys, there may well have been an issue as to whether it should have also been notified of the application under Part 55, bearing in mind that there is a requirement for strict proof of the identification and notification of other parties who might have a claim on the funds to which Slattery J has drawn attention in a number of cases.

1. However, in circumstances where the primary basis on which the proceedings were constituted was as an interpleader proceeding, and Vertical-T has established its entitlement to the funds in Court on that application, I do not need to deal with the alternative basis on which payment out might have been sought. (I also note that even if the UK company might have a claim for breach of contract against one or both of Wellman or Vertical-T in relation to the non-payment of any moneys for which it can show it would have been entitled as part of the payment chain, that would not of itself give it a beneficial interest in the funds in Court and hence, using the language of Slattery J in ANZ v Maunder [2009] NSWSC 1356 at [8], it seems unlikely that it would have been found to be a competing claimant to the funds "which would prevent payment out to the applicant".)

Costs of Interpleader proceedings

1. I turn then to the question whether Vertical Australia should be entitled to its costs (on an indemnity or other basis) of and incidental to the bringing of the Interpleader proceedings.

1. In McPherson, Lowe J considered the power to deal with costs in interpleader proceedings and whether, as a general rule, costs should be allowed as between solicitor and client, saying:

... In order to decide this question I have examined many cases in equity and at law, for it must be remembered that the procedure in interpleader which the rules of Court now regulate has it roots both in equity and at. common law. The equity procedure is the older, and may be traced in any standard work on Equity. By way of illustration I refer to Ashburner, Principles of Equity, at p. 8. The requisites of a bill of interpleader were substantially the same as under our present rules, and Ashburner states that "upon his [the applicant's] bringing into Court the amount of the debt, the Court restrained the conflicting claimants from taking or prosecuting any action at law against him, and either put them to litigate their rights between one another at law or decide the matter for itself by a reference to a Master. The jurisdiction in interpleader existed, whether a suit had been commenced by any claimant, or only a claim made." At common law it may be said that the jurisdiction hardly existed until the Interpleader Act of 1831 (1 and 2 William IV., c. 58), and this was followed by secs. 12-18 of the Common Law Procedure Act 1860 (23 and 24 Vic., c. 126), and from 1831 until the passing of the Judicature Act the jurisdiction in Equity and at law was concurrent ( CababB on Interpleader; Introduction, pp. 4-5).

...In my judgment, the rule to be deduced from these cases in regard to costs is that where the applicant on an interpleader summons has come promptly to the Court when faced with conflicting claims, and has been guilty of no conduct which has increased costs, prima facie he should have a complete indemnity, so far as the fund will permit, for his costs; that is to say, he is prima facie entitled in such circumstances to his costs as between solicitor and client. In most cases of interpleader, however, the proceedings on the part of the applicant are of the simplest nature, and his costs should not require to be taxed in order that he should have a full indemnity. In such cases and these I think will be the general rule - the Judge on the hearing will fix the costs of the applicant at an amount which will give that indemnity. The rule which I have now declared records with what, in my experience, has been the practice in the past.

1. In Kennett v Charlton, Gzell J considered the position in McPherson at [17], in the context of a submission as to whether the trustee should have commenced interpleader proceedings or simply paid the moneys into Court (in the present case, Vertical Australia brought its application for payment in on alternative bases). Gzell J said:

So far as costs are concerned, it was submitted that the plaintiff did not fall within the proposition in McPherson because he had added to the costs by choosing to bring interpleader proceedings when the simpler process of a trustee paying money into court was open to him. But in circumstances where rival parties were making claims against the fund, that simple process would not have saved costs because the rival parties would have wished to be heard with respect to the moneys in court. Where a trustee of a simple fund, as this was, is faced with claims by rival parties to those funds an application for relief by way of interpleader is the appropriate course to take. (my emphasis)

and at [22] expressed the opinion that the plaintiff ought not to be "out of pocket" as a result of the rival claims upon the fund he held.

1. In the present case, it is not apparent that the costs of payment into Court solely under s 95 of the Trustee Act (the alternative basis for payment in any event) would have been less than the presently constituted interpleader proceedings. In both proceedings it would have been necessary for Wellman to be notified of the application and the prudent course would have been for it to be joined thereto (as was here the case).

1. Mr Lo Surdo submits that, in commencing the Interpleader proceedings on 20 December 2011 and paying the funds into Court at that stage, Vertical Australia acted prematurely and unreasonably and that it is therefore not entitled to its costs.

1. This submission rests broadly on the proposition that there was no reasonable basis for Vertical Australia to consider that Wellman had an entitlement to make a demand for payment to it of the funds, in circumstances where the Wellman contract (on which it relied for that demand) had ceased to have any force or effect in respect of the invoices in question, having expired on 21 August 2011 (and there being no evidence of any bilateral agreement for its extension).

1. Mr Lo Surdo emphasises that the fact that the Wellman contract had expired was a matter known to Vertical Australia prior to commencing these proceedings (since, on 2 December 2011, Vertical Australia's lawyers had written to Wellman in terms acknowledging that the Wellman contract had expired on 21 August 2011 - even though, perhaps for an abundance of caution, it was made clear at the same time that their client was in any event terminating any such arrangement).

1. Thus it is said that the funds paid into the Court relate to invoices for services rendered after the expiry of the Wellman contract and for which Wellman could have no claim. In that regard, it seems to me that there is scope for an argument (as adverted to earlier) that the Wellman contract could have applied to a portion of the amounts the subject of the first (September) invoice, since there is a component of some half a million dollars that appears to relate to services provided in August 2011. If so, it is by no means apparent that Vertical Australia should reasonably have proceeded on the basis that Wellman's claim was without any foundation at all. (Moreover, there may well have been a course of conduct that led Vertical Australia to have a concern as to who, as between its principal and Wellman, might have been ultimately held to be entitled to the funds - although I accept that there was no evidence relating to any such conduct other than the fact of the payments themselves.)

1. Reliance is also placed on the directions given by Vertical Australia in the period September to November 2011 in relation to the dealings with Ms Baraney and/or Wellman. In that regard, while I accept (as pointed out by Mr Kidd) that the written direction of 26 September 2011 was in its terms a direction not to deal with Ms Baraney (and not a direction as to dealings with Wellman), according to Mr Tchernobryvko himself there was an earlier oral direction on 21 September 2011 by Mr Makarov at Vertical-T for Mr Tchernobryvko to cease communicating with Ms Baraney and to deal directly with Vertical-T in relation to "all matters" (my emphasis), which would surely extend to any future dealings with Wellman in relation to the Services Contract or other matters relating to its dealings with Vertical-T. (There was also the subsequent direction on 30 October 2011 by Mr Skurikhin to Mr Tchernobryvko (not disputed by the latter) to the effect that the latter should direct payments under the Service Contract to Vertical-T and exclude Wellman from the payment chain.)

1. That said, and whatever might ultimately be established at the final hearing, I do not accept that the material before me goes so far as to lead to a conclusion that, when Vertical Australia commenced these proceedings (which it did on 20 December 2011), it knew that Vertical-T (rather than Wellman) was entitled to the funds (whatever it considered the likely outcome of the dispute between Vertical-T and Wellman in relation to those funds might be).

1. Mr Kidd submits that, in November 2011, Vertical Australia was faced with conflicting claims on the moneys received by Vertical Australia from the Commonwealth; that it came promptly to Court; and that it has been guilty of no conduct that has increased the costs of the Interpleader proceedings. On that basis he submits that Vertical Australia should have a complete indemnity for its costs of the Interpleader proceedings from the moneys in Court (citing Kennett v Charlton [2007] NSWSC 190; McPherson Thom & Cov Coombie Pastoral Co Pty Ltd [1929] VLR 295. (Insofar as he refers to Rules 43.2 and 43.7 of the Uniform Civil Procedure Rules in this regard, this supports the conclusion referred to earlier that the primary basis on which Vertical Australia paid the money into Court was by way of interpleader, a matter of potential relevance to one aspect of the security for costs application that I will explore in due course.)

1. The relevance of this is that Vertical-T seeks its costs of the present security for costs application. If it succeeds on that application then there is no need for security to be provided for a significant component of the costs the subject of the order I considered would be appropriate for the provision of security for the costs incurred to date and the ongoing costs of the lay evidence, together with any incidental preparation costs.

1. In any event, I do not see the need for that to be retained out of the funds in Court in the Interpleader Proceedings when there are funds presently held by the plaintiff's solicitors in their trust account.

1. It seems to me that in circumstances where Vertical-T has been willing to provide security and Vertical Australia has been unsuccessful in obtaining an order for security in respect of the full amount of the costs of the hearing (and in its application for the amount to be retained from the Interpleader funds), Vertical Australia has been substantially unsuccessful on the present application. Although I accept that Vertical-T's proposal has not ultimately been matched in its terms by the order I proposed to make, it does cast significant doubt on the need for this application at all. I consider that the appropriate costs order on the security for costs application is that costs should be the plaintiff's costs in the cause. That being the case, it is not necessary for there to be security to be provided for the component referable to the costs incurred by Vertical Australia on the security for costs application (its preparation or hearing) and therefore the amount to be provided by way of security should be reduced to $15,000 to cover 70% of what I consider to be the costs of the lay evidence, the preparation of the pleadings and some of the incidentals to date (such as the directions hearings). Unless the parties persuade me otherwise I see no reason why that should not simply be retained in the trust account of the solicitors for Vertical-T. I will hear the parties if there is an application for an order for those moneys to be paid into Court.

1. On the assumption that Vertical-T's solicitors proffer an undertaking that pending the hearing the balance of the $60,000 not be disbursed without giving the defendant's solicitors 72 hours' written notice of their intention to do so, that seems to me to be sufficient at this stage by way of security for costs.

Conclusion

1. I have concluded, for the reasons set out above, that Vertical-T has established its entitlement to the funds presently held in Court. I consider that Vertical Australia's conduct has not been such as to disentitle it to its costs incurred in the preparation of the Interpleader proceedings on an indemnity basis. Those costs would not, in my view, extend to more than the costs of obtaining advice as to the commencement of the Interpleader proceedings, the preparation of the Summons and affidavit in support, and the attendance in Court for the purpose of making a claim for its costs. I do not consider that payment out should be delayed for the purposes of an assessment of those costs. Rather, I will direct that Vertical Australia serve on Vertical-T within 7 days an itemised bill of the costs incurred by it of and incidental to the Interpleader proceedings. If those costs are agreed, then the parties should forward short minutes of order for entry in chambers. If they are not agreed, the matter should be listed for me within 7 days of service of the bill of costs in order for me to fix an amount in respect of those costs (to be deducted from the funds held before payment out of Court). As a practical matter, this will mean that payment out of Court will be ordered within 14 days.

1. As to security for costs, I have concluded as set out in [144] above.

Orders

1. In the Interpleader proceedings, I propose to order as follows:

1. The First Defendant/Cross-claimant is granted leave to proceed against the Second Defendant/Second Cross-defendant pursuant to rule 11.4 of the Uniform Civil Procedure Rules 2005.

2. On or before 12 July 2012, the sum of money AUD$2,371,195.61 (the Funds), together with any interest accrued on the Funds be paid out of the Court to DynCorp (Aust) Pty Limited (the First Defendant/Cross-claimant's Australian agent) by direct deposit into account:

ANZ Bank

Account Name: DynCorp(Aust) Pty Limited

BSB: 012 984

Account Number: 497001577

less such amount as is fixed or agreed (in accordance with the orders below) to meet the plaintiff's costs of the Interpleader proceedings on a solicitor/client basis, be paid out of the moneys held in Court to the first defendant or at its direction.

3. The plaintiff's costs of and incidental to the Interpleader proceedings on a solicitor/client basis are to be paid to the plaintiff out of the funds held in Court.

4. The plaintiff is to serve on the first defendant within 7 days an itemised bill of the costs of and incidental to the Interpleader Proceedings.

5. The parties are to notify my associate within 7 days thereafter if they are in agreement as to the amount of costs to be deducted and paid to the plaintiff pursuant to order 2; failing which the matter is to be listed before me at 9.30am on 12 July 2012 to fix the amount so payable.

6. The second defendant is to pay the first defendant's costs of the Interpleader proceedings and to indemnify the first defendant for the costs paid by it to the plaintiff in respect of the Interpleader proceedings.

1. In the Breach of Agency proceedings, and subject to receipt of the undertaking indicated earlier, I propose to order as follows:

1. Order that the plaintiff provide security for the costs of the defendants in the amount of $15,000 (such security to be provided by the retention of that amount as held in the trust account of the solicitors for the plaintiff pending the final determination of these proceedings or further order).

2. Liberty to the defendants to apply in relation to any further security for costs required for the preparation of the matter to hearing as and when it becomes apparent that such further security is necessary

3. Costs in relation to the Notice of Motion filed 5 April 2012 be the plaintiff's costs in the cause.

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