New South Wales Supreme Court CITATION : Lysmar Pty Ltd v Lee [2000] NSWSC 662 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4972/99 HEARING DATE(S) : 09/06/2000 JUDGMENT DATE : 9 June 2000 Lysmar Pty Limited (P) Desmond Lee (D1) Theo Kapeleris (D2) PARTIES : Zbyslaw Stanislaw Najdzion (D3) Bruce Michael Wood (D4) Christopher Milledge (D5) Ian Napier (D6) JUDGMENT OF : Young J P O'Loughlin (P) COUNSEL : D Smallbone (D1, 3 & 4) C Adamson (D2) D Pritchard (D5 & 6) Gordon & Johnstone (P) SOLICITORS : G J Gooden (D1, 3 & 4) Phillips Fox (D2) Henry Davis York (D5 & 6) CATCHWORDS : PROCEDURE [620]- Costs- Unnecessary costs- Defendants sued jointly- No apparent reason for separate representation- Counsel restricted roles in cross-examination- One set of costs only normally allowed PROCEDURE [666]- Security for costs- Plaintiff trustee for discretionary trust- Ordinarily expected to provide security. Boswell v Coaks (1887) 36 Ch D 444 Bull v West London School Board (1876) 34 LT 674 De Burgh v Chichester (1870) 19 WR 221 Eden v Naish (1878) 7 Ch D 781 Glen v The Union Trustee Co of Australia Ltd (1936) 54 CLR 463 CASES CITED : Greedy v Lavender (1848) 11 Beav 417; 50 ER 878 Hughes v Key (1855) 20 Beav 395; 52 ER 655 Lowndes v Robertson (1819) Madd 465; 56 ER 776 Read v Chown (1929) 46 WN (NSW) 154 Remnant v Hood (No 2) (1860) 27 Beav 613; 54 ER 243 Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371 Woolley v Colman (1882) 21 Ch D 169 DECISION : See paras 35 & 36 THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG J FRIDAY 9 JUNE 2000 4972/99 - LYSMAR PTY LIMITED v LEE & ORS JUDGMENT 1 HIS HONOUR: This is an application for security for costs in proceedings which are listed for hearing before Bergin J on 3 July 2000 for ten days. 2 The proceedings were originally commenced in the Common Law Division. Essentially, they appear from the statement of claim to be a joint claim against partners of a firm of accountants (though a non-partner is also a defendant) for common law damages or alternatively for equitable compensation. The essential allegations appear to be that the plaintiff was being guided by inexperienced persons who had relied on the expertise of the defendants, the defendants invested the plaintiff's money in some scheme which failed, as a result of which the plaintiff lost $277,200. 3 The claim, one would have thought, could ordinarily have been filed in and dealt with in the District Court as it is well below that Court's jurisdiction. 4 The plaintiff pleads its case in various ways. It seeks damages for breach of contract, damages under the Trade Practices Act and Fair Trading Act and damages for breach of fiduciary duty in respect of representations that were, at least, negligent. 5 The defendants who appear to have been primarily concerned with the transaction are the first and third defendants. However, for the purposes of the hearing all the defendants are represented. The first, third and fourth defendants are represented by one set of solicitors and counsel, the fifth and sixth defendants by another set of solicitors and counsel, and the second defendant by a third set of solicitors and counsel. 6 Although the proceedings were commenced on 4 May 1999 and were set down for trial by the expedition judge some months ago, it was only in May 2000 in the case of the first, third, fourth, fifth and sixth defendants, and in early June in the case of the second defendant, that an application for security for costs was made. There is little explanation for this although one solicitor says that he forecast the possibility of such an application in March 2000 and got little response. When he finally made his application the other two sets of defendants joined in. 7 Ordinarily, the Court expects these applications to be made as soon as reasonably practicable after the commencement of the proceedings. Indeed, the whole application may be dismissed (as Mr O'Loughlin for the plaintiff says it should be) if there is delay. The delay has caused a further problem in this case, in that instead of being dealt with by the Registrar or a Master as it would be in the normal course of events, the matter has had to be heard by a duty judge. This is because of the inability of the Court to find an available date before the hearing starts before a Registrar or Master. 8 Once one gets over the delay, the case is one where an order for security for costs must be made. This is because the plaintiff is the trustee of a family trading trust and accordingly the plaintiff has no assets at all. The case has been set down for ten days. The Court does not permit people trading through the medium of a company with no assets for the benefit of a trading trust to mount expensive litigation without providing security in case they lose. 9 Although the delay in this case was not what one would expect, no prejudice apart from me having to hear this case at short notice has been caused and I cannot see why, in light of the clear fact that some security must be ordered, I should in my discretion simply dismiss the motion. 10 The real question is what is the quantum of the security that should be ordered and what is the form it should take. 11 I have before me three affidavits from solicitors setting out what each considers to be the appropriate costs. The solicitor for the first, third and fourth defendants says that the costs would be $198,650 as best he can assess. However, that includes $58,200 for fees of experts and fees of Vietnamese auditors. However, no expert evidence has been called at all and I am told that in lieu of Vietnamese auditors, an English solicitor will be brought to Australia, although it would not appear that this person is actually going to give any evidence. Accordingly at least the estimates of the first, third and fourth defendants must be reduced to something like $150,000, even if one accepts all the figures. The solicitor for the fifth and sixth defendants, who I must say presented the position a lot more credibly than some of the other solicitors involved, considered that the costs of her clients would be between $64,000 and $85,000, and assessed that about 70 percent of these would be recoverable on a party party basis. Accordingly one is looking for about $70,000 there. The solicitor for the second defendnt sets out that for her client, who is going to call no evidence at all, the costs will be $101,160. 12 I must confess I was quite shattered, especially by that last affidavit. However, I was reminded that I can only act on the evidence and that none of the solicitors' affidavits were challenged at all by counsel for the plaintiff. None of the solicitors were cross examined. It was not suggested to any of them that $300 or $330 an hour for the solicitor who had increased his charges because of the way he interpreted the GST legislation was too much. Nor was there any comment made that a solicitor of any competence at all would spend something like 20 hours reading documents. 13 Accordingly I am in the position that although the figures appear to me from my own experience of litigation over the last 40 years to be "Rolls Royce" figures, there is no challenge to any of the rates. 14 If one aggregates those figures of $150,000, $70,000 and $100,000, one gets $320,000. Mr Pritchard, for the fifth and sixth defendants, who I would commend for the restrained way in which he put the case, suggested that that was the sort of figure for which security should be ordered. He put that the plaintiff has not put on any evidence. There was no suggestion that a proper indemnity as to the defendants' costs would affect the plaintiff in any way at all, nor were there put any of the usual discretionary matters that might deflect the Court from making an order for security on the full indemnity basis. 15 At the close of the applicants' case, I made rather caustic remarks as to the absence of any evidence of costs agreements. Those comments led to two, but only two of the applicants, reopening to tender their costs agreements. These applicants, however, made submissions on the basis that I was rather outside the pale in making my remarks. 16 In my view, s 175 of the Legal Profession Act 1987 is to be taken seriously. The Court will not make orders for security for costs unless costs are likely to be properly chargeable to the client. Further, although the level of costs in the costs agreement may be in excess of what might be fair, such level will normally be evidence of the maximum rates that can be taken into account when assessing the proper quantum on an application for security for costs. 17 If a costs agreement is not tendered on such an application, the Court may well infer that there is no such agreement. 18 Mr O'Loughlin in his normal quiet competent way, without attacking the quantum of the fees being charged by the other side, put that many of the fees which have been quoted must have been expended before the case reached its current state of preparedness. He pointed out that there was only one witness on behalf of the plaintiff and limited numbers on behalf of the defendants and that some of the concerns, particularly of the solicitor for the second defendant, had not eventuated and that it is more realistic to look at a total figure of about $139,000. 19 The trial judge made an order that all the evidence be filed by yesterday. She made no order as to any bundle of documents. As at the cut off point, there was one affidavit from the plaintiff, three on behalf of the first, third and fourth defendants, none on behalf of the second defendant and two on behalf of the fifth and sixth defendants. There was no expert evidence. Mr Smallbone for the first, third and fourth defendants, indicated that he would be filing two further affidavits next week but these were not from expert witnesses. 20 Accordingly the trial is not going to involve, one would think, the analysis of any expert evidence. Mr Smallbone says, however, that despite this it is a complex matter because there are serious questions of law and furthermore, there are factual matters to be investigated extending over a period from 1990 to 1997, including facts as to how the various vehicles used for the so called investment suffered receiverships and the like. I have not looked closely into those matters, but it would seem that this case is not, compared with an ordinary equity suit, any more complicated than most of the cases which last more than two days in this Division. 21 The first problem that I have is that the amount in dispute in the case, including interest, is only $277,200 but the security for costs claim is $320,000. 22 Applying the test that people should be given security for costs on the basis of what they would reasonably do in their own affairs if they had to pay the bill, one ordinarily would not order a security for costs that exceeded the amount in dispute. 23 However, as Mr Pritchard points out, one cannot adopt this as a hard or fast rule, particularly in the inferior courts, because very often the amount in dispute is less than the costs and a reasonable defendant may very well expend that greater sum because of the personalities or principles involved or because it does not want to be blackmailed by the plaintiff. However, the reverse consideration also applies that defendants must not go about their business in such a way as to increase costs so that by that manoeuvre the costs very greatly exceed the amount the plaintiff is claiming. 24 However, I agree that there is no such general rule. 25 Mr Pritchard also made the point, to use his words, that the Supreme Court more finely "grinds its mill" than the District Court, so the fact that the proceedings have been brought in the Supreme Court when they could well have been brought in the District Court is a reason why a greater security should be ordered against the plaintiff than otherwise. 26 The major problem that I have is that although the pleading is not completely transparent on this, it would seem that the defendants are only sued jointly. Where defendants are sued jointly the ordinary rule is that they are only entitled to one set of costs. That proposition I have stated too simplistically. As Romilly MR pointed out in Remnant v Hood (No 2) (1860) 27 Beav 613; 54 ER 243, anyone who is sued has the right to retain his or her separate solicitor. It is only when a costs assessor is working out whether the defendants have acted reasonably that one looks at the "one set of costs" principle. 27 In equity cases (and this case is at least technically one), Sir John Harvey CJ in Eq, said in Read v Chown (1929) 46 WN (NSW) 154 at 155: "The primary duty of solicitors is of course to their clients, and it is the duty of solicitors to give their clients such advice as will reduce the costs which will be incurred by the fund which belongs to their client. Human nature is human nature. Of course, solicitors have to live, and it is not unnatural that they should look to the chance of appearing in a summons of this sort for the purpose of making legitimate fees from it, but I wish to point out to solicitors that it is their duty under such circumstances, when they find themselves served with proceedings in which there are other persons in exactly the same interest, that they should attempt to reduce the costs and make some arrangement between themselves as to which firm should take the necessary proceedings, and in my judgment the Taxing Officer would be quite justified in allowing that firm of solicitors which ultimately appears in the proceedings, as a proper disbursement, any charges which some or one of his clients has incurred to the solicitor who drops out for investigating the proceedings and seeing how the position stood, and then coming to an arrangement with the solicitor who ultimately appeared for all the parties." 28 In other words, the Court and the taxing officer will expect that before defendants who in the same interests appear by separate solicitors at the hearing, the solicitors will have performed their duty as laid out by Sir John Harvey. Ordinarily where defendants have the same interests and are sued jointly, only one set of costs is allowed to the defendants. The authorities are referred to in Morgan & Wurtzburg, The Law of Costs (in Chancery) (Stevens & Sons, London, 1882) and Saddington & White, Costs (Solicitor and Client) (LBC, Sydney, 1947) page 99 and cases there cited. The principal authorities are Hughes v Key (1855) 20 Beav 395, 397; 52 ER 655, 656; Bull v West London School Board (1876) 34 LT 674; De Burgh v Chichester (1870) 19 WR 221 and Eden v Naish (1878) 7 Ch D 781. See also Glen v The Union Trustee Company of Australia Limited (1936) 54 CLR 463 at 468. The defendants are sometimes allowed more than one set of costs; see eg Woolley v Colman (1882) 21 Ch D 169 and Boswell v Coaks (1887) 36 Ch D 444. However, whilst there is difficulty in laying down any precise rule (see Greedy v Lavender (1848) 11 Beav 417; 50 ER 878), ordinarily there must be some good reason for acting by separate solicitors. One good reason is that there is a real distinction between certain defendants or there is a claim for contribution between them; see Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR (NSW) 371. 29 It must also be remembered that there is usually very little advantage at a trial for defendants having the same interests to be represented by separate counsel. The law is summarised in the fifth Australian edition of Cross on Evidence (Butterworths, Sydney, 1996). At page 482 part of para 17.5.10 is as follows (I will omit reference to authorities): "Examination of a single witness by more than one counsel (whether the counsel appearing for the same party, or for different parties, so far as their interests are the same), may be oppressive and will not be allowed in the absence of a special reason such as illness or where the case is of some complexity and the cross examination may conveniently be split between counsel." 30 Although of course it will be a matter for the trial judge as to just how that principle is applied in practice, reasonable people going about preparation of a case and estimating the costs would consider that it may well be of very limited use to be represented at the trial by separate counsel because such counsel will be limited to objecting to material and reading the odd affidavit and making submissions. 31 In the Sunday Times case, Long Innes J thought that he could not at the stage when security for costs was sought form a definite conclusion as to whether the defendants were justified in being separately represented and that accordingly he should make an order for security for costs for all the defendants, making it clear that at the conclusion of the case he would decide whether a separate costs order for each defendant was justified. In due course the plaintiff lost and his Honour thought that in fact each defendant should get his own costs so it would seem that there must have been some doubt about the matter at that early stage. 32 I wondered whether I should take the same attitude in this case. Mr Pritchard certainly urged on me that I was not the trial judge and the various matters that I have just canvassed should really be left to the trial judge. There is of course great force in those submissions. However, on the other hand, what I really have to do is to work out what would reasonable and prudent defendants do in their own interests, what fees would be payable, and how long the trial was likely to last in the light of the principles that I have set out. Indeed there is no principle which says that full indemnity must be given to the defendants in any event. 33 It seems to me on the evidence that no discounting allowance has been made by the solicitors who prepared the affidavits for the fact that there are only six witnesses and that they will in all probability only be cross examined by one counsel. However, I take Mr Smallbone's point that the probabilities will be that cross examination of the main players is likely to be lengthy. 34 One way of looking at the case would be to take the amount claimed by the first, third and fourth defendants as reduced and add say $20,000 each for the other two defendants on the basis that that should cover advice that would be given to them on the matter. One would then be charging the defendants with one set of costs plus an add on for the fact that the plaintiff has sued multiple defendants. That would get to about $190,000. Another way of approaching the problem is to take $320,000 as a maximum figure, assume that the case will only take seven days, not ten, which I think is more likely on the evidence, and then to deduct the difference between solicitor and client costs and party party costs of about a quarter, and if my mathematics is correct one gets to about $175,000. 35 In my view the proper amount of costs is an average between $190,000 and $175,000 and accordingly I order security for costs to be given for $185,000. The proper form of the security following Lowndes v Robertson (1819) Madd 465; 56 ER 776, is that what is loosely called a bank bond be given in favour of all defendants in the total amount of $185,000 and if such bond is not furnished by 23 June 2000 that the proceedings be stayed. 36 The plaintiff should pay the costs of the motion, but only one set of costs to be given to the various defendants. ********************** Last Modified: 09/26/2000 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.