Combined Industrial Services Ltd (in liq) v Dewar
[2015] NZHC 1924
•13 August 2015
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2014-454-49 [2015] NZHC 1924
BETWEEN COMBINED INDUSTRIAL SERVICES
LIMITED (IN LIQUIDATION) Plaintiff
AND
DAVID PAUL DEWAR First Defendant
KIERON MAURICE CLARKE Second Defendant
Hearing: 28 May 2015
Teleconference 5 August 2015
Counsel:
N J Davis for Plaintiff
J Maassen and N Jessen for the First and Second DefendantsJudgment:
13 August 2015
JUDGMENT OF ASSOCIATE JUDGE SMITH
The applications
[1] The defendants applied for an order for further particulars of the plaintiff’s
first amended statement of claim. They also applied for security for their costs.
[2] The application for further particulars has now been resolved. Following the hearing on 28 May 2015 the plaintiff (CIS) filed a memorandum setting out in some detail the nature of its claim, and at a telephone conference convened on 5 August
2015 Mr Maassen advised that if the matters stated in the memorandum were acknowledged to have been provided as further particulars of the plaintiff’s claim, the defendants would not need to pursue their further particulars application. Mr Davis gave that assurance in the course of the telephone conference, and I directed that the matters set out in the memorandum were to be treated as further particulars
accordingly.
COMBINED INDUSTRIAL SERVICES LIMITED (IN LIQUIDATION) v DAVID PAUL DEWAR [2015] NZHC 1924 [13 August 2015]
[3] I now give judgment on the defendants’ application for security for costs.
Background
[4] The defendants, Mr Dewar and Mr Clarke, are sued as the former directors of CIS. CIS was placed in liquidation on 9 July 2013, and the present proceeding is effectively brought by CIS’ liquidator.
[5] CIS alleges that Mr Dewar and Mr Clarke wrongfully caused CIS to make distributions to its shareholders which had the effect of leaving CIS with insufficient assets to pay all of its creditors. One creditor, Henry Services Limited (HSL), was not paid.
[6] Mr Dewar and Mr Clarke were aware of the possibility of HSL making a claim against CIS, but say that they considered there was no merit in HSL’s claim. They proceeded to wind up CIS’ trading operations, and took steps to distribute its assets to its shareholders without making provision for the payment of any amount which might be found to be due to HSL.
[7] In September 2011 HSL obtained a judgment against CIS for $113,541.43. HSL then commenced the enforcement proceedings which resulted in the liquidation of CIS.
[8] CIS claims that when the dividend distribution was made to CIS’ shareholders the company did not, immediately after the distribution, satisfy the solvency test set out in s 4 of the Companies Act 1993 (the Act). In those circumstances it says that the board of CIS (Mr Dewar and Mr Clarke) had no
authority to make the distribution.1
1 Section 52 of the Act materially provides:
52 Board may authorise distributions
(1) The board of a company that is satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy the solvency test may, subject to section 53 and the constitution of the company, authorise a distribution by the company at a time, and of an amount, and to any shareholders it thinks fit.
[9] There is no dispute that Mr Dewar and Mr Clarke caused the distributions to be made to CIS’ shareholders, and that the effect of the distributions was that CIS was left with no funds to satisfy the judgment which was eventually obtained by HSL. There is a substantial dispute, however, over the date or dates on which the distributions to the shareholders were made. Mr Dewar and Mr Clarke say that the distributions were completed on or about 30 June 2007, being the date on which they closed down the business of CIS and arranged for its assets to be taken over by separate companies each of them had established for that purpose (respectively Dewtec Ltd (Dewtec) and Dynaflow NZ Ltd (Dynaflow)). If the distributions were made on 30 June 2007, the claim by CIS, which was not filed until 14 April 2014, would be statute-barred under s 4 of the Limitation Act 1950.
[10] Mr Dewar and Mr Clarke sought leave to apply for summary judgment on
CIS’ claims, but I dismissed that application in a reserved judgment given on 23
September 2014.2 The background of the dispute, insofar as it relates to the limitation issue, is fully set out in that judgment, and I will not repeat all of that background in this judgment.
[11] CIS accepts that if the distributions to shareholders were completed before
14 April 2008, its first cause of action under s 56 of the Act would be out of time. Its contention is that the distributions were not made until after 14 April 2008. It refers in support to a directors’ resolution dated 22 April 2008 signed by Mr Dewar and Mr Clarke which purported to authorise the distributions. Mr Dewar says that Mr Clarke signed the document on 22 April 2008, and that he signed it some time earlier, possibly in late 2007. But the resolution, although bearing the date 22 April
2008, purports to record that the resolution was passed on 30 June 2007.
[12] The resolution purported to authorise the payment of the dividends “forthwith
for the period ended 30 June 2007, to [CIS’ shareholders]”. The resolution also
(2) The directors who vote in favour of a distribution must sign a certificate stating that, in their opinion, the company will, immediately after the distribution, satisfy the solvency test and the grounds for that opinion.
…
2 Combined Industrial Services Ltd v Dewar & Clarke [2014] NZHC 2316.
recorded the board’s satisfaction that CIS would, immediately after the distribution, satisfy the solvency test.
[13] Mr Clarke also signed a director’s solvency certificate on 22 April 2008, certifying that, immediately after the payment of the dividend referred to in the directors’ resolution, CIS would satisfy the solvency test. No such certificate was signed by Mr Dewar.
[14] CIS says that, at the time the resolution was signed on 22 April 2008, Mr Dewar and Mr Clarke knew, or ought to have known, that CIS had a contingent liability to HSL of up to $335,000.
[15] CIS also contends that the dividend declared by the resolution dated 22 April
2008 was not finally distributed until 8 August 2008. That was the date on which Dewtec and Dynaflow completed formal sale and purchase agreements recording their agreement to purchase the business assets of CIS (the respective purchases being funded substantially by advances from CIS’ shareholders of the amounts they received by way of the distributions from CIS).
[16] There is a similar issue with these agreements for sale and purchase as arises with the directors’ resolution authorising the dividends: both agreements recorded the agreed possession date as “1 July 2007”.
[17] CIS says that the purchase money due from Dynaflow and Dewtec to CIS under the agreements dated 8 August 2008 was never actually paid. It says that the tangible and intangible assets which were transferred by CIS to Dewtec and Dynaflow were treated as the distributions (dividends) made to the CIS shareholders respectively associated with Dewtec and Dynaflow. It says that following the transfer of those assets Dewtec owed CIS $139,980, and Dynaflow owed CIS
$168,880. CIS contends that the balances of the respective purchase prices owed by Dewtec and Dynaflow were offset against advances made by those companies to CIS in the course of CIS’ financial year ending 30 June 2008.
[18] HSL filed its Court proceeding against CIS in June 2008, claiming $408,000 plus interest and costs. CIS alleges that after HSL filed its claim, Mr Dewar and Mr Clarke directed CIS to defend the HSL proceeding, in order to delay the claim long enough that the transfer of assets out of CIS could not be reversed.
[19] On 1 June 2010, CIS was struck off the Companies Register for failing to file annual returns. CIS’ solicitors were later given leave to withdraw in HSL’s court proceeding, and HSL obtained the judgment for $113,541.43 on an undefended basis.
[20] CIS contends that the funds distributed are unable to be recovered from CIS’
shareholders.
[21] Mr Dewar and Mr Clarke deny any wrongdoing.
CIS’ amended statement of claim dated 23 March 2015
[22] The first cause of action against Mr Dewar and Mr Clarke is under s 56 of the Act, which applies where a distribution is made to a shareholder at a time when the company did not, immediately after the distribution, satisfy the solvency test. The section provides for the company to recover any such distribution from the
shareholder (subject to a number of possible defences which are set out in s 56(1)).3
The section goes on at subs (2) to provide that a director who has failed to take reasonable steps to ensure that the s 52 procedure was followed, or who has signed a
3 The defences are:
56 Recovery of distributions
…
(1)
(a) the shareholder received the distribution in good faith and without
knowledge of the company’s failure to satisfy the solvency test; and
(b) the shareholder has altered the shareholder’s position in reliance
on the validity of the distribution; and
(c) it would be unfair to require repayment in full or at all.
solvency certificate under s 52 without having reasonable grounds for believing that the company would satisfy the solvency test immediately after the distribution, is personally liable to repay to the company so much of the distribution as the company is not able to recover from the shareholders.
[23] CIS’ second cause of action alleges breach by Messrs Dewar and Clarke of their duties as directors of CIS, under s 131 of the Companies Act. Section 131 creates a duty on directors of companies to act in good faith and in the best interests of the company. The third cause of action alleges breaches by Messrs Dewar and Clarke of their obligations to CIS under s 137 of the Act to exercise the care, diligence and skill that a reasonable director would in the circumstances in the making of the distributions. CIS alleges that Mr Dewar and Mr Clarke acted out of self interest in transferring CIS’ assets to entities controlled by them, leaving CIS with no assets to meet the debt owed to HSL.
[24] CIS also alleges that Mr Dewar and Mr Clarke were aware from as early as August 2008 that HSL might allege that the sale of CIS’ assets to Dewtec and Dynaflow was an attempt to defeat the rights of creditors, and that it might try to “claw back” assets from those companies if it succeeded in its claim against CIS. It contends that Mr Dewar and Mr Clarke thereafter employed delaying tactics in the HSL proceeding, to ensure that the transfer of assets out of CIS could not be reversed (because of the operation of relevant limitation periods).
[25] In its first cause of action, CIS claims $545,965, being the amount distributed to shareholders. In its second and third causes of action, CIS claims compensation for losses for the alleged breaches, including the amount of the judgment entered in favour of HSL.
Applications for security for costs – legal principles
[26] Rule 5.45 of the High Court Rules relevantly provides:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
…
(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.
(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
(3) An order under subclause (2)—
(a) requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—
(i) by paying that sum into court; or
(ii) by giving, to the satisfaction of the Judge or the
Registrar, security for that sum; and
(b) may stay the proceeding until the sum is paid or the security given.
…
[27] An applicant for security for costs must persuade the Court that there is reason to believe that the plaintiff will be unable to pay the defendant’s costs if the plaintiff is unsuccessful at trial. Once the Court is satisfied on that threshold issue, its discretion whether to make an order for security or not, and if an order for security is made the amount of that security, is unfettered – there is no formal checklist of principles to be applied.4
[28] Once the threshold test is met, the Court’s task is to balance the interests of the parties.5 That balancing exercise may include an assessment of the merits of the plaintiff’s claim, but an assessment of the merits of the dispute at an interlocutory stage will usually only give the Court an impression6 – in most cases it will not be possible to form a firm view of the merits. An order for security which may have the effect of preventing a plaintiff from pursuing its claim will normally only be made after careful consideration, and in a case in which the claim has little chance of
success. Access to the Courts for a genuine plaintiff is not lightly to be denied.7
4 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] and [14].
5 At [15]-[16].
6 At [21].
7 At [15].
[29] In Highgate on Broadway, Kós J observed that one of the theoretical justifications for ordering security is that there may be an injustice to a defendant if the claimant would otherwise be effectively immune from a costs order.8
[30] Delay by the defendant in making the application is a factor which may tell against the working of an order.9
[31] The overriding and most important consideration of all, however, is “how should the respective interests of the parties best be balanced?”10
The parties’ submissions
Mr Dewar and Mr Clarke
[32] Mr Maassen submits that there will be an injustice if no security is ordered, as Mr Dewar and Mr Clarke will have no hope of recovering any costs which might be awarded to them if their defence succeeds at trial.11
[33] In Highgate on Broadway, Kós J listed a number of considerations that may weigh either in favour of or against the exercise of the Court’s discretion. Mr Maassen relies on the following considerations (out of a number of considerations listed by the Judge), which he says point to the exercise of the discretion in his client’s favour:
(a) whether the plaintiff is a nominal one;
(b) whether the plaintiff ’s claim is prima facie unmeritorious;
(c) whether the plaintiff has access to third party funding; and
(d)whether the denial of security for costs in the circumstances would be oppressive to the reasonable interests of the defendant and any parties
other than the plaintiff.
8 Highgate on Broadway v Devine [2012] NZHC 2288 at [20]; [2013] NZAR 1017
9 At [23(c)].
10 At [24(c)].
11 Referring to the decision of Kós J in Highgate on Broadway, above n 6, at [20].
[34] Mr Maassen submits that CIS has glossed over the fact that any liability of the defendants on the first cause of action will arise only in circumstances where CIS has been unable to recover the distributions from the shareholders. CIS has not adequately explained why the shareholders have not been pursued, and has provided no evidence to suggest that the trusts who were CIS’ shareholders would have been unable to repay the distributions if they had been asked to do so. CIS refers to the possibility of shareholder defences under s 56(1) of the Act, but that is no more than speculation.
[35] Mr Maassen submits that the substance of the matter is that the distributions were in fact completed before 14 April 2008, and his clients therefore have a strong limitation defence. That is not changed by the dates appearing on the formal agreements later signed by Dewtec and Dynaflow.
[36] On CIS’ second and third causes of action, Mr Maassen submits that CIS’ pleadings that Mr Dewar and Mr Clarke deliberately strung out an unmeritorious defence to the HSL claim should be disregarded. No evidence has been produced in support of those claims.
[37] On the issue of delay in applying for the order, Mr Maassen submits that it was not inappropriate for his clients to apply for summary judgment as a first step, given the perceived strength of their limitation defence. When that application failed, the security for costs application was signalled promptly and the application filed in January 2015. CIS had not then been required to provide discovery, and it had done nothing since the judgment was delivered on the summary judgment
application other than file the amended statement of claim.12
[38] Mr Maassen submits that the proceeding could have been brought by the liquidator personally, which would have made the issue of security for costs irrelevant – in such circumstances, the liquidator would have been personally liable. He refers in support to the judgment of Associate Judge Gendall (as he then was) in
Re Condrens Parking Ltd.13
12 Since the hearing on 28 May 2015 CIS has filed its verified list of documents.
13 Re Condrens Parking Ltd, HC Wellington CIV-2004-485-2611, 12 July 2006.
[39] A further consideration emphasised by Mr Maassen is that the prosecution of the claim to date must have been funded by a third party, and there would be no injustice if the third party funder were required to post security. That third party funder should not be able to hide behind the veil of a company which has no assets and is in fact a nominal plaintiff. (In an affidavit filed in support of the security for costs application, Mr Dewar says that he believes that it is highly likely that CIS has a third party funding arrangement with HSL. CIS elected not to respond to that speculation by Mr Dewar by filing a reply affidavit.) At the hearing, CIS declined to state how the proceeding is presently being funded.
CIS
[40] Mr Davis relies on three principal grounds in opposing the application for security. First, he submits that CIS’ impecuniosity has resulted from the defendants’ actions. Mr Dewar and Mr Clarke ought not to be allowed to take advantage of the insolvency they have themselves created. Not only has the impecuniosity been directly caused by the defendants, but there has been a deliberate course of action to delay, calculated to deprive CIS of the opportunity to recover the (wrongful) distributions.
[41] Secondly, Mr Davis submits that the defendants have delayed too long in making the application for security. All that is now required is a trial to determine the matter. He refers to the commentary in McGechan on Procedure, where the learned authors note the following as being relevant considerations where a plaintiff argues that a defendant has delayed too long in bringing an application for security:14
(a) whether the application was made as soon as the defendant became aware, or could with reasonably enquiry have become aware, of the plaintiff’s likely inability to meet costs;
(b) any needless delay, particularly if designed to prejudice the plaintiff;
and
(c) whether, and if so to what extent, the delay has prejudiced the plaintiff.
[42] Mr Davis submits that all three considerations point to the application being declined. Mr Dewar and Mr Clarke always knew that CIS was insolvent, and the application could have been made as soon as the proceeding was filed. He submits that the delay is prejudicial, as CIS has had to incur substantial costs in taking the case as far as it has.
[43] Mr Davis also submits that the merits of CIS’ claims are sufficiently strong that the application should be refused. He points to the failure of Mr Dewar and Mr Clarke to obtain summary judgment on the limitation issue on which they rely.
[44] In answer to Mr Dewar and Mr Clarke’s point that relief under s 56 of the Act will only be available to CIS to the extent that the distributions cannot be recovered from the shareholders, Mr Davis advises that CIS made demand on the shareholders for payment, but the demand did not meet with any response. Further, any claim against the shareholders has been time-barred from a few weeks after the present proceeding was commenced against the directors. Mr Davis submits that a director’s liability under s 56 is concurrent with the shareholder’s liability under the section, and it was open to CIS not to pursue fruitless proceedings in circumstances where the directors have clearly breached their obligations under the Act to assess the solvency of CIS prior to the distributions being made (effectively to themselves).
[45] Mr Davis’ final argument was based on public policy grounds. The proceeding has been brought on the instruction of the liquidator, and in so doing the liquidator has exercised a statutory function for the public good. It would not be appropriate to restrain the performance of that function by ordering security for costs.
[46] Mr Davis referred to the following passage from the judgment of Hardie Boys J in Re World Style Builders Ltd (in receivership and voluntary liquidation):15
The liquidator is coming here under a power expressly conferred upon him by Act of Parliament and in the exercise of the statutory duties. It is not suggested that these proceedings by the liquidator are frivolous or improperly taken, and in that state of things, according to the practice of this Court, the liquidator is not bound to give security for costs.
[47] Having referred to Re World Style Builders Ltd, Mr Davis acknowledged two qualifications. First, the Court has noted that there has been a “modest relaxation” in the rule against ordering security for costs against liquidators.16 The second qualification is that the present claim has not been brought by the liquidator in his own name; it has been brought by the company in liquidation. Notwithstanding those factors, Mr Davis submits that it would not be in the public interest to order
security. As in the Re World Style Builders Case, CIS’ claim is not frivolous or vexatious, and there is a real public importance in cases of this kind being brought for the benefit of the creditors. It is also important that the defendants should be held to account in circumstances where they have caused CIS impecuniosity.
[48] More generally, Mr Davis submits that it would be unjust to deny CIS access to the Court where the defendants have stripped CIS of its value, and then strung out the Court proceedings in order to try to escape liability on limitation grounds. The overriding necessity is to ensure that justice is done as between the parties.
Discussion and conclusions
[49] There is no question that the threshold test is met in this case. CIS is insolvent, and would be unable to pay from its own resources any costs which might be awarded against it if it were unsuccessful at trial. The issues are whether the Court should exercise its discretion in favour of making an order for security for the defendants’ costs, and if so, in what amount.
[50] In my view the decisive factors which should guide the exercise of my discretion are (i) that the defendants will be required to spend substantial sums of money in running their defence, but will recover nothing if they are successful; and
(ii) the likelihood that CIS is being funded by a third party (whether HSL or someone
(HC), citing In Re Strand Wood Co. Ltd [1904] 2 Ch. 1, 3.
16 See the judgment of Associate Judge Gendall in Re Condrens Parking Ltd, above n 13, at [27].
else). Having regard to those two factors in particular, the required balancing of the
parties’ interests does, in my view, necessitate the making of an order for security.
[51] The various factors relied upon by Mr Davis do not tip the balance in favour of CIS. On the delay issue, it seems to me that the defendants cannot be criticised for attempting to attain finality by seeking summary judgment on limitation grounds as a first step. In circumstances where the defendants must have assumed that CIS had secured some external funding, I think it made sense for them to attempt to obtain a complete exit from the proceeding first, rather than run a security for costs argument and then (if that application were dismissed, or if any security ordered were duly posted) run a second substantial interlocutory application seeking summary judgment. I accept Mr Maassen’s submission that the intention to apply for security for costs was signalled reasonably promptly after the application for leave to apply for summary judgment had been dismissed.
[52] Further, I do not see that CIS is likely to have been prejudiced by any delay by the defendants in making their application for security. CIS has elected not to advise how the proceeding, including the substantial argument on the summary judgment application, has been funded to date, and it has provided no evidence which would suggest that that funding will not continue to be available to it if an order for security is made. In those circumstances, I think the Court is entitled to draw the inference that any reasonable order it might make for security is unlikely to have the effect of bringing the claim to a halt.
[53] The public policy argument advanced by Mr Davis seems to me to have significantly less force in circumstances where the claim is brought by the company itself, and not the liquidators, and where the sensible inference is that there must be some external funding.
[54] In Re Condrens Parking Ltd, the Associate Judge referred to the decision of Master Lang (as he then was) in Tasman Charters Inc v Camphuis, where security for costs was sought by the defendant in a proceeding which had been brought in the name of a company in liquidation, rather than in the names of the liquidators
personally.17 The Master noted that, in circumstances where proceedings have not been issued by liquidators in their own names, but in the name of the company itself, the Courts have been more willing in the past to order that security be given.18 In Re Condrens Parking Ltd, the proceeding was brought by the liquidators in their own names, so they would be personally liable for costs awards if their proceeding was unsuccessful. The Associate Judge noted that “…this differs appreciably from the situation if proceedings are sued out in the name of the company in liquidation, in which event the liquidators are not personally liable for costs”.19
[55] In my view, the merits of the parties’ positions on the substantive claims are not so clearly in CIS’ favour that no security should be ordered. If it turns out to be the case that all of the relevant wealth had been removed from CIS before
14 April 2008, the defendants’ limitation defence would appear to have a substantial
chance of succeeding.
[56] Further, Messrs Dewar and Clarke can only be liable to repay CIS under s 56 so much of the distributions as it is not able to recover from the shareholders. If the distributions were not in fact made before 14 April 2008, as CIS contends, it would appear to follow that claims against the shareholders could have been made at the same time as the present claim against the directors.
[57] Mr Maassen produced statements of financial position as at 31 March 2013 for each of the major CIS shareholders who received distributions (Dewlot Family Trust, KM Clarke Family Trust, and Kieron Trust). These appear on their faces to show that the trusts would have been able to refund the distributions they each received if timely claims had been brought against them and they were not entitled to invoke any of the specific defences which are available under s 56 to shareholders who have received distributions which are later challenged.
[58] I accept that any deliberate “stringing out” of the HSL litigation by Mr Dewar and/or Mr Clarke might have been a factor to weigh against them in the required
17 Tasman Charters Inc v Camphuis HC Auckland CP 16/SD02, 31 May 2002.
18 At [41], referring to the judgment of Master Thomson Pascoe Ltd v DFC Overseas Investments
Ltd HC Wellington CP 153/93, 16 August 1993 at 3.
19 Re Condrens Parking Ltd, above n 15.
balancing exercise, but it is not immediately clear how any such conduct caused CIS loss. If (and to the extent) the distributions were made after 14 April 2008, then the proceeding will be in time (and on the face of it, recovery action could also have been taken against the shareholders). But even if the distributions were made before that date (as Mr Dewar and Mr Clarke contend), there would remain questions as to whether Mr Dewar and Mr Clarke held bona fide beliefs that there was no merit in
the HSL claim,20 and whether the trustees of the shareholder trusts, if asked by CIS,
would have been prepared to put back into CIS sufficient of the distributions they had received to cover the amount HSL was then claiming (approximately $408,000 as at June 2008).
[59] I conclude that there is nothing in the merits of the dispute to suggest that the
required “balancing of interests” should come down in favour of CIS.21
[60] I accept that the fact that a defendant may have caused the plaintiff’s impecuniosity can be a ground for refusing an order for security for costs in an appropriate case. But in circumstances where CIS has clearly been able to fund the litigation so far, and there is no evidence that it will not be able to continue to do so if an order is made, I do not give the “cause of CIS’ impecuniosity” factor significant weight in the balancing exercise I am required to undertake.
[61] In the end, I consider that the greater injustice would be if CIS were permitted to continue its claim without posting security, and the defendants succeeded at trial and could recover no costs.
[62] There will accordingly be an order for security. Mr Maassen seeks an order for security in the sum of $40,000. In my view it is neither necessary nor appropriate to make an order of that magnitude at this stage. I consider that a staged
award would be more appropriate, with an amount of security fixed for the period up
20 Remembering that HSL obtained its judgment on an undefended basis.
21 The fact that the defendants were unsuccessful in their application for leave to apply for summary judgment does not affect that view. On that application, the defendants carried the substantial onus of showing that CIS’ substantive claims could not succeed, and should not be permitted to go to trial. The consideration of the merits which is appropriate on a defendant’s application for security for costs does not set the onus of proof bar that high.
to the end of the exchange of briefs of evidence or affidavits, with leave reserved to the defendants to apply for further security at that stage to cover the trial.
[63] I am influenced in that view by the relatively modest size of the claim. The judgment obtained by HSL was for approximately $113,000, and it would appear that, after payment of CIS’ costs and liquidator’s fees, any recovery beyond that sum would go back to CIS’ shareholders in any event. The risk that the proceeding is or will become uneconomic must be high, and in those circumstances I do not think it appropriate to fix security either at the level of $40,000 sought by the defendants, or for the full period to the end of the trial.
[64] Having regard to those considerations, I consider the appropriate amount to be fixed for the defendants’ security for costs, covering the proceeding up to the point where the pleadings have been closed, all interlocutory steps have been completed, and all written evidence has been exchanged, is the sum of $10,000. There will be an order accordingly, with leave reserved to the defendants to apply for additional security at that stage, to cover the trial.
[65] The security is to be provided by payment of the sum of $10,000 into Court, or into any solicitors’ trust account on which the parties may agree in writing. It is to remain in Court (or in the independent solicitors’ trust account) pending further order of this Court.
[66] I make an order that the proceeding be stayed pending the posting of the security.
[67] Costs on the application are reserved.
Associate Judge Smith
Solicitors:
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