Supreme Court New South Wales

• Medium Neutral Citation: Vertical Australia Pty Ltd v Air Company Vertical-T LLC; Air Company Vertical-T LLC v Vertical Australia Pty Ltd [2012] NSWSC 719
• Hearing dates: 20 June 2012
• Decision date: 27 June 2012
• Jurisdiction: Equity Division
• Before: Ward J

Decision

Order for payment of moneys out of Court in interpleader proceedings (11/408815)

Order for security for costs in the Breach of Agency proceedings (11/411472)

• Catchwords: PRACTICE AND PROCEDURE - application for payment of moneys out of Court - application pursuant to r 25.3(3) Uniform Civil Procedure Rules 2005 (NSW) or in the alternative pursuant to s 95 Trustee Act 1925 (NSW) - application by Vertical-T with respect to moneys held by Vertical Australia, initially Australian agent for Vertical-T - other potential claimant Wellman Limited, a company incorporated in Cyprus, which had previously acted as intermediary between Vertical Australia and Vertical-T - HELD - satisfied that Vertical-T has established claim to moneys; COSTS - application for payment out of Court brought by Vertical Australia on interpleader procedure - Vertical Australia seeks costs of application - whether unreasonable or premature for Vertical Australia to commence proceedings - HELD - proceedings were not commenced unreasonably or prematurely - cost application granted; PRACTICE AND PROCEDURE - application for security for costs by Vertical Australia - claim for retention of moneys paid into Court in the interpleader proceedings - whether position of Vertical Australia is analogous to a trustee with respect to right of indemnification from trust property - whether in analogous situation trustee would have right to indemnification - no equitable lien claimed - power to order security for costs is discretionary - objective is to assess sufficient security that is just in all the circumstances of the case - where uncertainty as to actual costs which will be incurred in conduct of proceedings - HELD - security for costs to be provided on a staged basis
• Legislation Cited: Corporations Act 2001 (Cth); Trustee Act 1925 (NSW); Uniform Civil Procedure Rules 2005 (NSW)
• Cases Cited: Agar v Hyde (2000) 201 CLR 552; Agusta Pty Ltd v Official Trustee In Bankruptcy As Trustee of Estates of Gustavo Ferella and Angelo Ferella [2009] NSWCA 129; Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 19) (1995) 134 ALR 187; ANZ v Maunder [2009] NSWSC 1356; Australian Building & Technical Solutions Pty Ltd v Boumelhem; Boral Australia Ltd v Boumelhem; Boumelhem v Jones [2009] NSWSC 460; Australian Iron & Steel Pty Ltd v Jumbo Scheepvaart Maatschappij (Curacao) NV (1988) 13 NSWLR 507; Brocklebank & Co v King's Lynn Steamship Co (1878) 3 CPD 365; Brundza v Robbie & Co (No 2) (1952) 88 CLR 171; Bryan Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497; Commonwealth Bank v Estate of late Slieman [2010] NSWSC 661; Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516; Del Bosco v Outtrim [2008] NSWSC 105; Electrona Carbide Industries Pty Ltd v Tasmanian Government Insurance Board [1985] Tas R 68; Equity Access Ltd v Westpac Banking Ltd [1989] ATPR 40-972; Fiduciary v Morningstar Research [2004] NSWSC 664; Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264; Harvey v Jacob (1817) 106 ER 59; Idoport Pty Ltd v NAB Ltd [2001] NSWSC 744; In re Rhodesia Goldfields, Limited Patridge v Rhodesia Goldfiends, Limited [1907 R 454] [1910] 1 Ch 239; JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691; JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64; K P Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189; Kennett v Charlton [2007] NSWSC 190; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97; McPherson Thom & Co v Coombie Pastoral Co Pty Ltd [1929] VLR 295; Massey v Allen (1879) 12 Ch D 807; JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64; Menhaden v Citibank NA (1984) 1 FCR 542; MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Ltd [2002] FCA 821; Mokau Timber Co v Berry (1908) 11 GLR 212; Morris v Hanley [2001] NSWCA 374; Nelson Capital Pty Ltd v Short [2003] WASC 152; Plaza Print Pty Ltd v South British Insurance Co Ltd (1984) 68 FLR 340; Re Application of Macedonian Orthodox Community Church St Petka Inc [2006] NSWSC 392; Re PILT Nominees Pty Ltd (Unreported, 2909/2009, White J); Ruth Chong v Super Equity Invests Pty Ltd & Anor [2012] NSWSC 27; Sharjade v Darwinia Estate & Anor [2006] NSWSC 708; Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114; Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162; Sunday Times Newspaper Company Ltd v Mcintosh (1933) 33 SR (NSW) 371; Szanto v Bainton [2011] NSWSC 985; Transocean Capital Pty Ltd v AFSIG Pty Ltd [2006] NSWSC 806; Tyne Improvement Cmrs v Armement Anversois S/A (The Brabo) [1949] AC 326; Westpac Banking Corporation v Commonwealth Steel Ltd [1983] 1 NSWLR 735; William Buck Pty Ltd v Perception Pty Ltd [2006] VSC 385; Wollongong City Council v FPM Constructions Pty Ltd [2004] NSWSC 523; X v A [2000] 1 All ER 490; Xebec Pty Ltd (in liq) v Enthe Pty Ltd (1987) 18 ATR 893
• Texts Cited: J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (7th ed, 2006)
• Category: Interlocutory applications
• Parties: 10/411472; Air Company Vertical T-LLC, a company registered in the Russian Federation, No 102690191450 (Plaintiff); Vertical Australia Pty Ltd (ACN 147 916 961) (First Defendant); Yuri Tchernobryvko (Second Defendant); 11/408815; Vertical Australia Pty Limited (Plaintiff); Vertical-T LLC (First Defendant); Wellman Limited (Second Defendant)
• Representation: Counsel: N Kidd (Plaintiff 11/408815; Defendants 11/411472); A Lo Surdo SC with D Tynan (First Defendant/Cross-claimant 11/408815; Plaintiff 11/411472); Solicitors: Swaab Attorneys (Plaintiff 11/408815; Defendants 11/411472); Colquhoun Murphy (First Defendant/Cross-claimant 11/408815; Plaintiff 11/411472)
• File Number(s): 11/408815, 11/411472

Judgment

1 HER HONOUR: Before me for hearing on 20 June 2012 were two applications brought in separate but related matters. The two proceedings in question are, first, proceedings (to which I will refer as the Interpleader proceedings, 11/408815) commenced by Vertical Australia Pty Limited (Vertical Australia) for the payment into Court of a sum of $2,371,195.61 and, second, proceedings (to which I will refer as the Breach of Agency proceedings, 11/411472) commenced by Air Company Vertical-T LLC (Vertical-T) in which Vertical-T seeks damages against Vertical Australia for breach of an agency agreement and breach of fiduciary duty.

2 The respective applications before me for hearing are, first, an application by Vertical-T in the Interpleader proceedings (by way of cross-claim/cross summons filed on 1 May 2012) for an order that the funds paid into Court in December 2011 by Vertical Australia (together with any interest accrued thereon after the payment of those funds into Court) be paid out of Court to Vertical-T (an application not opposed by Vertical Australia, which claims no interest in the funds, though it seeks an indemnity for its costs associated with the commencement of the Interpleader proceedings) and, second, an application by Vertical Australia for security for costs in respect of the Breach of Agency proceedings (on the basis that Vertical-T is a foreign company).

3 In relation to the second application, Vertical-T does not dispute the entitlement of Vertical Australia to an order for security for costs (having regard to the fact that Vertical-T is a company registered in the Russian Federation and does not carry on business in this jurisdiction otherwise than through an agent) but it asserts that the amount claimed is excessive and not presently warranted. Issue is also taken as to the manner in which security is sought to be provided (ie, by way of the retention of part of the sum presently held in Court in the Interpleader proceedings).

Background Facts

4 As noted above, Vertical-T is a company registered in and carrying on business in the Russian Federation. It leases and supplies military support aircraft. Mr Vladimir Skurikhin is the General Director of Vertical-T.

5 Vertical Australia was incorporated in Australia in December 2010 to act as Vertical-T's agent and to develop Vertical-T's business in Australia. Mr Yuri Tchernobryvko was appointed as Vertical Australia's sole director and shareholder. The agency arrangement was initially documented in a letter dated 10 September 2010 under which Mr Tchernobryvko was appointed to undertake on behalf of Vertical-T all actions as may be necessary or reasonable in connection with, inter alia, (a) the performance of all activities in the region in relation to commercial development; (c) participation in tenders; and (f) the submission, signing (upon receipt of approval from Vertical-T), receipt of documents and data, and execution of other acts in connection with commercial activities of the company in the region. It was contemplated at that time that Mr Tchernobryvko would establish a company to act as agent, as he did.

6 On about 22 February 2011, Vertical-T entered into a Services Contract with the Commonwealth of Australia for the supply by Vertical-T of a number of cargo helicopters for use by the Commonwealth in Afghanistan. This followed the submission by Mr Tchernobryvko on Vertical-T's behalf of a tender for the provision of rotary wing (helicopter) services for sustainment operations in Afghanistan. The aircraft details were specified in Item 1 of Schedule 2 by reference, inter alia, to the aircraft make, type and model; and the aircraft's specific registration marks. The Services Contract required the contractor (Vertical-T), among other things, to provide "Transport Services", as defined, up to a maximum number of Block Hours per month and to provide, operate and maintain the aircraft (and provide the personnel) for the provision of the Transport Services).

7 The Services Contract was due to expire in accordance with its terms on 31 August 2011 (see clause 2.1) but was extended on 1 August 2011 to 30 June 2012 (the Commonwealth exercising an option it had under clause 2.2 of the Services Contract in that regard).

8 Pursuant to clause 19.1 of the Services Contract, Vertical Australia was appointed as Vertical-T's agent for the purposes of receipt of payments due from the Commonwealth under the contract.

9 Mr Tchernobryvko has deposed that it was Ms Ludmila Baraney, the then Deputy Director, International Department at Vertical-T, who had responsibility for managing the relationship with Vertical Australia. There was an arrangement (apparently established by Ms Baraney) whereby the amounts paid to Vertical Australia (as Vertical-T's agent under the Services Contract) were remitted to Vertical-T through a series of intermediary companies. The payments were first transmitted by Vertical Australia (after deduction of fees) to Wellman Limited (the second named defendant in the Interpleader proceedings), which is a company incorporated in Cyprus, and from it to KBL Ltd (a company incorporated in the United Kingdom) and thence to Vertical-T in Russia. According to Mr Skurikhin, Ms Baraney explained the need for this as being due to a prohibition under Australian law on the making of payments direct from Australia to Russia. (He says it was not until November 2011, when Vertical Australia was replaced by a new agent in Australia, that he discovered there was no such prohibition.)

10 By letter dated 15 February 2011 (prior to the execution by Vertical-T on 22 February of the Services Contract), Vertical-T instructed Vertical Australia "to transfer any funds received by [Vertical Australia] for services, aircraft and personnel provided by [Vertical-T] where [Vertical Australia] nominated as the agent, to Wellman LTD". In that letter, Wellman was described as the "subsidiary and funds Management Company of Vertical-T". (This letter is now said by Vertical-T to be a forgery. It purports to bear the signature of Mr Skurikhin under the seal of Vertical-T.) The letter concluded by stating that Vertical Australia "will accept invoices issued by Wellman LTD based on proposed agreement between" Vertical Australia and Wellman.

11 Mr Tchernobryvko has deposed that in early February 2011, Ms Baraney requested that Vertical Australia enter into a contract with Wellman for the provision of "Rotary Wing Aircraft services to be provided by Vertical-T under the Services Contract". He understood that it was this contract that was the "proposed agreement" contemplated in the 15 February 2011 letter. Exhibited to his affidavit is a copy of the document described by him as the Wellman contract. On its face this is a contract dated 21 February 2011 between Vertical Australia and Wellman "for the fulfilment of aviation works on helicopters of [the two types specified by aircraft make and registration number in the Services Contract between the Commonwealth and Vertical-T]".

12 The term of that contract was specified as being for 6 months from the date of signature (clause 3.1) though there was provision in that clause for the contract to be extended "upon bilateral agreement of the Parties". There is perhaps room for ambiguity in the construction of this document as to whether what Wellman was contracting to provide were the aircraft themselves (which there is no suggestion that it owned) or services for the operation of the aircraft owned by Vertical-T. Nevertheless, what is apparent is that the aircraft registration details referred to in the Wellman contract are the same as those in the Services Contract, so that the respective contracts related to the same aircraft.

13 On 1 August 2011, the Commonwealth extended the Services Contract to 30 June 2012.

14 From February 2011 until about September 2011, Vertical-T received all amounts payable to it pursuant to the Services Contract and the arrangement with Vertical Australia. That ceased from about September 2011. (Vertical Australia does not deny that it retained the Commonwealth payments made pursuant to invoices dated September 2011 and October 2011 respectively. However, it says in effect that it did not act improperly in retaining those payments, in circumstances where it was faced with competing demands from Vertical-T and Wellman in relation to those moneys.)

15 In the period from September to November 2011, Vertical-T issued a number of directions to Vertical Australia (on which Vertical-T relies for the proposition that Vertical Australia was no longer authorised to deal with Wellman).

16 Mr Tchernobryvko deposes that on 21 September 2011 he received a telephone call from Mr Andrey Makarov of Vertical-T advising him that Ms Baraney had left her employment at Vertical-T and that he must cease communication with her and deal only with Vertical-T "in all matters" ([12] of his affidavit). Mr Tchernobryvko deposes that he was aware that Ms Baraney is a shareholder of Wellman "together with Director General of Vertical-T Mr Skurikhin". (Vertical-T denies that Wellman is a subsidiary of or associated with it.)

17 On 26 September 2011, Mr Skurikhin wrote to Vertical Australia (on Vertical-T letterhead) advising Mr Tchernobryvko that Ms Baraney was no longer an employee of Vertical-T and did not represent Vertical-T's interest anymore. The letter requested that in future all email letters concerning a relationship between the companies be forwarded to three named individuals (including Mr Skurikhin and Mr Makarov). Vertical-T characterises this (not unreasonably) as a direction to Vertical Australia not to deal with Ms Baraney any more.

18 Mr Skurikhin has further deposed that on 30 October 2011 he met with Mr Tchernobryvko at a hotel in Dubai and directed him to transfer the payments under the Service Contract directly to Vertical-T, excluding Wellman from the payment chain (at [18] of his affidavit).

19 In the period from September 2011, Vertical Australia continued to receive payments from the Commonwealth pursuant to the Services Contract. Mr Tchernobryvko has deposed that he did not pay those funds on to Wellman due to the instructions that he had received in the 26 September letter) ([13]).

20 The funds paid into Court represent, in substance, the Australian dollar equivalent of the total of two invoices rendered by Vertical Australia and paid by the Commonwealth pursuant to the Services Contract: an invoice dated 11 September 2011 (comprising monthly service charges for the period from 11 September 2011 to 10 October 2011 for the primary aircraft the subject of the Services Contract) in the sum of US$1,642,373.70; and an invoice dated 12 October 2011 (comprising similar charges for the period from 11 October 2011 to 10 November 2011) in the sum of US$1,488,214.10. (Mr Tchernobryvko explains that deducted from the invoice payments as paid into Court are service fees payable to Vertical Australia as well as payments due to PME International LLC, an approved subcontractor under the Services Contract.) Relevantly, I note that the respective monthly service charges in each case included a component referable to rates in excess of 50 Block Hours for the previous month, (ie August/September and September/October respectively).

21 By letter dated 1 November 2011 (a copy of which Mr Tchernobryvko says his solicitors first received by email on 9 November 2011), Vertical-T wrote to Wellman referring to a contract signed on 15 September 2011 between Vertical-T and Wellman on participation in aviation works. (That contract was referred to as Contract # VT 09 11 AF, whereas the 21 February 2011 contract document was headed Contract No WN/VT Aust/02/11/AF.) No copy of a 15 September contract was in evidence. The letter referred to clause 13.2 of the Contract and a "Settlement Report to the Discrepancy Agreement Report to the Contract" and unilaterally notified Wellman of the termination of the contract "in connection with the violation of more than 15 days of payments provided for in Article 12". The letter concluded:

Hereby notify that the CONTRACT # VT September 11 AF on participation in aviation works from 15th September, 2011, is considered terminated from November 1, 2100

22 That letter was sent under the signature of Mr Skurikhin. Wellman responded thereto by email on about 9 November 2011 in which it denied that there had been non-compliance with the "settlement procedure" under the 15 September 2011 contract (asserting that Vertical-T had been in breach of an obligation to provide Wellman with a duplicate "Act" (by which I assume the writer has abbreviated the word "account") of rendered services and that, as the relevant accounting period was from the 11th of the previous month to the 10th of the current month, any delay in payment (provided that the "Act of rendered services" were to be presented) would only commence from 13 November 2011). The letter contended that the decision on termination was "illegal" and called upon Vertical-T "to take measures and read [the contract] more attentively and fulfil the obligations on your [Vertical-T's part] part, first of all".

23 On 10 November 2011, Mr Tchernobryvko received a letter by email from Wellman referring to the 21 February 2011 contract between those two entities and requesting payment within 3 days of the "delayed payment for the rendered services" those being described as for the months from 11 August 2011 and 11 September 2011 respectively (in the sums of US$524,448 and $724,000), totalling $1,248,448. (The amounts there demanded do not correspond precisely with the amounts in the Vertical Australia invoices but it is possible that they represent the amount invoiced for excess block hours in the 11 September invoice (of $585,633.60) and the charges for the month of September for block hours flown (of $780,000), to which they roughly correspond. (The three-day time limit may be because Wellman considered that the time delay would not have contractual consequences since then but this is mere speculation on my part.)

24 On 11 November 2011, Vertical Australia, through its lawyers, wrote to each of Vertical-T and Wellman in similar terms, referring to the Services Contract, the 21 February Wellman Contract and various other correspondence, and asserting that Vertical Australia and Mr Tchernobryvko were "in a position of trust, respect and high regard in the eyes of the Commonwealth" which relationship "is the principal catalyst for how the Services Agreement was negotiated and entered into". The letter noted that the instruction to cease communication with Ms Baraney and only to deal with Vertical-T directly had placed Vertical Australia and Mr Tchernobryvko in a position of conflict and had made it impossible to execute their rights and obligations under the various contracts. A way forward was proposed, involving the recommendation that Wellman and Vertical-T immediately negotiate in good faith to resolve the issues between them and to advise Vertical Australia and Mr Tchernobryvko the way that funds were to be remitted. Failing this, it was said to be likely that Vertical Australia and Mr Tchernobryvko would inform the Commonwealth of the issues (at a meeting scheduled on 17 November 2011) and the view was expressed that it was possible that the Commonwealth would terminate the Services Contract "upon hearing of the change in circumstances". (There is no evidence that the Services Contract has in fact been terminated and this correspondence has rather an in terrorem flavour.)

25 The response from Wellman to this correspondence (on 11 November 2011) seems to have been to issue a further demand for payment from Vertical Australia (the letter somewhat confusingly going on to recommend that the "right" be granted to Wellman and Vertical-T to settle the disputes between them, the very thing that Vertical Australia's lawyers seem to have suggested as the way forward). In any event, the letter concluded with a threat by Wellman to commence proceedings against Vertical Australia.

26 Vertical-T, by notice dated 22 November 2011, then terminated the agency relationship between its company and Vertical Australia (and/or Mr Tchernobryvko) with immediate effect, expressly revoking all authorities and powers that were ever given to them and calling for all moneys held by them to be remitted to DynCorp (Aust) Pty Ltd, its new agent in Australia.

27 By letter dated 23 November 2011, Vertical-T's solicitors advised Vertical Australia's solicitors that the basis for the termination was the failure of Vertical Australia to follow the instructions that had been given regarding the remittal of the moneys received from the Commonwealth (which it was said had led to a loss of confidence and the irretrievable breakdown of the relationship between the parties). That letter conveyed Vertical-T's instructions that the 15 February letter was a forgery (that being the first intimation of this, as far as I can see on the material before me) and stated that Wellman was not an entity controlled by Vertical-T, but was an entity established by Ms Baraney. A further demand for the remittal of the moneys payable under the Services Contract was made, failing which proceedings were foreshadowed.

28 On 24 November 2011, Vertical Australia sought further time to respond to that demand but gave an undertaking to give 72 hours' notice before it distributed any funds received from the Commonwealth that were currently in its control.

29 A further demand was made by Vertical-T's lawyers by letter of 28 November for the remittal of the moneys (on the basis that any arrangement with Wellman was irrelevant and that the situation was, rather, said to be one whereby Vertical Australia as agent (and acknowledged agent) of Vertical-T was obliged to comply with its directions).

30 By letter dated 2 December 2011, Vertical Australia's solicitors wrote, amongst other things, denying that their client had any reason to believe that the 15 February letter was a forgery and advising that it intended to pay the moneys into Court (on the basis that the entitlement to the moneys as between Vertical-T and Wellman was a matter for determination by the Court). A similar letter was sent to Wellman. Relevantly, in that letter, Vertical Australia's lawyers concluded as follows:

In the meantime, as our client's agency on behalf of Vertical-T LLC has been terminated, our client hereby terminates the contract between Wellman Ltd and Vertical Australia Pty Limited dated 21 February 2011, which we note in any event expired on its terms on 21 August 2011. (my emphasis)

31 Vertical-T, through its lawyers, took issue with this course of action (on the basis that there was no relationship between Vertical-T and Wellman which would entitle the latter to any of the moneys and that the relationship between Vertical-T and Vertical Australia was one of agency. Hence it was emphasised that the latter was required to comply with Vertical-T's directions. (Pausing there, if, as Vertical Australia contends, it entered into the Wellman contract pursuant to what on their face appeared to be Vertical-T's directions, then the fact that it was seemingly not prepared at face value later to accept Vertical-T's assertions as to the forgery may not of itself be unreasonable. Vertical Australia seems (not surprisingly) to have been concerned not to expose itself to claims by either of the parties then demanding the moneys from it.)

32 In any event, in December 2011 there was further correspondence between the respective lawyers in which proceedings by Vertical-T were foreshadowed and the intention of Vertical Australia to pay the moneys into Court was reiterated. A draft of Mr Tchernobryvko's affidavit was provided to Vertical-T's solicitors on 16 December 2011. Their response was that the foreshadowed application would be unnecessary as they anticipated receiving instructions to commence proceedings the following Monday (and that to save costs Vertical Australia should take no further steps for preparation of proceedings - foreshadowing an application for costs in the event that the interpleader application was nevertheless brought). No proceedings were issued on the Monday and the following day (20 December 2011) Vertical Australia commenced the Interpleader proceedings and paid the moneys held by it (being the invoice sums US $3,130,587.8 less the Vertical Australia agency fee of $US 266,595 and a subcontractor fee of US$505,480) as converted to Australian dollars into Court.

33 On 22 December 2011, Vertical-T commenced the Breach of Agency proceedings against Vertical Australia and Mr Tchernobryvko seeking declaratory relief (including that 'Vertical Australia had held all moneys received from the Commonwealth in connection with the service contract (less agreed fees and expenses) on trust for Vertical-T and that Vertical Australia was in breach of trust and in breach of contract by failing to remit those moneys to it. An account was sought of all moneys paid the Commonwealth or any other entity in connection with the Service Contract.

34 Equitable compensation is sought (in the alternative to the declarations of breach of trust/contract) as well as damages. An order is sought that the defendants deliver up and cancel all documents, authorities, power of attorney and letter of instructions sent to each of them by Vertical-T.

35 The alleged breaches of the agency agreement comprise the failure of Vertical Australia to provide to Vertical-T the money received from the Commonwealth under the Services Contract and to provide documentation evidencing receipts and payments under the Services Contract [14]; its failure to remit moneys to DynCorp as directed [18]; and the fact that it had not "returned all documentation" to Vertical-T [19]).

36 The allegation of breach of fiduciary duty is set out in [21]-[23]. The fiduciary obligations particularised in [21] (being obligations to avoid conflict of interest, of good faith and fidelity to account for moneys received) are said to arise by reason of the agency relationship. The breaches of fiduciary obligations are those matters relied upon for the breaches in [14] and [18] respectively (largely, the failure to remit moneys though in [14] there is an alleged failure to provide receipts and documentation evidencing payments).

37 At [23] it is alleged that at all material times Vertical Australia received the moneys from the Commonwealth as a constructive trustee for the benefit of Vertical-T. This allegation is denied by Vertical Australia.

38 The loss and damage claimed for both breach of contract and breach of fiduciary duty is the same - loss of moneys, loss of use of documentation and loss of profit, with a statement that further particulars are to be provided before trial. (The loss of profit claim is, in effect, what is said by Vertical Australia to give rise to the likely need for expert evidence, as I understand it.)

39 Vertical Australia, in its defence, denies the allegation it was a constructive trust on behalf of the plaintiff and the administrator of moneys.

40 Wellman is named as a party to the Interpleader proceedings but was not served with those proceedings by Vertical Australia. Vertical-T has issued a Cross-claim/Cross-Summons against both Vertical Australia and Wellman and has effected service on the latter in Cyprus in the manner outlined later in these reasons. Wellman has not entered an appearance in these proceedings and did not appear on the hearing of the applications before me.

Application by Vertical-T for payment out of Court of the funds

41 The moneys in question were paid into Court in proceedings commenced by Summons in which Vertical Australia seeks an order pursuant to rule 25.3(3) of the Uniform Civil Procedure Rules 2005 (NSW) for that to be done or, in the alternative, that the funds be paid into Court pursuant to s 95 of the Trustee Act 1925 (NSW). As noted, Vertical Australia claims no entitlement to the funds (but seeks an order for the payment of its costs of the Interpleader proceedings on an indemnity basis).

42 While leave was not necessary in order for Vertical-T to serve Wellman out of the jurisdiction (rule 11.5), it is necessary (in circumstances where there has been no appearance by Wellman) pursuant to rule 11.4 of the Uniform Civil Procedure Rules for Vertical-T to obtain leave to proceed against it. I deal first with that application.

43 Senior Counsel for Vertical-T (Mr Lo Surdo SC) submits that service of the originating process was properly effected on Wellman, on the basis that the Interpleader proceedings fall within either paragraph (i) of Schedule 6 (which applies where there are proceedings properly commenced against a party in New South Wales and the person served outside New South Wales is properly joined as a party to the proceedings) or paragraph (j) (which applies where the subject matter of the proceedings concerns property in New South Wales, it being submitted that the fund in Court constitutes property for that purpose).

44 As to the steps taken to effect service, the Cross-claim/Cross-summons clearly contains a statement that the originating process is intended to be served on a defendant overseas (as required by rule 11.3(1)). Pursuant to rule 11.6 it is sufficient that service be effected in accordance with the law of the country in which it is served.

45 In this regard, reliance is placed on the affidavit sworn by Vertical-T's solicitor, Ms Karen Fogarty, who deposes to the receipt of advice from a law firm in Cyprus (Michael Kyprianou & Co) as to the requirements in that jurisdiction for service of court documents on a company situated in Cyprus. The advice received is annexed to Ms Fogarty's affidavit, as is a translation of the relevant Civil Procedure Rules which regulate the service of Court process in that jurisdiction. Those Rules provide, relevantly, that service is deemed to have been properly effected on a legal entity if the court document is served on the chairman or other senior employee or the treasurer or the secretary of the legal entity or if the document is left at the office of the legal entity (rule 5(7)) (my emphasis). Rules 5B(1) provides that service of court documents (which term includes any document of an overseas judicial authority) is to be effected by a process server to whom a licence has been granted for this purpose by the Supreme Court.

46 There is evidence from a licensed process server in Cyprus (Mr Stavros Constantinou) as to the service by him of the Cross-Summons and affidavit in support (as well as a Greek translation of those documents) at the registered address of Wellman on 3 May 2012. Mr Constantinou deposes that he left the documents with Mr Stelios Giordamlis, a lawyer employed there. (Mr Giordamlis is, I note, the signatory on some of the correspondence issued by Wellman to Vertical Australia demanding remittal of the moneys in question.)

47 I am satisfied that Wellman has been properly served in accordance with the rules regarding service of Court process in Cyprus. I am also satisfied that the proceedings fall within paragraphs (i) and (j) of Schedule 6 to the Uniform Civil Procedure Rules.

48 As to para 6(i), there is no suggestion that the Interpleader proceedings were not properly commenced by Vertical Australia against Vertical-T (although Vertical-T maintains that they were commenced prematurely). While Vertical-T is not incorporated in New South Wales, it is carrying on business (through Vertical Australia and now DynCorp) in this jurisdiction and it is a proper party to proceedings in relation to the moneys paid into Court. It has clearly submitted to the jurisdiction of the Court. As to the cross-claim/cross-summons filed by Vertical-T against Wellman, Mr Lo Surdo submits (and I accept) that Vertical Australia was properly joined as a first cross-defendant to that claim to ensure that it was bound by the orders made for payment out in these proceedings (even though no substantive relief is sought against it). It is submitted that Wellman was properly joined to the proceedings to ensure that all matters in issue in the proceedings are properly determined. The Rule permits joinder of foreign parties whether as defendants to the plaintiff's claim or as a defendant to a cross-claim (Australian Iron & Steel Pty Ltd v Jumbo Scheepvaart Maatschappij (Curacao) NV (1988) 14 NSWLR 507 at 518).

49 For completeness, I note that my attention was drawn to Agar v Hyde (2000) 201 CLR 552 for the proposition that, on an application for leave to proceed, the Court is not required to assess the prospects of success of the claim (provided that there is factual material on affidavit in support of the claim, as there is in this case, and the claim against the foreign defendant is genuine and cannot be said to be doomed to failure - Tyne Improvement Cmrs v Armement Anversois S/A (The Brabo) [1949] AC 326).

50 There is nothing to suggest that the claim brought against Wellman is not genuine. I note that on an application for payment out under the procedure provided for in Part 55 of the Rules (though the present application is not one made expressly pursuant to that process), it is incumbent on an applicant for payment out to notify any other competing claimant of the application and strict proof thereof is required. Hence on any view of the application Wellman would have been a proper and necessary party to be joined had it been resident in the jurisdiction. That is said to be sufficient for the purposes of the requirement that the claim be genuine (see Westpac Banking Corporation v Commonwealth Steel Ltd [1983] 1 NSWLR 735).

51 As to 6(j), there is no suggestion that "property" for the purposes of Schedule 6 is confined to real property (although Mr Lo Surdo concedes that a number of the relevant cases do concern real property). Ritchie's Commentary to Part 11 r 11.2 notes that for the purposes of 6(j) the property within the State must be the subject matter of the proceedings (and not indirectly the subject of the claim for relief), drawing a distinction with cases where claims for recovery of moneys (such as rent or proceeds of a policy of insurance or stamp duty on a conveyance) or for compensation in relation to matters concerning property (such as for breach of a covenant to repair) have been held not to be within the relevant subrule. There is no suggestion in Ritchie's that the "property" the subject of the claim for relief must be real property nor have I been taken to any authority to that effect.

52 Here, the claim is to a fund comprising moneys in respect of which a constructive trust is claimed. The fund is directly the subject of the proceedings. I consider that moneys paid into Court, over which it is contended that there was a constructive trust in favour of the applicant who is now seeking payment out of that fund, would fall within property for the purposes of 6(j).

53 I am therefore satisfied both that Wellman has been properly served and is on notice of this application and that the proceeding is one falling within the provisions of schedule 6. There is no explanation for its absence on the hearing of the application. I consider that Vertical-T has established the basis for leave to be granted to proceed against Wellman in those circumstances and I give leave accordingly.

54 Turning then to the substance of the application, I am satisfied that Vertical-T has established its entitlement to the funds in question (those representing payment of moneys due to it under its Service Contract with the Commonwealth and paid to Vertical Australia as agent for Vertical-T). Insofar as Wellman has (in correspondence with Vertical Australia) demanded the payment to it of those moneys, it has based that claim on a contract with Vertical Australia (one that Vertical Australia says was entered into at Vertical-T's direction), which contract on its face expired in accordance with its terms in August 2011. There is no evidence that there was any bilateral agreement between Vertical Australia and Wellman to extend its operation (and, indeed, the correspondence in November between Vertical-T and Wellman suggests that any subsequent contractual arrangement was directly between Vertical-T and Wellman).

55 Around five-sixths of the time covered by the first of the two invoices relates to a period in which the written contract seems to have expired and there is no evidence as to any services rendered by Wellman to support any claim to moneys for that period. As to the 10 day period in which the Wellman contract seems to have been on foot (between 11 August 2011 and 21 August 2011), for which it is possible that services were rendered for which payment would be due under the Wellman contract (and hence in respect of which it is conceivable that Wellman might have a claim as against Vertical Australia under that contract), there is no evidence as to what services if any were rendered by Wellman or what portion of the invoiced fees would referable to any such services.

56 The evidence by Mr Skurikhin as to the circumstances in which Ms Baraney explained the need for arrangements to be entered into through Wellman strongly suggests that the latter was no more than a repository for funds passing through from Vertical Australia to Vertical-T (and the tenor of the demand made on Vertical Australia by Wellman seems to me to support such a conclusion). (Mr Lo Surdo noted that the helicopter registration details on the respective contracts were identical, so that it cannot be that Wellman owned the helicopters which were being provided for the use of the Commonwealth (unless there was some other as yet undisclosed arrangement by which it had obtained ownership or usage rights in relation to the same aircraft as those the subject of the Services Contract). It may have provided personnel or maintenance services or the like to assist in the provision of the services the subject of the Services Contract but there is no evidence of that (and any such arrangement is not documented in the manner in which the approved subcontractor arrangement was documented).

57 There is also a suggestion that there was a contract entered into between Vertical-T and Wellman in September 2011 pursuant to which moneys were then to be remitted to Vertical-T via Wellman (though apparently without the direct involvement of Vertical Australia, which does not explain how the moneys were to be remitted from Vertical Australia to Wellman. However, there is no evidence of the terms of that alleged contract (other than that the clauses referred to in Wellman's correspondence, denying the legality of the termination by Vertical-T of that arrangement, seem to accord with similar clause numbers in the earlier Vertical Australia/Wellman contract).

58 As between Vertical Australia and Vertical-T, it was made clear by Counsel for the former, Mr Kidd, at least on the interpleader application (since the submissions on the security for costs application to some extent withdrew from this submission) that there is no claim by Vertical Australia to any of the funds now held in Court (and which were clearly received as agent for Vertical-T). In the course of submissions on the security for costs application, Mr Kidd informed me that his client acknowledged that it had been holding those moneys on trust (T 22.37). (While in the course of that exchange it was not there made clear as to the party for whom it accepts it was holding the moneys on trust (and in the defence to the Breach of Agency claim there is an express denial that the moneys were received as constructive trustee for the benefit of Vertical-T), the very invocation of the interpleader procedure (if not also the alternative claim for payment in under s 95 of the Trustee Act) makes it clear that Vertical Australia does not dispute Vertical-T's entitlement to the funds. It simply leaves it to the Court to determine as between Vertical-T and Wellman the entitlement thereto.)

59 I am satisfied on the interpleader application that (Wellman not having sought to establish in Court any claim to those funds on the present application) the funds should be paid out to Vertical-T (subject only to the question of Vertical Australia's costs of the Interpleader proceedings and to its claim for security to be provided for its costs of the Breach of Agency proceedings out of those funds).

60 In summary, the funds were clearly paid to Vertical Australia by the Commonwealth pursuant to the Services Contract as agent for Vertical-T. In Vertical Australia's hands (subject to any entitlement to deduct moneys therefrom for its agency fees, which seems to have been disputed at least as at November 2011, or for approved subcontractor's fees), the funds were held by Vertical Australia on behalf of Vertical-T. Arguably, it was open to Vertical-T to countermand instructions or directions given to its agent as to the manner in which the funds were to be remitted by the agent. (I say "arguably" because there may also be an argument as to whether, if those new instructions placed the agent in a position of breach of other contractual obligations entered into on the direction of the principal, the agent would be bound to comply with those new directions.) However, it is neither necessary nor appropriate in the context of the present application to comment further on that issue.

61 Whatever may have been the then status of the contract between Vertical Australia and Wellman, to the extent that it was entered into as agent for Vertical-T, then any liability that Vertical Australia might incur in paying the funds to Vertical-T at its direction (following the instruction to exclude Wellman from the payment chain) would be one for which Vertical Australia would presumably be entitled to look to Vertical-T for indemnity. (Vertical-T relies on this for the proposition that Vertical Australia should not have refused to comply with the direction to remit the moneys to it and was acting unreasonably in paying those moneys into Court, though no confirmation of any such indemnity seems to have been proffered in writing at the time.)

62 The Wellman contract had expired in accordance with its terms (by effluxion of time) in August 2011. There is no evidence as to the provision of any services by Wellman to sustain a claim for moneys referable to the 10-day period in which it may still have been operative. Nor is there evidence to support any claim for payment under the terms of a new arrangement of the kind referred to in the November correspondence between Vertical-T and Wellman.

63 As between Vertical-T and Wellman, on the evidence before me I cannot conclude that Wellman has any contractual entitlement to the funds presently in Court.

64 I interpose to note that, insofar as the Interpleader proceedings amount to a claim as such under Part 42 of the Rules (which is the basis on which Vertical Australia maintains its claim to indemnity costs in relation to the institution of those proceedings), the relevant question for determination is as to the entitlement to the funds as between the competing claimants (Vertical-T and Wellman). That seems to be the basis on which Vertical Australia has maintained (in its correspondence with Vertical-T) that it was justified first in retaining the funds (pending determination of the dispute between Vertical-T and Wellman as to those funds) and ultimately in commencing the proceedings. It is consistent with the matters to which Mr Tchernobryvko has deposed in paragraph [34] of his affidavit in support.

65 The alternative basis on which payment into Court was sought to be made (namely, as a payment pursuant to s 95 of the Trustee Act) is relied upon by Mr Kidd when considering the application for security for costs (and this is consistent with the description on the tax invoice issued by the Registry at the time of payment into Court). I note that s 95 gives to a trustee a right to pay money into Court and, relevantly, provides as follows:

(1) Where trustees, or the majority of trustees, have in their hands or under their control money or securities belonging to a trust, they may pay the same into court.

...

(4) Every transfer payment and delivery made in pursuance of any such order shall be valid and take effect as if the same had been made on the authority or by the act of all the persons entitled to the money or securities so transferred paid or delivered.

66 As noted by the authors of Jacobs' Law of Trusts in Australia (7th ed, 2006), in Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 the High Court emphasised that the payment of trust money into court does not, of itself, affect the rights and duties attached to the pre-existing trust, such that the funds will still remain subject to the trust. Hence, if these moneys had the characteristic of trust moneys when paid into Court then they would retain that characteristic.

67 The test for payment out of Court of moneys paid into Court pursuant to Part 4 of the Trustee Act has been considered by Slattery J in a number of cases (including Ruth Chong v Super Equity Invests Pty Ltd & Anor [2012] NSWSC 27 where his Honour noted what the procedure provided for under Part 55 rules 8-11 required). His Honour there restated the requirements of proof in the ordinary case under Rule 55.11, where a party seeks payment out of court, that his Honour had earlier identified in Commonwealth Bank v Estate of late Slieman [2010] NSWSC 661 from [8]:

An applicant under UCPR r 55.11 must establish three matters to justify an order for the payment of money out of court. The first is to identify the person who is primarily entitled to any funds paid into court and the basis of that entitlement. It is fundamental that the person be identified from the best evidence available, so that the court can be sure that the person has been given appropriate notice of the application and can if necessary contest it.

The second matter that needs to be proved by a claimant is that he or she is not merely an unsecured creditor against the person primarily entitled to the fund but is a person who has a beneficial interest in the very fund that has been paid into court. The same evidence that demonstrates a person's primary entitlement to the funds in court often establishes this second matter.

Thirdly, it is necessary for an applicant to identify the other potential claimants to the fund in court and to prove that those persons were notified of its claim. Those persons may consent to the claim. Alternatively, the applicant may prove that those persons either do not have valid claims against the fund or that their claims do not have priority over the applicant's claims.

The court requires strict proof as to who has the entitlement to the funds in court. There is a heavy burden placed on a party seeking payment of money out of court under Trustee Act s 98 and UCPR r 55.11. It is necessary for that party not only to prove his or her entitlement to the funds but also to prove that all other potential claimants to the funds in court have been properly notified. Otherwise there is a risk of incorrect payments being made.

68 As I have already noted, it is by no means apparent that the present application is, or is one required to be, made under the Rule 55 procedure. Rather, the primary position of Vertical Australia seemed to be (as its Summons reflects) that the payment was made under the interpleader procedure. It has been dealt with as such.

69 If this were to have been dealt with as an application under Part 55 of the Rules then Vertical-T has established a number of the matters it would be required to prove, there being clear evidence as to its claims to the fund. It has asserted a beneficial interest therein by reference to the constructive trust on which it contends the funds were held and it has notified the other competing claimant to the funds and joined it to the proceedings (and has established that that party, Wellman, has no valid claim that would preclude payment out to it. However, there is a deafening silence as to the position of the UK company that was also apparently part of the payment chain. While there is no evidence of any claims asserted by it to any moneys, there may well have been an issue as to whether it should have also been notified of the application under Part 55, bearing in mind that there is a requirement for strict proof of the identification and notification of other parties who might have a claim on the funds to which Slattery J has drawn attention in a number of cases.

70 However, in circumstances where the primary basis on which the proceedings were constituted was as an interpleader proceeding, and Vertical-T has established its entitlement to the funds in Court on that application, I do not need to deal with the alternative basis on which payment out might have been sought. (I also note that even if the UK company might have a claim for breach of contract against one or both of Wellman or Vertical-T in relation to the non-payment of any moneys for which it can show it would have been entitled as part of the payment chain, that would not of itself give it a beneficial interest in the funds in Court and hence, using the language of Slattery J in ANZ v Maunder [2009] NSWSC 1356 at [8], it seems unlikely that it would have been found to be a competing claimant to the funds "which would prevent payment out to the applicant".)

Costs of Interpleader proceedings

71 I turn then to the question whether Vertical Australia should be entitled to its costs (on an indemnity or other basis) of and incidental to the bringing of the Interpleader proceedings.

72 In McPherson, Lowe J considered the power to deal with costs in interpleader proceedings and whether, as a general rule, costs should be allowed as between solicitor and client, saying:

... In order to decide this question I have examined many cases in equity and at law, for it must be remembered that the procedure in interpleader which the rules of Court now regulate has it roots both in equity and at. common law. The equity procedure is the older, and may be traced in any standard work on Equity. By way of illustration I refer to Ashburner, Principles of Equity, at p. 8. The requisites of a bill of interpleader were substantially the same as under our present rules, and Ashburner states that "upon his [the applicant's] bringing into Court the amount of the debt, the Court restrained the conflicting claimants from taking or prosecuting any action at law against him, and either put them to litigate their rights between one another at law or decide the matter for itself by a reference to a Master. The jurisdiction in interpleader existed, whether a suit had been commenced by any claimant, or only a claim made." At common law it may be said that the jurisdiction hardly existed until the Interpleader Act of 1831 (1 and 2 William IV., c. 58), and this was followed by secs. 12-18 of the Common Law Procedure Act 1860 (23 and 24 Vic., c. 126), and from 1831 until the passing of the Judicature Act the jurisdiction in Equity and at law was concurrent ( CababB on Interpleader; Introduction, pp. 4-5).

...In my judgment, the rule to be deduced from these cases in regard to costs is that where the applicant on an interpleader summons has come promptly to the Court when faced with conflicting claims, and has been guilty of no conduct which has increased costs, prima facie he should have a complete indemnity, so far as the fund will permit, for his costs; that is to say, he is prima facie entitled in such circumstances to his costs as between solicitor and client. In most cases of interpleader, however, the proceedings on the part of the applicant are of the simplest nature, and his costs should not require to be taxed in order that he should have a full indemnity. In such cases and these I think will be the general rule - the Judge on the hearing will fix the costs of the applicant at an amount which will give that indemnity. The rule which I have now declared records with what, in my experience, has been the practice in the past.

73 In Kennett v Charlton, Gzell J considered the position in McPherson at [17], in the context of a submission as to whether the trustee should have commenced interpleader proceedings or simply paid the moneys into Court (in the present case, Vertical Australia brought its application for payment in on alternative bases). Gzell J said:

So far as costs are concerned, it was submitted that the plaintiff did not fall within the proposition in McPherson because he had added to the costs by choosing to bring interpleader proceedings when the simpler process of a trustee paying money into court was open to him. But in circumstances where rival parties were making claims against the fund, that simple process would not have saved costs because the rival parties would have wished to be heard with respect to the moneys in court. Where a trustee of a simple fund, as this was, is faced with claims by rival parties to those funds an application for relief by way of interpleader is the appropriate course to take. (my emphasis)

and at [22] expressed the opinion that the plaintiff ought not to be "out of pocket" as a result of the rival claims upon the fund he held.

74 In the present case, it is not apparent that the costs of payment into Court solely under s 95 of the Trustee Act (the alternative basis for payment in any event) would have been less than the presently constituted interpleader proceedings. In both proceedings it would have been necessary for Wellman to be notified of the application and the prudent course would have been for it to be joined thereto (as was here the case).

75 Mr Lo Surdo submits that, in commencing the Interpleader proceedings on 20 December 2011 and paying the funds into Court at that stage, Vertical Australia acted prematurely and unreasonably and that it is therefore not entitled to its costs.

76 This submission rests broadly on the proposition that there was no reasonable basis for Vertical Australia to consider that Wellman had an entitlement to make a demand for payment to it of the funds, in circumstances where the Wellman contract (on which it relied for that demand) had ceased to have any force or effect in respect of the invoices in question, having expired on 21 August 2011 (and there being no evidence of any bilateral agreement for its extension).

77 Mr Lo Surdo emphasises that the fact that the Wellman contract had expired was a matter known to Vertical Australia prior to commencing these proceedings (since, on 2 December 2011, Vertical Australia's lawyers had written to Wellman in terms acknowledging that the Wellman contract had expired on 21 August 2011 - even though, perhaps for an abundance of caution, it was made clear at the same time that their client was in any event terminating any such arrangement).

78 Thus it is said that the funds paid into the Court relate to invoices for services rendered after the expiry of the Wellman contract and for which Wellman could have no claim. In that regard, it seems to me that there is scope for an argument (as adverted to earlier) that the Wellman contract could have applied to a portion of the amounts the subject of the first (September) invoice, since there is a component of some half a million dollars that appears to relate to services provided in August 2011. If so, it is by no means apparent that Vertical Australia should reasonably have proceeded on the basis that Wellman's claim was without any foundation at all. (Moreover, there may well have been a course of conduct that led Vertical Australia to have a concern as to who, as between its principal and Wellman, might have been ultimately held to be entitled to the funds - although I accept that there was no evidence relating to any such conduct other than the fact of the payments themselves.)

79 Reliance is also placed on the directions given by Vertical Australia in the period September to November 2011 in relation to the dealings with Ms Baraney and/or Wellman. In that regard, while I accept (as pointed out by Mr Kidd) that the written direction of 26 September 2011 was in its terms a direction not to deal with Ms Baraney (and not a direction as to dealings with Wellman), according to Mr Tchernobryvko himself there was an earlier oral direction on 21 September 2011 by Mr Makarov at Vertical-T for Mr Tchernobryvko to cease communicating with Ms Baraney and to deal directly with Vertical-T in relation to "all matters" (my emphasis), which would surely extend to any future dealings with Wellman in relation to the Services Contract or other matters relating to its dealings with Vertical-T. (There was also the subsequent direction on 30 October 2011 by Mr Skurikhin to Mr Tchernobryvko (not disputed by the latter) to the effect that the latter should direct payments under the Service Contract to Vertical-T and exclude Wellman from the payment chain.)

80 That said, and whatever might ultimately be established at the final hearing, I do not accept that the material before me goes so far as to lead to a conclusion that, when Vertical Australia commenced these proceedings (which it did on 20 December 2011), it knew that Vertical-T (rather than Wellman) was entitled to the funds (whatever it considered the likely outcome of the dispute between Vertical-T and Wellman in relation to those funds might be).

81 Mr Kidd submits that, in November 2011, Vertical Australia was faced with conflicting claims on the moneys received by Vertical Australia from the Commonwealth; that it came promptly to Court; and that it has been guilty of no conduct that has increased the costs of the Interpleader proceedings. On that basis he submits that Vertical Australia should have a complete indemnity for its costs of the Interpleader proceedings from the moneys in Court (citing Kennett v Charlton [2007] NSWSC 190; McPherson Thom & Co v Coombie Pastoral Co Pty Ltd [1929] VLR 295. (Insofar as he refers to Rules 43.2 and 43.7 of the Uniform Civil Procedure Rules in this regard, this supports the conclusion referred to earlier that the primary basis on which Vertical Australia paid the money into Court was by way of interpleader, a matter of potential relevance to one aspect of the security for costs application that I will explore in due course.)

82 The fact that Vertical-T has now established its claim to the funds (and that Wellman did not attempt in these proceedings to do so) does not preclude the possibility of a finding that Vertical Australia was at the relevant time in the position where there were two parties who each claimed an entitlement to the disputed funds and where it was being threatened with claims for damages if it paid the funds to the wrong party. It is in precisely those situations that interpleader proceedings provide a mechanism for a party in the position of Vertical Australia to protect itself by making payment of the funds into Court.

83 The other matter raised by Mr Lo Surdo is that Vertical-T's solicitors had not only given directions as to the payment of the funds but had also put the solicitors for Vertical Australia on notice of their intention to commence proceedings against Vertical Australia for recovery of the outstanding invoice amounts, the hearing of which it is said would have rendered the Interpleader proceedings unnecessary. I accept that this was the thrust of some of the communications leading up to the commencement of proceedings in December 2011.

84 However, in circumstances where Vertical-T had not moved earlier to commence the foreshadowed proceedings of its own, it seems to me not unreasonable that Vertical Australia had taken steps in order to enable the Court to determine the disputed claims. By 16 December 2011 (when Vertical-T's lawyers indicated instructions to commence proceedings on the following Monday, 19 December, 2011), it seems that the bulk of the preparation for the Interpleader Proceedings may already have been completed, since a draft affidavit was forwarded by Vertical Australia's lawyers on that date.

85 I am not satisfied that Vertical Australia commenced these proceedings either unreasonably or prematurely. It had placed Vertical-T on notice of its intention to do so and had seemingly allowed time for Vertical-T to resolve matters without the need for interpleader proceedings. It had had no firm assurance that Vertical-T was in the throes of commencing its own proceedings (Vertical-T's lawyers having expressed some difficulty in obtaining instructions from their client in Russia and previous deadlines set by those lawyers, failing which court action was foreshadowed, had not resulted in the commencement of any proceedings by that stage).

86 While on one view there would seem to have been little prejudice in preserving the status quo whereby the funds were held by Vertical Australia's lawyers subject to an undertaking to give 72 hours' notice before any distribution of funds received from the Commonwealth, it must also be noted that by that time Vertical Australia's agency arrangement had been terminated. It seems to me not unreasonable in those circumstances that it might wish to have no further responsibility in relation to the funds then held by it and would seek to leave the matter for the Court to determine. It was in the position that, until it did so, it was at risk of allegations of breach of contract on both sides.

87 As noted above, by 16 December 2011, Vertical Australia's affidavit evidence for the Interpleader proceedings seems largely to have been prepared and hence the incremental cost of commencement of the Interpleader proceedings would have been relatively minor (other than the filing costs there presumably was only the cost of finalisation of the Court documents).

88 I consider that Vertical Australia should have its costs of the commencement of the Interpleader proceedings on a solicitor/client basis (so that it is not out of pocket other than in respect of any costs that have been unreasonably incurred in connection with that application) but that there should be a procedure in place to ensure that those costs are agreed or fixed without delay (so as not to keep Vertical-T any longer than necessary out of the moneys that have been withheld from it now for over 6 months). (I will indicate below the manner in which this should in my view occur.)

89 As to the alternative submission by Vertical-T in respect of its costs, I consider that it would be appropriate to order that Wellman should pay Vertical-T's costs and indemnify it for Vertical Australia's costs of the Interpleader proceedings. It was the making of demands as to its entitlement to the funds (that Wellman has chosen not to seek to establish in these proceedings), that led to the necessity for the Interpleader proceedings in the first place.

Application by Vertical Australia for security for costs

90 The second application before me was the application by Vertical Australia, by Notice of Motion filed on 5 April 2012, for security for its costs in the Breach of Agency proceedings. The application is made pursuant to rule 42.21 of the Uniform Civil Procedure Rules and in the alternative pursuant to s 1335(1) of the Corporations Act 2001 (Cth).

91 The amount sought for security for costs is in the order of $264,644.00 (though a higher amount was initially demanded). That amount represents 80% of the estimated solicitor/client costs of the proceedings (the solicitor for Vertical Australia deposing that in her experience in the costing of commercial litigation a recovery of between 70% and 80% on a party/party basis could be expected).

92 The breakdown of those costs is contained in a revised schedule annexed to the affidavit sworn 18 June 2012 by Vertical Australia's solicitor (Ms Michelle Harpur). In her affidavit, she sets out the assumptions that have been made in reaching that estimate. Broadly speaking, it is assumed that the proceedings will encompass discovery, affidavits from both lay and expert witnesses, settlement discussions (excluding costs of a mediation) and a 4-day hearing with both Senior and Junior Counsel to be briefed. (Earlier claims for security for particulars and for a potential cross-claim by Vertical Australia are not pressed.) A seemingly ballpark component is included for "Matter Management costs", comprising general correspondence, telephone attendances and conferences. A similar unparticularised amount is sought for general disbursements. Vertical Australia presses for security for costs associated with preparation of an application, ultimately not pursued, to consolidate the two sets of proceedings (on the basis that the parties had both considered at an earlier stage that this might be the appropriate means of proceeding).

93 As already noted, Vertical-T is a company registered outside the jurisdiction. It does not therefore dispute the entitlement of Vertical-T to an order for security. However, its position is that the amount claimed is excessive (and in part premature). Both sides have outlined their stance in correspondence and in the submissions contained in their respective solicitors' affidavits (though it is fair to say that Vertical-T has provided less of a breakdown of its analysis as to the appropriate amount to be provided for security for costs than has Vertical Australia).

94 Significantly, what Vertical Australia now seeks is not simply an order for security but an order for security to be provided by way of retention of moneys held in the fund paid into Court in the Interpleader proceedings. In the course of submissions (and addressing why it was that there should be an attachment of part of the fund to provide security for costs), Mr Kidd submitted that the position of Vertical Australia is (or is analogous to) that of a trustee who has an equitable lien over the funds in order to meet contingent costs incurred in connection with the trust property (namely, its costs of defending allegations of breach of trust made against it). (I should note that there was no suggestion to this effect in the correspondence between the parties, or the written submissions served, prior to the hearing of the application for security for costs. Nor is there any claim by Vertical Australia in the proceedings for an equitable lien over the fund held in Court and any such claim would be inconsistent with its earlier disavowal of any interest in the funds.)

95 Mr Kidd nevertheless submits that, insofar as it is claimed that Vertical Australia is in breach of fiduciary duties owed by it in relation to the fund and that the fund constitutes trust property, it follows that Vertical Australia should be permitted access to the fund to secure the costs of defending the proceedings. Reference was made to the alternative basis on which the payment into Court was made (ie, invoking s 95 of the Trustee Act), though Mr Kidd did in fairness concede that this submission was not wholly on fours with the submission seeking indemnity costs of the Interpleader proceedings and that what was put in this regard was different from the way in which the security for costs submission had been put in the written submissions).

96 In Agusta Pty Ltd v Official Trustee In Bankruptcy As Trustee of Estates of Gustavo Ferella and Angelo Ferella [2009] NSWCA 129, the Court of Appeal considered the relevant principles relating to the right of trustees to be indemnified out of the trust fund against liabilities incurred by them in the performance of their duties as such (as had been considered by Nicholas J in first instance in that case). Tobias JA, with whom Beazley and Macfarlan JJA agreed, noted that the principles were not in issue and had been recently re-stated by Brereton J in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 at [14]-[22] (referring also to JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691 at [50] per Santow J and J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (7th ed, 2006) at [2102], [2104] and [2105]).

97 In Jacobs' Law of Trusts, the authors note that the trustee's right to resort to and apply trust funds for the discharge of liabilities incurred in the conduct of the trust is limited to those incurred in the authorised conduct of the trust (at [2104]) and that the trustee does not always have a right of indemnity, including where the trustee's activities were not authorised by the trust instrument (where, it is said, prima facie no right of indemnity can arise).

98 In Agusta, Tobias JA noted with apparent approval the observation by Nicholas J that the equitable lien that a trustee has over the trust fund for all his liabilities as a trustee "extends to an indemnity against future, and outstanding contingent, liabilities" (Nicholas J citing X v A [2000] 1 All ER 490; Kennett v Charlton).

99 At [18], Tobias J noted that the authority for the proposition that a trustee's right of indemnity arises when a relevant trust-related liability is incurred (Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162 at [30]; Lemery Holdings at [19] and Xebec Pty Ltd (in liq) v Enthe Pty Ltd (1987) 18 ATR 893). His Honour considered, but ultimately did not need to decide, that there was ample support in the authorities for the submission that an equitable charge can arise in advance of the actual crystallisation into a definite amount of the debt or liability for which it operates as security (even though the liability is not certain and even if it is by no means certain that any actual liability will ever arise).

100 In the present case, however, the position of Vertical Australia is as an agent in respect of whom a constructive trust is said to have arisen. Whether the above principles apply to permit a finding of equitable charge or lien in advance of a finding that there is a constructive trust would involve interesting questions, not least as to the remedial or institutional nature of a constructive trust and as to the time at which the remedy of a constructive trust should be imposed in any particular case (see the discussion in Australian Building & Technical Solutions Pty Ltd v Boumelhem; Boral Australia Ltd v Boumelhem; Boumelhem v Jones [2009] NSWSC 460).

101 As Mr Lo Surdo pointed out, in the defence filed by Vertical Australia there is a denial that the funds were held as constructive trustee for the benefit of Vertical-T and, while Mr Kidd drew attention to the fact that the denial in terms is that it received the funds as constructive trustee "for the benefit of" Vertical-T (there being an issue as to who, as between it and Wellman, had an entitlement to the funds), I consider that there is force in the submission that Vertical Australia has not, in its verified defence to the Breach of Agency claim, acknowledged that it was a constructive trustee of the funds for Vertical-T.

102 It also seems to me that a distinction can be drawn between the position of a trustee (appointed as such) claiming a lien over trust property for the costs of reasonably defending a breach of trust claim and the position of an agent who denies holding funds as a constructive trustee for the benefit of the beneficiary of the alleged trust but then seeks to secure part of those funds to defend a claim based on its failure to remit the funds in accordance with the agency agreement in the first place.

103 (I note that the assumption that future costs will be incurred that would be recoverable out of trust property requires the assumption that those costs would be properly incurred and that the common practice is that trustees seeking to have recourse to the trust assets to fund the costs of defending a claim for breach of trust seek judicial advice as to whether they would be justified in defending those proceedings. In Re PILT Nominees Pty Ltd (2909/2009, unreported White J), for example, the trustees sought judicial advice as to whether they would be justified in defending proceedings and in that context were held to be entitled to have recourse to the assets of the respective trusts of which they were a trustee for the purposes of paying the reasonable costs of defending those proceedings. See also the comments of Young CJ in Eq (as his Honour then was) in Re Application of Macedonian Orthodox Community Church St Petka Inc [2006] NSWSC 392.)

104 In any event, there is no actual claim by Vertical Australia to an equitable lien over the funds presently held in Court (and Vertical Australia in the Interpleader proceedings expressly disclaimed any interest in the moneys save insofar as it sought payment out of the costs of those Interpleader proceedings). Mr Kidd has confirmed that the first way in which this submission was raised was that it was of relevance to the exercise of discretion on the security for costs application (though he also sought to put the submission on the basis that Vertical Australia was seeking to restrain the payment out of funds to which it would seek to have recourse to reimburse its costs of defending the Breach of Agency proceedings in the event that it were to be successful in defending those proceedings) (see, inter alia, the discussion at T 27.25-T 28.37).

105 Mr Kidd also calls in aid of his submission the principles noted in Jacob's Law of Trusts at [2111] (citing In re Rhodesia Goldfields, Limited. Partridge v Rhodesia Goldfields, Limited [1910] 1 Ch. 239). As I understand it, what is suggested is that before there is a distribution to Vertical-T of the (now apparently acknowledged) trust property there should be the retention of the amount necessary to meet the costs of the alleged trustee that may be later found to be recoverable out of that trust property.

106 The general principles applicable in relation to an application for security for costs are not in dispute. It is noted by Mr Lo Surdo that the power is discretionary and not automatic (Idoport Pty Ltd v NAB Ltd [2001] NSWSC 744); that fixing the amount of security to be provided is part of the exercise of the Court's discretion (Fiduciary v Morningstar Research [2004] NSWSC 664); that the Court should order such sum as the court thinks just, having regard to all the circumstances of the case (Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 19) (1995) 134 ALR 187 at 197; Wollongong City Council v FPM Constructions Pty Ltd [2004] NSWSC 523 at [50]; Morris v Hanley [2001] NSWCA 374 at [10]); that the Court should fix an amount that it considers will be adequate for the services to be rendered (Sunday Times Newspaper Company Ltd v Mcintosh (1933) 33 SR (NSW) 371 at 373); and that 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 (Bryan Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 515; Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 at 175) but, rather, the objective is to assess what is "sufficient" security (Idoport at [38]; Brundza at 175). The applicant for security bears the onus of adducing evidence that enables the Court to estimate the costs of litigation (MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Ltd [2002] FCA 821 at [31]-[34]) and the Court is not bound to accept the applicant's estimate of the costs likely to be incurred (MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97; Plaza Print Pty Ltd v South British Insurance Co Ltd (1984) 68 FLR 340, 344).

107 In K P Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189, Beazley J (as her Honour then was) listed various principles to be taken into account on applications for security for costs (and these have since been applied in a number of cases including Idoport): the promptness with which the application is brought (since a plaintiff is entitled to know its position in relation to the security at the outset and before it embarks to any real extent to its litigation and before it is allowed to commit substantial sums of money towards litigating its claim); the strength and bona fides of the plaintiff's case (including whether a costs order is likely to be made at the conclusion of the litigation); whether the plaintiff's impecuniosity has been caused by the defendant's conduct the subject of the claim; whether the application for security is being used to deny an impecunious plaintiff the right to litigate; whether there are any persons standing behind the plaintiff who are likely to benefit and who are willing to provide security; whether the persons standing behind the plaintiff have offered any undertaking for the costs; whether the plaintiff is in substance a plaintiff; and the public interest if any in the litigation.

108 Similarly, in MHG Plastic Industries Pty Ltd v Quality Assurance Services Pty Ltd [2002] FCA 821, Sackville J (as his Honour then was) noted that the matters appropriate for consideration in relation to the discretion conferred by s1335(1) of the Corporations Act and s56(1) of the Federal Court Act included the following six matters (identified by Hill J in Equity Access Ltd v Westpac Banking Ltd [1989] ATPR 40-972, at 50,635): the chances of success of the applicant (and whether the applicant's claim is bona fide or a sham; the quantum of risk that the applicant cannot satisfy a cost order; whether use of the power is oppressive (insofar as it would shut out a small company from making a genuine claim against a large company); whether the impecuniosity arises out of the act in respect to which relief is sought; whether there are aspects of public interest which weigh in the balance against the making of an order; and whether there are any particular discretionary matters peculiar to the circumstances of the case.

109 Of the relevant factors considered above, questions as to the impecuniosity of the plaintiff do not arise (since there is no suggestion that Vertical-T is impecunious), nor is there anything to assess the risk that Vertical-T would not be in a position to meet a judgment (even though it does not have assets in the jurisdiction) - indeed in that regard I note that it appears to have a steady stream of income in the form of payments under the Service Contract that are payable to an agent in Australia. Conversely, there is no basis to criticism Vertical Australia for delay (since it brought its application for security promptly and the delay in it being heard was due to the stance adopted by Vertical-T as to the time that should occur relative to its application in the Interpleader Proceedings).

110 As to the second of the factors referred to by her Honour (the strength and bona fides of the case), as a general rule it is said that where a claim is prima facie regular on its face and discloses a cause of action then in the absence of evidence to the contrary the Court should proceed on the basis that the claim is bona fide with a reasonable prospect of success (Meltglow; Bryan E Fencott) without attempting a more detailed assessment of the prospects of success (Fiduciary Ltd v Morningstar Research at [37]-[39]).

111 There is, therefore, nothing to suggest that security for costs should not be granted on the usual basis (by reference to what would be sufficient security for the costs likely to be incurred in the proceedings), other than if the position that the claims involved allegations of breach of fiduciary duty by an entity alleged to be in the position of a constructive trustee (and who now admits that it held the moneys in question as a trustee for its principal) warrants any different approach.

112 As noted earlier, by its Statement of Claim filed on 22 December 2011 in the Breach of Agency proceedings, Vertical-T claims damages and other relief (including damages for loss of profits and orders for the delivery up of documents) for alleged breach by Vertical Australia of the agency agreement and for breach of certain fiduciary obligations by Vertical Australia. The relevant breaches on which the claims for relief are based lie in Vertical Australia failing to remit the money to Vertical-T (which it had received from the Commonwealth pursuant to the Services Contract) in non-compliance with directions to do so and failing to deliver up all documentation in relation to the agency.

113 As to the costs likely to be incurred in the Breach of Agency proceedings, Mr Lo Surdo notes that Vertical Australia admits that at all relevant times it was Vertical-T's agent (at [7]); that it did not remit money to Vertical-T as directed ([15]); and that it did not return all documentation to Vertical-T as it was required to do (at [20]). Hence, Mr Lo Surdo submits that there are only limited factual matters remaining in dispute between the parties. I accept that on one view that may be so. However, Vertical-T is also broadly seeking an account that goes beyond the circumstances of the failure to remit the payments received for the two invoices in question (the September/October invoices). It seems to be seeking an overall accounting by Vertical Australia of moneys received and disbursed by it during the term of the agency agreement. It also seems to be seeking damages by way of loss of profits referable to the fact that it has not had the use of the money in question (and/or has not had the relevant documentation, though it is not clear what loss is said to flow from that). Hence there may well be a more expanded scope of factual inquiry on the pleadings as they stand than that had the proceedings related only to the 2 invoice payments the subject of the Interpleader Proceedings.

114 While I note that the Court may act on the basis of a general estimate as to the likely costs (Allstate Life Insurance Co v ANZ Banking Group Ltd (1995) 134 ALR 187), here there has been a relatively detailed analysis of those costs to which I will shortly turn.

115 Mr Lo Surdo submits that the Court is required to consider the nature of the case and to determine the "probable costs which the defendants may be put to so far as it can be ascertained" (Mokau Timber Co v Berry (1908) 11 GLR 212; Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516, 521) and that, in Allstate, the Court observed that determining an appropriate amount often involves considering many "imponderable" factors (at 197). He emphasises the difficulty at this stage of reaching any confident conclusion as to the ambit of the matters which will be in issue at trial (and therefore as to the nature and scope of the evidence that the parties will seek to adduce), referring to the recognition given to such a difficulty in Nelson Capital Pty Ltd v Short [2003] WASC 152 at [31]).

116 Ms Harpur, the solicitor acting for Vertical Australia has sworn three affidavits on the question of costs: the first on 5 April 2012, deposes to the circumstances in which consolidation of the proceedings was then sought; the next, on 13 April 2012, as to the legal costs then incurred and estimated costs; and the most recent, on 18 June 2012, providing, among other things, a revised estimate of costs. In her experience (as a commercial litigator of some 26 years in practice), Ms Harpur estimates that at least between 70% to 80% of the defendants' solicitor client costs would be recoverable on assessment. (Her revised estimate of solicitor/client costs to the conclusion of a 4 day hearing was $350,805; Ms Harpur estimating recovery of at least between $245,563.50 and $280,644).

117 That estimate in Schedule J to Ms Harpur's latest affidavit is comprised of the following tasks with the estimated costs indicated:

Pleadings	$ 6,127.50*
Security for costs	$11,775*	($9,644.50 + $8,205)
Security for costs hearing	$ 5,140*
Consolidation application	$4,730**	($2,504 + $838.50)
Discovery	$21,550
Lay evidence	$30,600
Expert evidence	$19,900
Reply evidence	$10,850
Directions hearings (6)	$6,210	($1,620)
Preparation for trial	$44,100
Trial (4 days)	$76,760
Settlement discussions	$20,000	($2,529)
General disbursements	$20,000	($1,146.17)
Expert evidence	$25,000
Matter Management	$40,000	($6,151.50+ $3,280.50)
Total estimate	$350,805

118 The items marked with an asterix are those in respect of which there is (or should be) an actual total against which the estimate can be seen in context. The general disbursements item relates to photocopying, filing fees search fees and courier fees. The matter management item comprises general correspondence, telephone attendances and conferences (though one would assume some of the latter may also be comprised in the time for preparation of lay evidence or in preparation for trial say in conferences with Counsel).

119 As at 18 June, Vertical Australia has already incurred $28,102.67 excluding GST. (The estimated costs further from the filing of the motion to the date of the affidavit for certain of the items amount to $13,944.) (In essence, the offer by the plaintiff, to which I refer below, would leave Vertical Australia out of pocket for roughly three quarters of its costs to date and with an exposure to further costs up until the component allowed for the hearing, though Mr Lo Surdo invites me to make whatever allocation out of the $60,000 in the solicitors' trust fund as I consider appropriate).

120 Issue was taken by Vertical-T's lawyers with components of the various schedules of estimated fees. (Ms Fogarty, who has some 25 years experience as a commercial litigator) makes no complaint for hourly rates other than as to the appropriateness of the seniority contemplated in the allowance for Senior Counsel (at $8,000 per day).

121 The basis on which it is suggested that the amount of security that Vertical Australia now seeks is unreasonable and excessive is set out in the submissions broadly contained in (and which I read as such) Ms Fogarty's 4 May 2012 affidavit. In summary, Ms Fogarty takes issue with the amount of time estimated for particular steps in the proceedings.

122 In particular, I note that Vertical-T raises issues as to the claim for costs in respect of discovery (having regard to Practice Note SC Eq 11), submitting that it is premature and the scope of discovery cannot be assessed at this stage; that as Vertical-T has not yet filed its evidence and the ambit of any factual disputes remain unknown the amount allocated to preparation of affidavit evidence is excessive; as to whether it is likely that expert evidence will be required and if it is in what amount (it being said that the damages suffered by Vertical-T are the sums payable by the Commonwealth to Vertical Australia pursuant to the Services Contract and readily ascertainable); that the estimate for settlement discussions is not particularised and is indeterminate; and as to the estimate of a 4 day hearing is excessive, even if all of the matters that presently remain in dispute as between the parties are required to be determined on a final hearing. (Mr Lo Surdo submits that it is not yet possible to estimate the length of any prospective hearing but notes his instructing solicitor's estimate of 2 days.) Mr Lo Surdo also submits that the Court should take into account the possibility of a case settling when assessing the quantum of security since a failure to consider possible settlement may lead to excessive security being ordered.

123 Mr Lo Surdo emphasises that, in awarding security for costs, the Court does not set out to give a complete and certain indemnity to a defendant (citing Menhaden v Citibank NA (1984) 1 FCR 542 at 547). I agree.

124 As to costs already incurred, I note that there is power to award security for such costs if the application is made promptly (Brocklebank & Co v King's Lynn Steamship Co (1878) 3 CPD 365; Massey v Allen (1879) 12 Ch D 807; JWH Turner & Co Ltd v O'Riordan (1923) 40 WN (NSW) 64; Harvey v Jacob (1817) 106 ER 59; Bryan E Fencott). In Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114, it was said that relevant matters to be taken into account on a security for costs application can include the nature of the acts done during the intervening period and whether security is sought both for future costs and those which have already been incurred. Mr Lo Surdo notes that, although the discretion to order security is wide enough to encompass costs already incurred, Courts are often reticent to make such an order (Electrona Carbide Industries Pty Ltd v Tasmanian Government Insurance Board [1985] Tas R 68 at 73; William Buck Pty Ltd v Perception Pty Ltd [2006] VSC 385 at [47]). That said, in the present case, the claim for security for past costs largely relates to costs incurred at a time when the motion was on foot (since the costs in relation to the Interpleader Proceedings are outside the scope of the security for costs application).

125 Insofar as there is any dispute as to the costs already incurred, Mr Kidd notes that the security for costs application was initially returnable on the 7 May directions hearing at which time Vertical Australia pressed for its Notice of Motion for security of costs to be allocated a hearing date and that this was resisted by Vertical-T, on the basis that Vertical-T wished to have its Cross-claim against Wellman (in the Interpleader Proceedings) determined prior to the security for costs application.

126 Relevantly, in written submissions for Vertical-T, Mr Lo Surdo submitted that, in the event that the Interpleader proceedings were to be resolved in Vertical-T's favour (as they have now been), there exists a "real possibility" that the issues required for determination in the present proceedings "will narrow substantially, if not be rendered entirely otiose". Mr Lo Surdo notes that security for costs may be, and commonly is, ordered in stages (citing Transocean Capital Pty Ltd v AFSIG Pty Ltd [2006] NSWSC 806 at [42]; Sharjade v Darwinia Estate & Anor [2006] NSWSC 708 at [54]; Del Bosco v Outtrim [2008] NSWSC 105) and submits that a staged process would be appropriate in the present case since it is not clear what costs may ultimately be incurred in preparation of the proceedings.

127 Mr Kidd noted that in Szanto v Bainton [2011] NSWSC 985 (where, I might add, I had noted that the Court does not by the security for costs mechanism seek to provide a complete indemnity for costs, citing Bryan E Fencott; Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 at 175), I had expressed the view at [98] that if security were to be ordered in stages (whether up to the close of pleadings or discovery or up to the close of preparation for the hearing), this would simply invite the prospect of further interlocutory applications and that such a course would not be consistent with the just, quick and cheap disposition of the real issues in the case. There, however, the quantum of the security sought was relatively low. (Mr Kidd nevertheless submits that if that is the case then the order at this stage should address the quantum to be provided by way of security for each of the steps in order to avoid further interlocutory costs being incurred.)

128 In considering this issue I note that Vertical-T has made an open offer in relation to security, namely that:

(a) $10,000 be paid into the Court as security for Vertical Australia's costs of filing its evidence (following the determination of the Interpleader proceedings);

(b) $50,000 be paid into Court as security for the costs of the trial within 21 days of the date when all of the evidence is filed; and

(c) there be liberty to Vertical-T to apply (presumably as and when it becomes apparent that further security will be necessary).

129 An open letter dated 15 June 2012 has advised that Vertical-T's solicitors hold the sum of $60,000.00 in trust from Vertical-T for the payment of security for costs.

130 Mr Lo Surdo submits that, given that these proceedings are at their infancy, that the steps to be undertaken in the proceedings are unable to be determined with any degree of certainty and that the prospective costs are therefore not able to be reasonably assessed, this is a case where Vertical Australia's costs will be adequately secured by the Court making an order in terms that reflect the offer made by Vertical-T on 30 May 2012.

131 Mr Kidd points to the submission that determination of the Interpleader proceedings (if in Vertical-T's favour) will narrow substantially, if not render otiose the Breach of Agency proceedings (on which Vertical-T relies for the submission that it is premature to award costs up to and including the final hearing) as being in favour of a complete order for security. He says that this gives rise to a real possibility that if the funds currently held in Court are released to Vertical-T, then Vertical-T will abandon the Breach of Agency proceedings. There is a concern that if that happens any costs ordered to be paid by Vertical-T to Vertical Australia will be unsecured (notwithstanding that it first requested the provision of security in February 2012 and filed its Notice of Motion seeking an order for security on 5 April 2012 almost one month before Vertical-T filed and served its cross claim against Wellman in the Interpleader proceedings).

132 That, however, does not seem to take into account the moneys said to be held in trust at the moment out of which security could be provided. In other words, if the fear is that the moneys will be paid out of Court and the Breach of Agency proceedings will then be discontinued before an order for security for costs is met, that would seem to have force only to the extent that security above $60,000 is presently ordered.

133 I consider that the provision of security should be on a staged basis, principally because it is by no means apparent that it will be necessary for all of the steps envisaged by Ms Harpur to be taken (where the plaintiff has foreshadowed that on payment out of the moneys in the Interpleader Proceedings the ambit of the claim will be substantially narrowed and in any event where the ambit of any discovery and expert evidence is unclear and may need to be the subject of an application for leave in any event). I am not persuaded that the fact that (together with breach of contract and breach of fiduciary obligations) there are allegations of breach that the moneys were held on constructive trust is sufficient to warrant the kind of order for security that in Brundza was said not to be appropriate. The provision of security is ordinarily ordered in the context of a regime that until the security is provided the proceedings will be stayed (or if security is not provided by a particular time it will be stayed).

134 In the present case, the concern that the proceedings might be discontinued and the defendant left unable readily to enforce a claim for costs to date can be met by an order for provision of security that would cover the costs incurred to date.

135 In the circumstances, and subject to the qualification I make below, on the estimates provided I would have considered that security should be provided at this stage for 70% of the costs incurred to date in relation to the pleadings, the preparation for security for costs application and the estimated costs of the hearing of that application, together with an allowance for the preparation of the lay evidence (from Mr Tchernobryvko). I am not inclined to award security for past costs on the consolidation application (on the basis that, notwithstanding that both parties may have considered it a reasonable course, it was one that was abandoned and it is not necessarily the case that on an assessment such costs would be allowed). I do not consider that security for costs should be ordered at this stage for discovery when it is not known whether leave will be granted for such a step or the parameters of such a step. Similarly, where the ambit of expert evidence is likely to be the subject of debate (and may be unnecessary depending on what stance Vertical-T now takes in light of the outcome of the Interpleader Proceedings) and leave may be necessary in any event for such evidence to be filed, I am not prepared at this stage to order security for costs for that step.

136 Nor am I able (as Mr Kidd suggested) to fix the quantum of such steps at this stage when there is too much uncertainty as to what they will comprise.

137 Excluding the consolidation application costs and adopting the actual costs where known for the preceding items that would comprises a sum of $29,117 plus amounts referable to the directions hearings to date that would comprise a total of just over $30,000. Even assuming the costs to date in settlement discussions and general expenditure should be allowed for that would be in the order of $34,412.17. I have difficulty with the unparticularised component of "matter management" since it is not clear whether how that sits with the more specific items and what it comprises. I would have been inclined to allow at most $20,000 by way of security for costs of these items to date.

138 A sum of $30,000 has been estimated for the lay evidence of Mr Tchernobryvko. Assuming an 8-hour working day (which is the figure used for the hearing rate estimates), that suggests that a lawyer will spend 5 days on Mr Tchernobryvko's affidavit, a partner 1.5 days and junior Counsel 2.75 days. In circumstances where the content of the lay evidence (to which there will have to be a response) is not known and where detailed instructions have presumably already been obtained in relation to the verification of the defence and some matters of his evidence, that seems to me to be a surprising amount of time. It may well be that this estimate will be proven to be correct or even an under-estimate. This simply suggests to me that the exercise of attempting to assess the quantum of security until it is known what change there may be to the scope of the issues in the proceedings following determination of the Interpleader proceedings is an exercise in speculation. I consider that a more reasonable estimate at this stage would be in the order of $15,000, 70% of which is $10,500.

139 Accordingly, I would have considered that the appropriate amount to be awarded for security for costs at this stage up to the close of the lay evidence would be at most the sum of $30,500 by way of security for costs up to the service of the defendant's lay evidence. That brings me to the qualification to which I have referred above. There have been offers made in relation to security and the amount presently retained in the trust account for the purpose of security for costs is $60,000.

140 If there were to be an undertaking to retain that amount by way of security for costs pending the hearing (or not to disburse it without prior notice), then there would in my view be no need at this stage to attempt to quantify the likely costs in any discovery or expert evidence for which leave may be granted and there will be a component available as de facto security for those items and/or towards the costs of the hearing. Once the ambit of the issues in the proceedings is known, and as costs are incurred in preparation for the hearing, the defendant will be at liberty to apply to increase the amount to be retained by way of security (and the penalty if that is not provided will be the stay or dismissal of the proceedings).

141 The relevance of this is that Vertical-T seeks its costs of the present security for costs application. If it succeeds on that application then there is no need for security to be provided for a significant component of the costs the subject of the order I considered would be appropriate for the provision of security for the costs incurred to date and the ongoing costs of the lay evidence, together with any incidental preparation costs.

142 In any event, I do not see the need for that to be retained out of the funds in Court in the Interpleader Proceedings when there are funds presently held by the plaintiff's solicitors in their trust account.

143 It seems to me that in circumstances where Vertical-T has been willing to provide security and Vertical Australia has been unsuccessful in obtaining an order for security in respect of the full amount of the costs of the hearing (and in its application for the amount to be retained from the Interpleader funds), Vertical Australia has been substantially unsuccessful on the present application. Although I accept that Vertical-T's proposal has not ultimately been matched in its terms by the order I proposed to make, it does cast significant doubt on the need for this application at all. I consider that the appropriate costs order on the security for costs application is that costs should be the plaintiff's costs in the cause. That being the case, it is not necessary for there to be security to be provided for the component referable to the costs incurred by Vertical Australia on the security for costs application (its preparation or hearing) and therefore the amount to be provided by way of security should be reduced to $15,000 to cover 70% of what I consider to be the costs of the lay evidence, the preparation of the pleadings and some of the incidentals to date (such as the directions hearings). Unless the parties persuade me otherwise I see no reason why that should not simply be retained in the trust account of the solicitors for Vertical-T. I will hear the parties if there is an application for an order for those moneys to be paid into Court.

144 On the assumption that Vertical-T's solicitors proffer an undertaking that pending the hearing the balance of the $60,000 not be disbursed without giving the defendant's solicitors 72 hours' written notice of their intention to do so, that seems to me to be sufficient at this stage by way of security for costs.

Conclusion

145 I have concluded, for the reasons set out above, that Vertical-T has established its entitlement to the funds presently held in Court. I consider that Vertical Australia's conduct has not been such as to disentitle it to its costs incurred in the preparation of the Interpleader proceedings on an indemnity basis. Those costs would not, in my view, extend to more than the costs of obtaining advice as to the commencement of the Interpleader proceedings, the preparation of the Summons and affidavit in support, and the attendance in Court for the purpose of making a claim for its costs. I do not consider that payment out should be delayed for the purposes of an assessment of those costs. Rather, I will direct that Vertical Australia serve on Vertical-T within 7 days an itemised bill of the costs incurred by it of and incidental to the Interpleader proceedings. If those costs are agreed, then the parties should forward short minutes of order for entry in chambers. If they are not agreed, the matter should be listed for me within 7 days of service of the bill of costs in order for me to fix an amount in respect of those costs (to be deducted from the funds held before payment out of Court). As a practical matter, this will mean that payment out of Court will be ordered within 14 days.

146 As to security for costs, I have concluded as set out in [144] above.

Orders

147 In the Interpleader proceedings, I propose to order as follows:

1. The First Defendant/Cross-claimant is granted leave to proceed against the Second Defendant/Second Cross-defendant pursuant to rule 11.4 of the Uniform Civil Procedure Rules 2005.

2. On or before 12 July 2012, the sum of money AUD$2,371,195.61 (the Funds), together with any interest accrued on the Funds be paid out of the Court to DynCorp (Aust) Pty Limited (the First Defendant/Cross-claimant's Australian agent) by direct deposit into account:

ANZ Bank

Account Name: DynCorp(Aust) Pty Limited

BSB: 012 984

Account Number: 497001577

less such amount as is fixed or agreed (in accordance with the orders below) to meet the plaintiff's costs of the Interpleader proceedings on a solicitor/client basis, be paid out of the moneys held in Court to the first defendant or at its direction.

3. The plaintiff's costs of and incidental to the Interpleader proceedings on a solicitor/client basis are to be paid to the plaintiff out of the funds held in Court.

4. The plaintiff is to serve on the first defendant within 7 days an itemised bill of the costs of and incidental to the Interpleader Proceedings.

5. The parties are to notify my associate within 7 days thereafter if they are in agreement as to the amount of costs to be deducted and paid to the plaintiff pursuant to order 2; failing which the matter is to be listed before me at 9.30am on 12 July 2012 to fix the amount so payable.

6. The second defendant is to pay the first defendant's costs of the Interpleader proceedings and to indemnify the first defendant for the costs paid by it to the plaintiff in respect of the Interpleader proceedings.

148 In the Breach of Agency proceedings, and subject to receipt of the undertaking indicated earlier, I propose to order as follows:

1. Order that the plaintiff provide security for the costs of the defendants in the amount of $15,000 (such security to be provided by the retention of that amount as held in the trust account of the solicitors for the plaintiff pending the final determination of these proceedings or further order).

2. Liberty to the defendants to apply in relation to any further security for costs required for the preparation of the matter to hearing as and when it becomes apparent that such further security is necessary

3. Costs in relation to the Notice of Motion filed 5 April 2012 be the plaintiff's costs in the cause.

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Decision last updated: 28 June 2012