New South Wales Supreme Court CITATION : Shepherds Producers Co-Operative Ltd (In Liquidation) v Lamont [2009] NSWSC 798 HEARING DATE(S) : 30 July 2009 JUDGMENT DATE : 12 August 2009 JURISDICTION : Equity JUDGMENT OF : Tamberlin AJ DECISION : 1. The motion be returnable instanter. 2. Until further order, pursuant to rule 42.21(1) of the Uniform Civil Procedure Rules 2005 (NSW), the plaintiff pay to the Court a security for the fourth and fifth defendants' costs of the proceedings, being $450,000 payable in three equal tranches on the following dates: 19 August 2009, 19 December 2009 and 19 April 2010. 3. Pursuant to Part 41 rule 41.7(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW), the registrar is directed to pay the funds in court to the Public Trustee for payment into an interest bearing account in the Public Trustee common fund. 4. The costs of this application will be costs in the cause. 5. Liberty to apply on two days notice. CATCHWORDS : CORPORATIONS - security for costs - quantum - reasonable assessment Corporations Act 2001 (Cth) LEGISLATION CITED : Co-Operatives Act 1992 Uniform Civil Procedure Rules 2005 CATEGORY : Separate question Shepherds Producers Co-Operative Limited (In Liquidation) ABN 79 623 512 (Plaintiff/Respondent) John Scott Lamont (First Defendant) PARTIES : Anthony John Lehman (Second Defendant) John Thomson McCormack (Third Defendant) Scott Bradley (Fourth Defendant/Applicant) Kerry Ann Hall (Fifth Defendant/Applicant) FILE NUMBER(S) : SC 50175/2008 M Speakman SC (Plaintiff/Respondent) COUNSEL : C R C Newlinds SC (Fourth and Fifth Defendants/Applicants) D MacFarlane (Fourth and Fifth Defendants/Applicants) SOLICITORS : Piper Alderman (Plaintiff/Respondent) Riley Gray-Spencer Lawyers (Fourth and Fifth Defendants/Applicants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION TAMBERLIN AJ WEDNESDAY 12 AUGUST 2009 50175/2008 SHEPHERDS PRODUCERS CO-OPERATIVE LIMITED (IN LIQUIDATION) V JOHN SCOTT LAMONT & ORS JUDGMENT 1 HIS HONOUR: The fourth and fifth defendants ("the defendants") seek an order for security for costs against the plaintiff in an amount of $750,000 to be paid into court in three tranches. The plaintiff submits this amount is excessive and that a proper figure is in the order of $403,000. 2 It is common ground that some security should be provided by the plaintiff and the only issue is quantum. 3 The defendants' estimate of solicitor-client costs likely to be incurred is $1,535,391 from the commencement of proceedings until conclusion of the hearing. 4 Mr Riley, a senior and experienced solicitor, acting on behalf of the defendants has filed an affidavit in support of a claim after substantial discounting of $750,000. He says that he has represented the defendants in other proceedings in which the same litigation funder was involved and considers that this experience provides a basis for estimating the likely costs in the present proceedings. Mr Riley states that the amount involved in the previous proceeding, which was for breaches of s 588G(2) of the Corporations Act 2001 (Cth) was an amount of $4.177 million. That matter was set down for hearing on 3 February 2008 but was settled prior to the hearing. The costs incurred by the defendants in defending those settled proceedings were in the order of $750,000. In the present proceedings to date he estimates that the amount expended by the defendants is in excess of $250,000. He points out that the present proceeding was begun on 4 September 2008 claiming damages for $3,000,000 in respect of alleged breaches of duty owed by the defendants to the plaintiff pursuant to the Co-operatives Act 1992 (NSW) ("the Act") and for breaches of general law. 5 The plaintiff prior to its winding-up was a company incorporated under the Act which provided marketing and other services to its members. 6 In a letter annexed to his affidavit dated 22 May 2009 Mr Riley sets out a detailed break-down of the costs estimated from commencement until hearing, on a solicitor-client basis, in the order of $1.535 million. He sets out the charge-out rates for professional legal personnel and these include a partner and consultants, a senior associate, and a solicitor and he details specified charge-out rates. He has retained three barristers and their charge-out rates are given. He then sets out in general terms the description of the work undertaken to 6 July 2009 and does a calculation in relation to anticipated tasks up to and including the hearing. This work includes conferences with senior and junior counsel, interviewing witnesses, reviewing evidence, collecting documents and reviewing discovery. In addition, he refers to attending conference with Counsel for three weeks in respect of three counsel and four weeks in respect of two solicitors, and he includes further directions hearings involving three days. There is preparation for hearing for three weeks on behalf of senior counsel, junior counsel and for four weeks in respect of another junior counsel and three back-up solicitor staff. There is a reference to drawing up briefs and instructing counsel for the 15 days estimated for the hearing. Mr Riley was not cross-examined but I draw no inference from that fact as I do not think it is generally appropriate to embark in cross-examination in these matters. 7 The plaintiff is supported in the proceeding by a litigation funder and the defendants' submit that this fact supports a liberal approach to security. I have taken this into account but do not give it great weight. 8 Mr Grieve, the solicitor for the plaintiff has sworn an affidavit in which he sets out the relevant background and expresses the view the claims do not involve extensive evidence. He states that it is not his present intention to call witnesses in relation to an Ashun estoppel submission. He anticipates that the plaintiff will call four witnesses. He estimates the duration of the hearing as seven days, as opposed to the 15 days contended for by the defendants, and he gives a break-down as to how long he anticipates each stage of the hearing will take and the approximate time needed in oral hearing for each witness. 9 Both parties refer to the extensive discovery to date but Mr Grieve says that the volume of discovery is not significant because not many of the documents discovered are relevant to the issue in dispute. He observes that many of the documents have been discovered in electronic form and can quickly be managed and searched by date and keyword. He says that the plaintiff will be represented by one junior counsel and will be assisted by a partner and a first year lawyer. The estimated costs are therefore considerably less as they are based on the case being conducted by one junior counsel. He gives a detailed break-down of each stage of the proceedings and estimates as to each of the steps involved which lead to an estimate of total solicitor-client costs of the fourth and fifth defendants amounting to $336,430. Mr Grieve was cross-examined briefly on his affidavit although I do not think the substance of his evidence was materially diminished. Of course, the costs which the plaintiff actually proposes to incur and the way the case is intended to be conducted do not determine what is a reasonable amount for the defendants to incur in their judgment as to what is necessary to conduct their case although it does provide some indication as to what is considered necessary to properly prepare the issues and run the case albeit from the plaintiff's perspective. 10 A second affidavit was filed on behalf of the plaintiff on the security for costs application by Ms Alyson Ashe on 28 July 2009. She has specialized since 1989 in the area of legal costs and prior to that, for 11 years, she was a registrar and taxing officer at the Supreme Court of New South Wales and has held various positions in the Court. She has undoubted expertise and lengthy experience in costs matters. She expresses the view that briefing of three counsel should not be allowed for by way of costs in a matter of this nature but she has also taken into account the off-setting consideration that there may be some cost effective tasking or sharing of work in which less than three counsel are engaged. Some work which would otherwise require input from senior counsel may be assigned to junior counsel. She considers that the reasonable cost of a senior counsel and one junior counsel would be allowed on a reasonable assessment for the defendants but that the fees proposed for Counsel are in excess of what would normally be allowed both for senior counsel and for one junior counsel. As to costs incurred up to May 2009 she considers it would be a difficult task to estimate these with any degree of precision because the other parties were involved and she makes the point that some past costs referred to by the defendants may include representation and work done in relation to non-recoverable costs such as public examinations. In relation to past costs, her opinion was that an appropriate amount would be in the order of $75,000. 11 Ms Ashe then deals with future anticipated costs and she considers that the estimate for three counsel for 15 days is excessive on the basis that three counsel will be continuously in attendance and she estimates that the extensive conference and preparation time are unlikely to be recoverable even as to 60 per cent. The figure of $750,000 referred to by Mr Riley is too high in her view when the vicissitudes of litigation are taken into account. She attaches to her affidavit a comprehensive break down of the future costs of the defendants on the basis of considerably less than 30 days preparation although she allows for senior counsel at a charge-out of $6,000 per day. She estimates the duration of the hearing as being in the order of seven days and not 15 as asserted by the defendants. Her total figure of costs up to the hearing is $328,000 and this should be added to the costs in respect of the work done up to the date of her affidavit on 28 July 2009 of $75,000 which amounts to a total figure of $403,000. Legal Principles 12 The legal principles on security for costs are well-settled. They include the following considerations. The Court does not set out to give a complete indemnity to a respondent to such an application and will give due weight to the fact that if circumstances change an application for further security can be made at any stage in the proceeding. Moreover, there is always some possibility of settlement either of the whole proceeding or of issues in the proceeding not being pursued, or reduced in scope. Detailed consideration of the facts of other cases on security for costs are not of much assistance because each case turns on its own particular circumstances and the evidence adduced. 13 In this case in relation to the making of a proper allowance for costs, I consider that the estimate by the defendants is excessive as to the number of hearing days; the number of counsel and the number of supporting legal staff; and, the number of hours of preparation and work leading up to the hearing. Also, this is a case where three counsel are not necessary or appropriate for the full duration of the case as claimed. I consider on the evidence that the size of the legal team would be considered by a reasonable taxing officer as excessive and I think that the estimated duration by the defendants of the length of hearing is excessive. I have taken into account that very substantial discounts have been built into the defendants' estimate but nevertheless the figure claimed is still well above an appropriate figure. 14 It is notoriously difficult to determine a precise figure given the number of contingencies and variables but having regard particularly to the detailed specific evidence of Ms Ashe and making due allowance for the proceedings to extend beyond the seven days and to include senior counsel for the plaintiff I consider that an appropriate figure is $450,000 to be paid in three equal tranches over the next twelve month period. I also consider it appropriate for the provision of this amount to be by way of funds deposited into an interest bearing account with the Public Trustee pursuant to rule 41.7 of the Uniform Civil Procedure Rules 2005 (NSW). If there is non-compliance with this order then the proceeding shall be stayed until the payment is made. Liberty to apply is granted to either party on two days notice. The costs of the present application should be costs in the cause and I so order. 15 Accordingly, I make the following orders that: 1. The motion be returnable instanter. 2. Until further order, pursuant to rule 42.21(1) of the Uniform Civil Procedure Rules 2005 (NSW), the plaintiff pay to the Court a security for the fourth and fifth defendants' costs of the proceedings, being $450,000 payable in three equal tranches on the following dates: 19 August 2009, 19 December 2009, 19 April 2010. 3. Pursuant to Part 41 rule 41.7(1)(a) of the Uniform Civil Procedure Rules 2005 (NSW), the registrar is directed to pay the funds in court to the Public Trustee for payment into an interest bearing account in the Public Trustee common fund. 4. The costs of this application will be costs in the cause. 5. Liberty to apply on two days notice. ********** 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.