Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC - [2008] SASC 337

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ABIGROUP CONTRACTORS PTY LTD v HARDESTY & HANOVER INTERNATIONAL LLC & ORS
[2008] SASC 337
Reasons of Judge Lunn a Master of the Supreme Court
3 December 2008
EVIDENCE
Admissibility on interlocutory application for security for costs of a letter written in an attempt to settle the dispute - held no mutual consent to its use or any other ground under s 67C(2) of the Evidence Act for it to be admissible.

PROCEDURE
Application for security for costs under 6R 194(1)(b) by third party against defendants residents overseas - consideration of enforcement of any costs order in USA - order for security to be given.

ABIGROUP CONTRACTORS PTY LTD v HARDESTY & HANOVER INTERNATIONAL LLC & ORS
[2008] SASC 337
Reasons on the third party’s application for security for costs.

JUDGE LUNN: This action concerns the construction of major bridges to span the Port River at Pt Adelaide. The plaintiff is the head contractor for the building of the bridges. It engaged the first and third defendants (“the defendants”) to design the opening spans of the bridges (For the purposes of the present application it is not necessary to distinguish between the first and the third defendants. The second defendant has no role in the application.) The plaintiff also engaged the third party to design other parts of the bridges.
In this action the plaintiff has sued the defendants on several causes of action arising out of the design and construction of the bridges. One cause of action is that the defendants did not properly design rest piers so that they would withstand ship impact (“the ship impact claim”). The defendants have pleaded various defences which, if successful, would absolve them of all responsibility for the ship impact claims. The plaintiff has not sued the third party in respect of the ship impact claim.
The defendants have served a third party notice on the third party. It claims contribution to the extend of an indemnity against the ship impact claim on the grounds that the third party was in breach of its duties to the plaintiff in the matters giving rise to the ship impact claim. It is not pleaded that the third party owed any duty directly to the defendants relating to the ship impact claim. The third party by its defence has denied any liability for the ship impact claim.
By an application issued on 20 October 2008 the third party has sought an order for security for costs under R 194(1)(b). It was agreed that I should first determine whether any security should be ordered before dealing with its amount and how and when it should be given.
Admissibility of the letter of 4 November 2008
The defendants sought to put before me a letter of 4 November 2008 from the third party’s solicitors to the defendants’ solicitors, but the third party objected on the grounds that its tender was precluded by s 67C of the Evidence Act. The letter comes within s 67C(1) as it is “a communication made in connection with an attempt to negotiate a settlement of a civil dispute”.
In Chapman v Allan (1999) 74 SASR 274 at [81] the Full Court held that a document which was within subs (1) was not admissible unless it came within one of the subparagraphs of subs (2). It is not necessary for me to consider the authorities relied on by the defendants about the common law privilege for “without prejudice” communications as that has been superseded by s 67C.
The defendants’ counsel submitted that the letter came within subs (2)(a) on the basis that the parties to the dispute had consented to its admissibility. In Chapman v Allan (above) at [89] it was held this must be the mutual consent of all parties existing at the time of its tender. This is not the case here as the third party objects to its tender on this application. Paragraph 7 of the letter, quoted below, is not a current consent by the third party to the use of the letter on this application. In any event in its context “the question of costs” in paragraph 7 does not extend to an application for security for costs.
Although they were not referred to in argument, I have considered whether two other subparagraphs of s 67C(2) might make the letter admissible.
The first is subpara (2)(d) which provides:
(d)The communication or document included a statement to the effect that it was not to be treated as confidential.
Paragraph 7 of the letter reads:
7 ….. DSC (ie the third party) will rely on this letter on the question of costs, including in support of any submission that DSC ought to be entitled to its costs of the action from your clients on an indemnity basis pursuant to the reasoning set out Calderbank v Calderbank.
It is unclear whether subpara (2)(d) extends to a limited waiver of confidentiality for a specific purpose or whether it only operates where the whole letter is made an open communication for all purposes. Even if it can operate where the waiver of confidentiality is limited to a particular purpose, it could only be admissible in the context of that purpose. Here, paragraph 7 is referring to a post-judgment determination of which party should pay what costs to the other party. On its proper construction it does not extend to a pre-trial, interlocutory issue of security for costs. It also only reserves the right for the third party to rely on the letter, and not the defendants.
The other possibility is subpara (2)(g) which provides:
(g)The making of a communication, or the preparation of a document, affects the rights of a party to the dispute.
In Mair v Mazzitti (No 1) (2003) 231 LSJS 186 I held that subpara (2)(g) operates on rights affected by the making of the communication or the preparation of the document, and not on rights affected by its contents. The right of the third party to security for costs is not affected by the writing or sending of the letter, although, if the letter was admissible, its contents may be relevant on the exercise of the Court’s discretion for the security. I am not aware of any rights of the defendants, in the context of the present application, which could be affected by the writing or the sending of this letter.
I am not determining that s 67C precludes the operation of a Calderbank letter. That is a different issue which can be left for another occasion.
Accordingly, I rule that the letter of 4 November 2008 is not admissible. It will be returned to the defendants’ solicitors. (I have endeavoured in these reasons not to disclose indirectly its contents).
Application for security for costs.
The third party brings the application under 6R 194(1)(b) on the undisputed ground that the defendants are ordinarily resident outside of Australia (and in the United States of America). The older authorities are to the effect that if plaintiffs are ordinarily resident overseas they will be ordered to give security unless there are special circumstances to the contrary: Re Pretoria Pietersburg Railway Co (No 2) [1904] 2 Ch 359 at 361; Waters v Waters [1907] SALR 133, but more modern authorities seem to suggest that the discretion is at large with no particular presumption in favour of security being ordered against an overseas resident: Limberis v Limberis & Sons Pty Ltd, Gray J, 25 June 2004 [2004] SASC 186.
Based on the submissions of counsel the following factors are to be considered in the exercise of the Court’s discretion.
Ship Impact Claim
The ship impact claim is only part of the action. There are significant other claims and counterclaims pleaded between the plaintiff and the defendants which do not affect the third party. Justice Gray has refused an order for the preliminary trial of certain issues, but that is under appeal to the Full Court. Subject to any special directions to be given by the trial Judge, the third party will be locked into a long trial where it will not be involved in some of the issues to be litigated. If the defences pleaded by the defendants to the ship impact claim succeed, the third party claim will be dismissed because there will be no liability of the defendants on the ship impact claim towards which the third party could be ordered to contribute. In that event, it is likely that the Court would make either a Sanderson or a Bullock order for the costs of the third party which would mean that they should be ultimately met by the plaintiff. However, while there is no evidence to suggest that the plaintiff could not satisfy an order for such costs, it is impossible to know what the financial position of the plaintiff will be at that future time. There is at least a possibility in that event that the defendants themselves could be liable to satisfy those costs.
Reasonable basis for the third party claim.
It is neither appropriate nor practical for me to assess at this stage of the action the likely strength of the third party claim. On the documents there is some uncertainty about whether the relevant design of the rest piers was the responsibility of the defendants or the third party. However, the defendants do have a reasonable basis of claim against the third party which is not fanciful or specious. There are many possible reasons why the plaintiff did not sue the third party for the ship impact claim and it would be speculation on my part to infer from this that there was no reasonable basis for such a claim.
The effect of an order for security on the third party claim being able to proceed.
It was not suggested that the defendants or their insurer could not meet any order for security and that if the order was made the third party action could not proceed. I accept that the requirement to give security in a substantial amount would be oppressive to a degree for the defendants, but this may be able to be ameliorated to some extent if the security does not have to be given by the payment of money into Court.
The likelihood of the defendants not satisfying any costs order made against them.
The defendants’ counsel submitted that the defendants as a large firm of international professional engineers could be expected to satisfy any order for the costs of the third party proceedings which was ultimately made against them. I am not aware of such a factor having been taken into account in any other decision on security for costs. I accept that the defendant’s professional reputation indicates that they are likely to act honestly and responsibility if such an order for the costs of the third party is made against them, but it is no guarantee that prompt and expeditious payment of those costs will be made. It could be that there would be a dispute between the defendants and their insurers which could impede ready recovery of any costs order against the defendants.
Alleged financial difficulty of the defendants.
The third party pointed to some difficulty which the defendants had experienced in satisfying a previous order involving the provision of a bank guarantee. That does not indicate that the defendants are in any financial difficulties. The tax returns of the defendants put into evidence show them to be in a sound financial position.
Assets of the defendants in Australia.
At present, the defendants have a credit of $516,000 in a bank account in New South Wales. This was created as a condition imposed by their bankers when giving a guarantee to the plaintiff for the repayment of moneys claimed in the counterclaim. If the defendants are unsuccessful on certain other issues in this action, the plaintiff will call up that guarantee and in that event it is highly likely that the bankers will exercise rights as a chargee over those moneys. Thus they would not be available in that event to satisfy any subsequent order for costs in this action if the defendants were unsuccessful on the third party claim. While the moneys on deposit could be available to satisfy readily a subsequent order for costs in the action in favour of the third party against the defendants, it would only be if the plaintiff, on the result of other issues in the action, cannot enforce the guarantee. There is a substantial risk that those moneys will not be available for that purpose.
Difficulty in enforcement of any costs order in the USA.
The rationale behind the power to order security for costs against a party overseas is that the other party, if successful in obtaining an order for costs, should not be put to the substantial expense and delay in recovering those costs by having to enforce the order overseas. Such difficulties are one fact to be weighed by the Court in the exercise of the discretion: Limberis (above) at [33]. There is a line of cases where security has been ordered against overseas parties, but it has been limited to the costs likely to be incurred in enforcing the costs order overseas: Connop v Varena Pty Ltd [1984] 1 NSWLR 71; Barton v Minister for Foreign Affairs (1984) 54 ALR 586; Southern Cross Commodities Pty Ltd v Martin, 3 October 1985, Judgment No 8546; Bethune v London Properties Ltd [1990] 1 WLR 562; Shackles v The Broken Hill Proprietary Company Ltd [1996] 2 VR 427; Soh v The Commonwealth (2006) 231 ALR 425. As far as I am aware all of the cases in which such a limited security has been ordered are cases where there have been reciprocal arrangements in place between Australia and the overseas country in question which enabled an Australian judgment for costs to be registered and enforced in a superior Court of the overseas country. The United States of America is not a country proclaimed for the registration of judgments under either the South Australian Foreign Judgments Act 1971 or the Commonwealth Foreign Judgments Act 1991. Accordingly, I presume there is no corresponding right for the third party to be able to enforce any costs order against the defendants by registering that judgment for costs in an appropriate Court in the United States. The only evidence which I have on the point is the following passage from the affidavit of the defendants’ solicitor:
12What would be the prospects of DSC enforcing an order for costs against H&H’s assets in the United States? In light of the foregoing, this question piles unlikelihood on to of unlikelihood, but there would be no procedural difficulty in such enforcement proceedings in the United States. ….. I estimate that the cost of enforcing such a cross guarantee would be no more than a couple of thousand dollars.
No basis is given for how the South Australian solicitor is able to speak about the available procedures for enforcing a judgment in the United States or how the costs would be no more than “a couple of thousand dollars”. I have no evidence about whether such a judgment could be enforced by a process of registration, even though there is apparently no reciprocal legislation for that purpose, or whether it will be necessary for the third party to sue on the Australian judgment in new proceedings in the United States against the defendants. I do not know whether a Court in the United States would recognise the Australian judgment and whether it would allow the defendants to challenge there the basis on which it was made. There is a significant risk that the third party could be substantially delayed and put to considerable cost to enforce in the United States any judgment for costs which it obtains here against the defendants.
Conclusion.
There will be significant prejudice to the third party if it is forced to defend the third party claim, and then, if successful in that defence, or if the Court decides the ship impact claim in the defendants’ favour and it cannot recover its costs from the plaintiff, being likely to face substantial delay and expense in recovering a costs order in its favour in the United States of America. I accept that the order for security will be oppressive to a degree to the defendants, but that may be ameliorated to some extent if the security is given by some form of guarantee. On balance, I consider that the justice of the case requires that the defendants should provide security for the third party’s costs of defending the action.
I will hear the parties further on Friday 12 December 2008 at 9.30 am on the amount of the security and how and when it should be given. I will also then give directions about what is to happen to the copy of the letter of 4 November 2008 which I am holding.