Young Strangers Pty Limited v Fuzzy Pty Limited
[2011] NSWSC 587
•16 June 2011
Supreme Court
New South Wales
Medium Neutral Citation: Young Strangers Pty Limited v. Fuzzy Pty Limited & Others [2011] NSWSC 587 Hearing dates: 10 May 2011 Decision date: 16 June 2011 Jurisdiction: Equity Division Before: Sackar J Decision: 1. Order that a bank guarantee of $50,000 be provided by way of security
2. Additional security of $70,000 to be provided:
(a) 60% within 14 days of the defendant's serving their evidence;
(b) 40% by 28 days prior to the commencement of the trial
Catchwords: Security for costs Legislation Cited: Corporations Act 2001 (Cth); Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: United Dominions Corporation v Brian Pty Ltd (1985) 59 ALJR 676
Hospital Products Ltd v United States Surgical and Others (1984) 156 CLR 41
Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) FCR 189
Jazabas v Haddad 65 ACSR 276
Carey-Hazel v Getz Bros and Co (Aust) Pty Ltd (2004) FCA 1334Texts Cited: Nil Category: Costs Parties: Young Strangers Pty Ltd - Plaintiff
Fuzzy Pty Limited - Defendant
Ten Pound Crew Pty Limited - Second DefendantRepresentation: Counsel:
Mr J Robertson - Plaintiff/respondent
Ms K Williams - Respondent/applicants
Solicitors:
HWL Ebsworths, A Young - Plaintiffs Middletons, T Webster - First and Second Defendants
File Number(s): 2008/280747 Publication restriction: Nil
Judgment
The first and second defendants seek an order that the plaintiff provides security in the amount of:
(a) $50,000 for the purposes of the replacement of the bank guarantee lodged with the Supreme Court of New South Wales on 11 February 2009;
(b) $113,456 (inclusive of GST) for further security for costs.
The defendants further seek that the order for security be given either by bank guarantee to the defendant's solicitor within 14 days of the date ordered or alternatively be given security in such manner and at such time and on such terms (if any) as the court thinks fit.
The application is made pursuant to section 1335 of the Corporations Act 2001 (Cth) and rule 42.21 of the Uniform Civil Procedure Rules (NSW).
Section 1335 subsection 1 of the Corporations Act is in the following terms:
"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."
Rule 42.21 relevantly provides:
"(1) If, in any proceedings, it appears to the court on the application of a defendant:
.....
(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or
(e) that a plaintiff is suing, not for his or her own benefit, but for the benefit of some other person and there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so,
the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given."
The Issues
The proceedings, which were commenced on 19 September 2008, involve an allegation by the plaintiff that the defendants wrongly terminated a joint venture agreement. The plaintiff alleges as a result of the termination that it has suffered loss and further lost the opportunity to make profits in the years following the termination.
The plaintiff asserts that it and the defendants had agreed to work together to promote and host an annual dance event in Brisbane known as Parklife Brisbane ("Parklife"). It is further said that the parties had agreed on their respective contributions to costs. It is contended that the nature of the agreement gave rise to fiduciary obligations on the part of the defendants.
The defendants who purported to terminate the agreement on 4 July 2008 say they were entitled to do so by reason of the plaintiff having failed to make its agreed contribution by the specified time. The defendants allege that it was an essential term of the agreement that the first instalment of capital be contributed by the specified time and failure to do so entitled them to terminate.
The Proceedings
It should be observed in passing that on 10 February 2009 the court by consent made orders that the plaintiff provide security for the defendant's costs of the proceedings in the sum of $50,000 by way of security provided in the form of a bank guarantee. Although it expired it has been reinstated in the same amount.
The materials filed by the defendants on the motion indicate that a great deal of work has been necessary by reason of requests made by the plaintiff for discovery of various categories of documents. There have also been a number of issues that have arisen on the pleadings that have had to be addressed.
In addition the plaintiffs have filed a number of affidavits, the most recent of which was filed on 24 February 2011. It is the affidavit of Ms Jane Slingo. It comprises 62 pages and 271 paragraphs with 78 annexures. It covers in considerable detail events in the years 2005 to 2008. It also covers a number of meetings all of which will no doubt be said to be relevant. The events of June and July 2008, which are of considerable importance, are understandably dealt with in some detail.
The defendants are in the process of preparing their evidence which may, given Ms Slingo's material, itself be extensive. I would expect that the plaintiff will want an opportunity to reply to it.
As I have already observed there is an allegation that the defendants owed fiduciary obligations to the plaintiff. This is not admitted. The presence and extent of fiduciary obligations, if any, is often the subject of some complexity as discussed in United Dominions Corporation v Brian Pty Ltd and Hospital Products Ltd v United States Surgical and Others .
A claim for lost opportunity is again often a complex exercise to evaluate and assess: Malec v J C Hutton Pty Ltd .
The Parties Contentions
In considering whether and if so to what extent security should be provided in a matter such as this involves the court exercising a discretion. The principles are not in dispute. Justice Beazley (as she then was) articulated them in KP Cable Investments Pty Limited v Meltglow Pty Limited at [196 - 198]. The Court of Appeal in Jazabas v. Haddad 65 ACSR 276 adopted Her Honour's articulation (per McClellan CJ at CL at [73] to [96] with which Mason P agreed. Basten JA also agreed with McClellan J at [4]). It is unnecessary to set them out again.
The plaintiff in addition relies upon comments by French J (as he then was) in Carey-Hazel v Getz Bros and Co (Aust) Pty Limited at [36] to the effect that in fixing the quantum of security a conservative approach should be taken whilst having regard to the estimates. His Honour further remarked that it was not required that an order for security provide a complete indemnity.
The plaintiff submits that I should exercise my discretion against ordering security on the basis that the defendants have been in default of the directions for the filing of their evidence. That evidence was to be served by the defendants on 24 February 2011. No evidentiary materials had been served prior to the motion being heard before me. It was urged that I should require the defendants to remedy their default first before dealing with the substance of the motion for security. I do not consider that the defendants have inordinately delayed in that regard. There have been a number of substantial procedural issues to be dealt with and the plaintiff has only recently completed the filing of its evidence in chief on 24 February. I should observe that I have made directions by consent for the completion of the filing of all remaining evidence.
The plaintiff also contends I should not order security additional to the $50,000 bank guarantee already proffered. I do not agree. I consider the history of this matter and the issues for trial warrant security being ordered which is additional to the bank guarantee.
The plaintiff also contests the defendant's various estimates for their costs going forward. A challenge is made to the defendants asserted need to use for example a partner in consultation with a senior associate and also the extent to which counsel should be used particularly in preparation for the hearing. Then there are relatively minor disputes an example of which is about how much ought be charged per page for photocopying.
The plaintiff also relies upon an affidavit of a Ms Louise Gillespie. Ms Gillespie is a costs consultant. She is legally qualified. She has read certain limited materials (seemingly not the affidavit(s) of Ms Slingo for example) and expresses the view that the issues as to liability are not complex. In addition she asserts that the hourly rates used by the defendants for their estimate of costs are too high and unlikely to be awarded on taxation.
I cannot accept that view of the proceedings. First it only addresses liability and in a way which attempts in my view to overly simplify the case. The factual matrix addressed by Ms Slingo together with the legal issues that arise may not be all that simple to resolve. The case on damages being one of lost opportunity has or will have its own complexities but Ms Gillespie gives no consideration to this aspect of the case at all.
There is no doubt here that the plaintiffs claim is bona fide and raises real issues to be tried. I am not presently in a position to express any view as to the strength of the case but to do so is unnecessary.
There is no suggestion here that the plaintiff's impecuniosity was caused by the defendant's termination of the agreement. Nor is there any evidence to suggest that an order for further security would frustrate the plaintiff's ability to litigate.
Further there is no suggestion that Ms Slingo who was the plaintiff's sole director and shareholder is willing to provide the necessary further security nor has she offered any personal undertaking to be liable for costs incurred in the proceedings.
In relation to the quantum of security the plaintiff's estimate and reasons for them appear in a table at page 62 of the Exhibit to the affidavit of Mr Harris sworn 11 March 2011. The defendants' estimates are in a table attached to the submissions of defendants' counsel. The real issue between the parties is the rates to be used in the calculation rather the type or the amount of work to be undertaken. Both sides have worked on a basis of a three day trial without the need for expert evidence. I must say that only three days may be too optimistic given the liability and damages issues as I see them.
Litigation is by its very nature labour intensive. A practitioner preparing any case for trial is required in the client's interest to provide a reasonable but realistic assessment of the work required to be done. That assessment is likely to be the subject of differing and highly subjective views based on individual perceptions. In the end it is never an easy task objectively to inform a fellow practitioner how much or little work he or she should do in preparation for that trial. My very firm impression here is that the plaintiff has in part through its witness Ms Gillespie approached the assessment on too narrow a basis and without a sufficiently realistic and/or comprehensive enough view of the issues to be addressed. Additionally I have real misgivings as to the estimate on the likely length of the trial. I therefore consider the plaintiff's estimates too low. I consider the defendants' estimates to be a more realistic assessment of what lies ahead. It may be that the rates used are higher than might be allowed but as I have said that is based on a three day hearing.
In their respective analyses both sides accept that on a taxation approximately 70% only of any amount claimed will be likely to be awarded. The defendants claim their range is between $60,854 and $94,538 on that basis. The plaintiff on the other hand says a more appropriate range is between $34,552 and $50,498 again on the same basis.
Any estimate in a case such as this given all the evidence is yet to be filed is likely to be a crude one.
I consider in all the circumstances that additional security of $70,000 over and above the reinstated bank guarantee of $50,000 is in my view appropriate.
The plaintiffs have invited me in the event that I was minded to award additional security that it be provided in two tranches. I consider that is an appropriate regime to put in place.
I am therefore of the view that additional security of $70,000 be provided:
(a) 60% within 14 days of the defendants serving their evidence;
(b) 40% by 28 days prior to the commencement of the trial
I would invite the parties to bring in short minutes of order to give effect to my decision.
Having been invited to do so I will hear argument on the costs of the motion.
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Decision last updated: 16 June 2011
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