Federal Court of Australia

PF1 Solutions Pty Ltd (in liq) v Doshi, in the matter of PF1 Solutions Pty Ltd (in liq) (No 3) [2025] FCA 373

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff provide, within 14 days of the date of these orders, security for the defendants’ costs in the sum of $200,000.

2.    The proceeding be stayed until such security is provided.

3.    Prayers 1 to 4 of the defendants’ interlocutory application filed 7 March 2025 otherwise be dismissed, with the plaintiff to pay the defendants’ costs up to 26 March 2025 and the defendants to pay the plaintiff’s costs from 27 March 2025.

4.    Prayer 5 of the defendants’ interlocutory application filed 7 March 2025 be dismissed, with the defendants to pay the plaintiff’s costs.

5.    The proceeding be listed for a further case management hearing at 9.30 am on 8 May 2025, or such other date as may be agreed between the parties and the Associate to Goodman J.

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

REASONS FOR JUDGMENT

GOODMAN J:

A.    Introduction

1    These reasons for judgment deal with aspects of an interlocutory application filed by the defendants on 7 March 2025 seeking, relevantly, an order for the provision of security for costs and an order for the enforcement of an earlier order made by consent concerning the costs of an earlier interlocutory application.

2    The relevant background is as follows:

(1)    in April 2024, the proceeding was commenced by Mr Henry Kazar, in his capacity as liquidator of PF1 Solutions Pty Ltd (in liquidation) and by PF1 Solutions as plaintiffs;

(2)    on 18 June 2024, the plaintiffs filed an interlocutory application seeking freezing orders pursuant to s 1323 of the Corporations Act 2001 (Cth) against the defendants;

(3)    on 8 July 2024, I made freezing orders against the assets of the defendants following an ex parte hearing;

(4)    on 23 July 2024, I made orders varying the freezing orders and setting down for hearing on 29 August 2024 a contested application concerning the freezing orders;

(5)    on 29 August 2024, that contested application was heard and ultimately resulted in orders made by consent which included: undertakings from the defendants not to dispose of, deal with or diminish the value of any of certain identified assets, subject to a regime pursuant to which they may do so with the consent of the plaintiffs; the setting aside of the 8 July 2024 orders (as varied on 23 July 2024); a costs order in favour of the defendants (discussed further at C. below); and an order that the plaintiffs file and serve any amended statement of claim by 6 September 2024; and

(6)    on 6 September 2024 an amended statement of claim was lodged with the Court (and accepted for filing on 9 September 2024), which, inter alia, removed Mr Kazar as a plaintiff, leaving PF1 Solutions as the sole plaintiff.

B.    The security for costs application

3    The defendants seek the following orders concerning the provision of security for costs:

1.    An order pursuant to section 1335 of the Corporations Act 2001 (Cth) and rule 19.01 of the Federal Court Rules 2011 (“FCR”), that the applicant provides security for the costs of the respondents in the sum of $200,000, or in such amount as determined to be appropriate by the Court.

2.    Pursuant to rule 19.01(1) of the FCR, the proceedings commenced by the applicant be dismissed with costs if the applicant fails to comply with Order 1.

3.    The above orders are made without prejudice to the respondents’ right to seek further and alternative orders from the Court in respect of further security for its costs.

4.    Pending the determination of this interlocutory application, and the payment of any security ordered, the respondents are excused from filing their defence.

4    It is common ground that there is reason to believe that PF1 Solutions is a corporation that will be unable to pay the costs of the defendants if they were successful in their defence, and thus that the discretion in s 1335 of the Act is enlivened. The only area of dispute concerns the appropriate amount of security for costs to be provided.

5    During the course of the hearing of the application, counsel for the defendants made an oral application to amend the quantum of the security sought from $200,000 to $250,000. Counsel for PF1 Solutions resisted that application. In view of the conclusion that I have reached as to the appropriate orders to be made, it is unnecessary to resolve the oral amendment application as the result would be the same in either case.

6    The unchallenged evidence of the defendants’ solicitor, Mr Mannu Devgan, is that he anticipates the defendants’ costs of the proceeding up to and including a trial to be $251,301.71, representing professional costs of $111,000 and disbursements of $140,301.71.

7    PF1 Solutions has offered to provide security in the amount of $200,000, which coincides with the maximum amount that a litigation funder has agreed to provide as security if an order for security for costs is made in this proceeding.

8    It is appropriate to take a “broad-brush” approach to the setting of an amount to be provided by way of security for costs. Although the purpose of such an order is to provide some protection to the defendants such that any costs order in their favour is not pyrrhic, it is not part of the purpose of such an order to provide a complete indemnity for the costs of a successful party.

9    Mr Devgan’s estimate provides for a complete recovery of professional costs and disbursements. Counsel for the defendants submitted that an appropriate alternative amount may be the sum of: (1) 70 per cent of Mr Devgan’s professional costs; and (2) all of the disbursements (including counsel’s fees), which is an amount in the order of $217,000.

10    In my view, both of these figures are too high. The vagaries of litigation are many and the estimate provided by Mr Devgan, albeit detailed, is but an estimate and it may be that some of the costs that he has estimated will not need to be incurred. It also assumes that the rates charged are recoverable. An appropriate amount, in my view, is an amount in the order of $200,000 and I will make an order for the provision of security in that amount.

11    The defendants seek an order that the order for security be expressed to be without prejudice to their right to seek other orders with respect to security. Such an order is unnecessary as it is open to the defendants to apply for other orders.

12    The defendants also seek an order that the proceeding be dismissed if the security is not provided. I am not minded to make such an order at this stage, but I will make an order that the proceeding be stayed until the security has been provided. A consequence of the stay of the proceeding is that the defendants’ defence need not be filed unless the security has been provided, rendering unnecessary the fourth order sought in the defendants’ interlocutory application.

C.    Earlier costs order

13    I turn now to the application for enforcement of the costs order made on 29 August 2024.

14    By prayer 5 of their interlocutory application, the defendants seek an order that:

Mr Henry Kazar forthwith pay the costs of and incidental to the applicants’ interlocutory application dated 18 June 2024, including reserved costs, fixed in the sum of $42,500.

15    This part of the application concerns the following order (order 4) made by consent on 29 August 2024:

The plaintiffs pay the defendants costs of and incidental to the plaintiffs’ interlocutory application dated 18 June 2024, including reserved costs, fixed in the sum of $42,500, payable at the conclusion of the trial.

16    The defendants submit that as Mr Kazar is no longer a party and thus there will be no trial to which Mr Kazar will be a party, there is no reason to delay the payment of the amount that he agreed to pay and was ordered to pay.

17    I do not accept this submission. The text of order 4 unambiguously contemplates that both Mr Kazar and PF1 Solutions are liable to pay the costs of the 18 June 2024 interlocutory application in a fixed amount and that the obligation to pay that amount arises at the conclusion of the trial. There is yet to be a trial and as such the obligation to pay has not yet arisen.

18    This is not affected by the removal of Mr Kazar as a plaintiff. He remains liable and will be obliged to pay once there has been a trial. In truth, the defendants seek an acceleration of the payment because Mr Kazar is no longer a plaintiff, but there is no basis in order 4 for doing so.

D.     conclusion

19    For the reasons set out above PF1 Solutions is to provide, within 14 days, security for costs in the sum of $200,000, with the proceeding stayed until such security is provided; and prayer 5 of the defendants’ interlocutory application is to be dismissed.

20    PF1 Solutions should pay the defendants’ costs of the security for costs application up to 26 March 2025; and the defendants should pay PF1 Solutions’s costs of that application from 27 March 2025, on which date PF1 Solutions offered to provide security in the amount of $200,000. I do not consider the non-acceptance of that offer to be sufficient to justify an award of indemnity costs in all of the circumstances but it is sufficient to require that costs be paid on the usual basis. The defendants should pay PF1 Solutions’s costs of the application in prayer 5 of the defendants’ interlocutory application.

21    I will make orders accordingly.

Associate:

Dated:    17 April 2025