Supreme Court New South Wales Medium Neutral Citation: In the matter of Pioneer Energy Holdings Pty Limited [2013] NSWSC 1366 Hearing dates: 16 September 2013 Decision date: 19 September 2013 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Proposed orders outlined for provision of security for costs. Parties to submit an agreed form of orders to give effect to the judgment, or if no agreement is reached, their respective drafts of the orders. Catchwords: PROCEDURE - costs - security for costs - application for security for costs under s 1335 Corporations Act 2001 (Cth) and r 42.21(1)(d) Uniform Civil Procedure Rules 2005 (NSW) - whether there is reason to believe or credible testimony that third and fourth plaintiffs may be unable to pay the costs of the defendants if ordered to do so -whether any impecuniosity of the plaintiffs results from the conduct of the defendants - whether the application would stultify the third and fourth plaintiffs' claims - what quantum of security should be ordered and the form of that security. Legislation Cited: - Corporations Act 2001 (Cth) s 1335 - Civil Procedure Act 2005 (NSW) s 56 - Uniform Civil Procedure Rules 2005 (NSW) r 42.21(1)(d) Cases Cited: - ACN 105 921 962 Pty Ltd v Wiggett (2012) NSWSC 1526 - Beach Petroleum NL v Johnson (1992) 7 ACSR 203 - BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 - Deangrove Pty Ltd v Buckby [2002] FCA 1544 - Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961 - Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 - Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 - KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189 - Liberty Industrial Pty Ltd v Donald McCarthy Trading Australia Pty Ltd [2013] NSWSC 279 - Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 - Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222 - Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 - Szanto v Bainton [2011] NSWSC 985 - Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 - Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 Category: Interlocutory applications Parties: Charlie Di Francesco (First Plaintiff) Prakesh Seth (Second Plaintiff) Blue Oil Energy Pty Limited (Third Plaintiff) Blue Diamond Australia Pty Limited (Fourth Plaintiff) Pioneer Energy Holdings Pty Limited (First Defendant) Chark Hoe Tan (Second Defendant) Peter Ng (Third Defendant) Jeremy Tan (Fourth Defendant) Harry Ubhi (Fifth Defendant) Morgan Stanley Capital Group Inc (Sixth Defendant) Pioneer Energy Pty Limited (Seventh Defendant) Representation: Counsel: F.M. Douglas QC (Third and Fourth Plaintiffs/Respondents) D. Klineberg (Second to Sixth Defendants/Applicants) Solicitors: Spinks Eagle Lawyers (Plaintiffs) King & Wood Mallesons (Second to Fifth Defendants) File Number(s): 2013/102212 Judgment 1These proceedings concern claims by the Plaintiffs for, inter alia, breach of directors' duties and breach of contract. The proceedings have to date given rise to two applications for interlocutory relief by the Plaintiffs, several directions hearings and the determination of two separate questions before Bergin CJ Eq. By Notice of Motion filed on 28 June 2013, the Second-Sixth Defendants seek an order under r 42.21(1)(d) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") or alternatively s 1335 of the Corporations Act 2001 (Cth) that the Third and Fourth Plaintiffs provide security for costs in a specified amount or alternatively by bank guarantee and that the proceedings be stayed until that security has been provided. The amount of security now sought by the Second-Sixth Defendants is $546,386. That amount is obviously substantial and extends only to the work done in the proceedings up to the directions hearing after the Plaintiffs have filed and served their evidence, likely to be in December 2013. 2It is necessary to say something as to the parties to the proceedings. The Third and Fourth Plaintiffs, against which security is sought, are Blue Oil Energy Pty Limited ("BOE") and Blue Diamond Australia Pty Limited ("BDA"). The First and Second Plaintiffs, Mr Charlie Di Francesco and Mr Prakesh Seth, are persons associated with those companies. The First Defendant is Pioneer Energy Holdings Pty Limited ("Holdings") and the Second-Fifth Defendants are directors of Holdings and Pioneer Energy and persons associated with Morgan Stanley Capital Group Inc ("Morgan Stanley") which is the Sixth Defendant. The Seventh Defendant is Pioneer Energy Pty Limited ("Pioneer Energy"). The First and Seventh Defendants did not appear in this application. BOE holds 25% and Morgan Stanley holds 75% of the shares in Holdings. Holdings in turn holds all of the shares in Pioneer Energy, which had previously engaged BDA to construct a diesel storage facility in Mackay, Queensland. That construction is presently incomplete; the construction contract with BDA was terminated in March 2013 and that is one of the matters in issue in these proceedings; and Pioneer Energy has now contracted with another party, previously a subcontractor to BDA, to complete construction of that facility. 3The principles applicable in a security for costs application are well established and not in contest in these proceedings. There is, however, a substantial dispute as to the application of these principles in the relevant factual circumstances. Section 1335 of the Corporations Act relevantly provides that where a corporation is the plaintiff in any action, or any other legal proceedings, a court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the defendants' costs if successful in its defence, require sufficient security to be given for those costs and stay the proceedings if the security is not given. UCPR r 42.21(1)(d) relevantly provides that if in any proceedings it appears to the court, on the application of a defendant, that there is reason to believe that a plaintiff, a corporation, will be unable to pay the defendants' costs if ordered to do so, the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, and that the defendant's costs of the proceedings and the proceedings be stayed until the security is given. 4In Polstead Pty Ltd (in liq) v Shah [2009] NSWSC 560 at [6], Brereton J observed that three issues generally arise in a security for costs application. The first is whether the ground referred to in the section or rule is established; the second is whether, if the ground has been established, as a matter of discretion an order should be made; and the third is the quantum of any order to be made and the terms on which it might be made. Mr Klineberg, who appears for the Second-Sixth Defendants, also drew attention to the review of the relevant principles by the Court of Appeal in Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [28]-[35], to which I will refer further below. Whether BOE and BDA would be unable to pay costs if ordered to do so 5I turn first to the question whether there is reason to believe (as contemplated by UCPR r 42.21(1)(d)) or credible testimony (as contemplated by s 1335) that BOE and BDA would be unable to pay the costs of the Second-Sixth Defendants if ordered to do so. This requirement will generally be satisfied if there is a real chance, in events that are reasonably possible, that the relevant corporation will be unable to pay those costs: Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205; Deangrove Pty Ltd v Buckby [2002] FCA 1544 at [4]; ACN 105 921 962 Pty Ltd v Wiggett (2012) NSWSC 1526 at [4]. In Wollongong City Council v Legal Business Centres Pty Ltd above, Beazley JA (with whom Meagher and Barrett JJA agreed) observed that the Court should adopt a "practical commonsense approach" to the examination of a corporation's financial affairs (at [28]) and noted that the defendant bears the onus of establishing that there is reason to believe that the plaintiff will be unable to pay those costs if unsuccessful and, if that is established, the onus shifts to the plaintiff to establish a reason why security should not be granted (at [29]-[30]). 6The primary dispute in respect of this question was in respect of BOE. The evidence establishes that BOE does not own or lease any real property in New South Wales or Queensland and its issued capital is $100 comprising 100 shares of $1.00 each, 90 of which are held by the Second Plaintiff, Mr Prakesh Seth, 5 of which are held by Ms Aarti Andrade and Mr Trishel Seth, who it appears is Mr Prakesh's brother and is resident in India. The Second-Sixth Defendants' solicitors requested further information as to the financial position of BOE by letter dated 3 June 2013. The Plaintiffs did not provide any substantive information until, 3 months later, an affidavit of Mr Prakesh Seth was filed in the proceedings providing some information concerning BOE's financial position. 7Mr Seth's evidence is that BOE has no source of income and no significant assets other than its shares in Holdings. Mr Seth's affidavit exhibits a company tax return for BOE for the year ended 30 June 2012 which indicates that it incurred substantial interest expenses in that year and a loss of $361,012. An unsigned and undated special purpose financial report for the year ending 30 June 2012 exhibited to that affidavit indicates a loss attributable to members of BOE in the same amount; records that BOE then had current liabilities (that is, payable within the next 12 months) of $13,439,328 and, after taking account of its investment in Holdings at its historical cost, negative net assets of $397,809; and noted that BOE's financial report had been prepared on a going concern basis, notwithstanding the deficiency of net assets: "as the directors have received a guarantee of continuing financial support and it is the directors' belief that such financial support will continue to be made available". There is no evidence as to the terms of that guarantee in this application. Presumably, it is not legally enforceable since the directors had to form a view as to whether such support was likely to be made available. 8Mr Seth's evidence is that the liability of $13,439,328 noted in the unsigned accounts of BOE for the year ended 30 June 2012 comprises a loan to BOE from Pure Energy Investments Limited ("Pure Energy"); he gives evidence that entity is trustee for a family trust and his brother, who resides in India, is the principal decision-maker in respect of matters affecting that trust. His evidence is that Pure Energy provided funds that BOE used to purchase shares in Holdings; that Pure Energy will not now lend further monies to BOE because of the matters the subject of the proceedings; and that: "Pure Energy has agreed with BOE that it will subordinate its debt so that any order for costs made in these proceedings as against BOE and/or BDA can be met by a realisation of the shares in priority to any loan repayments to Pure Energy." I will return to the offer of subordination of Pure Energy's loan below. No financial accounts for BOE for the year ended 30 June 2013 are in evidence; however, Mr Seth's evidence is that the financial standing of BOE has not changed materially since 30 June 2012. 9In circumstances that BOE has a nominal share capital, no assets in New South Wales or Queensland other than its shares in Holdings, has a deficiency of net assets after taking into accounts that shareholding and its cost and is dependent on financial support, the terms of which are not disclosed, and which Mr Seth's evidence indicates Pure Energy is no longer prepared to provide by reason of the matters in dispute, it seems to me that there is reason to believe that BOE will be unable to pay the Second-Sixth Defendants' costs if ordered to do so. I note, for completeness, that Mr Klineberg also drew attention to comments made by Junior Counsel then retained by the Plaintiffs when an application was originally made for interlocutory relief that BOE did not then have the capacity to pay an amount of $1,247,500, being its share of proposed increased funding for Holdings, and that BOE has not in fact subsequently paid that amount. Those matters are consistent with an inability to fund that payment, but it is not necessary to rely on that matter to reach the findings that I have reached above. 10Mr Douglas QC, who appeared for BOE and BDA, fairly conceded in oral submissions that the Court would be entitled to proceed on the basis that there was reason to believe that BDA would be unable to pay the Defendants' costs if ordered to do so, where it also held no substantial assets in New South Wales and Queensland and no evidence had been led by the Plaintiffs as to its substantive financial position, subject to an undertaking to be offered by BOE to pay the costs ordered against BDA. I am unable to give any weight to that undertaking, in circumstances that I have held above that there is reason to believe that BOE would itself be unable to meet any order for costs made against it, and there is therefore also reason to believe that BDA could not meet a costs order against it. Discretionary factors 11I turn now to the discretionary factors relevant to an application for security for costs, as to which the onus shifts to BOE and BDA to establish a reason why security should not be ordered. Mr Douglas draws attention to several discretionary factors which may lead the Court to decline an order for security for costs, identified by Beazley J (as her Honour then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189 at [39] and subsequently followed in other cases. The first of those factors is delay. In this case, the application for security for costs was brought shortly after the proceedings were commenced and BOE and BDA fairly accept that there has been no prejudicial delay tending against an order for security for costs. 12The second factor is the strength and bona fides of the Plaintiffs' case. Mr Douglas submits that the Second-Sixth Defendants must be taken to accept that the Plaintiffs have an arguable case where they have not yet filed a Defence. Mr Klineberg accepts that an arguable case exists, for the purposes of this application, but submits this is a neutral factor. In Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222, Katzmann J observed that the existence of an arguable case should be treated as neutral, particularly in a complex case where the assumption should be made in a security for costs application that the defendant will ultimately succeed in the proceedings so that costs will be payable, and I followed that decision in ACN 105 921 962 Pty Ltd v Wiggett above at [18]. I treat the fact that the Plaintiffs' case is arguable as a neutral factor (by contrast with the position had it not been arguable, which would have supported an order for security for costs) and consider the other discretionary factors without undertaking a detailed review of the strengths and weaknesses of the claim. I do not understand either Counsel to have contended for a different approach. 13Third, Mr Douglas submits that any impecuniosity of the Plaintiffs results from the conduct of the Second-Sixth Defendants the subject of the claim. In BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 346, Anderson J (with whom Kennedy and Ipp JJ agreed) observed that this factor should not be taken in isolation and: "It must be considered together with the assertion that the effect on the plaintiff of an order for security will be to stultify the action. If that will not be or is not shown to be the effect of the order, that is, if other parties who benefit from the plaintiff's success are financially able to provide the security and it is reasonable that they do so, the fact that the defendant has caused the plaintiff's own impecuniosity will hardly be good reason to decline security." In Wollongong City Council above at [33], Beazley JA observed that, where a plaintiff alleges that its financial position results from the defendant's conduct, it bears: "the onus of establishing the adequacy of the financial position before the dealings with defendant and that the defendant's conduct caused, or at least materially contributed to, the plaintiff's inability to meet a costs order." 14Mr Douglas QC refers to paragraph 29A of the Plaintiffs' Further Amended Statement of Claim, which sets out the nature of the claims brought in the proceedings, which rely on matters including an alleged failure of Pioneer Energy to make milestone payments in accordance with the head construction contract with BDA from January 2012 and other conduct in the period after June 2012. The first difficulty with this submission is that this paragraph is, of course, an allegation and not evidence of the matters alleged. The second difficulty with it is that, so far as BDA is concerned, even if it were accepted that Pioneer Energy wrongfully failed to make payments to BDA over the period from January 2012, that would not allow a conclusion that BDA had not been impecunious prior to that conduct, where there is no evidence as to BDA's financial position at any relevant time. So far as BOE is concerned, Mr Klineberg responds that the only evidence of BOE's financial position is the tax returns and unsigned financial accounts to which I have referred above, which indicate that BOE was already impecunious and dependent on financial support from Pure Energy by 30 June 2012. In these circumstances, I am not satisfied that the Plaintiffs have established that any conduct of the Second-Sixth Defendants contributed to the impecuniosity of BOE or BDA in any material respect. 15Fourth, Mr Douglas contends that the security for costs application would stultify BOE and BDA's claims and is being used to deprive them of their right to bring these proceedings. In Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [66], Einstein J pointed out that a party which contends that security for costs would stultify litigation bears the onus of proving the factual stratum to make good that claim. Mr Douglas relies on paragraphs 6, 10 and 15 of Mr Seth's affidavit in support of this submission, where Mr Seth gives evidence that BOE has no sources of income or significant assets other than the shares in Holdings, that the Second-Sixth Defendants' alleged conduct has caused Pure Energy not to lend further monies to BOE and that BDA is unable to generate income as a result of termination of the head construction contract between BDA and Pioneer Energy. However, these matters do not establish that an order for security will stultify the proceedings, without consideration of whether other parties that would benefit from the companies' success in the proceedings could provide the relevant security. 16As I noted above, the shareholders of BOE are Mr Prakesh Seth (as to 90%), Ms Andrade as to 5% and Mr Trishul Seth as to 5%, and the shareholders of BDA are Mr Prakesh Seth as to 999 shares and Mr Andrade as to one share. They have led no evidence as to their financial position; they stand to benefit from the companies' success in the proceedings and it would therefore be reasonable that they support the companies' conduct of the proceedings; and there is no suggestion and no evidence that they are unable to do so, if they choose to do so. The same might be said for Pure Energy as a lender to BOE which stands to benefit from any improvement in its asset position as a result of recovery in the proceedings. 17The next, and associated, question is whether there are persons standing behind the Plaintiffs who are likely to benefit from the litigation and who are willing to provide the necessary security or have offered personal undertakings as to costs. Mr Douglas accepted that the First and Second Plaintiffs are natural persons who own and/or control BOE and BDA. As I have noted above, Ms Andrade also has an interest in each Company and Mr Trishul Seth has an interest in BOE. In his written submissions, Mr Douglas submits that, where the First and Second Plaintiffs are parties to the proceedings, they are liable for costs and not "hiding behind the corporations". That submission is not available in respect of Ms Andrade and Mr Trishul Seth, who also stand to benefit from the companies' recovery in the proceedings but are not parties to them so as to be potentially liable for an order for costs in them. In any event, I cannot accept that submission, because it has not been submitted or established that any costs order in the proceedings would necessarily be made against the parties jointly rather than severally in respect of their particular claims: compare Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 per Bergin J at [94]. 18In these circumstances, I am not satisfied that any discretionary basis to decline an order for security for costs in favour of the Second-Sixth Defendants is established. Quantum of security 19It remains to deal with the question of the quantum of security that should be ordered and the form of that security. The Second-Sixth Defendants originally claimed security for costs in a somewhat larger amount than is now claimed, in respect of the period to the directions hearing after the Plaintiffs had filed and served their evidence, as set out in a detailed schedule to the affidavit of Mr Travis Toemoe dated 27 June 2013. The calculation of that claim was criticised in an affidavit of the Plaintiffs' solicitor, Mr Barry Spinks, dated 2 September 2013 and Mr Toemoe responded to those criticisms in some detail and updated the calculation in his further affidavit dated 13 September 2013. The Second-Sixth Defendants' claim for security for costs includes a claim for past costs that have already been billed. An order for security for costs may extend not only to future costs but also to costs already incurred, where an application for security for costs was made promptly, as is common ground in this application: Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 563 at [35]ff; Szanto v Bainton [2011] NSWSC 985. 20Mr Toemoe's evidence sets out the nature of the work done on behalf of the Second-Sixth Defendants since the proceedings commenced, including responding to the Plaintiffs' application for an injunction made in April 2013; preparing briefs to Senior and Junior Counsel for interlocutory hearings; reviewing documents potentially relevant to the claim; attending several directions hearings; preparing for and attending a further interlocutory application by the Plaintiffs before Bergin CJ Eq in May 2013; correspondence between the parties seeking to clarify the matters alleged in the proceedings; and the hearing of two preliminary issues before Bergin CJ Eq on 18 July 2013. That work appears to involve a significant degree of activity by the Second-Sixth Defendants' solicitors in a relatively complex case and there is evidence of a corresponding level of activity by Counsel retained by the Second-Sixth Defendants in the proceedings. 21Mr Spinks expresses the view, in his affidavit, that Mr Toemoe's evidence is not expressed in a manner that allows Mr Spinks to assess the reasonableness of the costs being incurred and the prospects of costs being recovered on a party/party basis. In my view, Mr Toemoe's evidence was given in a form which is conventional in security for costs applications in this Court, and was sufficiently detailed in its analysis of the work likely to be required and the time and persons who were likely to undertake it. A security for costs application does not require evidence in the detail that might be supplied in a costs assessment, after proceedings were complete, nor could information of such detail be required where costs are, at least in part, yet to be incurred. 22I should now refer to some of the specific criticisms made by Mr Spinks of amounts of costs included in the Second-Sixth Defendants' claim for security for costs. For example, Mr Spinks criticises a claim for 4 hours in respect of preparation of a draft letter seeking security for costs. Mr Toemoe responds that that time included organising relevant company and property searches of BOE and BDA, reviewing search results, preparing the letter, seeking instructions in relation to that letter and finalising that letter. Mr Spinks expands that criticism to a criticism of a "team" approach to litigation, which he characterises as involving "multiple lawyers combine[ing] to undertake simple tasks". Mr Toemoe responds, with some justification, that that approach allows simpler tasks to be performed by more junior lawyers at a lower charge-out rate under the supervision of more senior lawyers. Mr Spinks also criticises an estimate of 13.5 hours in respect of the preparation of the security for costs application, on the basis that the task was a simple motion that would take about an hour to draft. Mr Toemoe responds that his estimate included the work involved in preparing his first affidavit in support of the application, settling the motion and evidence with junior counsel and obtaining instructions in respect of the motion. In my view, given the detail of that affidavit and the range of issues raised in this application, that estimate is unlikely to be an overestimate of that time. Mr Spinks criticises Mr Toemoe's estimate of 11.5 hours to prepare and appear at the security for costs application, and suggests that 2 hours preparation and 2 hours for the actual hearing should be allowed. Mr Toemoe noted that the estimate included preparing documents for the hearing, preparing submissions, liaising with Counsel and attending a half day hearing and advising the Second-Sixth Defendants as to the outcome. Again, given the complexity of the issues, it seems to me that Mr Toemoe's estimate is unlikely to be an overestimate. 23Mr Spinks also criticises the inclusion in Mr Toemoe's estimate of the costs of attendance of solicitors at directions hearings where junior counsel is briefed. I do not accept this criticism. There are many occasions on which counsel and the Court are assisted by counsel obtaining instructions from instructing solicitors as to matters that counsel may not know, and this issue is more likely to arise in respect of complex proceedings. I do not consider that, given the complexity of the matters in issue in the proceedings, Mr Toemoe's estimates of the time likely to be required are unreasonable or improperly based. 24Mr Toemoe's updated estimate, in his second affidavit dated 13 September 2013, is that costs will be incurred to the point of the directions hearing after the Plaintiffs' evidence is filed of $521,413.80, if 70% of professional costs of solicitors are recovered and all of counsel's fees are recovered. Approximately $350,914 of the total amount claimed by the Second-Sixth Defendants comprises billed and unbilled solicitor/client costs and $127,960 comprises disbursements and counsels' fees to 12 September 2013. These costs include costs referable to the separate questions determined before Bergin CJ Eq where the parties had mixed success and where her Honour has reserved the question of costs. Mr Douglas fairly accepted that I could not decide the question whether either party, and if so, which, would be ultimately ordered to pay the costs of that issue, but should proceed on the basis that that issue remains open. It seems to me allowance should be made for the possibility that the Plaintiffs will be ordered to pay all or part of the Second-Sixth Defendants' costs of that hearing, while accepting that the contrary result is also open. That approach is consistent with the assumption usually made in security for costs application to which I referred in paragraph 13 above, directed to protecting the party seeking security's position if the other party is unsuccessful, and with the position adopted by Mr Douglas to which I referred above. Nonetheless, those amounts should fairly be discounted to reflect the possibility that costs incurred in the hearing of the separate questions may ultimately not be awarded in favour of the Second-Sixth Defendants, as I have noted above. That discount will need to be applied to the whole of the costs in the prior period, since the evidence does not distinguish costs in that period between those that do and do not relate to the hearing of those questions. It seems to me that, adopting a broad brush, a discount to one-half of the costs over that period would fairly (albeit conservatively) reflect the range of possibilities, recognising that costs in that period will also relate to matters other than the separate questions before Bergin CJ Eq. I would therefore discount the amount claimed in respect of this period to $175,457 for solicitor/client costs and $63,980 for disbursements and counsels' fees. This reduces total solicitor/client costs from Mr Toemoe's estimate to approximately $323,987 and total counsels' fees and disbursements to $111,900. 25The Second-Sixth Defendants quantify their claim for security for costs on the basis of Mr Toemoe's evidence, based on his experience, that he expects about 70%-75% of solicitor/client costs will be recovered in an assessment. It will often be desirable that estimates of that character be supported by evidence of a costs consultant. Nonetheless, the Court has also accepted estimates of that kind in the context of lump sum costs orders, on the basis of solicitors' evidence and its own experience. In Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961, Garling J at [14]-[20] accepted an estimate that two-thirds of solicitor/client costs were likely to be recoverable on an assessment and I took the same approach in Liberty Industrial Pty Ltd v Donald McCarthy Trading Australia Pty Ltd [2013] NSWSC 279 at [17]. I accepted a solicitor's assumption that 60%-75% of solicitor/client costs and all of counsels' fees and disbursements were likely to be recoverable, in the context of a security for costs application, in Re Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [68]. Having regard to Mr Toemoe's evidence and the case law to which I have referred, I consider that the proper course is to proceed on the basis that at least 70% of solicitor/client costs and all of counsels' fees are likely to be recoverable. 26This total solicitor/client costs from Mr Toemoe's estimate to approximately $323,987, discounted in respect of the period to 12 September 2013 as I noted in paragraph 24 above, should be further discounted to $226,791 adopting the 70% figure to which I referred in paragraph 25 above. Total counsels' fees and disbursements, discounted in respect of the period prior to 12 September 2013 as I noted in paragraph 24 above, are $111,900 for a total of $338,691, which I should round down to $338,000. I propose to order security for costs in that amount, subject to the question of the form of security for costs that was also raised by Mr Douglas in submissions, to which I now turn. Form of security 27By letter dated 22 August 2013 from their solicitors to the Plaintiffs' solicitors, the Second-Sixth Defendants raised the possibility that security for costs might be provided by the Plaintiffs by a lien over BOE's shares in Pioneer Energy and ordered by consent; BOE and BDA made a counter-proposal on 4 September 2013, to which the Second-Sixth Defendants' solicitors responded on 9 September by seeking information as to any security granted by BOE in favour of Pure Energy, which was not provided by BOE and BDA for reasons including that Pure Energy would not make the relevant documents available. Further correspondence as to possible confidentiality arrangements to allow access to those documents followed without achieving a result and, on 12 September 2013, shortly before the hearing of this application, the Second-Sixth Defendants' solicitors advised that this offer had lapsed and was in any event not viable because of the position disclosed in Mr Seth's affidavit filed in the proceedings. BOE and BDA now rely on a letter dated 13 September 2013 from Pure Energy, which offers to give an undertaking to the Court to subordinate its loan to BOE until any costs orders have been made and to permit BOE to grant a lien in favour of the Second-Sixth Defendants. 28Mr Douglas submits that security should be ordered, if at all, by a lien over BOE's shares in Holdings, relying on the consent and offer of subordination by Pure Energy. I do not accept that submission. First, absent agreement between the parties which has not been achieved, the usual form of an order for security for costs involves the payment of money into Court or the provision of a bank guarantee by an Australian trading bank. I do not accept Mr Douglas' submission that BOE or BDA could not comply with such an order which is a form of the stultification claim that I have rejected above on the basis that there is no evidence that the Messrs Seth, in particular, who stand to benefit from the proceedings, could not provide such security on BOE's and BDA's behalf. 29Second, as Mr Klineberg points out, the letter from Pure Energy is signed by a person other than Mr Prakesh Seth's brother, who on his evidence controls Pure Energy, and there is no evidence that the signatory is in fact a director of Pure Energy as he claims. Third, Pure Energy is incorporated in the British Virgin Islands and it seems to me that the Court should be cautious in accepting an undertaking from it, which it may have no capacity to enforce. Fourth, it does not seem to me that the Second-Sixth Defendants or the Court can assess the efficacy of such a subordination arrangement without access to the relevant loan documents, which Pure Energy has declined to produce. For these reasons, I consider that an order for security for costs should be made in the usual form. Other matters 30I should finally note several other matters. First, Mr Seth's affidavit suggested that a cash deposit that was given as security for obligations of BOE and BDA to Holdings or Pioneer Energy could stand as security for the Second-Sixth Defendants' costs of the proceedings. I cannot accept that submission, which would appropriate the security given for the benefit of those entities to the claims for costs of the Second-Sixth Defendant without those entities' consent. Second, Mr Seth's affidavit referred to monies which BDA expected to receive under an agreement known as the Operational Management and Marketing Agreement, apparently in the 12 months following practical completion of the project, which is now estimated to occur in 2014. It seems to me that monies that may be received in the future cannot presently assist BDA's position and, in any event, it has been accepted by the Plaintiffs by their Counsel that reason to believe that BDA will be unable to pay the relevant costs has been established for the purposes of this application. 31Third, Mr Douglas indicated that he had been unable to obtain instructions to offer an undertaking by the First and Second Plaintiffs to be liable for costs ordered against the Third and Fourth Plaintiffs and wished to have an opportunity to give such an undertaking "if the matter became critical". I did not accept that approach, first, because the First and Second Plaintiffs had 3 months to give such an undertaking since the motion of costs was filed and, second, because it seems to me that the Court is entitled to reach its decision having regard to the position adopted by the parties in the proceedings, rather than the Plaintiffs taking one position at the hearing of this application while purportedly reserving the ability to take a different position if its outcome is not to their advantage. There is, in any event, no evidence as to the capacity of the First and Second Plaintiffs to meet such an undertaking. 32Fourth, Mr Douglas submitted that security for costs could be ordered in stages. However, as Mr Klineberg points out, the Second-Sixth Defendants already take that approach, with the first stage addressed by security to the point at which the Plaintiffs have filed their evidence, and a second stage potentially covering the costs of the Second-Sixth Defendants' preparation of their evidence. It does not seem to me that it would be consistent with s 56 of the Civil Procedure Act 2005 (NSW) to order security for costs in any shorter stages, where both parties would then incur further costs in a further security for costs application that would need to be made within a relatively short time. Orders and costs 33Accordingly, I propose to order that: 1. The Plaintiffs give security for the Second-Sixth Defendants' costs of the proceedings, up to and including the date of the next directions hearing after the Plaintiffs have filed their evidence, in the sum of $338,000 within 28 days. 2. That security be provided by payment of the monies into Court or in the form of an unconditional guarantee from an Australian-owned Bank (as recognised by the Australian Prudential Regulation Authority) in favour of the Principal Registrar of the Supreme Court of New South Wales, to be held by the Principal Registrar of the Supreme Court of New South Wales. 3. The proceedings be stayed if security is not provided when due in accordance with orders 1-2 above. 4. Liberty be granted to the Second-Sixth Defendants to make further application for additional security for costs. 34In the ordinary course, costs should follow the event. Subject to hearing from the parties, I therefore propose to order that the Plaintiffs pay the Second-Sixth Defendants' costs of this motion. 35I should, however, allow the parties an opportunity to be heard as to the form of these orders. The parties should submit an agreed form of orders to give effect to my judgment to my Associate within 7 days or, if no agreement is reached between them, their respective drafts of the orders to be made consistent with my judgment and short submissions as to any differences between them. I will then make those orders and deliver any necessary further judgment as to their form in Chambers. ********** Amendments 27 September 2013 - paragraph numbering corrected Amended paragraphs: 8-35 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: 27 September 2013