Supreme Court New South Wales Medium Neutral Citation: Vintage Marine Art Pty Ltd v Robert Craig Henderson [2015] NSWSC 1439 Hearing dates: 31 August 2015 Date of orders: 08 October 2015 Decision date: 08 October 2015 Jurisdiction: Common Law Before: Harrison AsJ Decision: The Court orders that: (1) The plaintiff is to provide security for the defendants' costs of the plaintiff's claim in the amount of $10,000 pursuant to UCPR 42.21. (2) Pursuant to order 1 above, the plaintiff is to provide security within 28 days by paying that sum into Court or by such other means as the parties agree or, in default of such agreement, as the Registrar may so order, any such order to be sought by application by the plaintiff to the Registrar on three days' notice until the security is provided. (3) The proceedings be stayed pending the provision of security in accordance with orders 1 and 2 above. Catchwords: CIVIL PROCEDURE – security for costs – jurisdictional threshold – discretionary matters – whether the claim is bona fide and has reasonable prospects of success – whether the plaintiff's financial position was caused by the defendants' actions – stultification – whether delay in commencing proceedings has caused prejudice – quantum Legislation Cited: Legal Profession Act 2004 (NSW) Legal Profession Uniform Law Application Act 2014 (NSW) Legal Profession Uniform Law (NSW) Limitation Act 1969 (NSW) Trademarks Act 1995 (Cth) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 19) (1995) 134 ALR 187 April Fine Paper Macao Commercial Offshore Limited v Moore Business Systems Australia Limited (2009) 75 NSWLR 619; [2009] NSWSC 867 Beach Petroleum NL v Johnson (1992) 10 ACLC 525; (1992) 7 ACSR 203 Bell Wholesale Co Limited v Gates Export Corporation (1984) 52 ALR 176; (1984) 2 FCR 1 Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171 Dae Boong International Co Pty Ltd v Gray [2009] NSWSC 11 Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 Fiduciary Ltd v Morningstar Research Pty Limited (2004) 208 ALR 564; [2004] NSWSC 664 Fitzpatrick v Waterstreet (1995) 18 ACSR 694 Idoport Pty Limited v National Australia Bank Ltd [2001] NSWSC 744 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 13 ACLC 437; (1995) 56 FCR 189 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; [1993] 3 All ER 417 Min Kyu Kim v Byung Sun (Eric) Song [2012] NSWSC 103 Narradine Pty Ltd v Mascot Steel & Tools Pty Ltd [2012] NSWSC 385 Newtimber (Operations) Pty Ltd v Tarong Energy Corporation Ltd [2011] FCA 123 Odyssey Financial Management Pty Ltd v QBE Insurance (Australia) Ltd [2012] NSWCA 113 Prynew Pty Ltd v Nemeth [2010] NSWCA 94 Royal Guardian Management Pty Ltd v Nguyen [2015] NSWCA 148 Sharjade v Darwinia Estate Pty Ltd [2006] NSWSC 708 Whyked Pty Limited v Yahoo Australia and New Zealand Pty Limited [2006] NSWSC 1236 Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 Category: Procedural and other rulings Parties: Vintage Marine Art Pty Ltd (Plaintiff) Robert Craig Henderson (First Defendant) Douglas Cremer (Second Defendant) Representation: Counsel: M Condon SC (Plaintiff) C Alexander (First & Second Defendants) Solicitors: Slater & Gordon (Plaintiff) McLaughlin & Riordan (First & Second Defendants) File Number(s): 2014/344104 Publication restriction: Nil Judgment 1. HER HONOUR: By notice of motion filed 22 June 2015, the defendants seeks, firstly, an order pursuant to rule 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) that the plaintiff provide security for the defendants' costs of the plaintiff's claim in the amount of $100,811, or any other amount as the Court sees fit. The balance of the orders sought in the notice of motion relate to the mechanics as to how the order should be implemented. 2. The plaintiff is Vintage Marine Art Pty Ltd ("Vintage Marine Art NSW"). The first defendant is Robert Craig Henderson and the second defendant is Douglas Cremer ("the defendants"). Vintage Marine Art NSW relied upon the affidavit of its solicitor Vicky Antzoulatos dated 7 August 2015. The defendants relied upon two affidavits of their solicitor Robert John McLaughlin dated 22 June 2015 and 25 August 2015. Background 1. This case centres on the sale and reproduction of images and memorabilia of a collection ("the collection") of what remains of the Australian archive of the P&O and Orient line ("P&O"). 2. On 24 July 2007, the defendants entered into an agreement with a company called Carnival Australia regarding the collection. That agreement defined them as "the owners" in respect to the collection. It relevantly provided: "A. Carnival's obligations: … (d) Acknowledge that the Owners are the beneficial owners of the Collection to the exclusion of all. … D. RH's Rights (a) Upon completion of the digitisation of the Collection, the Owners shall be entitled to the return of the Collection and to retain one digitised copy of the Collection. (b) to sell the digitised copy of the Collection." (Ex A, Aff McLaughlin, 25 August 2015). 1. On 11 November 2008, Vintage Marine Art Limited (registered in the United Kingdom and Scotland), a separate company from Vintage Marine Art NSW, was registered ("Vintage Marine Art UK"). On registration the directors were Danielle Demarest, Gina Dombosch, Elizabeth Ferguson and William Ferguson. The shareholders were also these four individuals in equal shares. 2. On 21 November 2008, the defendants entered into a licence agreement with Vintage Marine Art UK regarding the collection ("licence agreement"). The licence agreement relevantly provides: "WHEREAS, Henderson is the owner of the collection of approximately 2,000 images, including original photographs, posters, and brochures, relating to P&O Cruises (hereinafter referred to as the 'P&O Images'). WHEREAS, VMA desires to licence from Henderson, the exclusive right to sell products bearing the P&O Images owned by Henderson. AND WHEREAS, VMA shall not sell, transfer, encumber or assign the exclusive right to any other person or entity without the written consent of Henderson. 5. Warranty. Henderson warrants and represents that he has the exclusive right, title and interest to the P&O Images, and that as of the signing of this Agreement, no third party has any right, title and interest to the P&O Images, or can make any claim to said right, title, or interest. Henderson warrants and represents that as of the signing of this Agreement, he has not conveyed any right to exploit, use, market, or sell the P&O Images to any other party, other than for promotional purposes and that upon the signing of this Agreement by both parties, VMA shall have the exclusive right to exploit, use, market and sell the P&O Images. … 9. Amendments. This Agreement may not be modified or amended except by a [sic] writing executed by all of the parties hereto. The conduct of the parties without such a written amendment shall in no event constitute a modification of the terms hereof." 1. On 2 January 2010, Vintage Marine Art NSW was registered. On registration the directors were Ms Demarest, Ms Dombosch, Ms Ferguson, Mr Ferguson and also Mr Henderson. Only Ms Demarest and Ms Dombosch continue to be directors of Vintage Marine Art NSW. The shareholders remain the four individuals who were also the shareholders of Vintage Marine Art UK being Ms Demarest, Ms Dombosch, Mr Ferguson and Mrs Ferguson. 2. It is common ground that on 31 March 2010, an addendum to the licence agreement was executed by all parties (being both defendants and Vintage Marine Art UK) whereby the term of the licence agreement was extended to 50 years. 3. The issue in dispute in these proceedings is whether or not on 3 April 2010 Vintage Marine Art UK assigned its contractual rights under the licence agreement to Vintage Marine Art NSW. This assignment document relevantly reads: "Assignment of Contract FOR VALUE RECEIVED, VINTAGE MARINE ART LIMITED ('Assignor') hereby assigns and otherwise transfers ('assigns') to VINTAGE MARINE ART PTY LTD ('Assignee') all rights, title and interest held by Assignor in and to the contract described as follows: Contract dated NOVEMBER 21, 2008, (AS AMENDED ON March 31, 2010) between VINTAGE MARINE ART LIMITED and ROB HENDERSON/DOUG CREMER concerning the licensing of heritage collection images owned by Henderson/Cremer. Assignor warrants and represents that it has the full right and authority to transfer said contract and that contract rights herein transferred are free of lien, encumbrances or adverse claim. Said contract has not been modified and remains on the terms contained therein. …" 1. It was signed by Ms Dombosch as director for both Vintage Marine Art UK and Vintage Marine Art NSW (Tab 9, Aff, Vicky Antzoulatos, 7 August 2015) ). 2. On 29 April 2010, P&O caused a number of trademarks to be registered under the Trademarks Act 1995 (Cth) in relation to the P&O name. Subsequent correspondence 1. On 9 July 2010, a company known as DP World (also known as Dubai Ports) wrote to the directors of Vintage Marine Art NSW at its registered address Kirribilli. That letter advised: "The P&O Heritage collection It has come to my attention that you are manufacturing and selling a range of P&O heritage memorabilia. I understand that the products are currently being sold by P&O Cruises Australia on board certain ships and that you intend to sell these products more widely via your website www.vintagemarineart.com.au. Intellectual Property Infringement The unauthorised manufacture and sale of these products constitutes an infringement of the Peninsula and Oriental Steam Navigation Company's ('P&OSNCo') intellectual property rights. You may be aware that P&OSNCo, the British shipping and logistics company incorporated by Royal Charter, was acquired by DP World Limited in 2006. P&O Cruises Australia is within the Carnival pic group and is no longer associated with P&OSNCo, other than through a trademark licence agreement whereby P&OSNCo has licensed Carnival and it's group companies only to use certain P&O trademarks which are owned by DP World." (Tab 11, Aff, Vicky Antzoulatos, 7 August 2015)). 1. On 30 September 2010, McLaughlin & Riordan, the solicitors for the defendants, wrote to Davies Collison Cave, the solicitors for DP World, advising as follows: "We act for Mr Robert Henderson and Mr Douglas Cremer, the owners of a collection of shipping line images which include original photographs, posters, brochures and the like, formerly owned by the Peninsular & Oriental Steam Navigation Company ('P&OSNCo'). Our client has handed to us a copy of a letter dated 2 August 2010 from your firm to Vintage Marine Art Pty Ltd, the company with which our clients have a Licence Agreement permitting that company the right to market and sell the property of your clients. Our clients have instructed us that they have been the owners of the images since 1970/71 and further they entered into a signed Agreement which acknowledged their ownership, which said Agreement was signed by Michael Ager on behalf of P & O Cruises." (Tab 15, Aff, Vicky Antzoulatos, 7 August 2015). 1. On 12 November 2010, McLaughlin & Riordan emailed Ms Dombosch. The email was headed "Robert Henderson & Douglas Cremer Vintage Marine Art Pty Limited P&O Collection". The email relevantly stated: "We are now all aware that the problems have arisen because, unknown to Robert and Douglas and yourselves, Dubai Ports were and are in possession of a number of images which are identical to those held by Robert and Douglas. It came as a great surprise to all to be advised of this at our meeting on 28 October at DP's office. The meeting also brought to light the fact that, whilst DP have some of the images held by Robert and Douglas, they do not have anywhere near the number of Orient images and therefore, whilst there might be a new agreement between VMA and Robert and Douglas on the one hand, or between Dubai Ports, VMA and Robert and Douglas on the other hand, the current agreement stands as to the Orient images. Robert and Douglas are aware of your negotiations with DP and would appreciate you keeping them advised of any agreement you might reach, however, that agreement will not refer in any way to the Orient images. You are aware that Douglas and Robert were genuine in their belief that they had 'exclusive right, title and interest to the P & O images'. The warranty given by them was given in good faith and without knowledge of the existence of similar images held by DP." (Tab 17). 1. On 17 April 2012, Mr and Mrs Ferguson of Marine Art UK emailed the defendants to fill them in on some details. They advised: "It's a long time since we communicated and I expect you're wondering why I am writing now. I wanted to update you on the position of VMA and especially Gina." To try to cut a long story short before boring you into slumber, we have had to suspend Gina from the company after discovering her attempting to divert funds from the company into an Australian bank account. She did this through befriending an employee of Hardings in the UK and told him we no longer used the bank account in the UK , this, of course, was completely false and as you can imagine triggered a huge furore and ended up at the top of the Hardings tree with Gina coming out very badly all round. I have another reason for getting in touch, however, I realise after all this time you may not be interested in VMA or indeed ourselves in any shape or form and if this is the case I respect that fully gut would like to keep in touch and discuss this in more detail." 1. On 29 November 2010, in response to this letter, PCPA, United States Legal Counsel to Vintage Marine Art NSW stated: "From the moment Mr Henderson signed that Agreement, the warranty and representation in the Agreement regarding his sole rights and interest in the collection was inaccurate. In other words, from the inception of the Agreement, Mr Henderson had breached the Agreement, and had done so in a material way. The rights he had in the collection went to the very essence of the Agreement. Without his assertion of rights, VMA would never have signed the Agreement; there would be no reason to sign the Agreement if VMA had known it would, in a short time, be facing the threat of litigation from DP. Based primarily on the warranty, VMA has spent hundreds of thousands of dollars getting its business up and running, and expects to generate significant profits once it is on line. It would have not undertaken any of the business efforts were it not for the warranty in the Agreement." (Tab 18, Aff, Vicky Antzoulatos, 7 August 2015). 1. On 4 March 2011, Mr Henderson resigned as a director of Vintage Marine Art NSW. 2. On 22 February 2012, Mr and Mrs Ferguson resigned as directors of Vintage Marine Art NSW. 3. On 31 October 2014, Vintage Marine Art UK was dissolved. Issues in dispute 1. The main issues in dispute are as follows. (a) Whether Vintage Marine Art UK actually purported to assign its rights under the licence agreement to the plaintiff, Vintage Marine Art NSW, on 3 April 2010. (b) If so, whether the purported assignment was valid in circumstances where no written consent was given by either of the defendants. (c) If so, whether the representations and warranties by the defendants in the licence agreement were misleading or deceptive or whether the warranties were false. This question will in turn involve consideration of the following: (i) The effect of the registration of trademarks by Peninsula and Oriental Steam Navigation Company incorporated in England and Wales on 29 April 2010; (ii) The proper construction of the agreement with Carnival Australia; and (iii) Potentially, the capacity of Carnival Australia to give the acknowledgements and confer the rights to the defendants in that agreement. (d) If so, what, if any, damages Vintage Marine Art NSW has suffered by reason of the misleading or deceptive conduct or breach of warranty. 1. The defendants plead (defence [15]) that by mid to late 2012 the licence agreement had been abandoned by them and by Vintage Marine Art UK, by the doctrine of mutual tacit consent. (a) Security for costs 1. I shall set out the law in relation to security for costs. Then I shall deal with three issues, firstly, the jurisdictional threshold issue; secondly, the discretionary matters; and finally, quantum, if necessary. (1) The jurisdictional threshold 1. The threshold issue under s 1335 of the Corporations Act 2001 (Cth) is whether it appears to the court "by credible testimony that there is reason to believe that [the plaintiff] will be unable to pay the costs of the defendant if successful in its defence". In Beach Petroleum NL v Johnson (1992) 10 ACLC 525; (1992) 7 ACSR 203, von Doussa J stated at 205 that the test is satisfied where: "…Credible evidence establishes that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocator, if judgment goes against it. This will be so even in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs." 1. This is to be determined by reference to the plaintiff's likely financial position at the time of judgment: Idoport Pty Limited v National Australia Bank Ltd [2001] NSWSC 744 at [58] per Einstein J; Narradine Pty Ltd v Mascot Steel & Tools Pty Ltd [2012] NSWSC 385 at [5] per Black J. 2. The tests stipulated by s 1335(1) of the Corporations Act and UCPR 42.21(1)(d) are similar: Fitzpatrick v Waterstreet (1995) 18 ACSR 694. 3. The tests prescribed by s 1335 of the Corporations Act and UCPR 42.21(1)(d) are premised upon the assumption that the defendants will successfully defend these proceedings: Beach Petroleum at 205. 4. Counsel for Vintage Marine Art NSW concedes that Vintage Marine Art NSW is impecunious and that the jurisdictional threshold has been satisfied. 5. I now turn to consider the discretionary matters. (2) Discretionary matters 1. There are a number of discretionary matters the courts have regarded as relevant considerations, many of which are listed in UCPR 42.21(1A). It relevantly reads: "42.21 Security for costs … (1A) In determining whether it is appropriate to make an order that a plaintiff referred to in subrule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant: (a) the prospects of success or merits of the proceedings, (b) the genuineness of the proceedings, (c) the impecuniosity of the plaintiff, (d) whether the plaintiff's impecuniosity is attributable to the defendant's conduct, (e) … (f) whether an order for security for costs would stifle the proceedings, (g) whether the proceedings involves a matter of public importance, (h) whether there has been an admission or payment in court, (i) whether delay by the plaintiff in commencing the proceedings has prejudiced the defendant, (j) the costs of the proceedings, (k) whether the security sought is proportionate to the importance and complexity of the subject matter in dispute, (l) the timing of the application for security for costs, (m) whether an order for costs made against the plaintiff would be enforceable within Australia, (n) the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff. …" 1. The discretion to order costs is unfettered, and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security: KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 13 ACLC 437; (1995) 56 FCR 189 at 196. The genuineness and prospects of success of the proceedings 1. These issues are relevant to the extent that if the claim is not bona fide or clearly has poor prospects of success, an order for security will be supported. As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, the court should, in the absence of evidence to the contrary, proceed on the basis that that the claim is bona fide and has reasonable prospects of success: see KP Cable Investments at 197. 2. The defendants submitted that the claim is not bona fide and drew this Court's attention to the following matters. Firstly, they say they were unaware of any purported assignment and were not provided with a copy of it until after the litigation was afoot; secondly, Mr and Mrs Ferguson, who were the co-directors and shareholders of Vintage Marine UK, also refute the allegation of an assignment and when asked about Ms Dombosch's allegations of an assignment, Mr Ferguson stated: "The rights were never assigned to the new company they are still the property of the UK company. She has made no loss as it was ourselves who lost the money. She is bluntly at it, the Australian Company was set up just so that we could trade in Australia, I would ask her for sight of a signed letter of consent for the alleged transfer of rights. She was struck off as a director for attempted fraud I would not be able to put my hands on the paperwork but she was sacked." 1. The defendants also submitted that it should also be borne in mind that Mr and Mrs Ferguson are 50 per cent shareholders in Vintage Marine Art NSW and their allegations are adverse to interest and ought be given significant weight. The defendants say that there is no evidence of a written consent of assignment by them and furthermore, the fact that the defendants and two of the directors of the transferor company were unaware of the assignment suggests that no oral consent or informal arrangement was contemplated. 2. Finally, the defendants submitted that even if the purported assignment document is genuine, it still faces the hurdle, in direct contrariety, to the prohibitions of assignment in the licence agreement, that no written consent was given for such an assignment. Counsel for the defendants referred to Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; [1993] 3 All ER 417 to support the proposition that a contractual prohibition on assignment will be effective to render void any purported assignment in breach of that contractual term. 3. Ms Dombosch is the active driver of this litigation on behalf of Vintage Marine Art NSW. Her credibility is very much at the heart of these proceedings. Ms Dombosch's actions have caused a fallout between directors as referred to above. The directors of Vintage Marine Art NSW, Ms Dombosch and Ms Demarest, are in one camp. The Fergusons and Mr Henderson, who have since resigned as directors of Vintage Marine Art NSW, are in the other camp. 4. An earlier agreement between the defendants with Carnival, records that they are the owners of images and memorabilia of a collection of what remains of the Australian archive of the P&O and Orient line. DP World has disputed that the defendants have the ownership of these images and memorabilia. DP World has registered trademarks over the P&O name and disputes that Vintage Marine Art NSW has a right to sell these images and memorabilia. 5. As previously stated, the main issues in dispute are whether the purported assignment was valid in circumstances where no written consent was given by either of the defendants; and if so, whether the representations and warranties by the defendants in the licence agreement were misleading or deceptive or false. In my view, these are triable issues. It is not appropriate that I assess Ms Dombosch's credibility here, nor assess the competing claims in any detail. I will proceed on the basis that the claim is bona fide, has reasonable prospects of success and is genuine. Whether Vintage Marine Art NSW's financial position/impecuniosity was caused by the defendants' actions 1. As noted above, once there is credible evidence of inability to pay costs, an evidentiary onus falls on the plaintiff to satisfy the Court that it should not order the security sought: see Idoport at [62], [65]. As previously stated, Vintage Marine Art NSW is insolvent. It does not trade and has no bank account. Nor does it file tax returns. It has no real assets but has significant debts. 2. Vintage Marine Art NSW submitted that its poverty is caused by the defendants' conduct. Counsel for Vintage Marine Art NSW claims that both Ms Dombosch's financial situation and that of Vintage Marine Art NSW have been seriously affected by the actions of the defendants. Vintage Marine Art NSW earned a profit of $37,588.85 in its second year of operations. It ceased trading in February 2012 after failing to negotiate an arrangement with DP World. 3. The defendants deny that they caused Vintage Marine Art NSW impecuniosity. They say that it is not alleged that they took or appropriated assets of Vintage Marine Art NSW, which it now seeks to recover or that they are the aggressors in the litigation. They also say that Vintage Marine Art NSW made a commercial decision to stop selling merchandise because a third party threatened legal action. Thus, Vintage Marine Art NSW lost the chance to earn profits from the sale of that merchandise. The defendants say that there is no causal link between their asserted conducted, vis a vis themselves and Vintage Marine UK, and the commercial decision by Vintage Marine Art NSW to stop trading. Secondly, the defendants point out that 4. Vintage Marine Art NSW does not appear to have paid any valuable consideration to the contract that it now sues on (which was with a different entity) nor to the extent that any entity allegedly suffered loss, that entity being Vintage Marine Art UK, which is now deregistered. In my view, these submissions rely on the facts in dispute being determined in the defendants' favour. It is not appropriate to do so in this application. However, in my view, it is not clear that Vintage Marine Art NSW impecuniosity was caused by the defendants' actions. Stultification/whether an order for security would stifle the proceedings 1. A corporate plaintiff seeking to assert stultification must demonstrate that those standing behind the company, who are likely to benefit from the action, are also without means to satisfy an adverse costs order: Bell Wholesale Co Limited v Gates Export Corporation (1984) 52 ALR 176; (1984) 2 FCR 1 at 4 (applied in Whyked Pty Limited v Yahoo Australia and New Zealand Pty Limited [2006] NSWSC 1236 at [16]), Odyssey Financial Management Pty Ltd v QBE Insurance (Australia) Ltd [2012] NSWCA 113 at [15]; and KP Cable Investments at 197 to 198. 2. In Dae Boong International Co Pty Ltd v Gray [2009] NSWSC 11, Hodgson JA at [23] quoted, with approval, the decision of the Full Federal Court in Bell Wholesale Co Limited, where the Full Court stated at 4: "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts." 1. Counsel for Vintage Marine Art NSW also referred to Fiduciary Ltd v Morningstar Research Pty Limited (2004) 208 ALR 564; [2004] NSWSC 664 at [72] where Austin J stated: "[72] It is thought to be oppressive to the plaintiff to do so, because the order would stifle a claim that may prove to be genuine (MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97 at 100 per Needham J), and unjust, because the effect of the order would be that the defendants would achieve a 'victory' without any contest (Spiel v Commodity Brokers Australia Pty Ltd (in liq) (1983) 35 SASR 294 at 301–2; 8 ACLR 410 at 416 per Bollen J)." 1. The defendants submitted the fact that an order for security will stifle proceedings does not automatically lead to a refusal to order security, but "will usually operate as a powerful factor in favour of exercising the court's discretion in the plaintiff's favour": see Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 at 545. The defendants also submitted that had Vintage Marine Art NSW commenced proceedings earlier, when it had funds, the seeking of security for costs would not have stultified these proceedings. 2. Counsel for the Vintage Marine Art NSW submitted that an order for security would in essence stultify the present proceedings. I accept that Vintage Marine Art NSW is impecunious. 3. Vintage Marine Art NSW submitted that the two remaining directors, Ms Dombosch and Ms Demarest are, in substance, also without funds. The financial position of Ms Dombosch 1. Ms Dombosch does not have any assets. She is not employed. Last financial year she earned $8,000. At present, she has available funds in the sum of $295.61. She has debts exceeding $147,969. 2. Ms Dombosch has sold assets such as her car and jewellery to pay creditors of Vintage Marine Art NSW. Ms Dombosch has undertaken to be personally liable for any costs order made against Vintage Marine Art NSW. 3. Ms Dombosch submitted that the worth of her undertaking is to be measured against the circumstances occasioned by the defendants' conduct. The financial position of Ms Demarest 1. Ms Antzoulatos, solicitor for Vintage Marine Art NSW, sets out in her 7 August 2015 affidavit, on information or belief the financial position of Ms Demarest, who currently resides in the United States. Ms Antzoulatos deposes that Ms Demarest's liabilities are estimated as follows. A mortgage on a house US$400,000, credits cards US$5,000 and a student loan (law school) US$30,000, totalling US$435,000. 2. I am not confident in accepting Ms Demarest's evidence as being accurate for two reasons. They are that she did not swear an affidavit herself, and more importantly, there is no supporting documentation as to her financial position stated above. 3. Ms Antzoulatos deposes that Ms Demarest does not have capacity to financially support Vintage Marine Art NSW in respect of the security for costs sought by the defendants. Unlike Ms Dombosch, Ms Demarest is not prepared to provide an undertaking to submit to an order that she be personally liable to pay any costs order made in favour of the defendants. 4. Counsel for Vintage Marine Art NSW submitted that to this extent, the law's concern as to the consequences of a party attempting to limit his or her exposure to liabilities is allayed. Ms Dombosch says that she has staked her financial position on the outcome of this litigation, and the fact that she is impecunious does not detract from the weight given to this factor. Counsel for Vintage Marine Art NSW submitted that as a matter of principle, once Ms Dombosch has made herself liable to a costs order as if she was suing in her own name, the court should be slow to countenance a position that imposes an additional financial burden on Vintage Marine Art NSW. The defendants submitted that any undertaking proffered by Ms Dombosch would not fill this Court with any confidence. In other words, they say that it would be a hollow indemnity. 5. Counsel for Vintage Marine Art NSW drew this Court's attention to Min Kyu Kim v Byung Sun (Eric) Song [2012] NSWSC 103, where Black J said: "[13] However, the individual plaintiffs are the persons behind those companies and are parties to the proceedings and liable to an order for costs in them, and any costs order made against them is likely to be joint and several, so that the Defendants would not be left to look to the corporate plaintiffs alone for recovery of their costs. This matter strongly tends against an order for security for costs in respect of the corporate plaintiffs: Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 ; [2004] NSWSC 664 at [69]. To the extent that the policy of UCPR r 42.21(1)(d) and Corporations Act s 1335 is to require a person who conducts his or her business affairs as a corporation and would otherwise be in a position to expose the other party to the proceedings to costs without risking his own assets, to accept liability for costs, that policy seems to be satisfied where that person is already liable for costs of the proceedings as a party to them: Harpur v Ariadne Australia Ltd (No 2) (1984) 2 ACLC 536 at 356; Newtimber (Operations) Pty Ltd v Tarong Energy Corporation Ltd [2011] FCA 123 at [32]." 1. In Newtimber (Operations) Pty Ltd v Tarong Energy Corporation Ltd [2011] FCA 123, Greenwood J at [31] stated: "[31] It seems to me that the proposition that an undertaking offered by a person substantially interested (either directly or in a relevant structural sense) in the corporation bringing the proceedings to expose themselves to an order for the costs of the proceedings (or those costs identified in the affidavit up to the stage to which security is sought) is determinative of the exercise of the discretion, overstates the effect of the authorities. It is, however, clear that the unconditional willingness of such a party (or parties) to accept personal liability for the costs is a factor which must necessarily weigh heavily in the exercise of the discretion in a given case and might be decisive in a particular case: Food Channel Network Pty Ltd v Television Food Network GP [2009] FCA 68 at [20] and [21]." 1. The approach to be adopted where directors proffer an undertaking or guarantee is set out in Prynew Pty Ltd v Nemeth [2010] NSWCA 94, where Beazley JA stated at [39] and [40]: "[39] In KP Cable Investments v Meltgow, I took the view that Gentry Bros v Wilson Brown & Associates did not stand for the proposition that once the shareholders or others standing behind the company agreed to be responsible for any judgment for costs of an impecunious corporate plaintiff, the purpose of s 1335 had been fulfilled. (This was the view of the case taken by Powell J in Erolen v Baulkham Hills Shire Council (1993) 10 ACSR 441.) Rather, as I stated, at [63], I understood the judgment of Cooper J in Gentry Bros to stand for the proposition that: '…the offer of security by way of a guarantee from the directors or shareholders or other persons interested in the outcome of the litigation was a factor, which could be decisive in a given case, to be considered in determining whether any other persons interested in the outcome of the litigation was a factor, which could be decisive in a given case, to be considered in determining whether any other form of order for security for costs should be made. In my opinion, this is the correct approach to take when such an offer has been made.' [40] I do not consider the view I expressed in KP Cable Investments v Meltglow to be out of accord with what was said by the majority in Epping Plaza v Bevendale …, I endorse that view." 1. The position here is that Ms Dombosch has undertaken to be personally liable for any costs. I consider this to be a favourable factor against making an order for security for costs. Ms Demarest is not prepared to provide such an undertaking and her evidence, in so far as her true financial situation, is unsatisfactory and an unfavourable factor to be taken into account. So far as stultification is concerned, it is my view that if the amount of security sought by the defendants in the sum of $100,000 is ordered it will, in reality, have the effect of stifling these proceedings. Whether the proceedings involve a matter of public importance 1. These proceedings do not involve a matter of public importance. Whether there has been an admission or payment into court 1. There has not been an admission or a payment into court. Whether the delay by Vintage Marine Art NSW in commencing these proceedings has prejudiced the defendants 1. As previously stated, Vintage Marine Art NSW ceased to trade in or about February 2012. The defendants submitted that if Vintage Marine Art NSW's claim is bona fide, then there would have been no reason why it could not have sued in 2010, 2011 or even sometime in 2012. It follows, the defendants say, that had Vintage Marine Art NSW elected to prosecute its allegations with due despatch, when it was still trading, it may well have been that an order for security would not have stultified Vintage Marine Art NSW. The defendants submitted that Vintage Marine Art NSW chose to wait until the maximum time allowed under the Limitation Act 1969 (NSW). They say that Vintage Marine Art NSW ought not be permitted to now turn around and seek to take advantage of its own delay. 2. Vintage Marine Art NSW was aware of its trademark dispute with DP World in 2010 yet did not commence these proceedings until 21 November 2014. 3. I accept that Vintage Marine Art NSW delayed in commencing proceedings for a number of years. The defendants have not pointed to actual prejudice this delay has caused them, other than they had better chances of obtaining an order for security for costs at an earlier time. The timing of this application 1. Delay by a defendant is a relevant factor in the exercise of the discretion: see Idoport at [68]. It is common ground the defendants have not delayed the bringing of this application for security for costs. Is an order for costs made against the Vintage Marine Art NSW enforceable within Australia? 1. If any costs order is made, it is enforceable in Australia. Other Considerations 1. The court may take into account matters peculiar to the particular circumstances of the case: Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972. There are no further considerations. 2. Taking the above matters into account is a finely balanced exercise of discretion. Vintage Marine Art NSW has not discharged its onus and I will make an order for security for costs. (3) Quantum 1. The defendants seeks security for costs in the sum of approximately $100,000. The "broad brush" approach 1. In terms of calculating quantum, it is not necessary for this Court to explore the minutiae of the calculations, or to involve itself in a quasi assessment of the costs. In exercising its discretion in an application for security for costs it is only possible for the court to take a "broad brush" approach in all the circumstances of the case: Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171 at 175; Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 19) (1995) 134 ALR 187 at 199-201 per Lindgren J. 2. This Court also has discretion to order security in stages: see Sharjade v Darwinia Estate Pty Ltd [2006] NSWSC 708. The defendants submitted that if the court is minded to order security in stages, an appropriate order would be that Vintage Marine Art NSW pay (a) one third within 28 days; (b) one third upon Vintage Marine Art NSW completing service of its lay and any expert evidence in chief and prior to the defendants being ordered to file and service their evidence in defence; and (c) one third immediately prior to the allocation of a hearing date. 3. Counsel for Vintage Marine Art NSW submitted that the defendants are not entitled to the full amount they have claimed for two reasons. 4. Firstly, counsel for Vintage Marine Art NSW referred to Royal Guardian Management Pty Ltd v Nguyen [2015] NSWCA 148, where Basten J A stated at [25]: "[25] An order for security is not intended to be a full indemnity for costs recoverable from the unsuccessful party. Given that the real costs cannot be known in advance, the court should adopt a realistic but conservative approach to the assessment of the evidence before it. Further, security is not intended to cover costs already incurred." 1. Counsel for Vintage Marine Art NSW submitted that the defendants' evidence does not disclose what work has been completed to date. In addition, one of the largest components of the defendants' estimate of costs, namely, the travelling costs for Mr and Mrs Ferguson, may never have to be paid if those witnesses do not choose to assist the defendants. Mr McLaughlin's statement that "at this early stage, they have been co-operating" rather accepts the possibility that this position may change. 2. Secondly, while the defendants submitted that they are entitled to retain a firm of four partners which does not employ any junior solicitors, with the result that Mr McLaughlin's estimates as to his clients' legal costs proceed "on the basis that no junior solicitor is available to do that work", Vintage Marine Art NSW submitted that it should not have to provide security for costs on that basis. Vintage Marine Art NSW says this is not an approach mandated by s 76 of the Legal Profession Uniform Law Application Act 2014 (NSW) read in conjunction with sections 172(1) and (2) of the Legal Profession Uniform Law (NSW). 3. In April Fine Paper Macao Commercial Offshore Limited v Moore Business Systems Australia Limited (2009) 75 NSWLR 619; [2009] NSWSC 867, White J observed of s 364 of the Legal Profession Act 2004 (NSW) (the predecessor to s 172 of the Legal Profession Uniform Law) at [13]: "[13] The first two matters a cost assessor is required to take into account under s 364(1)(a) and (b) are whether or not it was reasonable to carry out the work to which the costs relate and whether the work was carried out in a reasonable manner. In making that assessment a costs assessor must ask himself or herself whether the successful party conducted the litigation so as to achieve not only a just but also a quick and cheap resolution of the real issues (Civil Procedure Act, s 56), and also whether the procedures invoked and the work done, and hence the costs incurred, were in proportion to the importance and complexity of the subject matter of the dispute. In Skalkos v T & s Recoveries Pty Ltd, Ipp JA, with whom Sheller JA and Grove J agreed, said (at [8]): '[8] In my opinion, in determining whether costs have been reasonably and properly incurred, it is relevant to consider whether those costs bear a reasonable relationship to the value and importance of the subject matter in issue. See in this regard Szlazko v Travini [2004] NSWSC 610; Moore v Moore [2004] NSWSC 587, Gallagher v CSR Ltd (unreported, Supreme Court of Western Australia, 31 March 1994). This conclusion is supported by s 208G(f) of the Legal Profession Act.'" 1. White J continued at [28]: "[28] That takes me to the hourly charge of Mr Kumar. Although he is employed by the defendant as an in-house legal counsel, he also is the principal of a firm known as MAS Legal. He deposes that the defendant has engaged his services as the principal of that firm and has entered into a costs agreement pursuant to which he is entitled to charge at the hourly rate of $400 inclusive of GST. His evidence is that his arrangement it with the defendant is that he can keep the fees charged. In any event, even if the work done and to be done by him were done as an employed solicitor, it is likely that on an assessment the costs to be recovered would be assessed as if he had acted as an external solicitor, unless there were good and sufficient cause to investigate whether this would infringe the indemnity principle (Commonwealth Bank of Australia v Hattersley [2001] NSWSC 60; (2001) 51 NSWLR 333). I express no view as to the appropriateness of the fee of $400 per hour for the carrying out of skilled solicitor's work. However, it is difficult to envisage that on an assessment, a costs assessor would allow that charge for the full range of services Mr Kumar is to provide. It is one thing for a solicitor of about five years' standing to charge $400 per hour for skilled work such as preparing witness statements and ensuring that they are in admissible form. It is quite another to allow that rate for any solicitor for mundane activities that could properly be undertaken by a clerk." 1. Vintage Marine Art NSW submitted that Mr McLaughlin would be justified in charging his rate of $550 per hour plus GST for reasons such as attending the trial. That said, Mr McLaughlin seeks to claim at his full rate for activities which, in whole or in part, do not warrant his partner's charge out rate, including collating documents; corresponding with the solicitor for Vintage Marine Art NSW; and "preparing various documents and notes". 2. Further, Vintage Marine Art NSW says there is no reason why Mr and Mrs Ferguson's desire to fly business class should be accommodated by an order for security. Whilst they might "normally only fly first class", there is no reason for Vintage Marine Art NSW to fund this sort of preference and their age alone does not require business class travel. It is my view that should Mr and Mrs Ferguson be required to give evidence, as they are in their 70's and reside in the United Kingdom, they could probably give evidence via videolink and the incurring of airfare expenses would not be necessary. 3. In striking a balance between the parties and so as not to stifle the proceedings, the appropriate amount of security for costs to reflect security up to the hearing is the sum of $10,000. The Court orders that: (1) The plaintiff is to provide security for the defendants' costs of the plaintiff's claim in the amount of $10,000 pursuant to UCPR 42.21. (2) Pursuant to order 1 above, the plaintiff is to provide security within 28 days by paying that sum into Court or by such other means as the parties agree or, in default of such agreement, as the Registrar may so order, any such order to be sought by application by the plaintiff to the Registrar on three days' notice until the security is provided. (3) The proceedings be stayed pending the provision of security in accordance with orders 1 and 2 above. (4) The plaintiff is to file and serve written submissions on costs on or before 15 October 2015. (5) The defendant is to file and serve written submissions on costs on or before 22 October 2015. (6) The plaintiff is to file and serve written submissions in reply on or before 29 October 2015. I certify that this and the 25 preceding pages are a true copy of the reasons for judgment herein of the Honourable Associate Justice Harrison. Dated: Thursday, 8 October 2015 Associate ********** Amendments 09 October 2015 - Costs order not made. Timetable given. 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: 09 October 2015