Federal Court of Australia

Construction Kings Pty Ltd v Cashflow Finance Australia Pty Ltd [2020] FCA 1297

ORDERS

THE COURT ORDERS THAT:

1.    Within 16 days of compliance by the applicant with order 3 herein, the respondent provide the following further and better particulars of its Amended Defence filed on 15 July 2020:

(a)    In relation to paragraph 12(b)(iii) of the Amended Defence, particulars of the allegation that Mr Toki was a director of Euro-Crete;

(b)    In relation to paragraph 13E(b) of the Amended Defence, particulars of:

(i)    the “certain invoices” alleged therein; and

(ii)    the “insured limit” alleged therein.

(c)    In relation to paragraph 17(i)(i) of the Amended Defence, particulars of what are alleged to be the “events of default” pleaded in paragraph 13E of the Amended Defence, including by reference to the relevant paragraph of clause 30.4 of the Facility Deed;

(d)    In relation to paragraph 17(i)(ii) of the Amended Defence, particulars of the allegations that the Unverified Euro-Crete Invoices were untrue and misleading;

(e)    In relation to paragraph 17(i)(iii) of the Amended Defence, particulars of the advice alleged therein, including:

(i)    the Euro-Crete representative that allegedly gave the advice; and,

(ii)    how that representative gave the alleged advice, including:

A.    If given orally (in whole or in part), how the oral advice was given (whether in person, by telephone or otherwise).

B.    If given in person:

1.    The place/s where the advice was given; and,

2.    The name/s of the person/s who were present or to whom the advice was given; and,

C.    If given in writing (in whole or in part), identify the relevant document/s.

(f)    In relation to paragraph 17(i)(iv) of the Amended Defence, particulars of the date on which the alleged Insolvency Event occurred.

(g)    In relation to paragraph 17(i)(v) of the Amended Defence, particulars of:

(i)    The date on which the alleged Insolvency Event occurred; and

(ii)    The debts that the applicant was allegedly unable to pay as and when they fell due.

2.    Within 28 days of compliance by the applicant with order 3 herein:

(a)    The applicant make standard discovery, within the meaning of r. 20.14 of the Federal Court Rules 2011 (Rules), in the form identified in the affidavit of Amanda Jane Heard sworn 20 August 2020;

(b)    The respondent make standard discovery in the form identified in the affidavit of William Timothy Fitzgerald sworn 20 August 2020;

(c)    The discovery provided by each of the parties is to be provided electronically.

3.    Within 56 days of the date of this Order, the applicant provide security for costs by way of a bank guarantee, or similar guarantee satisfactory to the respondent, in the amount of $72,000.00.

4.    The proceeding be stayed until compliance with order 3 herein.

5.    Costs in the proceeding.

6.    The proceeding be listed for a case management hearing at 9.45 am on 30 November 2020.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DERRINGTON J:

Background

1    Initially there were four applications before the Court: an application for security of costs filed by the respondent on 23 July 2020; an application for discovery filed by the respondent on 20 August 2020; an application for further and better particulars filed by the applicant on 20 August 2020; and an application for discovery filed by the applicant on 1 September 2020. Ultimately, only the application for security of costs remained in contention, the latter three applications having been resolved by the agreement of the parties.

The application for security of costs

2    There was no dispute between the parties that it was appropriate to make an order for security for costs in the circumstances of the case under either r 19.01 of the Federal Court Rules 2011 (Cth) (the Rules) or s 1335 of the Corporations Act 2001 (Cth).

The quantum of security to be provided

3    Each of the parties adduced competing evidence on the quantum of the security to be provided. By its application filed on 23 July 2020, the respondent sought an order for security of costs in the sum of $147,400.69. This figure was calculated in the affidavit of Ms Amanda Heard, the solicitor with carriage of the matter for the respondent. In response, the applicant engaged Mr Lawrence Hallam, an independent Legal Cost Assessor, who identified in his affidavit of 31 August 2020 that the reasonable party/party costs for the trial was $71,785.83.

4    During the hearing of the application, Mr de Waard of Counsel, for the respondent, indicated that his client would accept a rounded figure of $72,000 as an appropriate amount of security. That concession was very properly made, and obviated the need for any further consideration of the question of quantum. It might be added that where there is a choice between the evidence of an independent expert who has complied with the Court’s Harmonised Expert Witness Code of Conduct and that of a solicitor for one of the parties who owes duties of loyalty to their client, the former will almost invariably be preferred: Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2020] FCA 1018 [106] – [109].

The form of security to be provided

5    The only question which remained in dispute was the form of the security which ought to be given.

6    Mr Dietz, Counsel for the applicant, submitted that the sole director and shareholder of the applicant, Mr Mitchell Tocki, is willing to “stand out from behind the company” and meet any adverse cost order made against the applicant company. To this end, Mr Tocki has indicated that he is willing to offer a personal guarantee up to the amount of $72,000, and an undertaking that he will not deal with his assets or encumber them in any way, presumably until the end of the proceedings.

7    Mr de Waard for the respondent submitted that the appropriate form of undertaking would be the provision of a bank guarantee in the amount of $72,000. To this end, he submitted that under r 19.01 of the Rules, the fact that the person standing behind a corporate party “comes out from behind the skirts of the company” is not necessarily sufficient, and that the Rules may require the provision of an actual amount of security to appropriately protect the respondent. He cited some support for that position in the decision of Markovic J in Neptune Hospitality Pty Ltd v Ozmen Entertainment Pty Ltd [2019] FCA 1734, although that case was dealing primarily with an application for security of costs of appeal.

8    Mr de Waard further submitted that Mr Toki appears to be of limited financial means. There was much force in this submission. In his affidavit of 4 September 2020, Mr Tocki deposed to owning a unit (jointly with his wife), and a portfolio of shares. However, it appears that the unit is subject to a substantial mortgage, and the nature, number and value of his shares are not disclosed. Consequently, the precise value of Mr Tocki’s assets is not clear.

9    In determining whether a bank guarantee is a more appropriate form of security in this case, I have also considered several other factors, including:

(a)    The provision of a bank guarantee will involve the outlay of further funds, as the bank will need to obtain valuations of any assets to which it might have recourse, including the unit owned by Mr Tocki and his wife;

(b)    The unit owned by Mr Tocki is jointly owned with his wife, and she may be impacted by the undertaking given by Mr Tocki; and

(c)    The relative strengths of the parties’ cases is difficult to determine, as the matter has not progressed further than the filing of pleadings.

10    None of these factors is of significant weight. Ultimately, the matter is one on which reasonable minds may disagree. Although Mr Tocki has identified his willingness to offer an undertaking in relation to those costs to an amount of $72,000, from the material before the Court I apprehend it is not sufficient because its value is unknown. I accept the submission by Mr de Waard that, in the absence of any evidence of Mr Tocki’s worth, the undertaking affords the respondent no protection at all.

Conclusion

11    In all the circumstances the order ought to be that the security for costs be provided by or in the form of a bank guarantee, or other similar guarantee satisfactory to the respondent.

Associate:    

Dated:    4 September 2020