FEDERAL COURT OF AUSTRALIA Tyne v UBS AG [2014] FCA 1073 Citation: Tyne v UBS AG [2014] FCA 1073 Parties: SCOTT FRANCIS TYNE AS TRUSTEE OF THE ARGOT TRUST and CLARE ELIZABETH MARKS v UBS AG File number(s): QUD 10 of 2014 Judge(s): GREENWOOD J Date of judgment: 3 October 2014 Catchwords: PRACTICE AND PROCEDURE – consideration of an application for security for costs by a respondent in circumstances where the first applicant in the proceeding is an individual who is the trustee of a unit trust – consideration of the circumstances of impecuniosity on the part of the trustee – consideration of whether an order will stultify and foreclose the proceedings – consideration of whether the pleaded conduct is conduct said to have given rise to the impecuniosity of the trustee and the depletion of the trust assets – consideration of previous litigation in Singapore and in the New South Wales Supreme Court – consideration of anti-suit injunction orders made in the High Court of the Republic of Singapore and a stay order made in the New South Wales Supreme Court – consideration of the parties to those proceedings and the content of those orders – consideration of the effect upon a security for costs order of the role of a further applicant in the proceedings Legislation: Federal Court of Australia Act 1976 (Cth), s 56 Federal Court Rules 2011 – r 19.01 Australian Securities and Investments Commission Act 2001 (Cth), s 12DA Corporations Act 2001 (Cth), s 1041H Fair Trading Act 1987 (NSW), s 42 Fair Trading Act 1989 (Qld), s 38 Cases cited: Telesto Investments Ltd v UBS AG (2012) 262 FLR 119 - cited Telesto Investments Limited v UBS AG (2013) 94 ACSR 29 - cited ACN 074 971 109 Pty Ltd (as trustee for the Argot Unit Trust) v The National Mutual Life Association of Australasia Ltd (No 2) [2012] VSC 177 - cited Bell Wholesale Co Pty Ltd v Gates Export Corp (1984) 2 FCR 1 - cited Date of hearing: 18 March 2014 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 157 Counsel for the Applicants: Mr Tyne appeared in person Counsel for the Respondent: Mr J Stoljar SC with Mr L Livingston Solicitor for the Respondent: King & Wood Mallesons IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 10 of 2014 BETWEEN: SCOTT FRANCIS TYNE AS TRUSTEE OF THE ARGOT TRUST First Applicant CLARE ELIZABETH MARKS Second Applicant AND: UBS AG Respondent JUDGE: GREENWOOD J DATE OF ORDER: 3 OCTOBER 2014 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application for security for costs made by the respondent is adjourned generally. 2. The first applicant is directed to file in the Court and serve upon the respondent, within 30 days, an affidavit exhibiting the following documents: (a) a copy of the Trust Deed for the Argot Unit Trust; (b) a copy of the profit and loss statements and balance sheets for the Argot Unit Trust for the financial years ending 30 June 2013 and 30 June 2014. 3. The costs of the application for security for costs are reserved. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 10 of 2014 BETWEEN: SCOTT FRANCIS TYNE AS TRUSTEE OF THE ARGOT TRUST First Applicant CLARE ELIZABETH MARKS Second Applicant AND: UBS AG Respondent JUDGE: GREENWOOD J DATE: 3 OCTOBER 2014 PLACE: BRISBANE REASONS FOR JUDGMENT 1 In this interlocutory application the respondent UBS AG ("UBS") seeks an order that the first applicant give security, within seven days, for the costs UBS will incur in defending the principal proceedings which costs might be awarded against the first applicant. The amount sought by way of security is $450,000.00 or such other amount as the Court considers appropriate. UBS seeks security by way of a bank guarantee or in such other form as the Court determines. 2 UBS also seeks an order that the principal proceeding be stayed pending the provision of security by the first applicant. UBS also seeks an order for the costs of the interlocutory application. 3 The first applicant is Mr Scott Francis Tyne in his capacity as the trustee of the Argot Trust. 4 The second applicant is Ms Clare Elizabeth Marks who is Mr Tyne's spouse. 5 The application is made under s 56 of the Federal Court of Australia Act 1976 (Cth) (the "Federal Court Act") which provides, relevantly, that the Court or a Judge may order an applicant in a proceeding to give security for the payment of costs that may be awarded against him or her: s 56(1). The security shall be of such amount and given at such time and in such manner and form, as the Court directs: s 56(2). Rule 19.01 of the Federal Court Rules 2011 is, relevantly, in these terms: 19.01 Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and … (2) An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought. (3) The respondent's affidavit should state the following: (a) whether there is reason to believe that the applicant will be unable to pay the respondent's costs if so ordered; (b) whether the applicant is ordinarily resident outside Australia; (c) whether the applicant is suing for someone else's benefit; (d) whether the applicant is impecunious; (e) any other relevant matter. The principal proceeding 6 Before examining the affidavit material relied upon by UBS in support of the application and the affidavit material in response, it is important to set out the essential elements of the claim brought by the applicants. 7 The originating application was filed on 13 January 2014 supported by a statement of claim filed on that date. In the principal proceeding, the first applicant claims damages for contraventions by UBS of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the "ASIC Act"); damages for contraventions of s 1041H of the Corporations Act 2001 (Cth) (the "Corporations Act"); damages for contraventions of s 42 of the Fair Trading Act 1987 (NSW) (the NSW Act"); damages for contraventions of s 38 of the Fair Trading Act 1989 (Qld) (the "QLD Act"); damages for negligence; and, equitable compensation for breaches of fiduciary duty. 8 Section 12DA of the ASIC Act provides that a person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive. Section 1041H of the Corporations Act is in similar terms except that the section extends to conduct in relation to a financial product as well as a financial service. The NSW Act and the QLD Act contain prohibitions upon engaging in misleading or deceptive conduct or conduct likely to mislead or deceive in the relevant circumstances. 9 Ms Marks claims damages for contraventions of s 12DA, s 1041H, s 42 and s 38 of the legislation mentioned, respectively, at [7]. 10 The applicants also claim interlocutory relief in the form of an order that UBS deliver up to the first applicant all documents in its possession, power or control evidencing any communication between UBS or any agent engaged by it, and parties described as the Viscount of the Royal Court of Jersey, any member of the Department of the Viscount of the Royal Court of Jersey and any partner or employee of the firm known as Baker & Partners (including Mr Ed Shorrock of that firm) in so far as those documents relate to a declaration in the Royal Court of Jersey that the property of an entity described as Telesto Investments Limited ("Telesto") is held en dÉsastre pursuant to Article 6 of the Bankruptcy (DÉsastre) (Jersey) Law 1990 (Jersey). 11 The application for interlocutory relief has been adjourned generally pending the determination of UBS's application for security for costs. The pleaded case 12 The applicants assert the following matters in their statement of claim. 13 Mr Tyne is the sole trustee of the Argot Trust. It is a unit trust. He was appointed trustee on 9 January 2014, four days before the commencement of these proceedings. He is an Australian citizen, resident in Australia. He was at all material times a director of two Australian companies sufficiently described for present purposes as "Pole Star" and "ACN 074". ACN 074 was formerly the trustee of the Argot Trust and when it was trustee, it engaged Mr Tyne on 13 April 2000 to manage the Trust's investment portfolio. Mr Tyne as trustee continues to manage that portfolio. 14 Ms Marks is also an Australian citizen resident in Australia. 15 Telesto is an investment company incorporated in Jersey. Pole Star was engaged on 9 October 2006 by Telesto to manage Telesto's investment portfolio. 16 For some years prior to 2007, the Argot Trust (through Mr Tyne) and Telesto (through Pole Star) had been clients of UBS. In 2007, Mr Tyne retained a UBS Australian entity ("UBSA") for the purpose of obtaining investment advice. Mr Betsalel was UBSA's "client adviser" based in Australia, to Mr Tyne. Mr Betsalel relocated to Singapore following April 2007 but continued to provide financial advice to Mr Tyne (and Telesto) for UBS. As at August 2007, the Telesto investment portfolio was principally comprised of equities and investments in managed funds. The portfolio included securities of the Argot Trust "lent" under a "securities lending arrangement" to Telesto to the knowledge of UBS (through Mr Betsalel, Mr Gretener and Ms McCreery). 17 In 2007, Mr Betsalel suggested to Mr Tyne that the Telesto portfolio be reconfigured to include investment in bonds recommended by UBS (by Mr Betsalel and Mr Farrell) so as to reduce financial risk in the portfolio. UBS held itself out, through Mr Betsalel and Mr Farrell, as having specialist knowledge and expertise in, particularly, the analysis of debt capital markets including the debt capital markets of emerging countries. 18 Thirteen particular "financial services" representations concerning that matter are pleaded for the purposes of the ASIC Act and the Corporations Act at para 21. 19 Mr Tyne for Pole Star on behalf of Telesto, in reliance on the representations, agreed to include bonds selected by UBS in the Telesto portfolio provided the issuer was "important in the context of their country of residence" and "such countries had the liquidity and motivation" to support the issuer: para 25. In mid to late 2007, UBS represented (by Mr Betsalel and Mr Farrell) to Mr Tyne (and through him, ACN 074 as trustee of the Argot Trust, Pole Star and through Pole Star, Telesto, called in the pleading "Tyne Related Entities") that bonds issued by select Kazakhstan issuers met (or would meet) these conditions and, in particular, bonds issued by Bank Turan-Alem ("BTA") and Astana Finance ("Astana") met (or would meet) these conditions for a number of reasons. 20 As to those matters, 15 particular "financial services" representations are pleaded (at paras 26 and 27) for the purposes of the ASIC Act and the Corporations Act, concerning BTA, Astana and the role of the Government of Kazakhstan in relation to Eurobonds issued by BTA and Astana. 21 Most of the representations are said to be representations as to future matters. 22 Further representations (eight representations pleaded at para 32(a) to (h)) were made to Mr Tyne (and through him to Tyne Related Entities) in a document called UBS Investment Research – Kazakhstan Banks sent to him by Mr Betsalel on 17 October 2007 and again by Ms Chan (of UBS) on 2 November 2007 concerning Kazakhstan bank debt and sovereign risk (among other market factors). Throughout the pleading representations said to have been made to Mr Tyne were said to be representations made, through him, to Tyne Related Entities. I will not continue to repeat in this description of the pleading that contextual matter. 23 Two other representations were made to Mr Tyne along the same lines (para 32(i) and (j)) in an email from Mr Betsalel on 17 October 2007, and again by Ms Chan on 2 November 2007. 24 Mr Farrell made a particular representation concerning Astana (para 32(k)). 25 Six other representations concerning assessments by UBS and ratings agencies of the Kazakhstan banking sector are said to be contained in a document called UBS Analyst Comments on SP's Kazakh Downgrade sent to Mr Tyne by Mr Betsalel on 13 December 2007. Other representations are said to be contained in two other documents described as UBS Investment Research – Notes from our Trip to Almaty and Emerging Markets High Yield Bonds. These documents were provided to Mr Tyne by Mr Farrell and/or Mr Betsalel in April 2008. 26 Some of these representations are said to be representations as to future matters. 27 To the extent they represent statements of opinion, Mr Tyne says there is no reasonable basis for the opinions. 28 Further, UBS is said to have made representations as to particular balance sheet and profit and loss ratios for BTA in a document sent to Mr Tyne on 17 October 2007 and again by Ms Chan on 2 November 2007. 29 Mr Tyne says that by making all of these pleaded representations and by subsequently advising Telesto to purchase and retain Eurobonds issued by banks in Kazakhstan, UBS made eight financial services representations for the purposes of the ASIC Act and the Corporations Act pleaded at para 41. 30 In reliance upon the representations at paras 27, 32 and 41, Mr Tyne caused Telesto to open a Singapore UBS facility guaranteed by UBS (Zurich) called the "Inter-Branch Arrangement" ("IBA") and caused ACN 074 as trustee of the Argot Trust to agree to Telesto pledging the Trust's securities (lent to Telesto) to UBS as security for the UBS guarantee (IBA). Mr Tyne also caused the Trust to "loan" further securities to Telesto to also be pledged as further security for the guarantee (IBA). Mr Tyne also caused Pole Star, as agent for Telesto, to call upon the IBA to enable Telesto to acquire bonds recommended by UBS through Mr Farrell. 31 Sixteen bond issues so acquired are identified at Table 3 to the statement of claim. 32 Each of the representations at paras 27, 32 and 41 were false. 33 In 2008, the market value of the bonds declined. UBS made demands (margin calls) for a reduction in the balance of the Singapore facility by which Telesto had funded the purchase of the bonds. UBS, by Mr Betsalel and Mr Farrell, made further financial services representations in 2008 concerning the creditworthiness of BTA and Astana: paras 50 and 51. 34 In the period from February 2008 to August 2008 in reliance on the paras 27, 32, 41, 50 and 51 representations, Mr Tyne caused the Trust to lend securities (Table 4) to Telesto to enable margin calls to be met, the Table 3 bonds to be retained and further bonds to be acquired. A new securities lending agreement was struck between the Trust and Pole Star for Telesto. Each of the representations at those paragraphs were false. 35 Further financial services representations were made in 2008 concerning the creditworthiness of BTA and Astana and the "sensibleness" of meeting margin calls made by UBS: paras 60 and 64. 36 Mr Tyne caused securities arrangements to be put in place to meet those margin calls. 37 The paras 60 and 64 representations were false. 38 On 24 September 2008, further representations were made by Mr Betsalel and Mr Farrell to Mr Tyne concerning the state of the Kazakhstan banking sector and the "fundamentally sound" position of BTA and Astana: para 69. 39 The para 69 representations were false. 40 In reliance on the representations at paras 27, 32, 41, 50, 51, 60 and 64, Mr Tyne caused arrangements to be put in place to enable margin calls to be met. The representations pleaded in those paragraphs together with the para 69 representations were false because UBS failed to disclose any of the 23 matters pleaded at para 74(a) to (w) which were the fact when each representation was made. The matters at para 74(x) to (z) were true at the date of the documents described in those paragraphs: see the particulars at (x) to (z). 41 The failure to disclose the para 74 matters rendered the representations misleading or deceptive or likely to mislead or deceive. 42 Defaults occurred on all of the bonds. 43 The market value of the bonds substantially declined. Telesto could not repatriate the securities to the trustee of the Trust which had been "lent" under the securities lending arrangement or pay out the "benchmark value" of the securities to the Trust. 44 The estate of the Trust was diminished and the beneficiaries suffered loss and damage: para 84. 45 That loss and damage was caused by reason of the contraventions of the statutory provisions referred to at [7] of these reasons: para 85. 46 Alternatively, the loss was caused by UBS's negligence in the provision of financial advice. 47 Apart from these matters, the first applicant says that UBS owed Mr Tyne, and through him, ACN 074 as trustee of the Argot Trust (and Pole Star and Telesto) fiduciary duties identified at para 87 and UBS breached those duties giving rise to a claim for equitable compensation: paras 87 to 92. 48 As to the claims made and the loss suffered by Ms Marks, the pleaded position is this. 49 Ms Marks owned particular land. She and Mr Tyne entered into a contract with a construction company to build a house on that land. That project was financed by means of the extension in November 2007 of a debt facility Telesto had with the ANZ Bank. The extended facility was supported by guarantees given to the Bank by Mr Tyne and Ms Marks. Ms Marks had also previously granted a registered mortgage over the land in favour of the Bank as security for her obligations under her guarantee. Construction of the dwelling began in February 2008. By 22 October 2008, $6 million had been drawn down and expended in construction costs. The draw downs on the facility were made in reliance on representations to the effect that Telesto's investment portfolio based on the bonds acquired in reliance upon advice from UBS "was in all respects sound": para 101. 50 The applicants say that by reason of the pleaded representations and the failure of UBS to advise Mr Tyne of the matters described at para 74, UBS induced Mr Tyne, and through him Ms Marks, to take the sequence of steps described at [49] of these reasons and, moreover, but for those representations neither of them would have undertaken those steps. 51 Throughout the pleading the contention is put that but for the making of the representations and reliance upon them the first applicant (and Telesto) would not have entered into the transactions. The case is a "no transaction" case. 52 By reason of the representations and the para 74 matters giving rise to contraventions of the provisions of the legislation mentioned at [7] of these reasons, Telesto's investment portfolio was "not sound". 53 The bonds collapsed in value. 54 Telesto defaulted on the ANZ Bank facility. The Bank exercised a power of sale and Ms Marks suffered loss. 55 All of the matters at [13] to [54] of these reasons simply reflect a summary of the contentions of the applicants. The respondent has not put on a defence. However, the respondent denies the allegations pleaded against it and contests all aspects of the claims. The litigation in Singapore and New South Wales 56 On 15 October 2010, UBS commenced proceedings in the High Court of the Republic of Singapore against Telesto and Mr Tyne in his personal capacity (Suit No. 801/2010). 57 Mr Tyne observes in his affidavit sworn 12 March 2014 that neither ACN 074 as trustee of the Argot Trust nor Ms Marks were parties to that proceeding. In that proceeding, UBS sought a declaration as to certain matters and orders for the payment of money by Telesto to UBS. Mr Tyne says that he and Telesto appeared in those proceedings only to contest the jurisdiction of the High Court of Singapore and to seek a stay of the proceeding on the ground of forum non conveniens. 58 Mr Tyne says that neither he nor Telesto appeared in the proceeding to contest the suit on the merits. He says no evidence was adduced by them on the merits. 59 On 2 November 2010, Telesto, Mr Tyne and ACN 074 as trustee of the Argot Trust commenced proceedings against UBS in the Supreme Court of New South Wales (NSW 2010/363808). That proceeding was commenced in the Equity Division of the Supreme Court and placed on the Commercial List. In that proceeding, the three plaintiffs made allegations of misleading or deceptive conduct, breaches of fiduciary duty and negligence on the part of UBS in what appears to be substantially similar terms to the allegations made in the proceedings in this Court. 60 On 21 February 2011, Assistant Registrar Ms Tan Wen Hsien of the High Court of Singapore made an order in an application made by UBS against Telesto, Mr Tyne and ACN 074 as trustee of the Argot Trust (OS1160/2010/V) (the "anti-suit injunction defendants") that those parties: … forthwith withdraw and discontinue, and are hereby restrained from prosecuting, or continuing to prosecute, proceedings number 2010/363808, commenced by the Defendants against [UBS] in the Supreme Court of New South Wales in Australia, by filing a Summons and Commercial List Statement on 2 November 2010 (the "Australian Proceedings"). 61 By Order 2 of those orders, the Assistant Registrar ordered that the anti-suit injunction defendants "be and are hereby restrained from commencing or continuing any further or other proceedings of any nature in Australia or anywhere else in the world against [UBS] arising from, relating to, and in connection with" [emphasis added] subject matter set out at paras (a) to (n) of Order 2, otherwise than in the High Court of the Republic of Singapore. 62 The subject matter of that order at (a) to (n) includes a particular account established by Telesto with UBS, the account agreement, the terms and conditions relating to that account and other matters relating to that account; the continuing guarantee and indemnity executed by Mr Tyne in favour of UBS; Telesto's utilisation of the account facilities to purchase various investments including bonds; collateral provided by Telesto to secure the investments; the conduct of the account; margin calls made by UBS; a letter of undertaking executed by ACN 074 as trustee of the Argot Trust; any alleged breaches of fiduciary duty owed by UBS "in relation to the crisis in Kazakhstan banks, specifically UBS Limited's engagement by the BTA Bank as a financial consultant"; and, any and all claims or defences the anti-suit injunction defendants may have arising out of or in relation to the investments in bonds including, but not limited to, the acquisition or management of the investment. 63 An application by Telesto and Mr Tyne (personally) for a stay of the Singapore proceedings brought by UBS against them was dismissed. 64 By Order 4, the Assistant Registrar ordered the anti-suit injunction defendants to pay to UBS the costs of, and occasioned by, the application for the orders "forthwith, to be agreed [and] if not taxed", on an indemnity basis. 65 On 28 February 2011, Telesto, Mr Tyne and ACN 074 as trustee of the Argot Trust filed notices of appeal from the decisions granting the anti-suit injunction and dismissing the stay application. 66 On 16 May 2011, the appeals from the anti-suit injunction orders and the dismissal of the stay applications were heard before Justice Chong of the High Court of Singapore. At that time, Telesto's liability to UBS on the investment account was more than USD$5 million. 67 On 14 July 2011, Justice Chong dismissed the appeals. 68 By this time, UBS had taken steps to realise the security in support of the indebtedness on the Telesto account and had applied the proceeds of sale to reduce Telesto's liability to UBS to nil. On 25 July 2011, Telesto, Mr Tyne and ACN 074 in its trustee capacity applied for leave to appeal from the decision of Justice Chong. 69 On 16 September 2011, Justice Chong heard the application for leave to appeal. The applicants for leave failed to appear and the application was dismissed. 70 On 24 October 2011, UBS filed a notice of motion in the New South Wales Supreme Court seeking a permanent stay of the New South Wales proceedings (the plaintiffs being Telesto, Mr Tyne personally and ACN 074 as trustee of the Argot Trust). That application was heard by Justice Ward on 21 November 2011 and judgment was given on 7 February 2012 with formal orders being made on 21 February 2012. By those orders, Ward J granted a "temporary stay" of the New South Wales proceedings "pending the outcome of the claim by [UBS] in the Singapore proceedings for declaratory relief and indemnity costs": Telesto Investments Ltd v UBS AG (2012) 262 FLR 119 at [5]. Although the indebtedness of Telesto had been discharged, UBS continued to seek declarations in the Singapore proceedings and pressed a claim for indemnity costs. 71 On 1 March 2012, Telesto and Mr Tyne by their Australian solicitors advised UBS that they did not intend to appear in the Singapore proceedings. In Mr Tyne's affidavit of 12 March 2014 he says that that position was consistent with the view that neither he nor Telesto intended to contest UBS's suit in Singapore on the merits on the footing that they did not accept that the High Court of Singapore had "jurisdiction according to private international law". 72 On 6 March 2012, Telesto filed an amended summons in the New South Wales proceedings and a further amended statement of claim pursuant to the orders of Ward J in which Mr Tyne and ACN 074 in its capacity as trustee of the Argot Trust were both removed as parties, leaving Telesto as the plaintiff and UBS as the defendant. 73 On 8 March 2012, UBS filed an application to amend its statement of claim in the Singapore proceedings and on 12 April 2012 Telesto and Mr Tyne advised UBS that neither defendant would contest the Singapore proceedings on the merits. On 27 July 2012, those proceedings were heard before Justice Lai Siu Chiu. There was no appearance by either defendant. 74 On 27 July 2012, Justice Lai made five declarations. They included declarations that particular investments were authorised by the defendants (being Telesto and Mr Tyne) and, pursuant to the general conditions applicable to the account arrangements between UBS and the defendants, UBS was entitled to realise the collateral given in support of the indebtedness in the relevant account and apply the proceeds in satisfaction of the total liabilities owed by the defendants to UBS. Further, a declaration was made that the defendants are estopped from asserting any claims or defences they may have arising out of or in relation to the particular investments and/or liabilities owed to UBS relating, put simply, to the acquisition or management of the relevant investments. 75 An important feature of the Singapore proceeding was the role of a "Standstill Agreement" made up of terms set out in a UBS letter of 14 December 2009 and accepted by Telesto on 31 December 2009, and the consideration that claims or defences available to Telesto and/or Mr Tyne arising out of events prior to 31 December 2009 had been compromised by the terms of that agreement. 76 On 6 September 2012, UBS filed a notice of motion in the New South Wales Supreme Court proceedings seeking a permanent stay of those proceedings. 77 Telesto filed a notice of motion seeking orders that the temporary stay granted by Ward J be discharged. 78 On 6 November 2012, Telesto served a copy of a proposed Second Further Amended Commercial List Statement (the "amended List Statement") upon which it would seek to rely with leave, should the temporary stay be discharged. 79 In the amended claims for relief in that document, Telesto seeks a declaration that UBS has contravened s 12DA of the ASIC Act, s 1041H of the Corporations Act and s 42 of the NSW Act or s 38 of the QLD Act (see [7] of these reasons) by making a series of representations in relation to, put simply, the investment virtues and desirability of Kazakhstan bonds and particularly bonds issued by BTA and Astana. Telesto also claims damages on a number of grounds. An examination of the 28 page amended List Statement proposed by Telesto reveals a sequence of detailed factual allegations as the foundation for its claims which are substantially similar to the pleading in these proceedings. 80 The amended List Statement is undoubtedly the foundation of the applicant's statement of claim in this proceeding. 81 Significantly, the claims in the amended List Statement are advanced on behalf of Telesto. 82 On 9 May 2013, Justice Sackar gave judgment in the stay application. 83 Orders were made on 5 June 2013 granting a permanent stay of the New South Wales proceedings prosecuted by Telesto on the footing that Telesto was precluded from continuing to prosecute those proceedings by reason of a res judicata arising from the final declaratory relief granted by Lai J in the Singapore proceedings: Telesto Investments Limited v UBS AG (2013) 94 ACSR 29 at [198] to [200] and [221]. Alternatively, Sackar J seems to suggest at [286] at point 2 that if his Honour is wrong about the res judicata conclusion: "it was at least legally indispensable to the judgment of Lai J that Telesto and UBS's rights and liabilities in existence at the time they entered into the Standstill Agreement (including all claims on foot in the New South Wales proceedings arising out of any conduct of the parties up until 31 December 2009) were compromised, or settled, by entry into the Standstill Agreement, and that this gives rise to an issue estoppel". However, at [224] of his Honour's reasons, Sackar J also says this: "In the event that I am wrong about my conclusion as to res judicata, it would be necessary to consider whether my finding on issue estoppel would nonetheless warrant the grant of a permanent stay of the New South Wales proceedings. It is a question of some complexity and open to debate, and therefore, in the absence of submissions or the views of the parties, I do not propose to express any view on it" [emphasis added]. In the extract of the orders made by Sackar J, the plaintiffs in the proceeding are described as Telesto, Mr Tyne and ACN 074 as trustee of the Argot Trust. However, as already mentioned, both Mr Tyne and ACN 074 in its trustee capacity ceased to be plaintiffs in the proceeding on 6 March 2012. 84 The material declaration made by Lai J on 27 July 2012 is in these terms: 2. The Defendants [being Telesto and Mr Tyne in his personal capacity] are estopped from asserting, and/or have compromised, any claims or defences they may have arising out of, or in relation to, the Investments and/or Total Liabilities due and owing to [UBS], including but not limited to, the acquisition or management of the Investments and/or the Total Liabilities. 85 The capitalised terms in that quote take their meaning from UBS's statement of claim in the proceeding filed on 13 April 2012. 86 At [198] and [200], Sackar J, in the New South Wales proceeding, said this: 198. Given the breadth of the relief ultimately granted by Lai J, I do not see how Telesto could, without creating inconsistency with the ultimate relief granted in Singapore, succeed in proceedings in New South Wales. The main issue on which Telesto's case rests is the truthfulness or untruthfulness of certain communications allegedly made by or on behalf of UBS to Telesto. Determination of issues of misleading and deceptive conduct, negligence and breach of fiduciary duty will really boil down to this factual question. … 200. If the New South Wales litigation was permitted to proceed, the materials that Telesto would put before the court would, in my view, be substantially, if not entirely, identical to what it would have put before the court in Singapore had it decided to participate there. … I think the substantial similarity of both proceedings supports the view that, as a matter of substance, the cause or causes of action would be the same. Indeed, this view is supported by the fact that in Singapore, counsel for Telesto (before Chong J) appeared to accept that, if the Singapore proceedings were not stayed, Telesto would simply raise the issues which were then in the New South Wales proceedings as a defence and counterclaim in the Singapore proceedings. 87 At [199], Sackar J notes that Telesto's principal claims in the amended New South Wales proceeding all took place prior to 31 December 2009 and "therefore Lai J's finding (namely that all rights and liabilities arising as a result of those facts were the subject of a compromise or settlement agreement that should not be set aside), included everything which Telesto pleaded against UBS in the New South Wales proceedings" [emphasis added]. 88 The reason for examining these earlier proceedings in some detail is that UBS places particular emphasis, in its written and oral submissions, upon the history (and content) of the Singapore and New South Wales proceedings, the issues raised in those proceedings, and the manner of their resolution, as it says that Mr Tyne, as trustee of the Argot Trust, is now simply trying to re-litigate in these proceedings "claims and allegations which have previously been litigated and are the subject of final orders" made in these earlier proceedings. 89 No defence has been put on in the present proceeding but it is likely that the contended compromise will be pleaded in addition to a question of res judicata and issue estoppel which might, in any event, be made the subject of a separate application. 90 UBS's essential contentions are these. 91 First, the present Federal Court proceedings are brought by Mr Tyne (as the new Argot trustee) "in defiance" of the anti-suit injunction granted by the High Court of Singapore on 21 February 2011 restraining him personally and the trustee of the Argot Trust (then ACN 074) from commencing any proceedings in Australia relevantly connected with the subject matter of Order 2(a) to (n) of the Singapore Court's orders. Those matters include Telesto's account established with UBS, the investments Telesto made (by drawing down the account facility), the security Telesto gave, the conduct of the account, UBS's margin calls, contended breaches of fiduciary duty by UBS, and "any and all claims or defences" Mr Tyne or ACN 074 as trustee or Telesto may have had related to the investments made, or the liabilities of, the anti-suit defendants, to UBS. 92 Second, UBS says the present proceedings involve substantially the same claims and substantially the same subject matter as the earlier litigation in Singapore and New South Wales in the proceedings between UBS (the Singapore plaintiff) and Mr Tyne (personally) and Telesto (the Singapore defendants and New South Wales plaintiffs respectively). 93 ACN 074 as trustee of the Argot Trust did not remain a party to the New South Wales proceeding. 94 UBS, however, does not undertake a detailed comparison of the content of the subject matter of Order 2(a) to (n) of the Singapore Court's orders of 21 February 2011 and the subject matter of the pleading in these proceedings so as to demonstrate the precise overlap between the anti-suit injunction order and the subject matter of the present proceeding. That exercise is an important contextual one when contending that commencing the present proceeding occurred in defiance of the anti-suit injunction order. On the face of the order and the statement of claim in the present proceeding, however, there at least seems to be a significant overlap between the terms of the order and the subject matter of the pleading by the new trustee in these proceedings. 95 However, I am not in a position to say on the evidence that the conduct of commencing the present Federal Court proceeding falls squarely within the terms of the Singapore Court order of 21 February 2011. 96 Third, UBS says that Sackar J found, on the permanent stay application, that the Singapore proceeding and the New South Wales proceeding addressed the same cause or causes of action, as a matter of substance, and thus the earlier judgment and final orders of Lai J gave rise to a res judicata of the New South Wales controversy: see the quoted reasoning at [86] and [87] of these reasons. UBS says that Sackar J also found that by reason of the judgment of Lai J, Telesto was bound by an issue estoppel which prevented it from departing or challenging the compromise (or settlement) of all rights and liabilities of the parties (being UBS, Telesto and Mr Tyne personally) subsisting up to 31 December 2009. UBS says that Sackar J found that the conduct the subject of Telesto's New South Wales proceeding occurred prior to 31 December 2009 and thus Sackar J permanently stayed the proceeding on 5 June 2013. 97 UBS says that the conduct, the subject of the present proceeding, is no different in substance. 98 The ultimate proposition UBS presses is that since the claims were previously asserted by only Telesto as the party having the relevant causes of action and, in substance, Mr Tyne now agitates as trustee of the Argot Trust (having been appointed to that role only four days before commencing the Federal Court proceeding) the same claims based on the same factual contentions the subject of the permanent stay order of Sackar J and the orders of the Singapore High Court, Mr Tyne is simply seeking to re-litigate a finally determined matter and thus the proceeding is an abuse of the process of this Court. This proposition is not put as part of a stay or strikeout application but as a factor that ought to be weighed heavily in the balance in exercising the discretion to order security for costs. 99 The difficulty with UBS's contention, however, is that the Singapore proceedings (Lai J) concerned litigation between UBS on one side of the record and Telesto and Mr Tyne personally on the other. Neither defendant took part in the hearing on the merits although plainly, final orders were made in the form of declaratory orders consequent upon a hearing (and proof by UBS of its claims for relief) on the merits. 100 The Federal Court proceedings involve Mr Tyne in a particular capacity, as trustee of the Argot Unit Trust and Ms Marks on one side of the record, and UBS on the other. 101 The New South Wales proceeding concerned Telesto on one side of the record, and UBS on the other. ACN 074 at trustee of the unit trust and Mr Tyne were not parties to the amended New South Wales proceeding. Even though the amended List Statement in the New South Wales proceeding reveals a very similar set of factual claims, contentions and events to those reflected in the pleading in this Court, the parties seeking to agitate rights and remedies in this Court are different parties (and, in the case of Mr Tyne, in a different capacity) to those in either of the earlier proceedings. 102 As mentioned earlier, I am not satisfied on the state of the present evidence that the claims and contentions in the present proceeding on behalf of the Argot Trust fall squarely within the anti-suit injunction order. 103 It is also said that an examination of the content of, and outcomes in, the earlier proceedings strongly suggest that the applicants have little prospect of success in the present proceeding and thus there is a real likelihood of UBS obtaining an order for costs against each applicant, and a real risk that those costs will not be recovered. These considerations are said to be weigh heavily in the balance in the exercise of the discretion as to the making of an order for security for costs. 104 Leaving to one side for the moment what I will call the overlap issues concerning the claims and contentions in the earlier litigation and the claims and contentions in the present proceeding, I accept that it is certainly relevant, and perhaps important, to take into account in the exercise of the discretion matters relating to the strength of the case an applicant seeks to agitate before the Court. However, in the absence of material that demonstrates a serious weakness in the pleaded case such as a fatal limitation period point, or a failure to plead an essential integer of a cause of action which renders the claim doomed to failure, or a clear and well demonstrated res judicata or an issue estoppel point, the application for security should be approached (at least so far as this case is concerned on the pleaded facts) on the footing that all the facts, as pleaded, are put in contest and findings of fact will ultimately need to be made about contested events and things said or done between individuals. I will return to UBS's contention that the applicants are unlikely to be successful in the proceeding, later in these reasons. 105 Those findings, and success or not on the merits, might go either way and the focus therefore must be upon the settled principles by which the broad and flexible statutory discretion under s 56 of the Federal Court Act is to be exercised (taking account of the r 19.01(3) factors, but not constrained by those factors), in striking the necessary balance. 106 That balance is a balance between a respondent's real risk of non-recovery of the costs to which it will be put in resisting an applicant's claims (which, if successfully resisted, would likely be the subject of a costs order in favour of the resisting party) and the applicant's entitlement to have recourse to the exercise of the judicial power of the Commonwealth in agitating rights and remedies arising under Commonwealth law (and matters associated with that jurisdiction which arise under State law). The affidavits 107 The application for security is principally supported by an affidavit of Ms Catherine Mills who is the solicitor for UBS. 108 Ms Mills says that she has conducted relevant searches which reveal that Mr Tyne is an undischarged bankrupt. In his affidavit sworn 4 March 2014, Mr Tyne says this about that matter. In May 2013, Mr Tyne's estate was sequestrated. Mr Tyne's bankruptcy resulted from his having entered into a guarantee of Telesto's financial obligations to the ANZ Bank. That guarantee was called upon when Telesto defaulted under its obligations to the Bank. Judgment was entered against Mr Tyne for AUD$11.7 million. The judgment was not satisfied. Mr Tyne became bankrupt. Mr Tyne also says this in his affidavit of 4 March 2014: 11. Telesto's default as principal debtor was precipitated by the default of a portfolio of Eurobonds that Telesto had purchased at the recommendation of [UBS]. I refer to paragraphs 19 to 21, 24 to 27, 32, 37, 41, 45(d) and (e), 49 to 51, 60, 64, 69, 74 and 82 of the SOC [Statement of Claim in these proceedings]. Had those bonds not defaulted, alternatively had Telesto never purchased them, Telesto would have been in a position to meet its obligations to ANZ Bank. Accordingly, the actions of [UBS] complained of in the SOC ultimately resulted in my impoverishment. 12. I have earned no income since being made bankrupt. Since my bankruptcy all legal expenses have been met by a loan advanced by my parents, or were not met at all. 13. My parents advise me, and I believe, that they have no more liquid assets to speak of and that their only source of income is the old age pension. 109 Ms Mills identifies a series of costs orders at para 52(a) to (e) of her affidavit and observes at para 53 that she is informed by Ms Sannie Sng of UBS that "to date, none of the above costs orders have been satisfied (in full or in part) by Telesto, Mr Tyne or, where applicable, the Argot Unit Trust". 110 The relevant orders are these. 111 On 21 February 2011, Assistant Registrar Ms Tan Wen Hsien, ordered Telesto, Mr Tyne personally and ACN 074 as trustee of the Argot Trust to pay the costs of UBS in relation to the anti-suit injunction application before the Singapore High Court on an indemnity basis. 112 On 21 February 2011, Assistant Registrar Ms Tan Wen Hsien, ordered Telesto and Mr Tyne to pay the costs of UBS in relation to applications made in the proceedings commenced by UBS in the Singapore High Court on an indemnity basis. These costs concerned the costs of UBS in defending the stay application brought by Telesto and Mr Tyne. 113 On 14 July 2011, Chong J of the Singapore High Court ordered Telesto, Mr Tyne and ACN 074 as trustee of the Argot Trust to pay the costs of UBS of the appeal by the anti-suit injunction defendants from the anti-suit injunction orders, on an indemnity basis. 114 On 14 July 2011, Chong J of the Singapore High Court ordered Telesto and Mr Tyne to pay UBS's costs of the appeal by those parties of the dismissal of the stay application on an indemnity basis. 115 On 21 February 2012, in the New South Wales proceeding, Ward J, by Order 4, ordered Telesto, Mr Tyne personally and ACN 074 as trustee of the Argot Trust to pay UBS's costs of a notice of motion filed on 24 October 2011 (the stay application). 116 All of these costs orders are joint and several costs orders. Mr Tyne is subject to all of the orders. The trustee of the Argot Trust is subject to the orders at [111], [113] and [115]. Ms Sng of UBS says that none of these costs orders have been satisfied in whole or in part. Ms Mills says the same thing in her letter to Mr Tyne and Ms Marks on 7 February 2014. Mr Tyne says that each of the costs orders provide for the payment of costs in an amount to be agreed or alternatively in an amount as determined upon taxation of the costs. Mr Tyne says that no bill of costs has ever been presented to him or ACN 074 and no agreement has ever been reached with UBS about the amount of the costs. Moreover, he says that so far as the present proceedings are concerned only some of the costs orders concern the estate of the Argot Trust. 117 Nevertheless, it is plain from the matters described at [108] and the passages quoted at [108] from Mr Tyne's affidavit that there is no prospect of his being able to pay the amount of the costs orders whether the quantification of each costs order is crystallised by agreement or by taxation of a bill of costs. It is, of course, correct to say that until agreement is reached or the costs are quantified by certification upon taxation, no particular amount is payable by Mr Tyne. Nevertheless, his bankruptcy and "impoverishment" as he puts it, means, on balance, that he has no capacity to pay the costs referable to these orders. 118 That circumstance becomes a relevant matter so far as the Argot Trust is concerned because Mr Tyne is both a bankrupt and impoverished and he brings the proceeding on behalf of the Trust in the interests of the beneficiaries (see r 19.01(3)(c) of the Federal Court Rules 2011). 119 That means that when UBS seeks to enforce any order for costs which it might obtain in these proceedings, Mr Tyne will be unable to satisfy that costs order. However, in the ordinary course, in the case of a trustee incurring financial obligations to UBS in properly performing his or her trust obligations, the trustee would be entitled to seek indemnity out of the trust assets in respect of that liability. The difficulty is that Mr Tyne, as trustee of the Argot Unit Trust, has not put into evidence the trust deed. Nor has Mr Tyne put on any evidence as to the assets of the Trust. It thus becomes difficult for UBS to determine whether Mr Tyne is properly performing powers conferred upon him by the Trust Deed or indeed whether he is properly performing his duties as trustee upon which the right of indemnity is dependent. UBS has no knowledge of the assets that might be available to meet any indemnity in discharge of the trustee's obligations to it under a costs order. In addition, UBS says, put simply, that it is unsatisfactory in terms of its risk of non-payment of any costs order it might obtain that it starts from the position of having to deal with a bankrupt trustee of the trust estate. Because of this circumstance, UBS says it must necessarily (and can only) look to the strength and financial integrity of the indemnity available to the bankrupt trustee in meeting any costs orders. 120 As to the Argot Trust, Mr Tyne says this in his affidavit sworn 4 March 2014: 7. The Argot Trust is a unit trust, with provision for ordinary and income units. There are presently 1,010 ordinary units on issue, ten of which [are] registered in my name. Five hundred ordinary units are registered in my name as trustee for my 12-year old son, and five hundred more registered in my name as trustee for my 9-year old daughter. There are no income units presently on issue. [emphasis added] 121 It is difficult on the present evidence to form any clear view about either the assets or the liabilities of the Argot Unit Trust or the strength of any indemnity available to Mr Tyne as trustee of the Trust except have regard to the following observations of Croft J upon which UBS places emphasis in its submissions. In ACN 074 971 109 Pty Ltd (as trustee for the Argot Unit Trust) v The National Mutual Life Association of Australasia Ltd (No 2) [2012] VSC 177, Croft J determined the question of the quantum of damages in the plaintiff's proceedings by which it claimed relief for unconscionable conduct and also determined the nature of the costs order that ought to be made in the matter. In doing so, Croft J made this observation at [54] in the reasons for judgment published on 4 May 2012: 54 The defendant submitted that the evidence is clear that [ACN 074], which was the trustee of the Argot Unit Trust, was always a thing of straw. On the defendant's application for security for costs in December 2009, Mr Tyne deposed that: (a) [ACN 074] was a bare trustee, with no assets other than a paid up capital of $2 and a right of indemnity out of the Argot Unit Trust [see affidavit of Scott Tyne, 13 October 2009 (C09), para 15]. (b) The only asset of the Argot Unit Trust that was identified was its damages claim in the 2002 Proceeding [see affidavit of Scott Tyne, 13 October 2009 (C09), para 18]. The asset is now shown to be chimerical. Any amount awarded to [ACN 074] will be dwarfed by the costs payable by it. Further, in answer to the notice of discovery given by the defendant, neither [ACN 074] nor the Argot Unit Trust produce any Australian income tax returns, indicating that the Trust had no income. [emphasis added] 122 It seems very likely therefore that the Argot Unit Trust has no assets. However, the profit and loss statements and balance sheet statements for the Trust for the financial years ending 30 June 2013 and 30 June 2014 ought to be produced together with the Trust Deed for the Trust. This material ought to be provided so as to test whether inferences UBS draws, and invites the Court to draw, about the current asset position of the Trust based on the observations of Croft J at [54] of his Honour's reasons for judgment remains the current position. 123 As to the financial position of Ms Marks, Mr Tyne says this: 15. The second applicant to this proceeding is my de facto wife, Clare Marks (Clare). Clare also guaranteed the facility referred to in paragraph 11 [quoted at [108] above]. I refer to paragraph 97 of the SOC. 16. Clare's guarantee was supported by the Mortgage referred to in paragraph 98 SOC. That Mortgage was enforced through exercise of the power of sale … In addition, the ANZ Bank has instigated proceedings against Clare seeking recovery of the shortfall in the sale price of the Land and Dwelling as against the guaranteed debt. Hence, the actions of [UBS] complained of in the SOC have also ultimately resulted in Clare's impoverishment. 17. As to which, Clare informs me, and I believe, that: (a) in the last 12 months, she has earned approximately $55,000 before tax; and (b) the value of her remaining assets would not exceed $100,000 (including the present value of her superannuation, which is not presently accessible by her, and her car). 124 Mr Tyne also says that when considering the financial circumstances of the applicants and in particular the first applicant, those circumstances must be balanced against a consideration of the financial circumstances of UBS. Mr Tyne says that UBS is one of the largest financial institutions in the world with total assets in the order of AUD$1.6 trillion and in the financial year ended 2013 UBS's operating profit was in the order of AUD$4.14 billion notwithstanding that provision has been made in the accounts for AUD$2 billion against litigation and legal liabilities. 125 Mr Tyne says four further things. First, he says he has reasonable prospects of success in the principal proceeding having regard to a range of matters he identifies at paras 21 to 24 of his affidavit of 4 March 2014. Second, he says that his bankruptcy and impoverishment is directly a function of the conduct of UBS about which he complains in the principal proceeding. He says that his present circumstances reflected in his apparent incapacity to satisfy potential costs orders is directly attributable to the contravening conduct he pleads in the action and thus UBS ought not be able to effectively foreclose an examination of the quality of that conduct by relying upon circumstances confronting Mr Tyne which it brought about. Third, the present proceedings are brought on behalf of the Argot Unit Trust and thus on behalf of the beneficiaries of the Trust who are Mr Tyne's children. Fourth, any order for security for costs will foreclose or stultify prosecution of the claims by the trustee of the Argot Unit Trust as there is simply no basis upon which either the trustee in his own capacity or for and on behalf of the Trust, can provide security for any costs order which might be made against the first applicant. 126 As to the contention that Mr Tyne's impecuniosity and the present circumstances of Ms Marks have been caused by the conduct of UBS which is the subject of the present proceeding, UBS says that Mr Tyne focuses upon assertions to the effect that his own circumstances of impecuniosity (and those of Ms Marks) have been brought about by the conduct of UBS, but fails to demonstrate that the contended conduct "depleted or diminished" the assets of the Argot Trust itself, or caused the impecuniosity of Mr Tyne in his capacity as trustee of the Argot Trust. 127 UBS says that in the absence of evidence of such a causal connection, the Court should regard Mr Tyne's claims of a causal connection between UBS's contended conduct and impecuniosity as rising no higher than a bare assertion. 128 UBS also says that the absence of any evidence, in the affidavits, of a relevant causal connection suggests an inference that the more likely cause of any impecuniosity in the Argot Trust is, firstly, the election made by the trustee of the Trust (ACN 074) to make substantial unsecured securities "loans" to Telesto under the securities lending arrangement and otherwise, to support the financial facility, and secondly, investment advice given by Mr Tyne to the trustee of the Trust "through Pole Star". 129 As to the notion that a security for costs order would stultify the proceeding, UBS says that there is no evidence of any steps taken by either of the applicants to secure third party funding to support the prosecution of the proceeding which the applicants regard as a substantial commercial claim. UBS also says that even if the grant of security would have the effect of stultifying the proceeding, such a result would be insufficient to justify a refusal of security because the risk of stultification is but one factor to be taken into account in the exercise of the discretion. UBS says that even if a real likelihood of stultification is established, that consideration is not determinative of the exercise of the discretion. 130 As to the merits, UBS says the applicants are likely to fail in the proceeding for these reasons. 131 First, UBS says that any representations made by it must have been made to Mr Tyne as an officer of Pole Star on behalf of Telesto, the UBS account holder. The representations were not made to ACN 074 as trustee of the Argot Unit Trust. The only person who could have been "directly misled" was Telesto. UBS says that the manner in which ACN 074 is said to have been misled is not clear on the face of the pleading. For example, it is said to be unclear whether Mr Tyne as an officer of Pole Star "passed on" to ACN 074 for the Trust UBS's contended representations and if so, when and how that occurred. Nor is it said whether ACN 074 relied on the representations and if so, when and how that occurred. 132 Second, UBS says that the claims rely heavily upon oral representations made and advice given by UBS representatives and a failure by UBS to disclose information much of which was publicly available at material times. 133 Third, the contentions of reliance are said to be weak as Mr Tyne is a sophisticated investor and extensive written disclosures described in the judgment of Sackar J were given to Mr Tyne by UBS concerning the risks of investing in emerging markets. 134 Fourth, UBS says that consistent with its view of Telesto's sole role in the engagement with UBS is the circumstance that Telesto's New South Wales proceeding was conducted on the footing that Telesto had suffered the relevant loss. Moreover, ACN 074 as trustee of the Argot Trust in a letter of undertaking given to UBS dated 28 January 2010 (see also UBS's letter to Telesto dated 14 December 2009, cl 4(c) requiring an undertaking in the form of the letter of 28 January 2010), agreed to apply the full amount of any litigation proceeds concerning two particular actions in which it was engaged (called in the letter of undertaking the "Actions") towards repayment of Telesto's liabilities to UBS, and in that context, ACN 074 as trustee of the Trust represented to UBS that its only asset was its right of indemnity from the Trust (cl 2(a)) and that the "only asset of the Argot Unit Trust [is] the Actions" (cl 2(c)). UBS says it is noticeable that no assertion is made in the 28 January 2010 letter of undertaking that the trustee of the Argot Unit Trust has or had a claim or claims of any kind against any entity arising out of relevant facts and circumstances relating to investments in BTA and/or Astana Kazakhstan bond issues, or the granting of collateral charges or pledges or the lending of trust securities in support of Telesto's investments. 135 As earlier mentioned, the pleading asserts that Mr Tyne was at all material times a Director of ACN 074 as trustee of the Argot Unit Trust and that by reason of a Deed between ACN 074 and Mr Tyne dated 13 April 2000, Mr Tyne was appointed by the trustee to manage the Trust's investment portfolio. The pleading also asserts that Mr Tyne was at all material times a Director of Pole Star and by reason of a Deed dated 9 October 2006, Pole Star was engaged by Telesto to manage Telesto's investment portfolio. The pleading then asserts events of engagement between Mr Tyne and representatives of UBS. The pleading goes on to assert that those events of engagement occurred in particular capacities in which Mr Tyne was acting, that is, in his own capacity, in his capacity as a Director of ACN 074 in its trustee capacity, as a Director of Pole Star and, through Pole Star, as Manager of Telesto's investment portfolio. In other words, the pleading comprehends a series of exchanges and engagements between Mr Tyne on the one hand and representatives of UBS on the other as the fundamental engagement. The capacity in which Mr Tyne was acting is attributed by the pleading to Tyne Related Entities as described. 136 As to the apparent anomaly that the letter of undertaking of 28 January 2010 given by the trustee of the Argot Unit Trust does not suggest a right of action in the trustee against any person or entity arising out of facts and circumstances relating to investments in BTA and/or Astana Kazakhstan bond issues, it may be not altogether surprising that in a letter of undertaking given to UBS in the context of a continuing financial relationship between UBS, Telesto and the trustee of the Argot Unit Trust, that no suggestion is made of a claim against UBS as an asset of the Argot Unit Trust and nor is any claim made against Telesto. 137 A central question in the proceeding may not be one of whether the pleaded representations made by UBS were "passed on" but whether they were made to Mr Tyne in particular capacities directly or indirectly. 138 It will be apparent from this discussion of the contentions of the parties on the application that each of the matters in r 19.01(3)(a) to (d) of the Federal Court Rules 2011 have been addressed including some other matters, for the purposes of r 19.01(3)(e). 139 Plainly, s 56 of the Federal Court Act confers a wide and flexible discretionary power which must be exercised judicially, that is to say, having regard to settled principle. The Federal Court Rules do not operate to constrain the scope of the discretion conferred by s 56: Bell Wholesale Co Pty Ltd v Gates Export Corp (1984) 2 FCR 1 at 3. These propositions have been accepted and applied extensively in many authorities and it is not necessary to set out the references in these reasons. 140 Some of the factors to be taken into account in the exercise of the discretion are whether the application has been brought promptly; the strength and bona fides of the applicant's case; whether the impecuniosity of the applicant was brought about by the respondent's conduct the subject of the proceeding; whether the respondent's application for security operates oppressively in the sense that a respondent brings the application merely to deny an impecunious applicant a right to litigate a controversy before the Court; whether there are outstanding costs orders against an applicant which have not been discharged; whether there are persons standing behind the applicant who are likely to benefit from the litigation and who are willing to provide security; whether persons standing behind the applicant have sought to raise funds to support the proceeding; and whether persons standing behind the applicant have offered any personal undertaking to be liable for the costs and if so the form of any such undertaking. The last three considerations are generally considerations that operate in the context of a proceeding brought by a company although similar considerations apply where a proceeding is brought by a trustee of a trust in the proper performance of a trustee's duty to protect the assets of the trust for and on behalf of the beneficiaries. Again, it is not necessary to recite a sequence of authorities which support these propositions. These considerations are well recognised in the authorities. 141 In the present application, it seems to me that the following matters are particularly important. 142 First, there is no doubt that UBS, should it obtain an order for costs in the proceeding, has no prospect of recovering the amount of those costs from Mr Tyne. 143 Second, I am satisfied, having regard to the matters described at [121] of these reasons and particularly the observations of Croft J to which UBS particularly refers in its submissions, consistent with the oral submissions of Mr Tyne on the hearing of this application, that the Argot Unit Trust has no assets (other than, arguably, the claim it seeks to bring against UBS). 144 Third, I am satisfied that those persons standing behind the Argot Unit Trust have no serious prospect (or any prospect at all) of providing security or offering any personal undertaking to be liable for the costs which would be remotely meaningful. There are no income units on issue and having regard to the matters mentioned at [121] of these reasons, there is no income of the Trust. The ordinary units are principally held by Mr Tyne's 12 year old son and his nine year old daughter. Ten of the ordinary units are held by Mr Tyne but he is not only impecunious but bankrupt. I accept therefore that there is no serious prospect of any person standing behind or under the Argot Unit Trust offering any form of meaningful security to UBS. 145 Fourth, in these reasons I have examined two particular matters. The first of those concerns the history of the earlier litigation and the second concerns the nature and content of the claims sought to be made in the proceeding and the criticism by UBS of the strength of those claims. As to the earlier litigation, I have made observations at [99] to [106] of these reasons and I am not satisfied that, weighing all of the matters at [56] to [106] in the balance, the result is that an order for security for costs ought to be made by reason of those factors. Of course, those factors must be weighed together with the other factors, in the balance. As to the strength of the claims sought to be agitated in the proceeding and the factual matrix giving rise to those claims, I am satisfied about two matters. The first is that caution must be adopted in seeking to make assessments about the apparent merits or otherwise of a claim in any detailed analytical way which might, at such an early point in the proceeding, tell against an applicant and in favour of an order for security for costs. The second is that many of the claims concerning who said what to whom in which circumstances and in which particular capacities is entirely in controversy and a matter for determination in the very exercise of judicial power. At this point in the proceeding, I do not accept that the pleading is so substantially deficient that it renders the proceeding either doomed to failure or very likely to result in a dismissal of the proceeding. 146 Fifth, clearly there are a number of costs orders which have been made against Mr Tyne and three of those costs orders are orders made against ACN 074 as trustee of the Argot Unit Trust in respect of which it would no doubt seek to assert a right of indemnity. There are no assets in the Argot Unit Trust to satisfy that indemnity other than the claim sought to be made in these proceedings against UBS. All of these matters go to the financial incapacity of the Argot Unit Trust to meet either existing orders or potentially further orders which might be made should the present proceeding be unsuccessful. Mr Tyne takes the point that the costs orders have not been quantified and thus it is simply not fair or accurate to say that either he or the trustee of the Trust has failed to pay any costs orders at all. Until the costs orders are quantified by agreement or taxation, there can be no operative "failure" to pay costs orders. I infer, since no mention is made of the matter by UBS, that no bill of costs in taxable form has been prepared or served upon ACN 074 or Mr Tyne and that no agreement has been reached about the costs nor any taxation of them. Although Mr Tyne's propositions about these matters are undoubtedly true, it nevertheless seems to me presently clear that neither Mr Tyne nor the Trust is capable of paying the quantification of those costs orders because the Trust has no income or assets but for its contended claim in this proceeding and Mr Tyne is both impecunious and a bankrupt. 147 Sixth, I am satisfied that having regard to all of these matters, making an order for security for costs will entirely foreclose the proceedings brought by the first applicant and render it impossible for the first applicant to prosecute the claim. I am entirely satisfied that making an order for security for costs will shut down that entire part of the proceeding and bring it to an immediate end. 148 The criticisms of the pleading made by UBS might well have been the subject of an application by UBS to strike out the statement of claim so as to compel the first applicant (and the applicants) to frame a pleading which reflects properly formulated claims addressing those criticisms, if they are shown to be well placed on a properly developed application directed expressly to that question. In the absence of a properly framed pleading, certain consequences might follow for the action. Alternatively, to the extent that it is said that commencing the present proceeding falls within the scope of the anti-suit injunction order, or to the extent that the proceeding ought to be permanently stayed by reason of any of the considerations described at [56] to [98] of these reasons, an application might have been brought by UBS to deal with that matter as a preliminary question. Success on that question would result in a permanent stay as a question of law. 149 However, those matters are entirely separate methods of seeking to deal with what is thought to be a proceeding which the first applicant, at least, is either not entitled to commence in the Court, or a proceeding which ought to be stayed, as a matter of law, according to UBS. Neither of those applications has been made. I have taken into account the contentions made by UBS concerning the criticisms of the pleading, the contended merits of the applicants and the contended effect of the orders in the earlier litigation. However, for the reasons I have already indicated I do not regard those considerations as determinative on the security for costs application. No doubt, questions relating to the pleading and/or the effect of orders made in the earlier litigation will be the subject of separate applications properly supported by the relevant material. 150 The application for security for costs is brought in an amount of $450,000.00 and I have no doubt at all that making an order for security of that order of magnitude or any amount which reflects even a staged quantification of likely recoverable party and party costs by reference to the completion of particular interlocutory steps, would have the effect of stultifying the action. 151 I can see no basis on the present evidence upon which the proceeding could continue should an order for security be made. 152 Seventh, whatever the ultimate merits might prove to be in the proceeding, I am satisfied that there is at least an arguable question raised by the proceeding that the cause of Mr Tyne's impecuniosity is the contended conduct of UBS. UBS contends that due to lack of clarity, the pleading does not demonstrate a causal link between the conduct of UBS and Mr Tyne's impecuniosity, and more particularly, the pleading does not demonstrate a causal link between the conduct of UBS and any impecuniosity in the Argot Unit Trust. However, it seems to me that the facts, circumstances and events reflected in the statement of claim which are said to give rise to claims against UBS in respect of engagements between UBS and Mr Tyne in his various capacities on behalf of the Trust and other entities, contend for losses suffered by him, Telesto and the Trust by reason of representations made by UBS (in contravention of the relevant law) concerning investments in bonds issued by the relevant Kazakhstan issuers, and as a result of breaches of fiduciary duty and negligence on the part of UBS. At least in the pleaded sense, there seems to be a clear contention that the losses giving rise to impecuniosity by reason of reliance, are caused by the conduct of UBS. 153 Those losses, in part at least, seem to concern steps taken by the Argot Unit Trust, as pleaded. They may or may not be made good but at least at this stage of the proceeding the contention on the face of a pleading (rather than a mere bare allegation), is that there is a causal link between the conduct of UBS (made the subject of the proceeding), and impecuniosity on the part of Mr Tyne and the Argot Unit Trust. 154 Eighth, no application for security is sought against Ms Marks. 155 That, no doubt, arises because Ms Marks is personally the litigant and she does not bring a claim on behalf of anyone but herself. Nevertheless, her contended losses are said to arise out of defaults by Telesto in servicing the ANZ Bank facility (of which she was a guarantor) which occurred because Telesto suffered losses by reason of its investments in the Kazakhstan bonds. An order for security for costs made against the first applicant, quite independently of any question of any criticisms of the pleading so far as it frames causes of action on her behalf against UBS, will leave Ms Marks's claim extant and it would need to be litigated in any event. Clearly her claims are not caught by any of the difficulties said to arise for Mr Tyne, Telesto or ACN 074 as trustee of the Argot Unit Trust (or Mr Tyne as the present trustee of the Trust) arising out of the earlier litigation or the orders made in that litigation. Moreover, to the extent that there is contended inter-dependency between the claims of Ms Marks and the contended contravening conduct of UBS, the applicants stand susceptible of a joint and several costs order in relation to the proceedings at large should they fail in their case. 156 Having regard to all of these considerations and weighing them all in the balance, it seems to me that the proper course is not to order security for costs. I am satisfied that some of the factors I have discussed suggest that UBS's position ought to be protected by a security for costs order but weighing all of the factors in the balance overall and taking very particular account of the features to which UBS has pressed emphatic attention, it seems to me that the overall balance is such that the interests of justice are best served, in the context of the controversy between these parties in this proceeding, by not ordering security for costs, as things presently stand. 157 Having regard to all of these considerations I am minded to dismiss the application with costs. However, I propose to adjourn the application and direct Mr Tyne as trustee of the Argot Unit Trust to file an affidavit within 30 days exhibiting a copy of the Argot Unit Trust Deed and a copy of the profit and loss statements and balance sheets for the Argot Unit Trust for the financial years ending 30 June 2013 and 30 June 2014. The contention put is that the Trust has no assets and that those standing behind the Trust are not capable of providing any security or undertaking in support of the proceedings. I propose to examine the profit and loss statements and balance sheets for those two financial years before making final orders in the matter. It may be necessary to take further short written submissions from the parties before making final orders. On the assumption that the financial statements demonstrate that the Trust has no assets (leaving aside any question of an asset in the form of a claim against UBS in these proceedings) my present inclination is to dismiss the application for security with costs. If it emerges on the basis of the financial statements that the Trust has assets, I will consider further whether any of those assets ought to be made the subject of an order for security for costs in support of the trustee's right of indemnity. I certify that the preceding one hundred and fifty-seven (157) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate: Dated: 3 October 2014