New South Wales Supreme Court CITATION : IceTV Pty Ltd v Ross & Ors [2007] NSWSC 1232 HEARING DATE(S) : 28 September 2007 JURISDICTION : Equity Division Duty List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 28 September 2007 DECISION : Injunction discharged. Security for costs ordered. CATCHWORDS : INJUNCTIONS – interlocutory injunction – varying and setting aside – where defendant shows that undertaking as to damages is worthless and such undertaking was material consideration on balance of convenience when injunction granted. - SECURITY FOR COSTS – corporate impecuniosity – discretionary considerations – delay. Cachia v Hanes (1994) 179 CLR 403 CASES CITED : IceTV v Duncan Ross & Ors (2007) NSWSC 635 KDL Building Pty Ltd v Mount [2006] NSWSC 474 IceTV Pty Limited (plaintiff) PARTIES : Duncan Ross (first defendant) Peter Vogel (second defendant) Vogel Ross Pty Limited (third defendant) FILE NUMBER(S) : SC 2577/07 Mr S Habib (plaintiff) COUNSEL : Mr S Ross (in person) (first defendant) Mr P Vogel (in person) (second defendant) SOLICITORS : The Argyle Partnership (plaintiff) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Friday, 28 September 2007 2577/07 IceTV Pty Ltd v Ross & ors JUDGMENT (ex tempore) 1 HIS HONOUR: On 3 July 2007, following an interlocutory hearing which had taken place in the duty list on 28 May 2007, I made the following orders [IceTV v Duncan Ross & Ors [2007] NSWSC 635] 1. Upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, Order that until the hearing or further order the defendants be restrained from, by themselves their servants or agents: 1.1 until 4 October 2007, carrying on or otherwise being engaged or involved in any business similar to or competitive with the business of the plaintiff carried on during the twelve month period prior to 4 October 2006, including the development and/or pursuit of the commercial opportunity of media content provision to set-top-boxes, Personal Video Recorders or similar devices; 1.2 until 4 October 2007, canvassing or soliciting the custom of any person who had entered into discussions or negotiations with the plaintiff during the twelve month period prior to 4 October 2006, including Transact, CEOS, Mobilesoft, Media Review International, and Yahoo!7; 1.3 divulging or permitting to be divulged to any person by any means the following confidential information, in any form (written, recorded or stored in documentary or electronic form or in any other manner, including copies of or extracts from it), relating to the plaintiff: (a) plans or strategies relating to the marketing of product and services developed by IceTV; (b) the design of IceTV's EPG and the method of how it works; (c) the strategies and methods used to deliver content through the EPG and PIMP; (d) the state of dealings between IceTV and customers, set-top-box manufacturers, PVR manufacturers, Media Centre software manufacturers, media content providers, TV networks, potential investors and potential joint venture partners; (e) IceTV's pricing and costing information, including the price at which IceTV was seeking to be paid for content provision and the price at which it seeks to be paid for EPG provision; (f) the future strategic direction of IceTV; (g) the information in the financial records of IceTV. 2. Order that costs of the motion be the plaintiff's costs in the proceedings. 3. Reserve liberty to apply on two days notice, any such application to specify the relief to be sought. 4. Adjourn the proceedings to 10 July 2007 at 9.30am before the Registrar, for directions. 5. Upon the undertaking of the solicitors for the parties to return them to the court if required to do so, Order that the exhibits be returned. 2 By Notice of Motion filed on 24 August 2007 and amended subsequently, the defendants now seek the following orders: 1. The directors of the Plaintiff be joined as co-plaintiffs in the proceedings. 2. Within 7 days the directors of the Plaintiff pay $1,634,657 security to the Court for the Plaintiff's undertaking to the Court as to damages for the interim orders made by the Court on 3rd July 2007, to be held pending further order of the Court. 3. Within 7 days the directors of the Plaintiff pay $150,000 security to the Court for the defendants' costs of these proceedings, to be held pending further order of the Court. 4. Unless orders 2 or 3 are complied with, the proceedings be dismissed with damages and costs. 5. That leave be granted for defendants to file cross claims against the Plaintiffs. 6. Damages. 7. Costs. 8. Such further orders as the Court sees fit. 3 Essentially, the present application gives rise to two substantive issues, namely, security for the undertaking as to damages, and security for costs. It is convenient to address those main questions of principle first, before turning to the subsidiary issues as to whether the plaintiff's directors should be joined and whether orders should be made against them. Security for the Undertaking as to Damages 4 In my original judgment, in discussing the balance of convenience (at [70] – [72]), I pointed out that on the evidence then before the Court, to the extent that the defendants would be deprived by an injunction of the opportunity to provide further services in the field which the injunction would prohibit them from entering, IceTV's undertaking as to damages would protect them. I concluded (at [72]) that the balance of convenience favoured, "although not very strongly", the granting rather than the withholding of interlocutory injunctive relief. I returned to the issue in the summary, where I said (at [79]): 79. The balance of convenience favours, albeit not heavily, the grant rather than the withholding of interlocutory injunctive relief, in the context of a negative contractual stipulation, where the defendants are not currently engaged in providing relevant services and will be protected by an undertaking as to damages, whereas the plaintiff would potentially be deprived of the protection of the restraints and might be exposed to loss of significant commercial opportunities. 5 It is, I think, quite plain that I proceeded on the basis that IceTV's undertaking as to damages was a valuable one which would afford protection to the defendants in the event that it turned out that an interlocutory injunction was wrongly granted. 6 On the present application, the defendants have tendered evidence which shows that in and about June of this year the financial position of IceTV was a deficiency of funds of about $2.7 million. That makes manifest that IceTV's undertaking as to damages is not a valuable one. Had that been the state of the evidence on 28 May 2007, or when I gave judgment on 3 July 2007, I cannot conceive that I would have granted an interlocutory injunction without requiring that security for it be provided – or, at the very least, that IceTV's directors make themselves amenable to the undertaking as to damages. 7 As things presently stand, I would not find that there was any wilful deception involved in the non-disclosure on 28 May of IceTV's financial position, but it was a material matter to be disclosed. It seems that IceTV produced material to the Court in response to a Notice to Produce, and a faint submission was made by the defendants on the interlocutory hearing to the effect that an undertaking as to damages "is of limited value given the plaintiff's limited means and assets", but evidence does not seem to have been adduced on either side to show just how precarious the plaintiff's financial position really was. 8 That said, the question is what should or can be done about it now; in circumstances where the relevant interlocutory injunctions expire, in any event, on 4 October, only a few days away. Were I to require IceTV to give security now, it would presumably not be in a position to do so. In that event, the consequence would be that the injunctions would be discharged. But as I have said, those injunctions that cause the defendants any difficulty will lapse in any event in only a few days time. I therefore do not see any point or utility in requiring at this stage that IceTV give security for the undertaking as to damages. 9 Moreover an order for security might be made against the plaintiff, but not against the plaintiff's directors. Sometimes, orders can be fashioned so as to require those who stand behind a plaintiff to acknowledge that they will be personally liable, or else the injunction will not be granted, but it is too late to do that here. 10 In the circumstances, I think the only solution is to discharge the interlocutory injunctions. I see no reason why this should not be done with immediate effect, as sought in the defendants' Motion. In so doing, I do not intend to exclude the plaintiff from moving for renewal of order 1.3 previously made, if it is prepared to offer security in a form acceptable to the Court. Security for Costs 11 As Mr Vogel has pointed out in his helpful submissions, I summarised the primary considerations on an application for security for costs, in KDL Building Pty Ltd v Mount [2006] NSWSC 474, as being, first, whether the ground referred to in the section or rule (which shortly can be called impecuniosity) is established; secondly, whether (if that ground has been established) as a matter of discretion an order should be made; and, thirdly, the quantum of any order to be made and the terms on which it might be made. 12 As to the first of those considerations, impecuniosity is plainly established by the deficiency of funds of $2.7 million and the absence of the slightest evidence to suggest the contrary. 13 As to discretion, there are a number of relevant considerations. On the one hand, I found in my previous judgment that IceTV has a seriously arguable case for final relief, which in some respects at least, I considered strongly arguable. That is a relevant consideration. 14 However, generally speaking, on an application for security for costs, a Court should not descend to too fine a balancing of the strength of the respective cases. There is obviously a very strong case for security if a plaintiff's case appears practically untenable, and a weak case for security if it seems that a plaintiff's case will almost certainly succeed; but short of cases at those extremes, courts are not much influenced by the relative strength of a case on an application for security. One powerful reason for that is that a preliminary assessment of the strength of a case may turn out to be incorrect. I think it is clear that, although I have found the plaintiff's case to be in some respects strongly arguable, the defendants' case is not untenable. I therefore do not think that questions of relative strength of the case weigh strongly on the issue of security. 15 Another relevant consideration is the magnitude of the risk that the plaintiff will not be able to satisfy an adverse costs order. What is known of the financial position of the plaintiff places the magnitude of that risk at a very high level, and weighs significantly in favour of an order for security. 16 Another relevant consideration is delay in making an application for security. IceTV has submitted that there has been considerable delay in this case. It lies ill in the mouth of IceTV to make that submission in circumstances where there was considerable delay in IceTV instituting the proceedings in the first place, and a view less rigorous than might have been adopted was taken to its delay in the institution of proceedings for interim and interlocutory relief. 17 Further, it would not ordinarily be required that an application for security be made before proceedings for an interlocutory injunction had been heard and determined. They were heard, as I have said, on 28 May, and determined on 7 July. This application was filed on 24 August. That does not involve significant delay. Ordinarily, questions of delay in applying for security arise when proceedings have been allowed to proceed well towards final hearing, and an application is made not long before the final hearing for security for the first time. That is not this case. I do not think that delay weighs against an order for security in this case, nor do I think it means that costs already incurred should be disregarded in working out what would be an appropriate order for security. Although, sometimes, delay may affect provision for costs already incurred, there is no general rule that such costs are to be disregarded when making an order for security. 18 Next, it is submitted that the defendants are not represented and an order for security for their costs should not be made in those circumstances. The defendants were represented on the interlocutory hearing, and although their evidence does not depose in terms that they intend to be represented, it is manifest from the substance of their evidence that they wish to be represented, if they can afford it. The order for security will be of practically no benefit to them if they are not represented, as they will only be entitled to recover their out-of-pocket-expenses if they remain unrepresented [Cachia v Hanes (1994) 179 CLR 403]. Provision of security may well assist them to obtain representations. 19 I am satisfied, as a matter of discretion, that it is appropriate to make an order for security. 20 The third issue, then, is the quantum of security. Mr Ross has provided an assessment based on a five day final hearing. Having regard to Mr Habib's submissions and what I know of the case, that that estimate is somewhat excessive. I must also bear in mind that while Mr Ross, in his previous employment, has had some exposure to legal costs, he could not give evidence of what they are likely to be as an expert. On the other hand, I can have regard to the Court's own experience of litigation of this type, and its costs. 21 As I have said more than once, the assessment of costs for the purposes of security is always an inexact exercise. At this stage, and bearing in mind that it is always open to a defendant to move to top up security if it turns out that the case is going to involve significantly more work than was assessed at the time of the initial order for security, I would approach it on the basis of a final hearing of three, rather than five, days, and a commensurate reduction in the other work for which provision has been proposed by Mr Ross. I also think there is some duplication and some excess in allowing for a solicitor to spend 15 days on the matter generally, and an additional six days or so in preparing affidavits and the like. 22 I would take into account $20,000 costs incurred to date. I would allow for preparation for trial by counsel for three days at say $5,000 per day, a total of $15,000; I accept that the case is one that would justify briefing senior counsel. I would allow counsel at trial, also of three days; that is another $15,000. I would allow 10 days general work for a solicitor at $30,000, and three days at trial $9,000. These figures total approximately $90,000. Some deduction from that, on the basis that some of the costs would not be recoverable on a party/party basis is appropriate, and the order that I will make at this stage will be for $75,000. As I have said, if it turns out that that involves a serious underestimate of the work that will be required, an application can always be made to top up the security. Other Matters 23 The relevant rules of Court provide that the Court may order, where the appropriate test is satisfied, the plaintiff to provide security. The rules do not refer to the directors of the plaintiff. It is sometimes possible for a plaintiff to avoid having to provide security if its directors acknowledge that they will be personally liable for the costs; but that has not occurred here. 24 It is not open to the Court to order that the plaintiff's directors be joined as co-plaintiffs without their consent. If the defendants consider that they have some cause of action against the directors, then the proper way of prosecuting that is by cross-claim. I would not grant leave to file cross-claims, other than by consent, without having first seen a draft of the cross-claim. That is not to say that if a draft cross-claim specifying or setting out a viable cause of action was provided that leave would not then be granted. Orders 25 Accordingly, my orders are: (1) Order that the injunctions contained in paragraph 1 of the orders made on 3 July 2007 be discharged forthwith. (2) Order that the plaintiff within 14 days give security for the defendants' costs of the proceedings in the sum of $75,000 in a form acceptable to the Registrar. (3) Order that if security is not given in accordance with order 2, the proceedings be stayed. (4) Order that the plaintiff pay the defendants' costs of the motion. 26 I note the proceedings are listed before the Registrar on 4 October at 9.30am for directions. ********** 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.