Supreme Court New South Wales Medium Neutral Citation: Validus Advisory Group Pty Ltd v Consolidated Tin Mines Ltd [2017] NSWSC 1042 Hearing dates: 24 July 2017 Date of orders: 09 August 2017 Decision date: 09 August 2017 Jurisdiction: Common Law Before: Lonergan J Decision: (1) Pursuant to rule 42.21(1) of the Uniform Civil Procedure Rules 2005 (NSW) and s 1335(1) of the Corporations Act 2001 (Cth), I order that the plaintiff, Validus Advisory Group Pty Ltd provide security for the defendant's costs within 28 days in the sum of $85,000, such security to be provided by way of an unconditional bank guarantee in a form acceptable to the defendant. (2) In the event that the security ordered in order 1 above is not provided within the specified timeframe, the proceedings be stayed until further order. (3) The plaintiff is to file and serve a Reply on or before 22 August 2017. (4) The plaintiff is to file and serve its defence to the cross-claim on or before 22 August 2017. (5) The proceedings are transferred to the Commercial List. (6) The proceedings are listed for directions in the Commercial List on Friday 18 August 2017. (7) Costs reserved. Catchwords: COSTS – security for costs – proportionality – matter of impression – no question of principle Legislation Cited: Civil Procedure Act 2005 (NSW) s 60 Corporations Act 2001 (Cth) ss 925E, 925F, 1335 Uniform Civil Procedure Rules 2005 (NSW) r 42.21 Cases Cited: April Fine Paper Macao Commercial Offshore Ltd v Moore Business Systems Australia Ltd (2009) 75 NSWLR 619; [2009] NSWSC 867 Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 Re Colorado Products Pty Ltd (In Prov Liq) [2013] NSWSC 611 Green Camel Pty Ltd v Urban Ecological Systems Ltd [2007] NSWSC 362 Pacific Acceptance Corp Ltd v Forsyth (No 2) [1967] 2 NSWR 402; (1967) 85 WN (Pt 1) (NSW) 715 Category: Consequential orders (other than Costs) Parties: Validus Advisory Group Pty Ltd (Plaintiff/Respondent) Consolidated Tin Mines Ltd (Defendant/Applicant) Representation: Counsel: J Hutton (Plaintiff) D Weinberger (Defendant) Solicitors: King & Wood Mallesons (Plaintiff) Deutsch Partners (Defendant) File Number(s): 2017/73817 Publication restriction: Nil Judgment 1. By notice of motion filed 23 May 2017, the defendant/cross-claimant ("CTM") seeks an order for security for costs against the plaintiff pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 42.21 and the Corporations Act 2001 (Cth) s 1335. The order sought is in the identified amount of $146,622.00 (or such other amount as the court deems fit) and this is sought by way of payment into court or by provision of another form of security acceptable to the defendant. 2. There is no issue that security should be provided but the amount appropriate in the circumstances is in dispute. 3. The defendant relied upon an affidavit of David Paul Cowling sworn 23 May 2017, which sets out in some detail the history of the proceedings, including correspondence with the plaintiff's solicitor requesting information regarding the plaintiff company's financial position. 4. The plaintiff relies upon an affidavit of David Deutsch sworn 30 June 2017. Mr Deutsch is the solicitor for the plaintiff. He has estimated potential costs to be significantly less than the estimate provided by the defendant. He also expressed a view that the claim is "very simple". 5. The proceedings concern the payment of fees for financial advisory services provided to CTM. There was an agreement dated 6 July 2016 which set out broadly the services to be provided by the plaintiff which involve, broadly speaking, advising and assisting CTM in procuring debt or equity funding. Pursuant to the agreement, CTM paid a sum of $250,000 into trust and an initial deduction from that sum in accordance with the agreement took place. However, CTM says that although the plaintiff took some steps to procure debt or equity finance, they were unsuccessful and the finance was raised ultimately by CTM when it procured a third party, Cyan Stone Pty Ltd, to invest. Subsequently, there was a deed of company arrangement approved by creditors. 6. The statement of claim filed by the plaintiff on 9 March 2017 claims an amount of $449,253.20 alleged to be owing as a debt under the agreement, calculated on a basis of 3% of a particular figure. 7. The Defence was filed on 12 July, outlining three principal defences. First, the commission is not payable because there was no debt or equity raised by virtue of the services provided pursuant to the agreement. Second, the plaintiff company did not have an Australian financial services licence when it entered into the agreement, and pursuant to s 925E of the Corporations Act 2001 (Cth), when read with s 925F of that Act, there is no entitlement for fees. Third, the plaintiff's claim and any debt due to it was extinguished by the deed of company arrangement. 8. There was also a cross-claim filed by CTM seeking to recover the remaining funds held by the plaintiff on trust as well as the $50,000 signing fee that had been deducted during the progress of the agreement. 9. The cross-claim was filed on 12 July and it appears there is as yet no Defence to that filed, nor has a Reply been filed on behalf of the plaintiff. I have been asked to make some case management orders and will return to those later in the judgment but it seems appropriate and sensible that the matter be referred to the Commercial List together with some preliminary orders. Components of amount claimed 1. The principal matter in issue and, in effect, the only issue agitated before me was the amount in which I should order security, taking into account the relevant legal principles. 2. Paragraphs 27 to 32 of the affidavit of David Paul Cowling dealt with the estimate of CTM's costs. Mr Cowling is a partner at King & Wood Mallesons, admitted in July 1982, and deposes to have substantial experience in conducting commercial litigation in both state and federal superior courts. He concluded that the matter will require a one-day mediation and also costed a one-day hearing. He estimated that CTM's costs would total $209,460.00. Based on his experience in conducting commercial litigation in the Supreme Court of New South Wales and the areas in issue in the proceedings, he concluded a likely recovery of 65-75% of the costs incurred. He therefore identified a figure of $146,622.00, being 70% of the defendant's recoverable costs in the proceedings as being the sum appropriate for security. 3. Mr Cowling identified his charge-out rate as $795.00 per hour and his assisting solicitors as $650.00 and $450.00 per hour respectively, plus GST. Also referred to in the affidavit was the fact that junior counsel had been briefed and that his fees were a daily rate of $3,600.00 per day or an hourly rate of $380.00 plus GST. 4. Further relevant to this issue was a two-page schedule of anticipated costs appended to Mr Cowling's affidavit. Involvement of particular personnel in particular tasks was identified in terms of hours. 5. Mr Deutsch, managing partner of the solicitor for the plaintiff, stated in his affidavit that he had 17 years of experience in conducting commercial litigation. He expressed the opinion that the total costs CTM was likely to incur in defending the proceedings was more likely to be in the vicinity of $77,000 and that an appropriate figure the Court should order to reflect the potential recoverable costs is $50,000.00. He also deposed to the fact that the plaintiff was prepared to place that sum into court to avoid the costs of a contested notice of motion. Submissions 1. Counsel for CTM submitted orally that although the evidence on the costs estimate had not been updated, the costs incurred for tasks performed to date actually exceeded the estimate. Second, that there was some flexibility in the case the plaintiff had pleaded given it was a proportion of a gross sum and therefore, as a matter of principle, as more funds are contributed to the organisation by Cyan, it was arguable that the total potential value of the commission was not $450,000.00, but something closer to $1.1 million. 2. In reply to this submission, counsel for the plaintiff simply stated that if and when further finances are provided to CTM, then his client may be entitled to claim the greater commission but at this stage, the case is concerning the sum sought in the statement of claim only. 3. In relation to CTM's further costs assessments, the plaintiff submitted that it was not clear why there needed to be two CTM witness statements, and that $37,000.00 for preparation of witness statements seemed excessive. He noted that the fees identified for the hearing date seemed to be large and that the schedule appeared to provide for two solicitors to be present for the whole of the hearing, as well as counsel, as well as a partner for 3 hours of the day, and that this seemed unnecessary. 4. Counsel for the plaintiff also referred to the decision of Green Camel Pty Ltd v Urban Ecological Systems Ltd [2017] NSWSC 362 at [14], [47], [65] in support of the argument that the cross-claim proceedings should remain characterised as defensive and not productive of additional complexity or costs. He also submitted that one option that was explored in Green Camel as set out in paragraph [68] was for a security to be paid in two tranches. In that case, there was a submission made that the first tranche should be ordered in relation to the pre-trial component having regard to the possibility that the matter might resolve before trial (relying upon the judgment of Moffit J in Pacific Acceptance Corp Ltd v Forsyth (No 2) [1967] 2 NSWR 402; (1967) 85 WN (Pt 1) (NSW) 715). 5. In response, counsel for CTM emphasised that costs had already been incurred as a result of the proceedings being commenced, and that a further significant amount of costs would be incurred at the time the plaintiff files and serves its evidence. It was also submitted that the factual matters were not necessarily simple, and required evidence addressing the entry into the agreement, the provision of services by the plaintiff company, whether the services had a contributing role to CTM's position and whether there was a relevant Australian financial services licence in place and addressing any issues relating to that question. Counsel for CTM submitted that discovery about the nature of the business and other relevant issues may well be required and may well be contested and that preparation for mediation, let alone hearing, would require some detailed consideration of the facts and legal reasoning and principles relevant to the litigation so that prospects of settlement could be fully explored. He also made the submission that a one-day hearing assumes efficient conduct of the matter, and that the client in coming to the firm of solicitors chosen indicated a wish to engage a particular level of expertise and that it should be entitled to utilise such expertise. 6. Counsel for CTM also relied upon the decision of Black J in Re Colorado Products Pty Ltd (In Prov Liq) [2013] NSWSC 611 at [69], which provides that an application for security for costs may extend not only to future costs but also the costs already incurred. The principles 1. The object of an order for security for costs is to protect the party who is brought to court against the possibility that the plaintiff, if unsuccessful, will be unable to meet an order for costs. 2. UCPR r 42.21 provides relevantly as follows: (1) If, in any proceedings, it appears to the court on the applicant of a defendant: … (d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so. … (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) whether the plaintiff is effectively in the position of a defendant, (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 Corporations Act also relevantly provides a basis for security for costs in s 1335: (1) Where a corporation is plaintiff in any action or other legal proceeding, the 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 costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. … (2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs. 1. The Civil Procedure Act 2005 (NSW) s 60 provides for proportionality of costs as follows: 60 Proportionality of costs In any proceedings, the practice and procedure of the court should be implemented with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute. 1. As observed by Nicholas J in Ashington Capital Pty Ltd v Parissen Capital (Project X) Pty Ltd [2012] NSWSC 410 at [15], adopting the approach of White J in April Fine Paper Macao Commercial Offshore Ltd v Moore Business Systems Australia Ltd (2009) 75 NSWLR 619; [2009] NSWSC 867, the approach to be taken is underpinned by a duty on all legal representatives to ensure that the litigation is conducted in such a way which facilitated the just, quick and cheap resolution of the real issues in the proceedings: [15] …it is relevant to consider whether the sum claimed for security for costs bears a reasonable relationship to the value and importance of the subject matter in issue (pars 13, 14); the assembly of relevant documents and the taking of statements of evidence should be done at the earliest possible stage so that pleadings are prepared with the benefit of proofs of evidence and the client's documents (par 23); where there is work that can be done either by the solicitor or by junior counsel, and, as often happens, junior counsel is more experienced than the solicitor and charges at a significantly lower rate, then the solicitor's duty to his or her client is to ensure that the work is done at the lower cost (par 26). Ultimately, the matter is very much one of impression (par 31). [16] As to quantum, the court's power under s 1335(1) Corporations Act is to require that "sufficient security" be given. There is nothing otherwise to limit the amount which may be ordered. Under r 42.21(1) the discretion is to order such security as the court thinks fit. The court is not bound to give the amount of security which a defendant says will be the amount of his costs, and does not set out to give the defendant a complete indemnity for costs (Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497, p 515). [17] In Allstate Life Insurance Co v ANZ Banking Group Ltd [1995] FCA 1778; (1995) 134 ALR 187 at 197 Lindgren J said: "The amount is in the discretion of the court and should be such sum as the court thinks just, having regard to all the circumstances of the case. Obviously, a factor of prime importance will be the amount of a respondent's costs which an applicant, if unsuccessful, will be ordered to pay to the respondent if the proceeding continues to a determination by the court. But the estimation of that amount involves many factors, some of them imponderable. Generally speaking, it cannot be assumed that a failure by an applicant will be on any particular basis. Moreover, the course of events down to and during the trial may be relevant to the particular order for costs to be made. The assessment of the work which will be done in the respondent's interests is also difficult." 1. As stated by Nicholas J, a broad-brush approach is required and it is not my task to try to be a costs-assessor and explain in detail the assessment of the quantum of security ordered. Determination 1. The plaintiff concedes, properly, in my view, that an order for security for costs should be made. The question is the appropriate sum. In my view, it does not matter whether the amount ultimately claimed in the primary proceedings is the amount specified in the current statement of claim, or whether that figure has to be adjusted at a later point to take into account other developments. I have been informed by counsel for the plaintiff that the amount claimed is as specified in the statement of claim, but even if that amount changes during the progress of the litigation, the arguments of principle and, in particular, the defences clearly articulated in the Defence remain broadly the same. 2. It is apparent from the specificity of the Defence significant progress must have already been made in terms of obtaining instructions and preparation of statements. The Defence is verified by a director of CTM. The statement of cross-claim is also detailed and verified by that same director. 3. A number of the individual items raised in the affidavit of Mr Cowling and the associated schedule, whilst steps in litigation that may be appropriate to complete, not all will be necessary. The assessment does not seem to take sufficient account of the building up of knowledge, instructions and material as the preparation of the matter progresses. Each item appears to proceed on the basis of a "clean slate" in terms of knowledge and instructions. Whilst entirely appropriate that a partner have some involvement in the oversight of the litigation, the schedule annexed to the affidavit of Mr Cowling appears to involve a certain amount of duplication by the solicitor, senior associate and junior counsel. It appears to me that elements of proportionality of costs need to be taken into account in a matter where the sum claimed is less than $450,000. There also needs to be appropriate consideration of the overarching role of a competent junior barrister and the reflective competitiveness of the rates of such a person, and the role that he/she can have in ensuring that the fees ultimately remain proportional to the value of the subject matter of the litigation. 4. The assessment of Mr Cowling also seems to assume contest by way of interlocutory applications, a significant sum for preparation and responding to applications for discovery (apparently on the assumption that formal contested discovery will be required) and significant amounts for preparation for hearing (over $32,000) as well as a significant amount for preparation for an attendance at mediation (over $23,000). 5. On the other hand, the assessment of Mr Deutsch is overly conservative, and based on a view that the case is a simple one, involving only one issue. It is evident from the Defendant the submissions of counsel for CTM that the issues are more complex than that. 6. It seems to me taking a broad approach, an appropriate amount for security for costs would be $85,000. In terms of a submission made that I should consider ordering security for costs in two tranches, given the matter has clearly progressed since the filing of the statement of claim in March and the matter is about to be referred to the Commercial List for management, I am of the view that there is no particular benefit to dividing the security into two tranches, and accordingly I decline to do so. 7. There was no suggestion by counsel for CTM that it was inappropriate to order security for costs in the form of a bank guarantee. Accordingly, that is what I will order. Costs 1. I reserve my decision on costs of the application pending further submissions. Orders 1. It was proposed jointly by the parties that the matter was appropriate for entry into the Commercial List. Some case management orders were also proposed and are appropriate. Accordingly, I order as follows: 1. Pursuant to rule 42.21(1) of the Uniform Civil Procedure Rules 2005 (NSW) and s 1335(1) of the Corporations Act 2001 (Cth), I order that the plaintiff, Validus Advisory Group Pty Ltd provide security for the defendant's costs within 28 days in the sum of $85,000, such security to be provided by way of an unconditional bank guarantee in a form acceptable to the defendant. 2. In the event that the security ordered in order 1 above is not provided within the specified timeframe, the proceedings be stayed until further order. 3. The plaintiff is to file and serve a Reply on or before 22 August 2017. 4. The plaintiff is to file and serve its defence to the cross-claim on or before 22 August 2017. 5. The proceedings are transferred to the Commercial List. 6. The proceedings are listed for directions in the Commercial List on Friday 18 August 2017. 7. Costs of the application reserved. ********** 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: 22 August 2017