Lenity Care Australia Pty Ltd v Abdalla

1. [1]

   On 10 July 2025, the applicant (the defendant) filed a notice of motion seeking an order that the respondent (the plaintiff) provide security for costs in the sum of $300,000 payable in three instalments. The application relies on r 42.21 of the Uniform Civil Procedure Rules 2005 (NSW) or alternatively on s 1335 of the Corporations Act 2001 (Cth).

2. [2]

   Derived from Feltafield Pty Ltd v Heidelberg Graphic Equipment (Federal Court of Australia, Beazley J, 12 August 1994, unrep) the relevant principles may be summarised in this way:

   1. (1)

      Whether the respondent is impecunious and could not meet an adverse costs bill.

   2. (2)

      The application should be brought without undue delay.

   3. (3)

      The merits of the case are relevant.

   4. (4)

      Whether the application is oppressive in that it is being used to stultify the litigation.

   5. (5)

      Whether there is a person or entity “standing behind the company” who is likely to benefit from the litigation and is able to provide the security.

   6. (6)

      Whether the respondent is impecunious because of the applicant’s conduct.

3. [3]

   The defendant relied on an affidavit of Ms Sarina Roppolo dated 10 July 2025. Ms Roppolo is a partner in the firm of solicitors acting for the defendant.

4. [4]

   The plaintiff relied on the following affidavits:

   1. (1)

      Mr Islam Abdelwahab Mohamed Ibrahim dated 7 September 2025.

   2. (2)

      Mr Matthew Poon dated 9 September 2025.

   3. (3)

      Mr Aziz Elgaali dated 9 September 2025.

5. [5]

   Mr Ibrahim is a former director of the plaintiff company and now describes himself as the manager of the company. Mr Poon is a solicitor employed in the firm acting for the plaintiff. Mr Elgaali is now the sole director of the plaintiff company.

6. [6]

   The plaintiff also relied on an expert report of Mr Matthew Charles Hudson dated 10 July 2024. Mr Hudson is, in short, a corporate valuer.

7. [7]

   The business of the plaintiff is to provide services to the National Disability Insurance Scheme (NDIS).

8. [8]

   The plaintiff alleges that the defendant commenced working for the plaintiff in about March or April 2019 as a general manager. As such he was entitled to equal remuneration and a share of the profit as Mr Ibrahim and another person called Ahmed.

9. [9]

   The defendant became a director of the company on 27 June 2019. He had access to the company’s bank accounts. On 18 March 2020 Ahmed left the company leaving Mr Ibrahim and the defendant to share the profits.

10. [10]

    The statement of claim allege that between 27 June 2019 and 19 April 2022, the defendant breached his duties as a director to the extent that the company suffered a loss in excess of $2 million, primarily arising, I understand, from the defendant taking 40 of the plaintiff’s 43 clients to a separate company started by the defendant, called Leaders Care Pty Ltd. The above loss is claimed from the defendant in the proceedings.

11. [11]

    The statement of claim was filed on 26 September 2024. The defendant filed a notice of appearance on 1 April 2025 but has not yet filed a defence.

Is the plaintiff impecunious to the extent that it could not meet an adverse costs bill?

1. [12]

   In his affidavit Mr Ibrahim says that the plaintiff continues to trade and “presently generates surplus funds each quarter, which are continuing to improve, and it has sufficient resources to fund the progression of this proceeding”.

2. [13]

   He goes on to state:

3. [14]

   Mr Elgaali is more direct. He says that the plaintiff does not “have the means to pay” the $300,000 claimed as security either “in whole or in part”. He states that he does not personally have any material assets, listing his assets as $8,374.36 in the bank. He even gives an estimated resale value of his motor vehicle as $0.00.

4. [15]

   As far as the plaintiff’s position is concerned, Mr Elgaali states:

5. [16]

   I take the last of the just quoted paragraphs to be an assertion that the payment of security for costs would stultify the proceedings.

6. [17]

   However, in respect of the capacity of the plaintiff to meet an adverse costs bill, I think the statements of Mr Ibrahim and Mr Elgaali unequivocally amount to a concession that a costs bill could not be met. The plaintiff made the point that the time for assessing the capacity to meet the costs order should be at the time of hearing and this might be quite a way in the future. I accept that the case is in its early stages, but efficient court processes will bring it to hearing within the not-too-distant future. I do not think I can predict that a company which is just scraping by at the moment will be in a position to meet a costs order in a year or so. Accordingly, I think the first condition has been met.

Has the application been brought without undue delay?

1. [18]

   As already noted, the statement of claim was filed on 26 September 2024 and the notice of motion seeking security for costs was filed on 10 July 2025. At first sight there does seem to have been a degree of delay but on examination of the relevant dates this proves incorrect. The statement of claim was not served until 18 March 2025. On 23 March 2025 the defendant foreshadowed an application for security and sought particulars of the plaintiff’s financial position. On 2 June 2025 the plaintiff said it was compiling the relevant information and some documents were then produced on 7 July 2025. The notice of motion seeking security was filed on 10 July 2025.

2. [19]

   I am satisfied that the application was brought without undue delay.

Is there any merit in the case?

1. [20]

   The plaintiff asserts that the defendant ‘stole’ most of its clients, misappropriated funds and took staff to a different company owned by the defendant. This conduct led to a substantial financial loss. There is no evidence from the defendant denying the allegations. The inference from Ms Roppolo’s affidavit is that it is intended to brief counsel to settle a defence.

2. [21]

   The defendant submitted that I should treat the merit question as neutral. I disagree. I was taken to bank statements and emails which, at least on their face, provide a substantiation of the plaintiff’s allegations.

3. [22]

   For example, the bank statements reveal payments from the plaintiff company to the defendant’s company, totalling, I was told, over $400,000. In respect of at least one client, the emails suggest that client being transferred from one company to the other.

4. [23]

   I am satisfied, at least to the level required in this type of application, that the plaintiff has demonstrated a foundation for its claim.

Will an order for security for costs stultify the proceedings?

1. [24]

   This is clearly the opinion of Mr Elgaali. Notably however his affidavit is directed to the claim for “security in the amounts sought”. He does not say that a lesser sum of security would stultify the proceedings.

2. [25]

   There is also a degree of inconsistency between Mr Elgaali’s opinion and that of the expert, Mr Hudson, as to the value of the company. On the one hand the plaintiff endeavoured to demonstrate that it was well on the road to recovery, but on the other hand was presently only ‘scraping by’.

3. [26]

   As will be seen below, the amount claimed for security is too high, and was in fact conceded to be excessive. I agree that $300,000 would stultify the claim but I do not think that a much lesser amount would have the same effect.

Is there any other person standing behind the company who is likely to benefit from the litigation and is able to provide the security?

1. [27]

   There is no evidence of any such person. Mr Elgaali is just about penniless, and Mr Ibrahim says that the director (presumably Mr Elgaali) “is not in a position to fund this proceeding”.

2. [28]

   Mr Ibrahim doesn’t say anything about his own position either as to benefiting from the litigation or being able to provide security. There is no evidence to enable me to make any decision about Mr Ibrahim.

Is the plaintiff impecunious because of the defendant’s conduct?

1. [29]

   This is a primary allegation made by both Mr Ibrahim and Mr Elgaali. Mr Ibrahim states:

2. [30]

   If the defendant ‘stole’ 40 clients and enticed staff to his new endeavour, then it would follow that his conduct caused significant damage to the plaintiff.

3. [31]

   Although Mr Hudson assesses a significant loss to the company, strangely he values the company after the alleged misconduct as being significantly higher than before the conduct.

4. [32]

   On the plaintiff’s case the current state of the company is a result of the defendant’s conduct. But, again with inconsistencies prevalent, the company is said to be well on its way to recovery and doing well. I am not prepared to conclude that the plaintiff’s inability to meet a costs order is due to the defendant’s conduct.

The competing assessments of costs

1. [33]

   Ms Roppolo has been a solicitor since May 1996, practising mainly in “commercial litigation, insolvency and security enforcement …”. She has conducted litigation across a number of jurisdictions and has taken part in the taxation and assessment of costs.

2. [34]

   In Ms Roppolo’s opinion there are a number of steps that remain to be taken before the matter comes on for mediation and possible hearing. She envisages a hearing of at least five days with up to six witnesses to be called. She thinks there will be a need for both senior and junior counsel.

3. [35]

   Ms Roppolo gives a total estimate of costs of $449,460. She thinks that, after assessment, recoverable costs would be $425,210. On this basis the request for $300,000 amounts to a discount.

4. [36]

   Mr Poon, who has been a solicitor since November 2017, has practised throughout Australia, except, he points out, Norfolk Island.

5. [37]

   Mr Poon sees no need for senior counsel and believes the hearing would take no more than two days. His estimate of the defendant’s costs is $63,200.

6. [38]

   My impression of the competing assessments is that Ms Roppolo’s is far too high, and Mr Poon’s is far too low. Perhaps the correct assessment, bearing in mind her significant experience in commercial litigation, is closer to Ms Roppolo’s estimate.

7. [39]

   However, the defendant did seem to recognise that the amount sought was too high and stated that a more appropriate figure might be $150,000.

8. [40]

   There is a wide discretion when assessing an amount for security for costs. I think a figure of $150,000 would have the potential to stultify the proceedings but I also think that security for costs should be paid, but at a much lower sum.

UCPR 42.21

1. [41]

   The only further consideration arising under the rule is whether “there is reason to believe that the plaintiff has divested assets with the intention of avoiding the consequences of the proceedings”. There is no reason to so believe.

Conclusion

1. [42]

   In summary, I think that it is clear the plaintiff could not meet an adverse costs order, and the proceedings have a degree of complexity which might lead to a more than two-day hearing.

2. [43]

   On the other hand, ordering security in the amount requested by the defendant would, I think, stultify the proceedings. The allegations made by the plaintiff are serious and the plaintiff is entitled to have them ventilated. As I have said, there is apparent merit in the allegations, at least to the extent that I have been capable of assessing them.

3. [44]

   I think security for costs should be ordered, but nowhere near the amount requested. I intend to order security in the sum of $75,000 to be paid into court in three instalments of $25,000 each.

Orders

1. [45]

   I make the following orders:

   1. (1)

      The plaintiff is to pay security for costs in the sum of $75,000 by payment into court of $25,000 by 17 December 2025, another $25,000 by 21 January 2026 and a further $25,000 by 18 February 2026.

   2. (2)

      The proceedings are stayed pending the payment of the above security.

   3. (3)

      Both parties have liberty to apply for consequential orders arising from any failure by the plaintiff to pay the security ordered.

   4. (4)

      A Defence is to be filed within 14 days of the final instalment of the security for costs being paid.