Chartspike Pty Ltd v Chahoud [2001] NSWSC 585

New South Wales Supreme Court

CITATION : Chartspike Pty Ltd v Chahoud [2001] NSWSC 585 CURRENT JURISDICTION: Common Law Division FILE NUMBER(S) : SC 20371/97 HEARING DATE(S) : 03/07/01 JUDGMENT DATE : 3 July 2001

PARTIES : Chartspike Pty Ltd (In liq) (P) Michael Chahoud (D) JUDGMENT OF : Young CJ in Eq

COUNSEL : J Svehla (P) G Curtin (D) SOLICITORS : Baker & McKenzie (P) Colin Biggers & Paisley (D) CATCHWORDS : CORPORATIONS [23]- Security for costs- Plaintiff insolvent company in liquidation- Liquidator entered into funding arrangement- Arrangement not giving adequate protection to defendant- Order for security made. PROCEDURE [668]- Security for costs- Plaintiff company insolvent and in liquidation- Liquidator entered into funding arrangement- Arrangement not giving adequate protection to defendant- Order for security made. DECISION : Order made.

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

YOUNG CJ in Eq

TUESDAY 3 JULY 2001

20371/97 - CHARTSPIKE PTY LTD (IN LIQ) v CHAHOUD

JUDGMENT 1 HIS HONOUR: This is an application for security for costs in an action in the Professional Negligence list. The plaintiff is a company in liquidation, which is insolvent. The defendant is its former solicitor. The estimate of the hearing time is ten days and omitting consideration of costs up to date it is conceded that the costs of the hearing would be about $120,000, at least on the part of the defendant. 2 The liquidator has entered into a funding agreement with a company called Insolvency Management Fund Pty Limited which appears to be a company connected with a firm of solicitors called The Walker Law Group. The funding agreement is Ex DX01 before the court and it is in a very strange form. Clause 11.2 enables the funder to terminate the agreement at any time and if that happens, then it is liable for costs incurred up to that date and liable for any adverse costs orders relating to costs incurred until termination. 3 Clause 3 deals with indemnities to the liquidator as against adverse costs orders and provides the liquidator and the company an indemnity in respect of any adverse costs order. Clause 3.2 then indicates that the funder will obtain a guarantee from the Hong Kong Bank of Australia up to $60,000 on signing of the funding agreement and a further $60,000 prior to the hearing of the proceedings commencing. 4 I do not consider that this is much comfort to the defendant as it may well be argued that if the liquidator and the company have not got the assets to meet an adverse costs order then there would be difficulty in enforcing the indemnity. The funder is not an insurer so the Law Reform (Miscellaneous Provisions) Act 1946 providing for access to the insurer would not kick in. 5 The situation is that the plaintiff is a company which is insolvent. It is contracted to have the liquidation funded by a third party, in return for that the third party receiving a share of the verdict. In such a circumstance it is appropriate that the third party bear part of the risk. The costs of a ten day hearing are estimated at about $120,000 and it seems to me I should make an order for $60,000 in the first instance and as the case gets closer to hearing there can be liberty to apply to increase that amount. 6 Accordingly, the court orders that the plaintiff provide security for costs to the defendant in the sum of $60,000. Such security may be made by bank guarantee or in such other form as is acceptable to the defendant's solicitors or to a Registrar. If that security is not provided by 3 August 2001 then the proceedings are stayed. The plaintiff is to pay the costs of the motion. The matter is stood over to the next available Professional Negligence list directions hearing. *****************