Supreme Court New South Wales Medium Neutral Citation: Bettar Holdings Pty Ltd v Amelia 1822 Pty Ltd as trustee for the Waterloo Trust [2017] NSWSC 212 Hearing dates: 3 March 2017 Decision date: 10 March 2017 Jurisdiction: Common Law Before: Ball J Decision: 1. The plaintiff give further security in the amount of $320,000 for the defendant's further costs of the proceedings by way of payment of funds into court or by way of bank guarantee within 21 days of the date of this order. 2. The proceedings be stayed if order (1) is not complied with. 3. The plaintiff pay the defendant's costs of the defendant's notice of motion filed on 2 February 2017. Catchwords: PRACTICE AND PROCEDURE – costs – security for costs – offer of personal undertaking – exercise of discretion to order costs – whether security should be granted – whether undertaking is adequate security Legislation Cited: Corporations Act 2001 (Cth) s 1335 Uniform Civil Procedure Rules 2005 (NSW) r 42.21(1) Cases Cited: Avspares Pty Ltd v Skywest Aviation Pty Ltd (1997) 24 ACSR 272 Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; 13 ACLC 437 Northern Southern Western Supermarkets Pty Limited (subject to a Deed of Company Arrangement) v HIH Casualty & General Insurance Limited & Anor [2002] NSWSC 541 Rosengrens Ltd v Safe Deposit Centres Ltd [1984] 3 All ER 198; [1984] 1 WLR 1334 Sharjade v Darwinia Estate Pty Ltd [2006] NSWSC 708 Texts Cited: GE Dal Pont, Law of Costs (LexisNexis Butterworths, 3rd ed, 2013) Category: Procedural and other rulings Parties: Bettar Holdings Pty Ltd (Plaintiff) Amelia 1822 Pty Ltd as Trustee for the Waterloo Trust (Defendant) Representation: Counsel: D R Sibtain (Plaintiff) T J Breakspear (Defendant) Solicitors: Squire Patton Boggs (Plaintiff) Maddocks (Defendant) File Number(s): 2015/253060 Publication restriction: None Judgment 1. By a notice of motion filed on 2 February 2017, the defendant, Amelia, seeks additional security for its costs from the plaintiff, Bettar Holdings, in the sum of $320,000. Bettar Holdings has already provided security totalling $200,000 in two tranches of $100,000 each in the form of payments into court. Those payments were made without prejudice to Amelia's right to seek further security and without prejudice to Bettar Holdings right to contest that it has any obligation to provide security. 2. Bettar Holdings does not contest on this application that Amelia is entitled to further security in the sum of $320,000. The only issue concerns the form of that security. 3. On 5 November 2015, Baron Corporation Pty Ltd (Baron) entered into a funding agreement with Bettar Holdings under which Baron agreed to pay all legal costs and disbursements of Bettar Holdings in connection with these proceedings, including any adverse costs orders made against Bettar Holdings in the proceedings. The sole director and company secretary of Baron is Mr Phillip Bart. Baron has been in business for approximately 30 years. It is principally a property developer. However, a small part of its business includes litigation funding. 4. On or about 10 December 2015, Mr Bart caused Baron to execute a written irrevocable undertaking to pay to Amelia the sum of any costs order which the court makes in these proceedings in Amelia's favour (as agreed or assessed). 5. During the hearing of the motion, Mr Bart, through Mr Sibtain, counsel for Bettar Holdings, offered an undertaking to the court in the following form: 1. to cause Baron to pay Amelia an amount of up to $320,000 to satisfy any costs order which the court may make in the proceedings in Amelia's favour (as agreed or assessed) for the period 1 October 2016 until the final determination of the proceedings; 2. to cause Baron promptly to inform Amelia if Baron Corporation's net assets fall below $500,000 at any time between the date of the undertaking and the date of the final determination of the proceedings; 3. to cause Baron to use reasonable endeavours to not let its net assets fall below $500,000. 1. Bettar contends that having regard to the undertaking given by Baron to Amelia and the undertaking offered by Mr Bart to the court no further security should be ordered. It puts that submission in two ways. First, it contends that the threshold for an award of security – namely that there is reason to believe that Baron would be unable to pay Amelia's costs if ordered to do so (see Uniform Civil Procedure Rules 2005 (NSW) r 42.21(1); Corporations Act 2001 (Cth) s 1335(1)) – has not been satisfied. Second, Bettar Holdings submits that the court in the exercise of its discretion should not order further security, or at least that it should accept the undertakings proffered by Baron and Mr Bart as providing adequate security. 2. I do not accept the first of these submissions. 3. The question is whether there is reason to believe that Bettar Holdings will be unable to pay Amelia's costs if required to do so. It is not disputed that Bettar Holdings does not have the financial resources to pay those costs. It may be inferred that it was for this reason that Bettar Holdings entered into a funding agreement with Baron. Such an inference is sufficient to provide a reason for believing that Bettar Holdings will be unable to pay Amelia's costs if ordered to do so. The fact that there may be other reasons for believing that it can meet any costs order against it because it has entered into a funding agreement does not alter this position. 4. As to the question whether the undertakings proffered by Baron and Mr Bart are adequate, in deciding the form of security the court should accept, the general principle is that the court should have regard to the interests of both the party seeking security and the party giving security. As Parker LJ explained in Rosengrens Ltd v Safe Deposit Centres Ltd [1984] 3 All ER 198; [1984] 1 WLR 1334 at 200: [S]o long as the opposite party can be adequately protected, it is right and proper that the security should be given in a way which is the least disadvantageous to the party giving the security. 1. The Full Court of the Supreme Court of Western Australia considered the suitability of personal undertakings as security in Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325, where, at 328, Rowland J stated: The appellant's case seems to be based on the idea that the bare undertaking given by the respondent's directors is virtually worthless. I cannot agree. The directors are businessmen who are gradually lifting the respondent out of a very parlous financial position. Even if that fails, they each have their own future business careers to consider and I would have thought, for myself, that the threat of bankruptcy, if they were ever called upon to honour the written undertaking given, would provide some form of security, albeit indirect, for the appellant. This passage has been interpreted as enabling the court to "take into account the consequences for the persons giving the undertaking of being unable to fulfil it" when considering whether or not the undertaking constitutes adequate security: GE Dal Pont, Law of Costs (LexisNexis Butterworths, 3rd ed, 2013) at [29.27]. 1. The decision in Clyde Industries does not stand as a general proposition of law that personal undertakings will be an adequate substitute for security and each case must be decided on its own facts. As Tamberlin J explained in Avspares Pty Ltd v Skywest Aviation Pty Ltd (1997) 24 ACSR 272 at 275-6, citing Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; 13 ACLC 437, an offer of guarantee or undertaking is not of "itself determinative" as to how the discretion to order security for costs should be exercised. 2. An example of a case where the court held that personal undertakings were not sufficient is Sharjade v Darwinia Estate Pty Ltd [2006] NSWSC 708. In that case, McDougall J did not accept an offer of undertaking made by shareholders of the plaintiff company to pay any costs ordered against the plaintiff as adequate security. Recognising that an offer of an undertaking was but one factor to be taken into account in exercising the court's discretion, his Honour, at [40], held that the undertaking was not of "any real worth" because the plaintiff was unable to describe with sufficient detail the nature of its assets giving value and weight to the personal guarantee. His Honour also observed that, if the undertakings were "of real pecuniary worth … there is no reason why [the plaintiff's directors] Mr and Mrs Akbarian could not utilise their assets to enable Sharjade to put up security" (at [41]). 3. Similarly, in Northern Southern Western Supermarkets Pty Limited (subject to a Deed of Company Arrangement) v HIH Casualty & General Insurance Limited (in Liquidation) & Anor [2002] NSWSC 541 Einstein J at [29] said in relation to an offer of an undertaking from the plaintiff's holding company, which was a public company with net assets of approximately $12 million: Mr Pritchard of counsel for the second defendant, in drawing the Court's attention to the Review and Results of Operation section of the half yearly report, has made the point, which it seems to me is one of real substance, that the nature of the activities of Insolvency Litigation Fund Pty Limited in terms of the cases being funded by it and the scale of the litigation currently being funded by the company, is such that defendants, entitled to certainty in terms of security for costs, should not be obliged to have any possible question marks over the value of their security for costs protection in the form of a mere undertaking to the Court, albeit by the public company. 1. I would not agree that the test is one of certainty as Einstein J apparently suggests. However, in my opinion, an undertaking from a litigation funder must offer a reasonable degree of confidence that the defendant's costs will be paid if it is successful. 2. Applying these principles, I have concluded that in this case the undertakings proffered by Baron and Mr Bart are not sufficient. 3. The evidence of Baron's financial position is somewhat equivocal. It has been trading for a considerable period of time and is a member of a substantial group of companies. It has engaged in large property developments. A substantial proportion of its assets are in the form of intercompany loans. There is no evidence of the financial position of the group as a whole. Baron's most recent accounts are for the financial year ending 30 June 2015. Those accounts are not audited and were not prepared by an independent accountant. They show net assets of $5,653,271, but they also show that the current liabilities ($1,962,144) exceed current assets ($1,644,003). Baron made a loss in the financial year ending 30 June 2014 of $4,140,821. It made a profit in the financial year ending 30 June 2015 of $2,409,213. There are no financial records which indicate whether the position has substantially improved or deteriorated since then. The only current financial information in relation to Baron is that it holds $596,157.67 in cash. As at 30 June 2015, it held $1,569,844 in cash. 4. In order to overcome these problems, Bettar Holdings offered the undertaking from Mr Bart. I was initially attracted to the submission that that undertaking provided Amelia with sufficient certainty that no further security should be ordered. However, I have concluded that the court should not accept the undertaking proffered by Mr Bart. In my opinion, it is not desirable that the court should accept an undertaking, the effect of which is to put an individual at risk of contempt proceedings in the event that a corporation does not meet its financial obligations, possibly through no fault of the individual involved. Nor should Amelia be put in a position where it must rely on the threat of contempt proceedings as a mean of enforcing the security to which it is entitled. 5. There was no suggestion in this case that if further security were ordered in the form sought by Amelia that that would have the effect of stifling the litigation. 6. It follows that Amelia should succeed in its motion. 7. The orders of the court are: 1. that the plaintiff give further security in the amount of $320,000 for the defendant's further costs of the proceedings by way of payment of funds into court or by way of bank guarantee within 21 days of the date of this order; 2. that the proceedings be stayed if order (1) is not complied with. 3. that the plaintiff pay the defendant's costs of the defendant's notice of motion filed on 2 February 2017. ********** Amendments 10 March 2017 - Change Uniform Civil Procedure Rule to Uniform Civil Procedure Rules on coversheet and paragraph 6. 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: 10 March 2017