Broadway Plaza Investments v Broadway Plaza Pty Ltd; In the matter of Combined Projects (Arncliffe) Pty Ltd

1. [1]

   HER HONOUR: Before me for hearing on 4 July 2019 and 12 August 2019 were interlocutory applications brought in two sets of proceedings which have been the subject of case management by me for most of this year and which are listed together for hearing before Slattery J to commence in November this year. The applications concern the provision of a secured undertaking in relation to the costs of the proceedings (sought in relation to the bringing of a derivative suit, by way of cross-claim, in one of the two sets of proceedings) and further or in the alternative for the provision of security for costs in one or both of the respective proceedings.

Background

1. [2]

   The underlying disputes between the parties, and the background to the respective applications now before me, were considered in my earlier interlocutory decision relating to subpoenas that had been issued in the Broadway proceedings (see Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2019] NSWSC 410) but it is convenient here by way of summary to reprise that background.

2. [3]

   There are two sets of proceedings: the Broadway proceedings (2016/00282940) and the Arncliffe proceedings (2017/00180712).

3. [4]

   The Broadway proceedings arise out of a dissolved partnership (the Broadway partnership) between the plaintiff, Broadway Plaza Investments Pty Ltd (Investments), and the defendant, Broadway Plaza Pty Ltd (Plaza), for the development (the Broadway development) of a property in Punchbowl (the Punchbowl Property).

4. [5]

   Investments is a company the shares in which are held by Deiri Nominees, which forms part of a group of construction and development companies (the Deiri Group) run by Mr Fouad Deiri (Mr Deiri). Mr Deiri is the director of Investments.

5. [6]

   Plaza is a company the shares in which are held by Sayour Holdings Pty Ltd (Sayour Holdings), a company of which Mr Moustafa Sayour (Mr Sayour) is the sole shareholder and director. Mr Sayour was the sole director of Plaza until March 2018 and remains a director of the company.

6. [7]

   The Broadway partnership was formed on or about 27 December 2011 for the purposes of development of the Punchbowl Property into a shopping centre and residential apartments. There was no written partnership agreement. Investments was to manage the design and construction of a shopping centre and residential apartments; and Plaza was to manage the leasing of the centre. Profits were to be split equally. The builder for the project was Deicorp Pty Ltd (Deicorp), of which company Mr Deiri was the sole director and Deiri Nominees was the sole shareholder. Mr Deiri’s principal dealings with Plaza throughout the partnership were through Mr Sayour’s son, the late Jamil Sayour.

7. [8]

   On 15 February 2012, a loan to finance the car park and shopping centre was executed with the Commonwealth Bank of Australia (CBA) in the amount of $45.6 million. On 20 June 2013, this loan was reinstated as an investment facility and the balance of the loan became part of a separate facility. Construction of the retail shopping centre on the Punchbowl Property was completed in December 2013. The residential apartments were sold in November 2014. Following the sale, the remaining loan to CBA was repaid. From November 2014 to January 2015, a surplus of approximately $18.69 million was distributed to Investments and Plaza. (Investments says that these distributions were made in accordance with Jamil Sayour’s instructions.)

8. [9]

   Jamil Sayour died in October 2015. In November 2015, after the discovery by Mr Sayour of various matters in relation to the partnership, Mr Sayour asserted to Mr Deiri that Plaza did not receive its share of the partnership profits and that Jamil Sayour had no authority to distribute any partnership moneys. (In my previous judgment, I referred to the filing by Mr Sayour of affidavits in the proceedings in which he deposes to his discovery of what he maintains are frauds against Plaza and the Sayour Family Trust, namely his affidavits sworn 27 October 2016 and 25 October 2017. Those affidavits were not read on the current applications but I do not understand it to be in dispute, and there was reference to this in submissions, that the allegations made in the Broadway proceedings include allegations of forgeries and fraud.)

9. [10]

   On 21 September 2016, Investments dissolved the partnership and commenced the Broadway proceedings, seeking (among other relief) orders: that the Broadway partnership be wound up; that a receiver be appointed; and that an account be taken. Thus, the proceedings commenced (and Counsel for Investments maintains they still continue) as proceedings for the taking of partnership accounts. On 29 September 2016, Hallen J made a declaration as to the dissolution of the Broadway partnership and orders were made appointing a receiver (Mr Lord) to the Broadway partnership’s assets and undertaking and for partnership accounts to be taken.

10. [11]

    The only assets of the Broadway partnership were the shopping centre and its associated assets. The sale of the shopping centre was settled on 30 March 2017 for $41.2 million. The receiver paid out $34.3 million under the loan to CBA; and, according to CBA, nothing is presently owing to it. Therefore, the Broadway proceedings are in effect spent as far as the initial relief sought by Investments is concerned. The receiver currently holds approximately $5 million of partnership funds.

11. [12]

    The remaining issues in the Broadway proceedings relate to the various cross-claims that have been filed in those proceedings.

12. [13]

    The first cross-claim was filed on 12 October 2017 by Plaza against CBA and Investments, seeking $108,252.788 from CBA. In this cross-claim, Plaza alleges that CBA breached its mandate and is liable in respect of forged signatures on facility agreements which funded the Broadway development and cheques drawn on the partnership bank account with CBA (the CBA partnership account).

13. [14]

    The second cross-claim was filed on 4 June 2018 by Plaza against Investments, seeking $35.76 million plus interest of $504,000 per month. Plaza alleges that Investments has not paid the sum of $6 million in consideration for the purchase by Investments of Plaza’s 50% interest in the Punchbowl Property nor a further sum of $2 million pursuant to a further contract.

14. [15]

    The third cross-claim was filed on 13 June 2018 by Investments against Plaza. Investments seeks, among other things, rectification of the contract of sale the subject of the second cross-claim and alleges breach by Plaza of a separate agreement governing the arrangements for the purchase price of the Punchbowl Property and the question of interest, as well as breach of fiduciary duty and unconscionable conduct.

15. [16]

    The fourth cross-claim was filed on 28 June 2018 by Investments against the partners of HWL Ebsworth (HWLE), the lawyers who acted for Investments in relation to the contract for sale the subject of the second cross-claim. In the alternative to the third cross-claim, Investments alleges that if (which is denied) it is liable to Plaza in respect of the claim made in the second cross-claim, then HWLE is liable to Investments in respect of that liability.

16. [17]

    The fifth cross-claim was filed on 22 August 2018 by Plaza against eleven cross-defendants, including: Investments (the first cross-defendant), Mr Deiri (the third cross-defendant), Deiri Nominees (the fourth cross-defendant), and a number of Deicorp Group entities (the fifth to eighth and tenth to eleventh cross-defendants, to which I will refer collectively, unless the context otherwise requires, as the Deicorp Entities – i.e., Combined Projects (Gibbons) Pty Ltd as the fifth cross-defendant; Combined Property Investments Pty Ltd as the sixth cross-defendant; Combined Projects (Redfern) Pty Ltd as the seventh cross-defendant; Combined Projects Holdings Pty Ltd as the eighth cross-defendant; Deicorp as the tenth cross-defendant and Combined Projects (Arncliffe) Pty Ltd (Combined Projects Arncliffe) as the eleventh cross-defendant). Plaza alleges that payments made by the partnership to the builder for the development, Deicorp, were not liable to be paid for various reasons, including a failure to issue payment certificates and invalid variations under the construction contracts. Plaza further alleges that certain payments by Investments or by certain of the Deicorp Entities to Jamil Sayour (the making of which it is alleged were not disclosed to Plaza) constituted bribes and that, by virtue of those bribes (and the alleged non-disclosures), Jamil Sayour was induced to act in certain ways to the detriment of Plaza (including: to place his own signature on cheques drawing funds from the CBA joint partnership account; to forge Mr Sayour’s signature on cheques drawing funds from that account; and failing to disclose a lower construction quote for the development). It is alleged that each of the first, fourth to eighth and tenth cross-defendants has received a benefit as a result of the alleged bribes and breaches of fiduciary duty by the first and third cross-defendants (“comprised in their conduct in participating in the alleged bribes and non-disclosures”) and that the first, third to seventh, tenth and eleventh cross-defendants “by the said bribes paid by each, and by each of them not disclosing the same to Plaza, acted in concert to secure a mutual benefit, namely the enrichment of the Deicorp Group of companies” by the several payments alleged. Plaza seeks declaratory and other relief, including (under the heading “[r]ecovery of money allegedly improperly paid to Jamil Sayour”) equitable compensation.

17. [18]

    In their respective defences to the fifth cross-claim (filed on 22 February 2019), Deiri Nominees (whose defence is a joint defence with Mr Deiri and Investments) and the Deicorp Entities each admit to various alleged payments (although they deny that the payments constituted bribes and they deny the claims for relief made against them).

18. [19]

    Finally, the sixth cross-claim was filed on 22 February 2019 by the builder, Deicorp, against Investments and Plaza pleading a quantum meruit claim in the event that Plaza were to succeed on the allegations in its fifth cross-claim that payments made to Deicorp were not liable to be paid pursuant to the construction contracts.

19. [20]

    The second set of proceedings, the Arncliffe proceedings (2017/00180712), relates to dealings between Mr Deiri and the late Jamil Sayour in relation to another development, this development being in Arncliffe.

20. [21]

    In January 2014, Combined Projects Arncliffe (i.e., the eleventh cross-defendant in the Broadway proceedings) was incorporated (with two shareholders, Deiri Nominees and Sayour Holdings) to develop a property at Arncliffe (the Arncliffe Property) into some 234 residential apartments and six retail shops. Mr Deiri is the sole director of Combined Projects Arncliffe. His dealings with Sayour Holdings, up to the time of Jamil Sayour’s death, were all through Jamil Sayour. Mr Deiri and his companies performed the construction work in relation to the development. The development is complete and the sale of the last of the residential apartments settled on 11 February 2019.

21. [22]

    In 2017, Sayour Holdings (as trustee for the Sayour 2 Family Trust) commenced the Arncliffe proceedings against Combined Projects Arncliffe, Deiri Nominees and Mr Deiri. The proceedings were commenced by way of originating process in the Corporations List. Relief was sought by Sayour Holdings (as 50% shareholder of Combined Projects Arncliffe) to redress the alleged oppressive conduct of the company’s affairs by Deiri Nominees (the other 50% shareholder) and Mr Deiri (the sole director of Combined Projects Arncliffe) and alleged breaches of director’s duties by Mr Deiri. Sayour Holdings sought relief pursuant to s 247A of the Corporations Act 2001 (Cth) (Corporations Act) for access to Combined Projects Arncliffe’s books and to appoint a director to its board.

22. [23]

    On 28 February 2019, Parker J ordered that the Arncliffe proceedings be heard together with the Broadway proceedings and referred each of the proceedings to me for case management, fixing the proceedings for hearing, commencing 4 November 2019 for six weeks. From 18 March 2019, I have case managed the respective proceedings. On 19 March 2019, I made orders for the service of evidence in the proceedings.

23. [24]

    On 9 May 2019, by consent (and without debate as to the factual premise for those orders – the relevance of which will shortly become apparent), I made orders in the Arncliffe proceedings granting leave for the filing by Sayour Holdings, in the name of the company, Combined Projects Arncliffe, of a cross-claim in the proceedings in the form that had been provided to the defendants on 7-9 May 2019. (Leave for the bringing of a derivative suit is of course required pursuant to s 237 of the Corporations Act. However, as I have referred to in a separate judgment to be published today in those proceedings – In the matter of Combined Projects (Arncliffe) Pty Ltd [2019] NSWSC 1070, the orders made were not expressed to be pursuant to s 237 of the Corporations Act and there was no consideration on that occasion of the matters required for an order to be made under that section.) The notation to the orders made on that occasion made clear that the leave granted for the filing of the cross-claim was without prejudice to the defendants’ ability to contend that leave to bring proceedings on behalf of Combined Projects Arncliffe (i.e., derivative proceedings) should not be granted without the appropriate undertakings.

24. [25]

    On 10 May 2019, pursuant to those orders, Sayour Holdings filed in the name of Combined Projects Arncliffe an amended statement of first cross-claim, bringing claims against the following parties: Mr Deiri and Deiri Nominees (the first and second cross-defendants); Konstructions Pty Ltd (the third cross-defendant) (Konstructions); Zapphire Investments Pty Ltd (the fourth cross-defendant) (Zapphire); Deicorp Properties Pty Ltd (Deicorp Properties) and Deicorp Constructions Pty Ltd (Deicorp Constructions) (the fifth and sixth cross-defendants, respectively).

25. [26]

    The relief sought in the name of Combined Projects Arncliffe in the first cross-claim in the Arncliffe proceedings includes relief relating to a Development Management Agreement dated 24 March 2016 between Combined Projects Arncliffe and Deiri Nominees as trustee for the F Deiri Family Trust (which it is alleged is void and of no effect) (including a trust claim and other claims relating to payments of $7,239,425.44 and $723,942.54 paid to Deiri Nominees on about 3 and 17 April 2018, respectively); a sum of $7,920,000 paid to Konstructions on about 29 March 2018 and a sum of $7,898,000 paid to Zapphire, as trustee for the Zapphire Investments Family Trust also on or about 29 March 2018 (those payments being the subject of allegations under the heading “the purported Site Identification Fee”); a payment of $5,299,704.23 paid to or for the benefit of Deiri Nominees on or about 28 February 2018; claims for equitable compensation or orders for compensation pursuant to s 1317H of the Corporations Act against the first defendant (Mr Deiri) and other relief against the fifth and sixth defendants.

26. [27]

    Each of the cross-defendants to the first cross-claim has now filed a defence to that cross-claim (although Konstructions has foreshadowed an application to amend its defence; and there was objection to the (belated) filing of the defence by Deiri Nominees and Mr Deiri, which is the subject of my separate judgment in the Arncliffe proceedings today). Complaint was made on the present applications by Sayour Holdings as to the defences filed for Konstructions and Zapphire (i.e., whether they are “real” defences or in substance seeking to propound principal claims by those parties; or are tenable defences), to which I will return in due course.

27. [28]

    In the Arncliffe proceedings, Sayour Holdings has proffered an undertaking in support of its derivative action to the effect that it will bear the costs of Combined Projects Arncliffe in prosecuting the first cross-claim and that it will indemnify Combined Projects Arncliffe for any costs of the first cross-claim that Combined Projects Arncliffe is ordered to pay. It proposes to secure that undertaking by Plaza giving a charge over Plaza’s 50% share of the partnership funds held by the receiver in the Broadway proceedings. I was informed by Counsel that that share is now in the order of between $2.3 and $2.5 million.

28. [29]

    Deiri Nominees, Mr Deiri and Investments oppose security for the undertaking being provided by way of a charge over the funds held by the receiver appointed in the Broadway proceedings (Mr Lord). They say that the funds held by the receiver have to date served as de facto security for their costs in the Broadway proceedings, since any award of costs against Plaza in those proceedings could be satisfied from Plaza’s share of those partnership funds. They contend that Sayour Holdings should not now be permitted to charge that fund because that would deprive the defendants to the Broadway proceedings of that security. Rather, they say that Sayour Holdings should be required to secure the undertaking by way of payment into Court or unconditional bank guarantee. In the alternative, they say that security should be provided for their costs in the Broadway proceedings.

29. [30]

    It is relevant in this context also to note that complaint is made by Sayour Holdings as to the multiplicity of representation across the two sets of proceedings for the various entities comprising or associated with the Deiri Group. Investments, Deiri and Deiri Nominees are jointly represented by one firm of solicitors (Cornwalls Solicitors) and have briefed Senior Counsel and two junior Counsel (Mr Hutley SC, Mr Bova and Mr Michael) to appear at the final hearing; the Deicorp Entities have briefed another firm of solicitors (Kreisson Pty Ltd) and will be represented by Mr Bedrossian of Counsel at the hearing; Deicorp Properties (the fifth cross-defendant in the Arncliffe proceedings) is represented by a third set of solicitors (Construction Legal Pty Limited) and will also be represented by Mr Bedrossian at the hearing. Each of Konstructions and Zapphire is separately represented by solicitors and will be retaining Counsel for the hearing (Mr Sirtes SC and Mr Cornish for Zapphire; Junior Counsel yet to be retained for Konstructions – its previous Counsel no longer acting in the matter).

30. [31]

    The various applications now before me are as follows:

    1. (1)

       an application by notice of motion filed 7 June 2019 by Investments, Mr Deiri and Deiri Nominees in the Broadway Proceedings seeking orders pursuant to r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and/or s 1335(1) of the Corporations Act and/or the Court’s inherent jurisdiction for security for costs;

    2. (2)

       an application by notice of motion filed 7 June 2019 by Deiri Nominees and Mr Deiri in the Arncliffe proceedings seeking, in effect, orders for the provision by Sayour Holdings of an undertaking as to the costs of the proceedings and provision of security for that undertaking (and for an amount for the likely costs of the other cross-defendants to the first cross-claim); and further or in the alternative, orders pursuant to r 42.21 of the UCPR and/or s 1335(1) of the Corporations Act and/or the Court’s inherent jurisdiction for security for their costs of the proceedings;

    3. (3)

       an application by notice of motion filed 11 June 2019 by the fifth to eighth and tenth and eleventh cross-defendants (the Deiri Entities, Deicorp and Combined Projects Arncliffe) in the Broadway proceedings and Deicorp Constructions in the Arncliffe proceedings seeking orders in the respective proceedings pursuant to r 42.21 of the UCPR or in the alternative s 1335(1) of the Corporations Act and/or in the Court’s inherent jurisdiction for security for costs;

    4. (4)

       an application by notice of motion filed 7 June 2019 by Deicorp in the Arncliffe proceedings seeking orders pursuant to r 42.21 of the UCPR and/or s 1335(1) of the Corporations Act and/or the Court’s inherent jurisdiction for security for its costs;

    5. (5)

       an application by notice of motion filed 26 June 2019 by Konstructions in the Arncliffe proceedings seeking orders pursuant to r 42.21 of the UCPR and/or s 1335(1) of the Corporations Act and/or in the Court’s inherent jurisdiction for security for its costs; and

    6. (6)

       an application by notice of motion filed 1 July 2019 by Zapphire in the Arncliffe proceedings seeking the provision of an undertaking in the same terms as that sought by Deiri Nominees and Mr Deiri (in (ii) above) save in its favour and security for that undertaking so far as it relates to Zapphire; and in the alternative, orders pursuant to r 42.21 of the UCPR and/or s 1335(1) of the Corporations Act and/or in the Court’s inherent jurisdiction for security for costs.

31. [32]

    The sums sought to be provided by way of either security for the undertaking as to the company’s costs sought in relation to the leave to bring derivative proceedings or security for costs, as the case may be, by the applicants on the respective notices of motion as set out above (as amended in oral submissions in some cases) are as follows:

    1. (1)

       by Investments, Mr Deiri and Deiri Nominees in the Broadway proceedings, the sum of $2,526,640.90 by way of security for costs;

    2. (2)

       by Deiri Nominees and Mr Deiri in the Arncliffe proceedings, the sum of $753,825 (plus an amount for the likely costs of the other cross-defendants) by way of security for the undertaking sought in respect of the grant of leave for the derivative proceedings; or $753,825 by way of security for costs;

    3. (3)

       by the fifth-eighth and tenth and eleventh cross-defendants (the Deiri Entities, Deicorp and Combined Projects Arncliffe) in the Broadway proceedings, the sum of $770,000 (by way of security for their costs and for Deicorp’s costs of the sixth cross-claim); and by Deicorp Construction, the sum of $440,000 by way of security for its costs in the Arncliffe proceedings;

    4. (4)

       by Deicorp the sum of $191,358.75 in the Arncliffe proceedings by way of security for its costs;

    5. (5)

       by Konstructions the sum of $358,950 by way of security for its costs in the Arncliffe proceedings; and

    6. (6)

       by Zapphire the sum of $631,818 in the Arncliffe proceedings by way of security for the undertaking sought by it in relation to the bringing of the derivative suit (though it is to be noted that it is not a member of the company in whose name the derivative suit is to be brought) or as security for its costs.

32. [33]

    Conceptually, there are two separate kinds of applications here brought: applications for secured undertakings as to costs of the derivative suit being brought by Sayour Holdings in the name of Combined Projects Arncliffe; and conventional security for costs applications.

33. [34]

    As to the former, in determining whether to grant leave to bring proceedings in the name of a company, one factor to be taken into account is whether it is in the best interests of the company that the applicant be granted leave (see s 237(2)(c) of the Corporations Act). In that context it is relevant to take into account whether the company would be prejudiced by being exposed to the costs and expenses of litigation and the risk of an adverse costs order (see, for example, Cooper v Myrtace Consulting Pty Ltd [2014] FCA 480 (Cooper v Myrtace Consulting)).

34. [35]

    Reference was also made on the current application to what has been said in that regard in Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442; 53 ACSR 732 (Fiduciary v Morningstar Research) at [47]-[51]; Ehsman v Nutectime International Pty Ltd [2006] NSWSC 887; 58 ACSR 705 (Ehsman v Nutectime) at [62]; In the matter of Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260 at [31]-[33]; and Blakeney v Blakeney [2016] WASCA 76; 113 ACSR 398 at [55]-[68].

35. [36]

    As was stated by Austin J in Fiduciary v Morningstar Research (at [51]):

36. [37]

    Further, in In the matter of Fishinthenet Investments Pty Ltd and Coastal Waters Seafood Pty Ltd [2014] NSWSC 260, Black J (at [31]) said that the case law emphasises the importance of an indemnity as a means of addressing the risk of prejudice to the companies from the commencement of the proceedings, should they ultimately prove to be unsuccessful, and the risk of exposure to costs and expenses of litigation including costs orders. His Honour cited the observations by Austin J (at [108]) in Power v Ekstein [2010] NSWSC 137; (2010) 77 ACSR 302 that:

37. [38]

    Pursuant to s 242 of the Corporations Act, there is power to make any order considered appropriate as to the costs of persons applying for or granted leave under s 237, including indemnification of costs.

38. [39]

    In Ehsman v Nutectime International, Austin J (at [62]) said:

39. [40]

    As to the applicable principles governing security for costs, the discretion to order security against a corporate plaintiff (or entity in the position of plaintiff) is enlivened where there is credible evidence that 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 … will be unable to pay” the costs of the defendant if ordered to do so (see Beach Petroleum NL v Johnson (1992) 7 ACSR 203 at 205 (Von Doussa J); r 42.21(1)(d) of the UCPR). The test is commonly described as an “undemanding test” (see HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87 at [6], [17]).

40. [41]

    In determining, once the threshold question has been answered in the affirmative, whether in the exercise of discretion to make an order for security for costs, there is a range of factors are relevant to take into account (see r 42.21(1A)). I consider these factors in due course.

Submissions for Investments, Deiri Nominees and Mr Deiri

1. [42]

   The principal relief here claimed by Deiri Nominees and Mr Deiri is the making of orders in the Arncliffe proceedings to the effect that Sayour Holdings provide an undertaking in respect of its derivative action in a specified form (drafted along the lines of undertakings required in Fiduciary v Morningstar Research), together with security for that undertaking in the amount of $753,825 plus an amount for the likely costs of the other cross-defendants to the first cross-claim. Alternatively, they seek security for their costs of the first cross-claim.

2. [43]

   Additionally, by separate notice of motion (and because Plaza now proposes to charge its interest in the partnership funds held by the receiver in the Broadway proceedings), Investments, Mr Deiri and Deiri Nominees, as cross-defendants in the Broadway proceedings, seek security for their costs in those proceedings but they press that application only if the means put forward by Sayour Holdings by which the undertakings proffered in connection with the derivative proceedings are to be secured (i.e., a charge over its share of the partnership funds held by the receiver) is accepted. In other words, whether their security for costs application in the Broadway proceedings is pressed depends on the outcome of the application in the Arncliffe proceedings as to the form of the security to be provided for, what I will refer to as, the derivative suit undertaking.

3. [44]

   It is noted that leave granted to Sayour Holdings on 9 May 2019 to file the first cross-claim in the name of Combined Projects Arncliffe was expressly made subject to resolution of the appropriate undertakings, if any, that should be given by it. It is submitted that it would not be in Combined Projects Arncliffe’s interests for leave to be granted without an undertaking as to costs (and that so much has implicitly been accepted by Sayour Holdings in proffering the undertaking that it has proffered).

4. [45]

   Deiri Nominees and Mr Deiri submit that the company could be subject to “a very significant costs liability” if the first cross-claim fails (having regard not only to their costs but also to the costs of the other cross-defendants); and they submit that the real issue is whether Sayour Holdings can meet the undertaking it has proffered, noting that in Cooper v Myrtace Consulting it was accepted that the financial capacity of an applicant to meet any proffered undertaking is central to whether it is in the best interests of the company to grant leave (see at [30]-[32]).

5. [46]

   Deiri Nominees and Mr Deiri argue that there is no evidence that Sayour Holdings has the funds to satisfy a costs order made against Combined Projects Arncliffe in the Arncliffe proceedings, noting that the only means that Sayour Holdings has identified to meet its proposed undertaking is for Plaza to charge its 50% share of the partnership funds held by the receiver (and arguing that the proffer of that charge as the means by which it seeks to secure its undertaking essentially amounts to an admission that Sayour Holdings has no other means). The solicitor for Investments, Deiri Nominees and Mr Deiri, Mr Paul McCann, has deposed in his affidavit sworn 7 June 2019 that no results were returned for a property search in Australia of Sayour Holdings (see at [35]).

6. [47]

   Further, as adverted to above, Deiri Nominees and Mr Deiri point to the fact that, if Plaza’s share of the partnership funds is charged to meet an adverse costs order in the Arncliffe proceedings, then the cross-defendants to Plaza’s cross-claims in the Broadway proceedings will be left without recourse to Plaza’s share of the funds held by the receiver and will lose what was in effect a de facto security that had existed since the start of those proceedings. Mr McCann has deposed that Investments, Mr Deiri and Deiri Nominees did not seek an order against Plaza for security of their costs in the Broadway proceedings because the funds held by the receiver gave them the comfort that any costs orders against Plaza could be satisfied from that fund (see at [31]). It is argued that there was previously no basis on which security could have been ordered in the Broadway proceedings because of the funds held by the receiver.

7. [48]

   Thus it is submitted that the Court should not accept as adequate any security for the undertaking offered by Plaza (for the benefit of Sayour Holdings in the Arncliffe proceedings) which would have the effect of removing the existing (de facto) security that exists for the costs of the defendants in the Broadway proceedings.

8. [49]

   In relation to the Arncliffe proceedings, Mr McCann has estimated the total costs to the conclusion of the hearing at approximately $1.5 million exclusive of GST ([49(b)]). Deducting past costs (incurred prior to the first cross-claim being filed) (see [44(a)]), the total estimated costs as calculated amount to $753,825. Deiri Nominees and Mr Deiri say that, to the amount of their costs, there must be added the costs of both Konstructions and Zapphire, as well as the other companies associated with Mr Deiri (Deicorp Properties and Deicorp Construction), since those are costs for which Combined Projects Arncliffe will be liable if its claims against those entities were to fail.

9. [50]

   It is further noted that the Constitution of Combined Projects Arncliffe provides that the company shall indemnify any person who is an officer of Combined Projects Arncliffe against liability to any person in defending proceedings in which judgment is given in favour of that officer (see cl 44.1(b)(i)); and thus it is submitted that, if Plaza is unsuccessful in its first cross-claim against Mr Deiri, as a director of Combined Projects Arncliffe Mr Deiri would be entitled to a full indemnity from the company. As such, it is said that the total costs for which Combined Projects Arncliffe may ultimately be liable arising from the first cross-claim if it is unsuccessful against Mr Deiri would include essentially all of the costs Mr Deiri incurs in defending the Arncliffe proceedings on a solicitor/client (not party/party) basis.

10. [51]

    Investments, Deiri Nominees and Mr Deiri seek an order that the leave granted to Sayour Holdings on 9 May 2019 to bring the first cross-claim in the name of Combined Projects Arncliffe be withdrawn nunc pro tunc, or that that order be set aside, should Sayour Holdings not provide security in the amount of $753,825.00 (plus an amount for the likely costs of the other cross-defendants) for any undertaking that is given. They have propounded in Annexure A to their notice of motion a proposed form of undertaking in that regard.

11. [52]

    Alternatively, if the undertaking proposed by Plaza (for the benefit of Sayour Holdings) were to be accepted, then Investments seeks orders that Plaza provide security for the costs of Investments, Mr Deiri and Deiri Nominees in the Broadway proceedings.

12. [53]

    It is submitted that, if Plaza’s funds held by the receiver are charged as security for the Arncliffe proceedings, then the threshold test on a security for costs application is met because there is reason to believe there is a real chance that Plaza would then be unable to meet adverse costs orders obtained by the cross-defendants in the Broadway proceedings (noting, as referred to above, that there is no evidence that Plaza holds any assets or real property of any kind).

13. [54]

    Mr McCann has estimated that the recoverable costs in the Broadway proceedings on a party/party basis would be in the range of approximately $1.5 million to $1.8 million (excluding GST and costs associated with what are said to be the earlier accounting aspect of the proceedings).

14. [55]

    As to the discretionary factors set out in r 42.21(1A) of the UPCR, and in particular as to the timing of the present application, it is submitted that the complaint by Sayour Holdings as to delay is met by the fact that the motion is now brought in circumstances where Plaza seeks to charge its interest in the partnership funds (i.e., where there has been a material change in circumstances).

Submissions for Deicorp Entities

1. [56]

   The Deicorp Entities represented by Kreisson (namely, the fifth to eighth, tenth and eleventh cross-defendants on the fifth cross-claim in the Broadway proceedings; the cross-claimant on the sixth cross-claim in the Broadway proceedings; and the sixth cross-defendant on the first cross-claim in the Arncliffe proceedings) (collectively referred to in their submissions as the Kreisson Clients), seek security for their costs in respect of both sets of proceedings. (I interpose here to note that I do not understand the application for security for costs in the Arncliffe proceedings by the Deicorp Entities to be intended to encompass the costs of the very entity in whose name the first cross-claim in the Arncliffe proceedings is being brought – Combined Projects Arncliffe; since that would make no sense.)

2. [57]

   The solicitor acting for the Kreisson Clients, Mr David Glinatsis, in his reply affidavit sworn 28 June 2019, has calculated the sum sought as security for the Kreisson Clients’ costs in the amounts of: $734,543.15 (but rounded up to $735,000.00) in relation to the Broadway proceedings (being an order for security against Plaza); and $406,814.65 (rounded down to $405,000.00), in relation to the Arncliffe proceedings (being an order for security against Sayour Holdings). In oral submissions, the amount sought was further revised downwards to reflect an acceptance of the proposition that a lesser amount should be included as a contingency for unforeseen issues, namely, a total of $650,000 (exclusive of GST) in the Broadway proceedings and $350,000 (exclusive of GST) in the Arncliffe proceedings.

3. [58]

   In this regard, the Kreisson Clients emphasise two particular features of these applications for security: first, the lack of evidence of assets available on the part of Plaza and Sayour Holdings to meet potential costs orders; and, second, that Plaza and Sayour Holdings are trustee companies.

4. [59]

   As to the first, it is noted that the solicitor acting for the respondents to these security for costs applications (i.e., for Plaza and Sayour Holdings), Mr Kenneth Ti, has deposed in his 21 June 2019 affidavit (at [101]) to the fund of approximately $2.526 million held by the receiver (at that date) but has not otherwise identified any assets which would be available to satisfy any adverse costs orders. It is submitted that the totality of adverse costs orders which might be suffered by Plaza and Sayour Holdings would be expected to exceed $2.5 million (noting that the Broadway proceedings involves multi-million dollar claims against a bank, a large firm of solicitors, and multiple other parties), and that there is thus a proper basis to order security for costs.

5. [60]

   As to the second, it is noted that Plaza has cross-claimed in the fifth cross-claim in the Broadway proceedings in its capacity as trustee of the Sayour Family Trust and that Sayour Holdings has commenced the Arncliffe proceedings (as plaintiff) and stands as the party with the conduct of the first cross-claim in its capacity as trustee of the Sayour 2 Family Trust. Reference is made to Funds First Pty Ltd v Owners Corporation Strata Plan 66609 (No. 2) [2008] NSWSC 428 where Brereton J (as his Honour then was) said (at [5]):

6. [61]

   Reference is also made in that context to what was said in Street v Luna Park Sydney Pty Ltd [2006] NSWSC 1317 and in LSKF Holdings Pty Ltd v Shield Lifestone Holdings Pty Ltd [2018] NSWCA 109 (at [15]-[16] per Leeming JA).

7. [62]

   It is noted that neither Plaza nor Sayour Holdings has attempted to identify any assets held within their respective trusts (other than the receiver’s funds), against which those trustee companies would have an indemnity.

8. [63]

   As to the quantum of security sought by the Kreisson Clients, it is submitted that Mr Glinatsis’ estimate (in his 28 June 2019 affidavit) is “a reasonable and conservative amount when considered in the context of these particular proceedings”, emphasising that: the two proceedings are set down for a final hearing of six weeks’ duration; the Kreisson Clients comprise seven different corporate entities, against whom a multitude of allegations are made (noting that the fifth cross-claim in the Broadway proceedings consists of 571 pleaded paragraphs and the amended statement of first cross-claim in the Arncliffe proceedings consists of 321 pleaded paragraphs); that the Broadway proceedings comprise six separate cross-claims; and submitting that, with overlapping factual issues, legal issues, and questions of witness credibility, there is no feasible or logical manner in which different parties’ involvement in the final hearing can be segregated to discrete hearing dates and hence each party’s interests must be protected and pursued by their legal representatives throughout the six-week hearing.

9. [64]

   Pausing there, the submission as to the segregation of different parties’ involvement, as I understand it, is limited to the involvement of the respective Kreisson Clients. It has on earlier occasions been suggested, for example, that the involvement of other cross-defendants in the hearing (namely, HWLE) might be able to be confined to discrete hearing days.

10. [65]

    For the Kreisson Clients, it is submitted that their legal representatives will be required to attend in Court for the duration of the final hearing and that it is not to the point to identify (as Sayour Holdings does) that Mr Deiri is the principal standing behind each of those corporate entities. It is noted in this regard that, by its fifth cross-claim in the Broadway proceedings, Plaza challenges, in effect, the entirety of the payments made to Deicorp for the construction of the Broadway Plaza retail and residential development and that, through its defence of the fifth cross-claim and by the sixth cross-claim (said to be defensive in nature), Deicorp has been called upon to justify construction costs in the vicinity of $70 million. Further, it is said that various portions of the construction costs in relation to the Arncliffe development are also challenged by Sayour Holdings in the Arncliffe proceedings (the amounts there in question being of the order of approximately $3.6 million).

11. [66]

    It is submitted that the complex and extensive nature of the allegations brought by Plaza in the fifth cross-claim (and, to a lesser extent, the allegations brought by Sayour Holdings in the Arncliffe proceedings) illustrates that: engaging separate solicitors and counsel for the Kreisson Clients was and is reasonable; and that briefing both a senior junior and a junior counsel is also reasonable.

12. [67]

    It is also said that, of the allegations directly concerning the Kreisson Clients, a large number is different in nature to those that are directed at others of Mr Deiri’s corporate entities (pointing, in particular, to the position of Deicorp). It is noted that the claims against Deicorp in the Broadway proceedings raise questions concerning: the validity and proper interpretation of the construction contracts; and the reasonableness of about $70 million of construction costs charged by that company. It is submitted that the retention of separate representation for Deicorp in respect of allegations of that kind (building and construction matters) is “both reasonable and sensible”; and that the resources required in order to prepare evidence, “including detailed expert evidence in relation to tens of millions of dollars of construction”, are not insubstantial.

13. [68]

    By contrast, it is said that the parties represented by Cornwalls (primarily, Deiri Nominees and Mr Deiri) are involved in the proceedings in largely different (though overlapping) respects. It is said that the nature of the allegations being raised against Deiri Nominees and personally against Mr Deiri warrants separate solicitors and counsel, whose focus is upon the different allegations being pursued by Plaza and Sayour Holdings against those parties.

14. [69]

    Insofar as Construction Legal separately represents Deicorp Properties (the sixth cross­defendant on the first cross-claim in the Arncliffe proceedings), it is said that the costs of that representation are significantly ameliorated by the briefing of the same counsel as for the Kreisson Clients (Mr Bedrossian).

15. [70]

    It is submitted that, were the entirety of Mr Deiri’s personal and corporate interests in these proceedings to be represented by a single team of lawyers, such a team would be more extensive and the likelihood is that the involvement of lawyers would not be materially different than on the present scenario where different firms have been engaged. (This last submission seems to me, with respect, to be inherently speculative and impossible meaningfully to test.)

Submissions for Deicorp Properties

1. [71]

   The separate application by notice of motion filed 7 June 2019 filed by Deicorp Properties seeks security for its costs in relation to the Arncliffe proceedings in the amount of $175,000 (rounded down from $176,096.25) (being an order for security against Sayour Holdings) based on the estimate provided by its solicitor, Ms Jessica Rippon, in her reply affidavit affirmed 28 June 2019. Ms Rippon has applied a 75% rate of recovery to the solicitor/client costs estimate.

2. [72]

   Annexed to Ms Rippon’s first affidavit, affirmed on 31 May 2019, are documents relied upon as identifying a prima facie entitlement on the part of Deicorp Properties to obtain an order for security for costs, including: property searches that identify that no real property is owned by Sayour Holdings (see Annexure C); a company search that shows that the paid-up capital of Sayour Holdings is $100 (Annexure D); property searches that show that no real property is owned by Plaza (Annexure E); and a company search for Plaza that identifies the paid-up capital of the company is $200 (Annexure F).

3. [73]

   It is accepted that the issues raised in these proceedings and which directly concern Deicorp Properties are relatively discrete but it is said that there is “no apparent method” by which its attendance at, and participation in, the final hearing can be reduced from the full extent of the six week hearing. That said it is submitted that significant costs savings have been achieved by the briefing of the same counsel as for the Kreisson Clients.

4. [74]

   It is noted that the allegations against Deicorp Properties concern: approximately $750,000 of fees and expenses incurred in relation to real estate transactions; the extent to which Sayour Holdings, through the late Jamil Sayour, knew and approved of those fees; the extent to which those fees and expenses were reasonable and standard in the industry; and the distinction between moneys received by Deicorp Properties on account of agency fees and those moneys received in order to reimburse for disbursements or other expenses paid to third parties.

Submissions for Konstructions

1. [75]

   Konstructions largely relies on the submissions made for the Deiri Entities and Zapphire in support of its separate application for an order that Combined Projects Arncliffe or, alternatively, Sayour Holdings give security for its costs, arguing that there is reason to believe that those companies will be unable to pay its costs if ordered to do so. Konstructions relies upon the affidavit of Mr James Jordan, the solicitor with carriage of the matter, filed on 26 June 2019 as to the quantum of costs.

2. [76]

   Insofar as it is permissible to have regard to the prospects of success of the proceedings, Konstructions submits that it is relevant to note that the separate proceedings have been ordered to be heard together; and that the proceedings involve complex factual and legal issues (including the cross admissibility of evidence; admissibility of evidence when the maker of representations is unavailable; authority to act; estoppel; and criminal conduct on the part of persons expected to give evidence in the proceedings; and deceased parties). It is submitted that the plaintiff and related entities are responsible for a significant expansion of the proceedings by way of amendment and joinder of additional parties. Konstructions argues that, to a significant degree, Sayour Holdings’ prospects of success very much depend upon the admissibility, reliability and accuracy of evidence concerning the acts and declarations of the late Jamil Sayour and the effect of commercial transactions and arrangements in which he was involved; and that the complexity of the proceedings makes a clear assessment of the prospects of success difficult to determine, noting that no evidence has yet been filed by Konstructions or Zapphire concerning the identification of the Arncliffe site and the payment of the site identification fee. That said, Konstructions goes on (somewhat inconsistently) to submit that Sayour Holdings’ prospects of success are limited and that, due to the complexity and interdependent nature of the claims, must be assessed as relatively weak.

3. [77]

   It is submitted that the plaintiff entities have limited financial means and that the undertaking to pay costs and security offered over the cash fund held by the receiver is insufficient to meet the potential aggregate costs orders and that it would be unfair to give priority to one claimant over another. Konstructions argues that, save for the receiver’s cash fund, the plaintiff entities are impecunious (so as to trigger the discretion as to security) and it asserts that this impecuniosity is not attributable to Konstructions.

4. [78]

   Further, Konstructions argues that the making of allegations of criminal conduct (forgery and bribery) is a serious matter. It says that there is “a real risk” (though it is not clear how that could be assessed at the present stage of the proceedings” that the allegations of criminal conduct will not be established to the requisite standard and that “irreparable harm” will be caused to the commercial reputation of the Deiri Group and entities such as Konstructions who have engaged in commercial dealings with the group.

5. [79]

   Konstructions argues that there has been delay in the institution and conduct of the proceedings; that it has been joined to the proceedings as a defendant at a very late stage; and says that it has been “forced into complex litigation” in circumstances where all of the matters in issue in the proceedings are unrelated to it (save for matters relevant to one financial transaction).

6. [80]

   It submits that the estimated costs to be incurred as set out in the affidavit of Mr James Jordan, filed 24 June 2019 are fair and reasonable in all the circumstances. The complaint made as to the timing of the application for security for costs has been made is met by the response that Konstructions’ defence was not required to be filed until 15 July 2019. (Although Counsel previously retained for Konstructions is no longer retained in the matter, it is anticipated by Mr Jordan that new Counsel to be retained will be of comparable experience and will charge a comparable fee.)

7. [81]

   Konstructions also relied on submissions dated 29 July 2019 which had been prepared by its former Counsel and were broadly similar to the above submissions and will not here be separately summarised.

8. [82]

   Konstructions disputes the contentions in the affidavit of 2 July 2019 of Mr Ti (at [22]-[24]) that: the claims against Konstructions will likely concern a “narrow range of issues”; Konstructions was not involved in any other matters in dispute in the Broadway proceedings or the Arncliffe proceedings. Accordingly; and that any hearing with respect to Konstructions will likely be limited to between half a day and one day, making it unnecessary for Konstructions to attend (and be represented) for the full 30 days of hearing. It is submitted that the “complexity of the evidentiary and legal landscape” makes it impossible that the proceedings against Konstructions can be confined to a half day or day and it maintains that it is entitled to appear throughout the hearing in order to make submissions in respect of any evidence or matter directly or indirectly relevant to the case against it.

9. [83]

   It is submitted in this regard that: the evidence concerning the site identification and payment of the fees has not closed; it is only after the evidence is closed that a proper assessment of facts in issue, relevant matters of law and the inter-play between site identification and other issues in the Arncliffe proceedings and the Broadway proceedings can be undertaken; the site identification in the Arncliffe proceedings is part of a “much larger, complicated evidentiary landscape”; there are expected to be significant credit issues relating to parties and witnesses that will need to be determined; credit issues are expected to be relevant in both sets of proceedings and to a significant extent may involve the same parties and witnesses, noting that the proceedings are to be heard together; both proceedings involve evidence of alleged acts and declarations (representations) of Jamil Sayour sought to be admitted into evidence as an exception to the rule against hearsay; and both proceedings may involve acts and declarations (representations) alleged to be in furtherance of a common purpose/agreement such that the acts and declarations may be taken to be an admission against a party as an exception to the rule against hearsay. It is also said that a party may make an admission or a witness may give evidence during cross examination which may be relevant and admissible in the cross-claim involving Konstructions; and the court will need to address the question of cross admissibility of evidence between the Arncliffe proceedings and the Broadway proceedings.

10. [84]

    Konstructions thus submits that as a matter of both substantive and procedural fairness it is entitled to appear and be legally represented; to give evidence and cross examine witnesses; and to make submissions to the court in respect of any evidence or matter of law directly or indirectly relevant to the case involving Konstructions, which will make it necessary for it to be represented throughout the hearing.

Submissions for Zapphire

1. [85]

   Zapphire seeks orders to the following effect: an order that Sayour Holdings provide an undertaking to indemnify Combined Projects Arncliffe in respect of any costs order made against it in the Arncliffe proceedings; and an order that Sayour Holdings pay into court security for Zapphire’s costs in the Proceedings. The amount claimed has been reduced to $631,818 to exclude any component for GST.

2. [86]

   Zapphire adopts the submissions made for Deiri Nominees, Mr Deiri and Investments, as well as portions of the other submissions made for the Kreisson Clients, Deicorp Properties and Konstructions. Having regard to the potential claims upon the fund held by the receiver from the substantial number of potential adverse costs orders in the Arncliffe proceedings and the Broadway proceedings, it is submitted that there is a real chance that Sayour Holdings will be unable to meet an order that it pay Zapphire’s costs in the proceedings.

Submissions for Sayour Holdings/Plaza

1. [87]

   The present applications as a whole are decried by Sayour Holdings/Plaza as constituting “one of the most extravagant applications ever seen” (amounting in total, before revision, to around $6.482 million). Emphasis is placed on the fact that a fund exceeding $5 million is presently held under control by the receiver, of which it is said that Plaza’s share in the partnership is 50% and about which it is said there are no claims to disturb Plaza’s entitlement to that 50%; and that, in the Arncliffe proceedings, Sayour Holdings and Plaza have proffered Plaza’s share in this fund (i.e., $2,526,640.90) as security for Sayour Holdings’ obligations under s 242 of the Corporations Act.

2. [88]

   Reference is made to the history of the Arncliffe proceedings, including that, at the time the proceedings were commenced they included an application to wind up Combined Projects Arncliffe and that, when the proceedings came before Robb J on 28 June 2017, complaint was made by Deiri Nominees and Mr Deiri that the pendency of a winding up application was an event of default under Combined Projects Arncliffe’s ANZ facility and that this was putting at risk a very valuable development with projected returns of $150 million against costs of $100 million. Reference in that regard is made to the transcript of 28 June 2017 and an affidavit of a solicitor then acting in the name of Combined Projects Arncliffe, Ms Murray, of 23 June 2017 in support of that proposition.

3. [89]

   It is submitted that on the faith of these assertions (“and under the strong encouragement of Robb J” – an assertion here difficult to assess), Sayour Holdings withdrew its winding up application; and complaint is made that, since then, there has been no explanation from Mr Deiri as to the result of the development.

4. [90]

   Insofar as Mr McCann, in his affidavit sworn 7 June 2019, deposes (at [36]) to instructions from Mr Deiri that he is unaware of any assets held by Sayour Holdings or by Plaza save for Plaza’s interest in the Broadway partnership funds, it is submitted that this cannot be true since Sayour Holdings is a 50% shareholder in Combined Projects Arncliffe. It is submitted that Mr Deiri’s application for security for costs could only be on a valid basis if there were to be no return from the Arncliffe development which he has previously asserted to the Court was worth about $50 million to the shareholders. It is said that Mr Deiri is a fiduciary who has paid large sums from the company to, or for, his controlled entities; who did not disclose to a 50% shareholder that he was doing this; and that he now wants security for the costs of resolving these issues of his own creation. It is submitted that if the transactions “in the end, turn out to be justified”, this will be “because of belated explanations proffered by a fiduciary to resolve reasonable doubts or to obtain just allowances in circumstances where he has failed to act with informed consent on full information”. It is, somewhat emotively, submitted (at [12]) that:

5. [91]

   Pausing here, much of the tenor of the submissions for Sayour Holdings and Plaza (as illustrated by the above) goes to the merits of the underlying disputes between the principal protagonists – a matter into which it is both impossible and inappropriate to delve.

6. [92]

   As adverted to earlier, complaint is also made as to the level or representation (and changes in representation) for Mr Deiri and his entities. It is submitted that the quantum sought is excessive and unreasonable and it is said that the representation is “a degree of indulgence for which Plaza and Sayour Holdings should not be held responsible” and that “[t]he idea that [Combined Projects] Arncliffe spent nearly two years and huge costs resisting or seeking to limit a 50% shareholder’s access to its records for the benefit of the company as a whole is puerile”.

7. [93]

   As to the applications for security for costs, criticism is made as to the quantum of security sought by the various cross-defendants in the respective sets of proceedings (including as to matters as a result of which the applicants have since revised their calculations, such as the inclusion of GST). Where criticism has now been taken into account by the applicants for security for costs I do not here propose to consider that criticism.

8. [94]

   Apart from a complaint that the estimated costs calculations put forward by Investments, Deiri Nominees and Mr Deiri are confusing (and the complaint as to the inclusion of GST which is now accepted), the nub of the complaint in relation to those estimates appears to be as to the following matters.

9. [95]

   First, that the calculations include past costs incurred both through Corrs Chambers Westgarth (Corrs) who formerly acted in both proceedings and since Cornwalls was engaged in both proceedings. Complaint is made that (at [37] of his affidavit) Mr McCann deposes that he received instructions in early March 2019 but that he does not identify how much of his firm’s past costs pre-date the demand for security; nor does he identify how much of those costs were spent on becoming familiar with the proceedings, briefing new counsel and the like; and it is said that “[i]t is clear that such costs of changing solicitors and counsel will continue into the future”, noting the change in Counsel to be retained at the trial. Complaint is also made as to the level of fees proposed to be charged by Senior Counsel now to be briefed for the hearing (at $20,000 per day, six days a week, for four weeks plus an extra two hours per day for work outside of court hours for four weeks).

10. [96]

    Second, it is submitted that the discount allowed by Mr McCann (at [43]) for the costs incurred through Corrs in the Broadway proceedings in respect of the period to 12 October 2017 has not been identified and the basis for his opinion has not been fully exposed. It is said that the proposition that the partnership accounting ceases to be a factor in these proceedings as at 12 October 2017 is not able to be supported.

11. [97]

    Third, complaint is made that Mr McCann’s affidavit does not discount the past costs in the Arncliffe proceedings but, rather, claims security for all of these costs (see at [44(a)]). It is submitted that the first cross-claim was only commenced in May 2019 and hence that these past costs are not referable to the first cross-claim at all and cannot be a proper estimate. (As to the discounts for past costs allowed for the Broadway proceedings, complaint is made that that GST is added to the final calculation.)

12. [98]

    Sayour Holdings and Plaza accept that the amount of security that may be ordered may extend not only to future costs but also to costs already incurred, but point out that this is where an application for security for costs is made promptly (citing Narradine Pty Ltd v Mascot Steel and Tools Pty Ltd [2012] NSWSC 385 per Black J at [22]). They emphasise that, in the ordinary course, where there is a delay in seeking security for costs it has been said that the security ordered should represent only the “future unincurred costs” (not those costs that have already been expended), noting that one reason for this is the “unfairness of allowing the plaintiff to incur costs without being put on notice that an application for security will be made” (citing Chocron v Onkoud [2018] NSWSC 1205 per Davies J at [10]).

13. [99]

    It is submitted that there is no basis for including past costs of the earlier Arncliffe proceedings in a claim for security for the costs of a cross-claim filed in May 2019.

14. [100]

    As to the question of delay, reference is made to the recognition that applications for security for costs, including applications seeking to increase security, must be brought promptly (see Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 (Bryan E Fencott)) and that delay may be regarded as waiver of the right to bring such an application (see Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 (Southern Cross Exploration)). Though accepting that delay as a factor militating against the exercise of the discretion has been considered to be less significant if the hearing is not imminent, or if there has been some forewarning, or foreshadowing, of an application (see Ollerenshaw v The Uniting Church in Australia Property Trust (NSW) [2017] NSWSC 1637 per Walton J at [55]), it is submitted that here there has been extensive and unexplained delay, and that this, with the consequent costs that the cross-claimants have been allowed to incur, tends against the exercise of the discretion to order security both in respect of past costs and also projected costs (referring to Southern Cross Exploration; and Modakboard Australia Pty Ltd v Matthew Howard Brady [2018] NSWSC 399 at [264]).

15. [101]

    It is noted that in the Broadway proceedings the first cross-claim was filed in 2016 and the second cross-claim in 2017; that the fifth cross-claim was filed and served in August 2018 and was the subject of extensive requests for production and further and better particulars by both sets of Mr Deiri’s attorneys; and that defences were only filed and served in February 2019 on behalf of Mr Deiri or his entities.

16. [102]

    Sayour Holdings and Plaza cavil with the need for three counsel to represent Investments, Deiri Nominees and Mr Deiri (although ironically they were represented by three Counsel themselves at the hearing of the present applications, two in each of the respective sets of proceedings). It is said that there has been no explanation for the need for three counsel (particular given that “another firm and two additional counsel are proposed to be retained for the building companies and the “Combined Projects” group companies”).

17. [103]

    As already noted, complaint is made as to the level of fees proposed to be charged by Senior Counsel (which it is said means that the effective cost of Senior Counsel during the trial would be $28,000 per day plus GST).

18. [104]

    It is noted that the test on taxation or assessment for the number of counsel is, “[w]ould a prudent person, not compelled by poverty come into Court in such a case without two counsel” (Kroehn v Kroehn (1912) 15 CLR 137 at 141; [1912] HCA 45 per Griffith CJ), subsequently framed as being whether “a reasonable and prudent, but not over cautious man, in all the circumstances, [would] seek the services of two counsel, notwithstanding the expense?” (see Peile v Nobel (Australasia) Pty Ltd [1966] VR 433 at 437-8 per Starke J). It is noted that, in Stanley v Phillips (1966) 115 CLR 470 at 478-479, Barwick CJ said,

19. [105]

    It is submitted that, given the very high fee of Senior Counsel retained by Mr Deiri and Deiri Nominees, similar principles “would require some evidence to justify sheeting fees of that order home to the opponent on a security for costs application and even on an ordinary assessment of costs ordered”, particularly where five counsel are to be engaged. It is said that “[t]he value in senior counsel at high rate must imply exceptional skill and diligence, which begs the question why 5 counsel are needed. Alternatively, if there are to be 4 juniors in the case, why is senior counsel needed at all”. In this regard, it is said that no attempt has been made to show that the senior junior counsel engaged by Mr Deiri (or leading counsel for the Deiri Entities) “is in any way inferior in ability, diligence or skill to any number of ‘Senior Counsel’”. (Pausing here, if this is an invitation to canvass the skills and experience of the array of counsel lined up for the forthcoming hearing then I must respectfully decline to engage in such an exercise. Suffice it to note that I accept that there may be issues which would arise on a costs assessment at the end of the day as to the level of representation of one or more of the parties, including the plaintiff entities, but other than to reflect the possibility of a greater discount on costs than has presently been estimated it is inappropriate here to make any such determination.)

20. [106]

    Complaint is further made that the time proposed to be allocated to Senior Counsel is excessive (based on the opinions expressed by the respondents’ solicitor, Mr Ti at [126] of his 21 June 2019 affidavit). It is also submitted that the provisions for additional charges on top of the daily rate are unusual and should not be allowed on a security for costs application. Again, those are matters ultimately for the costs assessment process down the track (and they involve largely subjective opinions of one legal practitioner as to how others should run their cases, the weight of which seems to me to be inherently doubtful).

21. [107]

    It is noted that an order for security for costs should not provide a complete indemnity for costs (see Brundza v Robbie & Co (No 2) (1952) 88 CLR 171, at 175; [1952] HCA 49).

22. [108]

    As to Mr McCann’s projections for solicitors’ costs, criticism is made that significant time is included (see [45] of Mr McCann’s first affidavit) for “reading evidence served by other parties” and other work (which it is said is in substance duplicating the work of previous solicitors and counsel) and as to various of the allowances made in Mr McCann’s affidavit (see Mr Ti’s affidavit at [115]-[117]). Mr Ti expresses the view that solicitors would be more involved at the evidence stage and counsel more involved in the hearing preparation stage (referring to Armstrong Scalisi Holdings Pty Ltd v Piscopo (Trustee), in the matter of Collins [2017] FCA 423 at [21]-[23]).

23. [109]

    As to the security sought by “Mr Deiri’s Building Companies” and “Combined Projects” companies, complaint is made at the inclusion of Combined Projects Arncliffe (which it is said Mr Deiri has no right to control) but, more relevantly (since it is not suggested that such costs add overall to the security for costs here sought), that the costs for which security is sought in the Arncliffe proceedings are not expressed to be confined to the costs of the first cross-claim but include costs of the second cross-claim in which “the building company seeks to justify on a restitutionary basis the challenged payment to it”.

24. [110]

    It is submitted that the level of party/party costs claimed by these parties “illustrates the extravagance of the claims of Investments, Deiri Nominees and Mr Deiri”.

25. [111]

    As to the restitutionary cross-claims that will involve valuation of work performed (such as the sixth cross-claim brought by Deicorp), it is submitted that they are the substance “of the attempt to justify Mr Deiri’s list of partnership transactions notwithstanding all the forged mandates to the bank for payment of the builders’ claims for money that was not due” and that these “counter-Cross Claims” are significant where those parties have made substantial admissions as to the transactions and their contractual obligations. It is submitted that this is particularly so in the partnership case where the sixth cross-claim is “fundamental to Investments’ attempt to support its list of partnership transactions in the accounting”.

26. [112]

    It is submitted that the real burden of the “Deiri camp’s case” thus falls on Mr Bedrossian (and his junior and instructing solicitors) and the rhetorical question is posed as to “[w]hy then are we expected to provide security for two sets of representation”? It is submitted that if this “extravagance” is eliminated the amount of security sought by the Deiri parties would be about one fifth of the funds presently held by the receiver.

27. [113]

    Various criticisms are made as to the estimates put forward by Mr Glinatsis of the costs of preparation for the hearing on behalf of the Kreisson Clients (see Mr Ti’s affidavit of 21 June 2019 at [127]-[131]), though these criticisms are described as “less severe than [Mr T’s] criticisms of Mr McCann’s estimates”. They include the introduction of global percentage estimates for “General Matter Management” and “Contingency for unforeseen issues”. As to the latter, criticism is made that Mr Glinatsis does not disclose a basis for the percentages he has adopted and that “figures appear to be plucked from the air” and as speculative.

28. [114]

    As to the security sought by Deicorp Properties, complaint is again made as to the fact that it is separately represented. Complaint is made as to the quantification of the costs for which security is claimed, broadly on the bases that: there is a disparity between the amount allowed for Ms Rippon’s attendance at the hearing compared to that of Counsel (criticised by Mr Ti at [107] of his affidavit affirmed 21 June 2019); and that this triplication of representation is a cause of the increase in the estimated costs.

29. [115]

    Other criticism made by Mr Ti of Ms Rippon’s estimate is that the case against Deicorp Properties is a narrow case and that Ms Rippon’s estimates assume a broad case. It is submitted, further, that Deicorp Properties’ defence “is not really a defence at all, but an unpleaded cross claim”.

30. [116]

    Finally, as to the security (said to be belatedly) claimed by Konstructions and Zapphire, Mr Ti has affirmed a further affidavit of 2 July 2019 responding to the claim of Konstructions and is critical of that claim. Complaint is also made as to (unidentified) prejudice in the lateness of the application of Zapphire which was filed and served on 1 July 2019.

31. [117]

    It is submitted by Sayour Holdings and Plaza that the starting point for the security for costs applications in relation to the Broadway proceedings is that the Points of Cross Claim filed 12 October 2017 in respect of the first cross-claim do not “have a life divorced from the partnership accounting” claim. It is submitted that the first cross-claim is brought for the benefit of the partnership and is integral to the determination of its final accounts. Thus, it is submitted that the whole of the fund held by the receiver is available as security for any costs orders by reference to the rule that the costs necessary for and consequent upon a dissolution and winding up of a partnership are paid from the partnership’s funds.

32. [118]

    It is accepted that costs may be ordered against a partner in such proceedings where “good reason” is shown (which it is submitted usually means a finding of fault on the part of a party) (see Farrell v Gray [2009] NSWSC 1297; Old v Hodgkinson; Old v McInnes [2009] NSWSC 1160 at [145]-[146] per Young JA) or where the proceedings are in substance run to try some disputed right, in which case the unsuccessful party should pay the costs (referring to Kardos v Sarbutt (No. 2) [2006] NSWCA 206).

33. [119]

    Reference is made to Beale v Trinkler [2010] NSWSC 246 where Macready AsJ cited (at [19]) the general principles concerning costs on taking partnership accounts, as stated in Meekin Enterprises v Gersbach (Supreme Court (NSW), McLelland CJ in Eq, 6 August 1997, unrep):

34. [120]

    It is noted that, applying those principles, Macready AsJ concluded (at [25]):

35. [121]

    It is submitted that in the present proceedings there is no allegation that Plaza engaged in conduct constituting such fault and that if there is to be any basis for a costs order against Plaza at the conclusion of these proceedings in the second category, the applications do not attempt to identify how this will arise.

36. [122]

    The fundamental starting point for the Broadway proceedings is said to be the orders made by consent on 29 September 2016 by Hallen J ordering an accounting of the transactions of the partnership and directing that Investments file and serve its verified list of transactions by 25 November 2016. It is said that this acceptance by Investments of the obligation of an accounting party was an implicit recognition that the knowledge of the affairs of the partnership lay principally with Investments and its principal, Mr Deiri.

37. [123]

    Plaza notes that on 25 November 2016 Investments filed its list of transactions (in the form of Exhibits FD3, FD5 and FD6 to an affidavit of Mr Deiri of that date). It is said that a great deal of the difficulty in establishing the transactions of the partnership has resulted from the fact that: the original terms of operation of the partnership’s bank account required both Mr Deiri (the principal of Investments) and Mr Sayour (the principal of Plaza) to sign; hundreds of cheques drawn on the partnership bank account have been established to be forgeries so far as Mr Sayour’s signature is concerned; a letter purporting to alter the terms of operation of the account to either to sign is also a forgery; mandates on the construction loan facilities were also forged; the bank did not provide account statements for the construction loan facilities (and had to be ordered by Parker J to prepare a list of transactions on those facilities); a significant number of the loan facility instruments are also forgeries; Deicorp was appointed as the builder and Mr Deiri himself was appointed as the contract superintendent (and they did not follow the procedure required by the two construction contracts – there being one each for stages 1 and 2 of construction – for the submission and certification of progress claims) in that the builder’s progress claims did not contain supporting vouchers and they were not formally certified by Mr Deiri; and that when enquiry was made of the absence of construction expense records from the records produced to the receiver, Plaza was informed that these did not belong to the partnership but were records of the builder (noting that it transpired that this was because the builder never submitted them to the partners).

38. [124]

    Plaza says that the forgeries are the subject of a report from document examiner, Stephen Dubedat, that was served on 13 September 2018, with an addendum served on 30 November 2018. It is said that these have never been “responded to or contested in any way”; and that no party includes in his or its estimates an allowance for a document examiner to respond to Mr Dubedat’s evidence. Others of the matters referred to above are said to be uncontested (namely, that the builder’s progress claims did not follow the requisite procedure).

39. [125]

    Plaza says that when the proceedings came before Slattery J in October 2016, his Honour directed the parties to exchange solicitors’ affidavits outlining their respective cases as to the accounting; and that it was out of this process that Investments “agitated” for Plaza to file Points of Claim (referring to a notice of motion filed by Investments on 27 March 2017, supported by an affidavit of Samuel Delaney sworn the same day). It is said that this was the genesis of the Point of Claim filed 12 October 2017 in respect of the first cross-claim and that this could not be done until the CBA’s account had been served in August 2017, pursuant to directions of Parker J.

40. [126]

    It is said that the substance of the first cross-claim is a response to Investment’s list of partnership transactions and the CBA’s list of transactions of the partners with CBA and that the burden of it is that Plaza denies that many of the transactions debited by CBA to the partners were debited with a valid mandate and thus says that the transactions were unauthorised and were not valid transactions of the partnership. (It is noted that the Points of Cross Claim also seek to recover $34 million from the CBA that had been paid to the bank in the meantime from the sale of the partnership’s shopping centre by the receiver, in circumstances where the CBA asserted that sum was owed to it, Plaza denied it, and “the Receiver was caught in the middle”. It is said that the money was paid under protest to enable the sale to be completed and that Plaza seeks to recover for the partnership what the partnership would have had but for this payment under protest.)

41. [127]

    Plaza argues that the first cross-claim does not make any claims adverse to the partnership; rather, they are adverse to CBA; and that Investments is a cross-defendant because as a partner it has an interest in the outcome. Insofar as Investments seeks to take an active part in the defence of the first cross-claim to support the impugned transactions (described as curious conduct in that it is conduct that does so “adversely to the interest of the partners”), it is said that in the partnership accounting Investments will seek to support the transactions in its list upon which it is in substance the moving party and bears the onus.

42. [128]

    Complaint is made that Investments (“having received the pleading that it asked for, in respect of matters on which it bears an onus, in a partnership accounting”), now seeks security for costs because Plaza is a cross-claimant on a cross-claim that seeks relief against a third party for the benefit of the partnership. It is thus submitted that the cross-claim (the primary target of the application for security) “completely overlaps with and is indeed an incident of the partnership winding up and accounting”.

43. [129]

    Thus, Sayour Holdings and Plaza submit that the matter falls squarely within the principle that security for costs will generally not be ordered in respect of an overlapping cross-claim. Reference is made to the authorities that consider a defensive cross-claim to be one which impeaches the primary claim and arises out of the same, or essentially the same, factual matrix (see Concrete Constructions Pty Ltd v Dalma Formwork Pty Ltd [1999] NSWCA 16 at [15]; Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 at [21]; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289).

44. [130]

    In this regard, it is said that the essence of Investments’ defence to the first cross-claim is that Jamil Sayour was cloaked with authority to act generally on behalf of Plaza and Mr Sayour, far beyond the limited authority that Plaza contends he had; and that the defence is in substance an attack by Investments on the partnership’s financial position and result.

45. [131]

    It is noted that a further aspect of Investments’ defence is an allegation that, at least so far as the payments to the builder were concerned, Plaza as a partner received a benefit because the partners received building work. It is submitted that the generality with which these assertions are made runs squarely into the problem that an owner is not liable to make restitution for building words otherwise than under contract or pursuant to a request (referring to Sumpter v Hedges [1898] 1 QB 673 and to the reply that has been filed to the defence to the first cross-claim and the fifth cross-claim – see below). It is said that it is necessary for Investments to make good the proposition that the CBA was discharging a liability of the partners to the builder.

46. [132]

    In the reply to the defence to the first cross-claim and in the fifth cross-claim, Plaza alleges that Jamil Sayour was induced to act against the interests of Plaza on receipt of bribes. In the fifth cross-claim, Plaza alleges that payments to the builder were not due under the building contracts (which provided for money to fall due upon presentation and certification of claims, which presentation/certification did not happen) and hence that the money received by the builder is recoverable by the partners as money had and received to the use of the partners; and pleads that, as a consequence of the payment of bribes, it is irrebuttably presumed (as a matter of law) that Jamil Sayour was induced by Mr Deiri and the Deiri Entities to act against the interests of Plaza. Plaza says that it is not required to prove a corrupt purpose and the defence proffered by Deicorp that the payment was for services rendered by Jamil Sayour is immaterial (referring to Sydney Water Corporation v Makucha [2010] NSWSC 114 at [59]). Hence, it is said that the extent to which evidence will be required to be adduced by any of the Deiri Entities as to the context of those payments will be severely circumscribed.

47. [133]

    It is noted that the transactional allegations as to the payments to Jamil Sayour, including the monthly payments of $10,000 “by a Deicorp entity” to Jamil Sayour, are largely admitted by Investments and related parties in the Deicorp Group in their defences to the fifth cross-claim. It is also noted that the “agent/authority” defence of Investments and related parties is repeated in the defences to the fifth cross-claim. Thus, it is said that, at the same time, Investments and its related entities both assert that the late Jamil Sayour was Plaza’s agent, and admit that Deicorp made payments to Jamil Sayour, but do not assert that they brought these payments to the attention of Plaza. It is submitted that Investments is here putting forward a position that is adverse to the interests of the partners and is seeking to support the transactions in its verified list (and hence the fifth cross-claim overlaps with the partnership winding up and accounting).

48. [134]

    The relevance of the above is that Plaza invokes the proposition that “[s]ecurity will generally not be ordered to be provided by a party who has been put into the position in which he or she has had to sue in order to defend himself or herself against the other party’s prior attack” (referring to Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 at [62] per Newnes J).

49. [135]

    It is submitted that Investments, Deiri Nominees and Mr Deiri should not receive any security for costs of the proceedings in the partnership accounting, the first cross-claim or the fifth cross-claim and that nor should the Kreisson Clients (the latter on the basis that they are “alter egos” of Deiri Nominees and Mr Deiri and could have been concurrently represented).

50. [136]

    As to Deicorp (one of Kreisson Clients), it is noted that it is the cross-claimant on the sixth cross-claim and that it is seeking restitutionary allowances “to meet the obvious problem that the money paid to it was paid without falling due under the building contract”. It is said that this is a claim that does not arise under the existing matrix of the partners’ dealings but, rather, “a claim to outflank the result of the partners’ transactions under the contract and to outflank the consequential Fifth Cross Claim, by bringing a new claim never before propounded on a completely different basis outside the terms of the parties’ contract with the builder”.

51. [137]

    It is noted that in a partnership winding up, after a winding up decree, a person claiming to be a creditor may participate in the proceedings by motion and submit its claims to examination by the Court pro interesse suo in a contest between the claimed creditor and the partners (referring there to cases including Tatham v Parker (1853) 65 ER 221; Langton v Langton (1855) 44 ER 12; Johnes v Claughton (1822) 37 ER 966; and In re Metropolitan Amalgamated Estates Ltd; Fairweather v The Company [1912] 2 Ch 497); and it is said that this is what the builder (Deicorp) is here doing.

52. [138]

    It is said that it is this sixth cross-claim that requires evidence from quantity surveyors on the value of the building works, for which the partnership was not given proper progress claims (referring to Mr Glinatsis’ affidavit of 7 June 2019 at [50]) and that in the fifth cross-claim those issues do not arise (it being admitted that the claims were not made in accordance with the contract and that certificates were not issued by Mr Deiri – see [89(c)] and [128(a)] of Investments, Mr Deiri and Deiri Nominees’ defence to the fifth cross-claim). It is said that this means that the builder is substantially in the position of a moving party and it should not receive security.

53. [139]

    As to the second, third and fourth cross-claims, Plaza and Sayour Holdings say as follows.

54. [140]

    As to the second cross-claim, which concerns the non-payment by Investments of the full purchase price agreed for entry into the partnership and the half-share of the land on which the development was to take place and claims the unpaid balance and contractual interest of 8% per month, it is noted that this is a claim founded in the Contract of Sale and Loan Agreement (which are signed by Mr Deiri on behalf of Investments) and that Investments filed a defence to that cross-claim on 27 March 2018 asserting that it made payment through Jamil Sayour. It is said that this (as are the allegations that Jamil Sayour was an “agent”) is raised as a positive defence (and repeated as positive allegations in Investments’ third cross-claim and as part of its defence to the fifth cross-claim). Reference is also made to the challenge made in Investments’ defence to the second cross-claim as to the interest clause (alleging collateral oral pre-contractual agreements with Jamil Sayour as agent).

55. [141]

    As to the third cross-claim (brought by Investments against Plaza), this is said essentially to comprise a rectification suit against Plaza in respect of the drafting of the contract for sale and loan agreement; it being alleged that, as partners, each of Plaza and Investments owed fiduciary obligations to each other (at a time before the partnership was formed). It is said that this is a substantial factual case being brought by Investments to answer a documentary case and that Investments is in substance a plaintiff and should not receive security for its costs of the second and third cross-claims.

56. [142]

    As to the fourth cross-claim brought by Investments against its former solicitors, HWLE, in respect of the drafting of the contract for sale and loan agreement, it is said that there is no basis for Plaza to be asked to provide security for Investments’ cross-claim against a third party, which is hypothesised upon Plaza winning its case against Investments.

57. [143]

    It is noted that no allowance or reduction is made by the claimants for security in respect of the hearing time involved in the second to fourth cross-claims.

58. [144]

    It is noted by Sayour Holdings and Plaza that the Arncliffe proceedings were commenced by originating process in June 2017, seeking relief under s 247A of the Corporations Act and oppression relief; the original parties being: Sayour Holdings, as plaintiff; Combined Projects Arncliffe, as first defendant; Deiri Nominees, as second defendant; and Mr Deiri, as third defendant. At [24] of the amended first cross-claim it is alleged that Mr Deiri was not validly appointed as a director of Combined Projects Arncliffe and does not hold office as such.

59. [145]

    Sayour Holdings and Plaza contend (though Deiri Nominees and Mr Deiri cavil with this insofar as orders were made by Parker J permitting access by Sayour Holdings to the books and records of Combined Projects Arncliffe – and hence it is said that it was open to Sayour Holdings to adduce evidence on this issue) that knowledge of the current financial position of Combined Projects Arncliffe resides in Mr Deiri. Sayour Holdings and Plaza also point to the fact that, on the present applications, no applicant for security has adduced evidence of the financial position of Combined Projects Arncliffe.

60. [146]

    Sayour Holdings and Plaza point to correspondence, commencing in March 2017, in which it wrote to Combined Projects Arncliffe, and its solicitors, regarding (among other things) Sayour Holdings’ shareholding in Combined Projects Arncliffe, its access to the company’s books and records and information regarding the progress of the Arncliffe development, and a request that Sayour Holdings be entitled to appoint a representative to Combined Projects Arncliffe’s board; and that Combined Projects Arncliffe’s position was that Sayour Holdings had no general entitlement to access to the company’s books and records or information regarding the development and that Sayour Holdings would not be given any board representation. Reference was made to a letter of 22 May 2017 from Minter Ellison, the solicitors then acting for Combined Projects Arncliffe, to the solicitors for Sayour Holdings, in which the entitlement of Sayour Holdings to see the books and records, other than a Constitution and one minute said to be a minutes of a general meeting on 8 January 2015 at Tripoli (the Tripoli minute), in Lebanon but attended only by Mr Deiri and Jamil Sayour, was denied (see Exhibit D). It is noted that at one point it was asserted that Sayour Holdings was bound by an alleged agreement between shareholders constituted by the discussions recorded in the Tripoli minute but that this was abandoned and that ultimately, on 20 February 2019, Mr Deiri and Deiri Nominees consented to Sayour Holdings accessing, inspecting and copying all of the documents that it had been seeking since the commencement of the Arncliffe proceedings, save for certain documents over which legal professional privilege was claimed and that final orders to that effect were subsequently made by Parker J.

61. [147]

    Sayour Holdings and Plaza say that this illustrates that the claim by Deiri Nominees and Mr Deiri for security for costs in these proceedings is grossly misconceived and that it plainly includes past costs not referable to the first cross-claim and includes issues on which those parties have ultimately consented to a primary part of the relief sought.

62. [148]

    Sayour Holdings and Plaza note that the undertakings proffered by Sayour Holdings and Plaza on 16 May 2019 at a directions hearing in this matter (pursuant to s 242 of the Corporations Act and said to be in connection with the grant of s 237 leave) were to the effect that: in the first instance and subject to any further order of the court, Sayour Holdings will bear the costs of Combined Projects Arncliffe in prosecuting the first cross-claim; subject to any further order of the court, Sayour Holdings will indemnify Combined Projects Arncliffe for any costs of the first cross-claim that Combined Projects Arncliffe is ordered to pay; and that Plaza will charge its interest in the partnership funds held by the receiver in the Broadway proceedings as security for those undertakings (the value of which interest is said to exceed $2.5 million). It is submitted that Sayour Holdings and Plaza, in offering that undertaking, have already gone “above and beyond” what might in the circumstances properly be demanded of a shareholder to whom leave had been granted to bring proceedings in the name of Combined Projects Arncliffe. In this regard, they note that none of the applicants for security has invoked or refers to s 242 of the Corporations Act, which empowers the Court, at any time, to make any orders it considers appropriate about costs in relation to proceedings brought with leave under s 237.

63. [149]

    Reference is made by Sayour Holdings and Plaza to Wood v Links Golf Tasmania Pty Ltd [2010] FCA 570 (namely to the observations of Finkelstein J at [5]; [7]-[9] and [11]-[12]). I do not propose here to summarise those passages of his Honour’s reasons. Reference is also made by Sayour Holdings and Plaza in this context to the endorsement by Black J in obiter dicta in In the matter of Wan Jia (Australia) International Development Pty Ltd [2012] NSWSC 1007 (at [29]) of Finkelstein J’s approach and to the observations of Lord Denning MR regarding the funding of derivative claims in Wallersteiner v Moir (No 2) [1975] QB 373 (at 390-392).

64. [150]

    In the present case, it is submitted that: Sayour Holdings is a bona fide shareholder in Combined Projects Arncliffe; despite its 50% shareholding, it is effectively in the position of a minority shareholder in Combined Projects Arncliffe because of Deiri Nominees’ blocking vote; Mr Deiri, has at all times been the sole effective controller of Combined Projects Arncliffe; Mr Deiri owes a fiduciary duty to Combined Projects Arncliffe; Sayour Holdings’ action is primarily to benefit Combined Projects Arncliffe (and that any benefit to Sayour Holdings from the action will only flow to it in its capacity as a 50% shareholder in Combined Projects Arncliffe along with Deiri Nominees).

65. [151]

    Sayour Holdings and Plaza submit that, by giving consent to the grant of leave under s 237 (albeit with notice that they reserved a position on costs), Combined Projects Arncliffe, Mr Deiri and Deiri Nominees have implicitly accepted that the statutory elements set out in s 237(2) are made out and they emphasise that the Arncliffe cross-claim is, from the point of view of Combined Projects Arncliffe, worth pursuing as success in the Arncliffe cross-claim would result in the return of millions of dollars to Combined Projects Arncliffe. It is submitted that those factors are relevant to the question whether (and to what extent), the discretion (assuming the conditions for exercise of the power to make such an order are made out) should be exercised to make an order for security of costs against Sayour Holdings, above and beyond what Sayour Holdings has already offered in terms of the proposed undertaking. Sayour Holdings further submits that it was “effectively forced” into seeking to bring derivative proceedings in the name of Combined Projects Arncliffe so as to prevent the rights of Combined Projects Arncliffe from being extinguished.

66. [152]

    It is argued that Sayour Holdings is not the “aggressor” in the Arncliffe cross-claim; rather, that it is defending the rights of Combined Projects Arncliffe against an (allegedly) defaulting fiduciary (Mr Deiri) and others who have benefited without proper entitlement. It says that it is the moving party only because Mr Deiri has used his control position to extract from Combined Projects Arncliffe benefits for himself and the Deiri Entities and others. (Pausing here, these submissions necessarily involve an assumption as to the ultimate merits of the claims made on behalf of Combined Projects Arncliffe; something that cannot here be assessed.)

67. [153]

    As to the first cross-claim filed on 10 May 2019, in which Combined Projects Arncliffe is named as the plaintiff, and the allegation that Mr Deiri, wrongfully and in breach of his fiduciary duties to Combined Projects Arncliffe, caused Combined Projects Arncliffe to make various improper payments to Deiri Nominees, Konstructions, Zapphire, Deicorp Properties and Deicorp Constructions, Sayour Holdings says that there appears to be no dispute that the pleaded payments were made. It argues that it is difficult to determine the extent of the issues to be litigated, and hence the costs of the hearing, at this stage (noting that no defence had been filed by Mr Deiri or Deiri Nominees at the time of the applications – the filing of the defence being the subject of the separate judgment being delivered today in the Arncliffe proceedings). Sayour Holdings says that it was the application of Deiri Nominees and Mr Deiri that the Arncliffe proceedings be heard at the same time as the Broadway proceedings and that, when that application came on before Parker J in February this year it was resolved by consent on the basis that both proceedings, including any derivative claim would be heard in the hearing commencing early November 2019 and complaint is made that at that time “there was no hint of a $4 million security for costs claim, let alone one of $5.4 million”. It is submitted that the time to raise the question of security in this amount was in February this year on the hearing of the motion for concurrent hearing with the Broadway proceedings and that the failure to raise it until this stage is a discretionary bar. (Complaint is made in this regard that this has been a “significant distraction from other work”.)

68. [154]

    As to the calculation of costs by Mr McCann (at [42] and [44] of his affidavit), complaint is made that this includes $705,893 of costs of the previous solicitors for his clients of the Arncliffe proceedings, which it is said do not relate to the Arncliffe cross-claim. (That contention is disputed by Deiri Nominees and Mr Deiri.)

69. [155]

    So far as prayer 1 of the relief claimed by Mr Deiri and Deiri Nominees is concerned, Sayour Holdings notes that the provisions of s 237 of the Corporations Act do not expressly refer to costs; and that costs are regulated by s 242. It is submitted that there is no basis for the application to revoke leave and that it would be unfairly prejudicial to both Sayour Holdings and Combined Projects Arncliffe for that to happen retroactively. So far as prayer 2 of the relief claimed is concerned, complaint is made that the application does not identify on which provision under r 42.21(1) of the UCPR reliance is placed. It is said that if r 42.21(1)(d) is relied on then the application must fail for failure of the condition that it be demonstrated that there is reason to believe that Combined Projects Arncliffe would be unable to pay costs if ordered to do so (noting that Mr Deiri gives no evidence of the outcome of the development and the financial position of Combined Projects Arncliffe, and has previously represented to the Court that it was a $150 million development with expected costs of $100 million). Complaint is further made that Mr Deiri has failed to explain why, if at all, a different result should be expected; and hence it is said that his application must fail at the threshold and that the same problem affects the application under s 1335 of the Corporations Act. Reference is made in this regard to Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 (Idoport) at [60] (per Einstein J); Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 12 ACSR 1; Griffith v John Fairfax Publications Pty Ltd [2009] NSWSC 100.

70. [156]

    As to the application of Deiri Properties, it is noted that the claim against Deicorp Properties is $753,709 and is a claim for recovery of money paid as commissions in contravention of the Property, Stock and Business Agents Act 2002 (NSW) (Property, Stock and Business Agents Act). Apart from the complaint as to breach of the no-profit rule, it is said that non-compliance with the mandatory provisions of that legislation means that no commission or reward is recoverable (see Investmentsource v Knox Street Apartments Pty Ltd (2002) 56 NSWLR 27); that non-compliance is admitted in the defence filed by Deicorp Properties (and appears from the agency agreements produced under Parker J’s s 247A order in these proceedings).

71. [157]

    Thus, it is said that the Combined Projects Arncliffe claim is within a short compass and established by admission, such that the payments are recoverable by Combined Projects Arncliffe as money had and received. It is submitted that insofar as the defence of Deicorp Properties includes a claim for relief under s 55A of the Property, Stock and Business Agents Act, this is not a proper matter for defence; that it requires a cross-claim (and none has been filed by Deicorp Properties); and that if a cross-claim were to be filed, that would make Deicorp Properties in substance the plaintiff or a plaintiff.

72. [158]

    Insofar as the application seeks security under r 42.21(1)(d) or s 1335, it is said that the application must fail because it is not made against Combined Projects Arncliffe (rather, it is made against Sayour Holdings) and, in any event, no evidence of the financial position of Combined Projects Arncliffe is adduced (that being the entity which must be the subject of the relevant findings to enliven power).

73. [159]

    As to the application by Deicorp Properties, it is submitted that the evidence of Ms Rippon that it will need 30 days to participate in this hearing (which it is said, on the issues should take about a day or less) should be rejected. It is submitted that it is an extravagance to suggest that $180,000 would be spent on this simple claim, even with a further cross-claim by Deicorp Properties.

74. [160]

    As to the application of Deicorp Construction, it is noted that Combined Projects Arncliffe challenges the final progress claim of $3.617 million, and claims to recover amounts as moneys had and received. It is said that this is another contract on which the contract procedures were not followed (in that the claims were certified without requiring the claims to be supported by the evidence required by the contract). It is noted that the defence admits the pleaded express terms; and that some terms have been pleaded as implied as a matter of necessary construction from other terms, or by implication of law (see the terms in Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558; [2001] NSWCA 187). Complaint is made that the defence denies the implied terms without saying why and pleads embarrassing matters in relation to how things are alleged to have been supervised, without relating those things to the contract terms.

75. [161]

    It is said that the problems with that defence are reflected in the fact that Deicorp Construction has filed a second cross-claim in the Arncliffe proceedings seeking to justify the payments on a quantum meruit and/or quantum valebat basis; and that it is the real plaintiff in that controversy and should not be rewarded with security for the costs of prosecuting its own claim (the “real defendant”, it is submitted, being Combined Projects Arncliffe).

76. [162]

    It is said that the costs of the quantity surveyor evidence will arise in this second cross-claim of Deicorp Construction and that the hearing of this claim should on no view take 30 days. It is submitted that this is another instance where the multiplication of representation is causing costs to be increased inappropriately and that it should not be at the charge of Combined Projects Arncliffe.

77. [163]

    As to the notice of motion filed by Deicorp Constructions (and other Deicorp Entities) on 11 June 2019 (in the Broadway proceedings) by prayer 5 seeking security under r 42.21(1)(d) or s 1335, it is submitted that, as with the Deicorp Properties’ notice of motion the application is not made against the Combined Projects Arncliffe (rather, it is made against Sayour Holdings) and again that there is no evidence of the financial position of Combined Projects Arncliffe is adduced. It is said that it is Combined Projects Arncliffe which must be the subject of the relevant findings to enliven power.

78. [164]

    As to the application by Konstructions filed on 26 June 2019, complaint is made that this was served out of time (on 27 June 2019) though filed in time. It is noted that the claim against Konstructions by Combined Projects Arncliffe is for moneys had and received of $7.92 million; and that Konstructions was incorporated shortly before the payment was made and had no contractual or other dealings whatsoever with Combined Projects Arncliffe. It is noted that the payment was procured by Mr Deiri on a basis that is yet to be explained. Complaint is made that, in the absence of articulation of the basis of the payment, it is impossible to understand how an estimate of costs and hearing time can have been made.

79. [165]

    Finally, as to the application by Zapphire filed on 1 July 2019, again complaint is made that this was filed and served late. Complaint is further made that Zapphire, which had and has no standing to be heard on the s 237 application, is here “presuming” to seek an order revoking leave. Again, complaint is made as to the lack of a properly particularised explanation for the payment and as to the costs estimate being based on attendance through the whole six weeks of the trial. Insofar as the costs estimate includes expert evidence it is noted that there is no identification of any proper issue for expert evidence.

80. [166]

    Finally, insofar as Mr Deiri and Deiri Nominees claim security for past costs incurred by their former solicitors in the course of the Arncliffe proceedings prior to the commencement of the first cross-claim, it is submitted that no such security ought be given. It is submitted that much, if not most, of the costs of those solicitors (Corrs) were incurred by Mr Deiri and Deiri Nominees were likely incurred in resisting Sayour Holdings claim for access to the books and records of Combined Projects Arncliffe; that Mr Deiri and Deiri Nominees ultimately “capitulated” on this point in February of this year; and that they ought not recover any costs.

Determination

1. [167]

   As was accepted in the course of oral argument, different conceptual issues arise as between the application (primarily by Investments, Deiri Nominees and Mr Deiri, though such relief was also sought by Zapphire, as noted earlier) for the provision of security for undertakings to be provided in effect as a condition of the grant of leave to pursue the derivative suit (extending to security for the costs of the other cross-defendants in the Arncliffe proceedings for which Combined Project Arncliffe may ultimately be liable) and the various applications for security for costs in the respective proceedings. Those latter applications (the security for costs applications) are not pressed in the event that undertakings are required to be provided (and secured) in relation to the costs of the Arncliffe proceedings that will in effect provide security for the respective parties’ costs (or where, as is the case for Deiri Nominees and Mr Deiri, the security provided for the undertakings will leave untouched the de facto security represented by the funds held by the receiver appointed to the partnership assets in the Broadway proceedings). Therefore, it is appropriate to deal first with the issues as to the derivative suit undertaking before turning to the respective security for costs undertakings.

2. [168]

   In essence, Sayour Holdings maintains that the security proffered by it (by way of a charge over a 50% share of the partnership funds held by the receiver) is appropriate and sufficient to meet the potential exposure of Combined Projects Arncliffe to adverse costs orders in the Arncliffe proceedings.

3. [169]

   In that regard, there is force to the submission by Investments, Deiri Nominees and Mr Deiri that the entitlements of the respective partners to those funds is yet to be determined – indeed, that is the position of the receiver (who has not yet taken steps in relation to the taking of partnership accounts). The position of Investments, Deiri Nominees and Mr Deiri is that if they are successful in the Broadway proceedings they will seek to recover their costs out of the funds held by the receiver (see T 78). Moreover, to the extent that Sayour Holdings argues that, because the Broadway proceedings commenced life (and should be characterised as remaining) as proceedings for the taking of partnership accounts, the whole of the partnership funds (not just its 50% share) would be available to meet the costs of those proceedings, Investments, Deiri Nominees and Mr Deiri say that this reinforces their contention that a charge over a 50% share of the funds is inappropriate to secure the derivative suit undertakings.

4. [170]

   The authorities make clear that, when considering whether it is in the best interests of a company for a shareholder to bring a derivative suit in its name, it is appropriate to take into account the potential exposure to adverse costs in those proceedings. As was stated by Davies J in Cooper v Myrtace Consulting Pty Ltd (at [29]):

5. [171]

   In the Arncliffe proceedings, those potential adverse costs include not only the costs of Deiri Nominees and Mr Deiri but also the costs of the remaining cross-defendants. That must be the case irrespective of whether various of the cross-defendants might be said properly to be characterised as plaintiffs not defendants (an issue that would be relevant to claims by those particular cross-defendants for security for their costs of the cross-claim but not, as I see it, to the issue as to whether sufficient security has been provided for the derivative suit undertakings).

6. [172]

   I do not consider that, in the circumstances in which the first cross-claim came to be filed in the name of Combined Projects Arncliffe (as outlined in the chronology set out earlier in these reasons), it is unfair for Sayour Holdings now to be required to provide security for undertakings to be provided in relation to the derivative suit it wishes to bring in the name of Combined Projects Arncliffe (nor that it might face the prospect of a variation or setting aside of the orders made for the filing of the first cross-claim if the security is not provided). Nor do I consider it to be an answer to the question as to whether it is in the best interests of that company for the first cross-claim to be brought that this issue was not raised at the time that application was made for the two sets of proceedings to be heard together. It cannot seriously be disputed that the expansion of the claims made in the respective proceedings has been something of a moveable feast (no doubt the Sayour Holdings entities would attribute this to the lack of disclosure of the events that took place during Jamil Sayour’s dealings with Mr Deiri, but that does not change the fact that the respective proceedings raise complex and interrelated claims now involving a large number of parties).

7. [173]

   There was no consideration (and hence no considered determination) at the time that consent orders were made for the filing of the first cross-claim of the matters required to be taken into account before leave under s 237 of the Corporations Act is given; nor were the orders expressed by way of the grant of such leave. It is accepted by Sayour Holdings that the order for the filing of the first cross-claim was not a final order and is susceptible to variation; and the notation made to the consent orders on that occasion makes it clear that the issue as what undertakings would appropriately be required to be made was a live issue to be determined in due course.

8. [174]

   The ultimate merits of the respective claims (however emotively expressed and however firmly views may be held as to those) cannot possibly be determined at this stage. One must proceed on the basis that there are serious allegations that have been made (as to fraud and dishonesty) and it must be assumed that they will be vigorously contested.

9. [175]

   The quantum of costs for which Combined Projects Arncliffe may potentially be liable in the Arncliffe proceedings (as estimated by the various legal representatives acting for those parties and assuming costs are ordered on a party/party basis as reflected by the discounts applied by those legal representatives) totals somewhere in the order of $2 million (Deiri Nominees/Mr Deiri: $567,000; Deicorp Entities: $350,000; Deicorp Properties: $130,000; Konstructions: $305,000; Zapphire: $631,818). If Mr Deiri were to be able to claim his costs on an indemnity basis (in reliance on cl 44 of the company’s constitution) then the total potential exposure increases by around $200,000 to somewhere in the order of $2.2 million.

10. [176]

    It is clear that if the ultimate costs exposure for Combined Projects Arncliffe in the Arncliffe proceedings were of that ilk, then a charge over 50% of the fund presently held by the receiver would only just secure that exposure; let alone be able to stand both as security for that costs exposure and as de facto security for the costs of (or otherwise as a fund for the costs of the accounting involved in) the Broadway proceedings themselves.

11. [177]

    As to the criticisms made of the quantification of the costs exposure, a number had been addressed prior to the hearing of the applications before me (such as the GST component) and were reflected in the reduced amount sought by the respective cross-defendants by way of security.

12. [178]

    The criticisms that remain largely relate to issues as to the level of representation and the extent to which various of the cross-defendants can reasonably contend that it is necessary for their legal representatives to be in attendance at the final hearing. To some extent, those complaints may be met (or at least in part addressed) by the rate of discount applied to the estimated solicitor and client costs. So, for example, insofar as complaint is made as to the level of fees proposed to be charged by Senior Counsel for Deiri Nominees and Mr Deiri, the fee differential between his fees and those of the other Senior Counsel briefed in the matters is at least somewhat ameliorated by the fact that Mr McCann has applied a 60-70% recovery rate for Counsel’s fees in his estimates rather than a 90% recovery rate (as applied by other cross-defendants in their calculations of recoverable Counsels’ fees).

13. [179]

    As to the complaint that there has been an unnecessary (or indulgent) triplification of representation for the Deiri Group, it is conceded at least for the Kreisson Clients that there will be a level of duplification of effort. Nevertheless, there has been an explanation put forward for the separate representation of, for example, Deicorp Construction and other Deicorp Entities and, moreover, I am satisfied that there has been a considered effort to minimise additional costs by the retention of the same Counsel to represent both. I would not dismiss out of hand a decision (which I infer must have been made, or at least supported, consistent with their professional obligations as officers of this Court) by the legal representatives retained for the respective cross-defendants that, in the best interests of their clients, separate representation is warranted. Nor would I lightly dismiss as unreasonable the basis on which the various solicitors (most having considerable experience in the conduct of commercial litigation) have calculated the likely costs to be incurred. Various of the criticisms made by Sayour Holdings’ solicitor (who does not have the same level of litigation experience as many of his counterparts) largely reflects a different view as to how the matter should be prepared or conducted by his opponents. Reasonable minds may differ in that regard. I place little weight on those criticisms. None of the solicitors responsible for the making of the respective cross-defendants’ costs estimates were cross-examined and I do not accept that the basis on which the estimates were calculated is indicative of any attempt artificially to elevate the estimated costs. I proceed on the basis that each practitioner has done his or her best responsibly and reasonably (and having regard to his or her professional obligations to the Court) to estimate the likely costs of proceeding to the conclusion of a contested hearing. I consider that the multiplicity of representation is most appropriately dealt with in the present case by applying a further discount to the overall total of the estimated costs for the Deiri Group (and, on a broad brush basis, I would apply a 10% discount in that regard).

14. [180]

    As to Konstructions and Zapphire, the issue as to separate representation does not here arise. Neither is said to be a member of the Deiri Group and each is sought to be held liable for not insubstantial sums (and in circumstances where credit issues relating to other witnesses may impact on its position). I am not able at this stage of the proceedings and on the information here before me to conclude that it is unreasonable for each to be represented by Counsel and solicitors throughout the final hearing (though that is not to say that a costs assessor or the trial judge might not form a different view at the end of the day). Where I had some concern in reviewing the costs estimates was as to the fact that the estimated costs of Zapphire came to an amount nearly double that of Konstructions. However, that was explained in oral submissions by reference to the fact that the former will be represented by both Senior and Junior Counsel at the trial. Particularly in circumstances where I am here assessing the potential costs exposure of Combined Projects Arncliffe (for the purpose of determining whether the bringing and prosecution of the derivative suit is in the best interests of the company), I consider that I should proceed on the basis that such a level of representation is not necessarily unreasonable and hence that Combined Projects Arncliffe might ultimately face costs orders that would cover that level of representation. That said, I would apply a 20% discount to the estimated costs of Zapphire to reflect the possibility that the costs recovery by Zapphire would be further reduced than has been estimated by its solicitor.

15. [181]

    As to the merits of the defences filed for Konstructions and Zapphire (particularly noting it has been indicated that a foreshadowed amended defence for Konstructions will address the basis on which it maintains an entitlement to the site identification fee notwithstanding that the site was identified and purchased some time before Konstructions was incorporated), I am certainly not in a position to conclude that there is no tenable defence to the claims made against them by Sayour Holdings in the name of Combined Projects Arncliffe.

16. [182]

    Thus, I have concluded that the derivative suit undertakings should be secured and I accept that, in circumstances where the precise entitlement of Plaza to a share of the existing partnership funds (and the level to which those funds will be required to be made available for costs of the Broadway proceedings themselves) is not able here to be determined, it is inappropriate that a charge over Plaza’s interest in those funds should be accepted as sufficient security. Moreover, I accept the submission that I should err on the side of a generous allowance when considering the potential exposure of Combined Projects Arncliffe as to costs of the derivative suit.

17. [183]

    I therefore propose to make orders of the kind sought by Deiri Nominees and Mr Deiri, though reducing to some extent the total amount required to be provided as security for the derivative suit undertakings to reflect the matters to which I have referred above. I would adopt the estimates put forward by Deiri Nominees and Mr Deiri on the assumption that Mr Deiri is in a position to claim a complete indemnity for his costs by reference to the company’s constitution, since that is the level of costs to which Combined Projects Arncliffe is exposed if unsuccessful in its claims against him as an officer of the company; but reduce the amount required as security in respect of the costs of the other cross-defendants as indicated above.

18. [184]

    Accordingly, the level of security I consider should be provided is the sum of $2 million, comprised of $767,000 for the estimated costs of Deiri Nominees and Mr Deiri; $432,000 for the estimated costs of the various entities represented by Mr Bedrossian of Counsel; $305,000 for the estimated costs of Konstructions; and $505,000 for the estimated costs of Zapphire, and rounded down to $2 million. I appreciate that this is a broad brush approach but I consider this to be appropriate to address the respective interests of all parties and the need for the issue to be resolved without delay given the impending hearing date.

19. [185]

    The claims for security for costs are not pressed if the derivative suit undertakings to be required from Sayour Holdings are to be secured to cover the costs likely to be incurred by the respective cross-defendants to the first cross-claim in the Arncliffe proceedings. Therefore, as I understand it, those applications will not here be pressed (even though I have not wholly acceded to the applications made for security for the undertakings – insofar as I have reduced the amount to be provided). For completeness, however, I note as follows in relation to the respective security for costs applications.

20. [186]

    The principles applicable on an application for security for costs are well known, whether that application be one made under r 42.21(1)(d) of the UCPR or under s 1335 of the Corporations Act. In the present case, as noted above, the respective applications are made by reference to both sources of power, in the alternative (and/or in the inherent jurisdiction of the Court).

21. [187]

    Rule 42.21(1)(d) of the UCPR provides, relevantly:

22. [188]

    Section 1335(1) of the Corporations Act provides:

23. [189]

    In both contexts, “plaintiff” includes a cross-claimant (see Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 (Buckley) at 306; Winnote Pty Ltd (in liq) v Page (2005) 64 NSWLR 244; [2005] NSWCA 362 at [18]; and note s 3(1) of the Civil Procedure Act 2005 (NSW)). Whether “plaintiff” would include the moving party (i.e., Sayour Holdings not Combined Projects Arncliffe) is not necessary to determine since (as Counsel for the Kreisson Clients emphasised) such orders could also be made in the inherent jurisdictions of the Court. (Moreover, Deiri Nominees and Mr Deiri point to the evidence as to Combined Projects Arncliffe’s position in that it is a limited capital company – see Exhibit D; i.e., a $20 company; and reference is also made to the affidavit of 21 June 2019 of Mr Ti in which at [89] he deposes that “[i]n effect and as a result of the disclosure of the books and records and account of CPA, CPA and Deiri Nominees have effectively conceded that there will be no profit to distribute to CPA’s shareholders”.

24. [190]

    It is not here disputed that the threshold question (as to whether there is reason to believe that the plaintiff or cross-claimant – here, Plaza in the Broadway proceedings or Sayour Holdings/Combined Projects Arncliffe in the Arncliffe proceedings – would be unable to pay the defendants/cross-defendants’ costs of defending the cross-claim if it were to be ordered to do so), is one on which the defendants/cross-defendants bear the onus (see Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 at [17], [56]-[59]; (2014) 98 ACSR 301 (Cornelius v Global Medical Solutions Australia)); nor that it involves an “undemanding test” (see Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93 at [15]-[16]; Cornelius v Global Medical Solutions Australia at [57]-[60]; In the Matter of Felan’s Fisheries Pty Limited [2016] NSWSC 1351 (Felan’s Fisheries) at [10]). It has been said in this regard that a “practical commonsense approach” should be adopted in the examination of the financial affairs of the corporation (Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 (Wollongong City Council v Legal Business Centre) at [28]).

25. [191]

    In the present case, there is evidence that neither Plaza nor Sayour Holdings has any real property assets, their assets comprising their interest in the respective partnerships/companies. In the case of Plaza, if (as I have concluded) a charge over its interest in the funds held by the receiver is not accepted as security for the derivative suit undertaking, then it has a not insubstantial pool of funds from which (other than to the extent that the fund is otherwise required to meet costs orders relating to the accounting nature of those proceedings) to meet adverse costs orders that might be made in favour of the claimants for security for costs. In the case of Sayour Holdings, its financial position seems dependent at least to a significant extent on the value of its interest in Combined Projects Arncliffe (which is the subject of the proposed challenge now sought to be made by Deiri Nominees and Mr Deiri); and it is relevant to note that on the derivative suit undertakings application Mr Sayour chose not to adduce evidence of his financial capacity or that of the company.

26. [192]

    On the basis (though it is not necessary here to decide) that the relatively undemanding threshold issue appears to be satisfied in relation to each of those entities, the next issue to be considered is whether, in the exercise of discretion, security should be granted. There is said to be an evidentiary onus on the part of the party from whom security is sought to establish a reason why security should not be granted (see Wollongong City Council v Legal Business Centre (at [30]) and Cornelius v Global Medical Solutions Australia (at [18]-[20])). It must be borne in mind that the purpose of an order for security for costs is to ensure justice between the parties and, in particular, to ensure that unsuccessful proceedings do not disadvantage defendants; and that the exercise of the power involves the exercise of a discretionary judgment (see McHugh J in PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 102 ALR 321).

27. [193]

    Rule 42.21(1A) of the UCPR sets out a list of non-exhaustive considerations largely reflecting the discretionary considerations that were identified as relevant in this context by Beazley JA (as Her Excellency the Governor then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 (KP Cable) (at 196-198). Turning briefly to those factors, I note as follows.

28. [194]

    First, as to the prospects of success or merits and the genuineness of the proceedings (r 42.21(1A)(a)-(b)), it has been said that, as a general rule, where a claim is prima facie regular on its face and discloses a cause of action then the court should proceed on the basis that the claim is bona fide and has reasonable prospects of success (KP Cable at [197]). I do so in the present case. Further, although complaint was made that various of the defences did not disclose a defence, I consider those submissions more relevant to the question whether in substance the cross-defendant is here a cross-claimant. I certainly could not conclude that the respective defences to the cross-claims are not brought on a bona fide basis and I do not consider it appropriate to entertain consideration of the merits of the particular cross-defendants’ defences.

29. [195]

    The next factor listed in r 42.21(1A) is impecuniosity on the part of the plaintiff (r 42.21(1A)(c)). Related to that factor is whether any such impecuniosity is attributable to any conduct on the part of the applicant for security (see 4.21(1A)(d)). Impecuniosity has been recognised as a substantial factor favouring the exercise of the discretion to order security (see Idoport at [40] (Mason P); Tyneside Property Management Pty Limited v Hammersmith Management Pty Ltd [2013] NSWCA 404 at [18] (Sackville AJA)).

30. [196]

    A plaintiff who opposes the provision of security for costs on the basis that there is a causal connection between the plaintiff’s impecuniosity and a defendant’s conduct must substantiate that claim by appropriate evidentiary material; mere assertion or submission being insufficient (see Ninan v St George Bank Ltd [2012] FCA 905; (2012) 294 ALR 190 at [37]). This requires proof of “a real causal connection between the conduct and the impecuniosity which, in the exercise of the Court’s discretion, would make it unjust to require security” (see Dalma Formwork Pty Ltd (Administrator Appointed) v Concrete Constructions Group Ltd [1998] NSWSC 472 (Rolfe J)). It must be shown that the defendant’s conduct is the material contributor to or cause of the plaintiff’s impecuniosity (see The Owners – Strata Plan 87265 v Saaib [2019] NSWSC 289 (Saaib)). Stevenson J noted in Saaib (at [45]) that this factor usually requires “consideration of whether the matters complained of in the proceedings caused the plaintiff to be, when the proceedings were commenced, without the means to meet a costs order”. Without evidence of the financial position of the plaintiff prior to the alleged wrongdoing by the defendants, in the Ingot litigation the Court was unable to satisfy itself of that causal connection (see Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609 at [96]).

31. [197]

    I am not persuaded that any impecuniosity on the part of the respective cross-claimants (Plaza and Sayour Holdings) has been established to be due to the conduct of the cross-defendants so as to enliven this factor.

32. [198]

    Another relevant factor is whether the cross-claimant is effectively in the position of a defendant (r 42.21(1A)(e)). I consider that there is a real issue as to whether the parties who are putting in issue the claims for payments by reference to the reasonableness of value (see Deicorp Properties; Deicorp Constructions) may well properly be characterised as being effectively in the position of claimant (such that this would be a factor against the grant of security in their favour in respect of the relevant cross-clams in which they press those entitlements).

33. [199]

    Security for costs will generally not be ordered where doing so will stifle non-frivolous proceedings (r 42.21(1A)(f)). It has been recognised that the discretion to order security for costs should not be used as an instrument of oppression, shutting out genuine claims by plaintiffs who are otherwise impecunious (see Idoport at [59], which in turn cited Pearson v Naydler [1977] 1 WLR 899; and KP Cable at 197) (and see Fiduciary Ltd v Morningstar Research (at [72]-[73]), per Austin J, although this factor will not create an automatic bar to such an order in all cases – Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [92]). As to stultification, the evidence does not demonstrate that an order for security would stultify the proceedings.

34. [200]

    As to delay (see r 42.21(1A)(i) of the UCPR as well as r 42.21(1A)(l) which relates to the timing of the application for security of costs), security for costs should be sought promptly (see KP Cable at 197; In the matter of Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 611 at [69]). This is because the plaintiff will otherwise spend money on the litigation and, if security for costs is ordered and the plaintiff is unable to meet that order, the proceeding will be stayed, those costs will have been wasted and the plaintiff will suffer prejudice (see Litmus Australia Pty Ltd (in liq) v Canty [2007] NSWSC 670 at [26]; Buckley at 309 per Moffitt P; Bryan E Fencott at 514 per French J, his Honour then sitting in the Federal Court. Hodgson J (as his Honour then was) said in Green (as liquidator of Armico Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; 67 ACSR 105 at [57]:

35. [201]

    No doubt in recognition of this, the application for security for costs by Investments, Deiri Nominees and Mr Deiri does not include past costs in the Broadway proceedings (and it is said that any past costs included in the security for the undertakings sought in the Arncliffe proceedings would be nominal). I accept the explanation proffered for the delay (given by Mr McCann) – it is both plausible and not unreasonable for the view to have been taken that there was no basis to seek security for costs in the Broadway proceedings at a time when there was no suggestion that the partnership funds held by the receiver would be unencumbered and available to meet any adverse costs orders.

36. [202]

    The next factor that is raised in r 42.21(1A) (under (j)), is as to the costs of the proceedings (here, the cross-claim). The fact that a party is likely to incur significant legal costs in defending the claim, and will be unprotected if no order for security is made, is a consideration which may favour the making of an order for security (see Porter v Gordian Runoff Limited [2004] NSWCA 171 at [13]). There can be no doubt that significant costs will be incurred in this matter proceeding to a final hearing, having regard to the submissions made as to the complexity of the respective proceedings and having regard to the interlocutory stoushes to date.

37. [203]

    As to the remaining factors listed in r 42.21(1A) which I have not considered above, r 42.21(1A)(k) relates to whether the security sought is proportionate to the importance and complexity of the subject matter in dispute. Given the number of parties involved and the complexity of the issues to be determined I do not consider the sums sought by way of security to be disproportionate (substantial as the quantum of the aggregate costs is).

38. [204]

    Insofar as undertakings have been proffered in the Arncliffe proceedings, as the Kreisson Clients point out, the proffering of undertakings as such is not of itself determinative, as a matter of principle; rather it is relevant to consider the worth of the undertakings against the exposure to costs that is faced by the party seeking security for those costs (see, in particular Wollongong City Council v Legal Business Centre; Prynew Pty Limited v Nemeth [2010] NSWCA 94 (Prynew) (Beazley JA at [44]-[45]); Jazabas Pty Ltd v Haddad [2007] NSWCA 291; 65 ACSR 276 (the majority view expressed by Mason P (as his Honour then was) and McClellan CJ at CL in that case being preferred in Prynew); Epping Plaza Fresh Fruit and Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191 at 198; [1999] VSCA 43 (Winneke P and Phillips JA); Westpac Banking Corporation v Southern Environmental Services Pty Ltd [2017] NSWSC 626 at [58]-[60] (Adamson J).

39. [205]

    Had the question of security for costs been necessary here finally to determine, I would have been of the view that the threshold test was met in the Broadway proceedings if the partnership funds were the subject to a charge of the kind proffered by Plaza but probably not otherwise; and that, in the Arncliffe proceedings it was relevant to take into account the financial position of the moving party (Sayour Holdings) in considering the exercise of the inherent jurisdiction to award security for costs (even if that entity not be the “plaintiff” for the purposes of r 42.21(1)(d) of the UCPR) and that, again, there was sufficient evidence to satisfy the threshold test in that regard. Balancing the discretionary factors referred to above, I would have concluded that some level of security for costs was warranted (though not in the ambit claimed).

40. [206]

    As to the quantum of security, the objective in making an order for security for costs is not to provide a defendant with a full indemnity against all eventualities in the proceedings (see Bryan E Fencott at 515); rather, the objective is to assess what is “sufficient” security (see Vertical Australia Pty Ltd v Air Company Vertical-T LLC; Air Company Vertical-T LLC v Vertical Australia Pty Ltd [2012] NSWSC 719 at [106]). In determining the quantum of security to be ordered, it is recognised that a “broad brush” approach may be adopted (see Felan's Fisheries at [40] per Black J; Cody v Live Board Holdings Pty Ltd (No 2) [2017] NSWSC 308 at [165] and [174] per Robb J). There is also authority for the proposition that the Court may fix the amount of security based on a general estimate (see Allstate Life Insurance Co v ANZ Banking Group Limited [1995] FCA 1778; (1995) 134 ALR 187).

41. [207]

    As to when security is to be paid, in some cases it may be appropriate that security be ordered in tranches by reference to particular aspects of the pre-trial preparation and the hearing itself (see Pacific Acceptance Corporation Limited v Forsyth (No 2) (1967) 85 WN (Pt 1) (NSW) 715 (Moffitt J))

42. [208]

    Had I been prepared to order security for costs, I would have ordered the provision in tranches referable to stages of preparation of the case for hearing (though, of necessity, as the hearing date is nearly upon us the number and timing of those tranches would have been limited); and I would have excluded costs the subject of the claims where the cross-defendants are really in the position of claimants (such as where the claim is as to the reasonable value of the building works). As it is, however, it is not necessary to set out the detail of what I would have been prepared to order but for the conclusion I have reached above on the derivative suit undertakings.

43. [209]

    Costs should in my opinion follow the event on the application for security for the derivative suit undertakings. In relation to the respective security for costs applications I consider that the appropriate course is for costs to be costs in the cause, as it was not necessary finally to determine those applications but the formal dismissal of those motions does not reflect the merits of the applications.

Orders

1. [210]

   Accordingly, I make the following orders:

   1. (1)

      Order that the leave granted on 9 May 2019 to the plaintiff (Sayour Holdings Pty Ltd) to file the first cross-claim in the name of Combined Projects (Arncliffe) Pty Ltd be set aside, upon the expiry of 28 days from the date of these orders unless, within that time period, the plaintiff:

   2. (2)

      Order the plaintiff to pay the second and third defendants’ costs of the notice of motion filed 7 June 2019 in the Arncliffe proceedings.

   3. (3)

      Otherwise, dismiss the notices of motion that were before the Court for hearing on 4 July 2019 and 12 August 2019, with costs of those motions to be costs in the cause.