Supreme Court New South Wales Medium Neutral Citation: About Life Pty Ltd v Kloczko [2020] NSWSC 1909 Hearing dates: On the papers (submissions received by 7 December 2020) Date of orders: 23 December 2020 Decision date: 23 December 2020 Jurisdiction: Equity Before: Emmett AJA Decision: Order that the Cross-Defendants' costs of the motion filed 7 June 2019 be the Cross-Defendants' costs of the proceedings. Catchwords: COSTS — security for costs — quantum and form — application — amount awarded as security by agreement exceeded an earlier offer— application for costs of application — whether applicants successful in security for costs application Legislation Cited: Corporations Act 2001 (Cth), s 1335 Uniform Civil Procedure Rules 2005 (NSW), r 42.21(d) Cases Cited: Nil Texts Cited: Nil Category: Procedural and other rulings Parties: About Life Pty Ltd (First-Cross Claimant, Respondent on motion) Aaron Kloczko (First-Cross Defendant/Applicant on motion) and 69 other Cross-Defendants/Applicants on motion Representation: Counsel: D A Lloyd SC (First-Cross Claimant/Respondent on motion) P A Horvath with K Lindeman (Cross-Defendants/Applicants on motion) Solicitors: Moray & Agnew (Cross-Defendants/Applicants on motion) Gilchrist Connell Legal (First-Cross Claimant/ Respondent on motion) File Number(s): 2017/162590 Publication restriction: Nil Judgment 1. By a notice of motion filed 7 June 2019 (the Security Motion), the cross-defendants to the Second Cross-Claim (Maddocks) applied for an order that the cross-claimant (About Life) provide further security for Maddocks' costs. Maddocks asked for the sum of $700,000, or such other sum as the Court might order, without prejudice to their rights to seek additional security at a later stage of the proceedings. The application was made pursuant to r 42.21(d) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) or s 1335 of the Corporations Act 2001 (Cth). Maddocks asks for security by payment into Court or by provision of a bank guarantee. 2. On 18 November 2020, orders were made as follows: 1. Security in the sum of $850,000.00 be paid by About Life in a form acceptable to either Maddocks or the Court, in the following tranches: 1. $450,000.00 by 14 December 2020; 2. $400,000.00 by 14 January 2021. 1. In the event that security is not paid on or before the dates set out in 1(a) and 1(b), Maddocks has leave to apply to the Court for the matter to be stayed. The Court noted that an order made by Parker J on 31 August 2018 was to remain undisturbed. That order required About Life to pay the sum of $83,000 either into Court or otherwise in a form acceptable to the Registrar, 42 days before the date fixed for the hearing of the Second Cross-Claim. 1. At the time of making the orders of 18 November 2020, directions were given for the parties to file and serve written submissions on the question of the costs of the Security Motion and I have now received written submissions. The parties have requested that the question of costs be decided on the basis of the written submissions without any further oral argument. 2. Maddocks ask for an order that About Life pay its costs of the Security Motion on the basis that they were wholly successful in obtaining the relief that they sought and that costs should follow the event. About Life disputes the assertion by Maddocks that they were wholly successful and contends that the Court should order that the costs of the Security Motion be the parties' costs in the proceedings or that there be no order as to the costs of the Security Motion. About Life asserts that the quantification of the future costs to be incurred by Maddocks was the main issue and that Maddocks incurred unwarranted costs in its pursuit of relief in the Security Motion. 3. On 6 September 2019, Maddocks indicated to About Life that it would accept security in the sum of $500,000 in tranches to be paid in an amount and at a time agreed between the parties or as ordered by the Court. The security was to be paid into Court or otherwise in a form acceptable to the Registrar. That offer was not accepted. 4. The Security Motion was part heard on 25 September 2019, when the Court ordered, relevantly, that further security in the sum of $250,000 be paid into Court on or before 9 October 2019 and that the Security Motion be otherwise adjourned. On 25 June 2020, Maddocks notified About Life that it had incurred in excess of $1,665,000 in costs and estimated that its future costs would exceed $1 million. Maddocks said that it could not make a final estimate of its future costs until all of About Life's evidence had been served. Maddocks indicated that, when an estimate of future costs had been made, an application would be made to relist the motion for further hearing of an application for additional security. On 14 and 23 September 2020, Maddocks filed the evidence on which it wished to rely for the resumed hearing of the Security Motion. 5. On 6 October 2020, Maddocks informed About Life that it would accept further security in the sum of $950,000 payable in tranches. On 27 October 2020, About Life offered to provide security in the sum of $780,000 in the form of an unregistered mortgage or charge over real property situated at North Narrabeen in which a director of About Life has an interest (the Narrabeen Property). Maddocks responded on 4 November 2020, confirming that it would accept security in the sum of $950,000. On 6 November 2020, About Life offered further security in the sum of $850,000 by way of mortgage or charge over the Narrabeen Property in the form of an unregistered mortgage. On 9 November 2020, Maddocks indicated that it would accept $850,000 in further security with the amount to be paid into Court. 6. On 10 November 2020, at the resumed hearing, the parties informed the Court that they had agreed that further security in the sum of $850,000 should be provided by About Life. However, a question arose as to the form in which security should be provided. In particular, About Life asked that the Court accept security in the form of a second unregistered mortgage over the Narrabeen Property. I would not have been disposed to regard security in the form of a puisne mortgage acceptable unless: 1. the puisne mortgage was registered; 2. the senior mortgagee consented to the proposed puisne mortgage; 3. the senior mortgagee confirmed the amount secured by the senior mortgage and agreed not to make further advances without the consent of the puisne mortgagee; 4. evidence be provided that all those who have an interest in the Narrabeen Property had received independent legal advice concerning the consequences of the granting of the puisne mortgage as security for Maddocks' costs of the proceedings; 5. evidence be provided as to the likely sale price in the event that the Narrabeen Property was sold by either mortgagee exercising power of sale; and 6. the Court being satisfied that the difference between the mortgagee sale price and the amount secured by the senior mortgage was sufficiently in excess of the amount of security of $850,000. 1. It would be a matter for About Life to satisfy the Court or Maddocks as to those matters. As at 18 November 2020, those prerequisites were not satisfied. Hence, the orders referred to above was made. The question of costs must be considered against that background. 2. Maddocks assert that, in early September 2019, they had made an offer to resolve the question of security at a figure significantly below the amount finally ordered on 18 November 2020. About Life responds that, up to and including September 2019, Maddocks achieved only partial success and did not achieve a better outcome than any offer made by About Life. About Life asserts that Maddocks were always going to have to incur some costs in asserting the likely quantum of security and no costs were incurred in litigating the usual issues that arise in contesting security motions, such as whether the jurisdiction was engaged or whether there had been any delay in applying. About Life also asserts that Maddocks served extensive evidence as to the quantification of security that was unnecessary, having regard to the approach indicated by the Court in the hearing in September 2019. About Life asserts that it was unnecessary for Maddocks to seek to remedy any perceived deficiency in its evidence based upon which it relied. 3. In reply, Maddocks assert that the main issue in dispute in September 2019 was whether there had been a change in position warranting a further order for security. Maddocks assert that they succeeded on that threshold question and that, in ordering further security of $250,000, the Court made plain that that was not a final determination as to the quantum of security to which Maddocks would be entitled. Maddocks assert, therefore, that they were wholly successful in September 2019, having established that they were entitled to further security by reason of About Life's change of position. In any event, Maddocks say, the question of which party succeeded ought not to be judged by reference to the position before the Security Motion was finally resolved. 4. Maddocks contends that the order obtained on 18 November 2020 was a better outcome for them than was offered by About Life at any time. They contend that it was always open to About Life to agree on the quantum of security, which would have avoided the need for Maddocks to incur significant costs in adducing evidence as to quantification. 5. The Court has made no determination on the merits of the quantum of security or the time for its payment. The order resulted from agreement between the parties. However, that agreement was not reached until November. Whether Maddocks incurred unnecessary costs in adducing evidence as to the quantification of its future costs would be a matter for a taxing officer. So far as the Court's involvement has been concerned, it was in relation to the form of security and not quantum. About Life has, thus far, been unsuccessful in obtaining an order that security can be provided by means of mortgage over the property in question. I consider, in the circumstances, that the appropriate order is that Maddocks' costs of the motion be Maddocks' costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 December 2020