Abigroup Contractors Pty Ltd v Hardesty & Hanover International LLC (No 3) - [2009] SASC 39

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
ABIGROUP CONTRACTORS PTY LTD v HARDESTY & HANOVER INTERNATIONAL LLC & ORS (No 3)
[2009] SASC 39
Reasons of Judge Lunn a Master of the Supreme Court
20 February 2009
PROCEDURE
Security for costs - relevant factor whether applicant for security bona fide intended to defend the claim - applicant company had recently sold most of its business and changed its name - held significant risk respondent to security application, if successful, would not be able to recoup its costs from the applicant - evidence of risk to be assessed in light of power of applicant to adduce evidence of its financial position and future intentions and the capacity of the respondent to contradict it - application for security refused.

ABIGROUP CONTRACTORS PTY LTD v HARDESTY & HANOVER INTERNATIONAL LLC & ORS (No 3)
[2009] SASC 39
Reasons on re-opening of argument on the third party’s application for security for costs.

JUDGE LUNN: The history of this matter was set out in the following paragraphs from my Reasons (No 2) published on 15 January 2009:
1By an application dated 20 October 2008 the third party sought an order for security for its costs under R 194(1)(b). That application was supported by an affidavit sworn on that day by Patrick Coyle, a solicitor in the firm of solicitors for the third party (“the first Coyle affidavit”). ….. On 3 December 2008 I published Reasons indicating that I would make an order for security in favour of the third party, but I adjourned further consideration of the amount of the security and how and when it should be given.
2In early December 2008 the defendants became aware for the first time that on 30 September 2008 the defendant company had changed its name to ACN 008 036 940 and that it had sold its engineering consultancy business to another entity known as SMEC. On 10 December 2008 the defendants’ solicitors wrote to the third party’s solicitors pointing out that the third party had changed its name and sold its business before the first Coyle affidavit was sworn. It sought information about what assets it now had, what had happened to the sale price and whether it was insured against the defendants’ claim. By a letter of 11 December the third party’s solicitors confirmed that the third party had changed its name and sold its business, but denied that the first Coyle affidavit was false and misleading. It did not give the further information requested. On 8 January 2009 the third party’s solicitors filed a further affidavit of Mr Coyle deposing on information and belief to no more than that the third party’s name had been changed, that it had sold part of its business to SMEC and that it was continuing to carry on business for the purpose of dealing with outstanding debtors and creditors including the third party. It asserted that the third party is solvent and intends to continue fully to defend the third party proceedings.
3The defendants made an oral application that Mr Coyle be cross-examined on his affidavits under 6R 165
I refused the application for cross-examination.
In my Reasons (No 1) published on 3 December 2008 [2008] SASC 337 I stated my conclusions to be:
22There 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.
As had been previously agreed with counsel, I did not make any order or ruling upon publishing my Reasons (No 1) pending further evidence and submissions on the amount of security to be given and how and when it should be given. Before these further issues were dealt with, the matters set out in paragraph [2] of my Reasons (No 2), quoted above, came to light. On 11 February 2009 I allowed the defendants to re-open the argument on the further evidence referred to above and to argue that I should revise my conclusion stated in paragraph [22] of my Reasons (No 1) in the light of the further evidence.
The defendants submitted that the sale by the third party of its business, its change of name and the potential for it to thwart any judgment against it on the third party claim for the claim and for costs by now dissipating its assets were relevant matters which could be taken into account by the Court in the exercise of its discretion whether to order security against them. The primary submission by counsel for the third party was that these matters were irrelevant, but I do not accept that. No precedents were cited where any such considerations have taken into account in the exercise of the judicial discretion to order security for costs, and I am not aware of any. The discretion is unfettered and must be exercised in the light of the particular facts of the specific case and as a consequence of balancing relevant considerations: Health & Lifecare Ltd v PriceWaterhouse (1993) 11 ACSR 326 at 330. In my view, it is relevant in considering whether the third party, if successful, should be secured for its costs of the third party claim whether the defendants, if successful, would be at a significant risk of not being able to recover their costs of the third party proceedings from the third party.
The crux of the issue on this point is what on the evidence before me is the extent of the risk for the defendants of not being able to recover their costs from the third party if they are successful. Apart from some general evidence from the defendants about the third party’s change of name and the sale of its business, whose weight is of no real consequence, and which is not disputed, the only evidence about the current financial position and future intentions of the defendant is contained in two affidavits of a solicitor for the third party, Patrick Coyle, the first of which was sworn on 28 October 2008 (“the first affidavit”) and the second on 8 January 2009 (“the second affidavit’). It is also established that the defendants’ solicitors had posed various questions to the solicitors for the third party about the present position of the third party and its future intentions which the third party has in part refused to answer. The first and second affidavits, apart from matters relating to the conduct of this action, are based on information and belief evidence obtained by Mr Coyle from officers of the third party. No officer of the third party has deposed of his or her own knowledge to these matters.
The first affidavit deposes to Mr Coyle’s estimate that the third party’s total pre-trial costs in respect of solicitor’s fees would be approximately $320,350 plus GST. It is implicit in the whole of that affidavit that the third party is intending to defend the third party proceedings and will have the means to incur costs in the vicinity of $320,350 plus GST to do so.
Paragraphs 4 and 5 of the second affidavit read:
4I am instructed by the third party to respond as follows to the affidavits of Mr Heyer and Ms Fox:
4.1on about 1 October 2008 the third party sold part of its business to the Snowy Mountains Engineering Corporation (“SMEC”);
4.2on about 8 October 2008, as part of the abovementioned sale to SMEC, the third party changed its name from “Dare Sutton Clark Pty Limited” to “ACN 008 036 940 Pty Ltd”;
4.3despite the sale referred to in paragraph 4.1 above, the third party is continuing to carry on business for the purpose of dealing with outstanding debtors and creditors (including dealing with the allegations the subject of this claim); and
4.4without conceding its relevance to any issue on this application or the subject of this claim, the third party says that it is solvent and is able and intends to continue fully to defend the allegations against it in this action for so long as it is joined as a party to the proceedings.
5I know the matters contained in this affidavit of my own knowledge and on information and instructions received from Mr Norman Clarke, a director of the third party, which information I believe to be true.
No further information has been given about whether the third party has sufficient resources to pay its outstanding creditors, including the defendants, if the third party claim succeeds. Nothing is said about whether the third party is to be put into liquidation or administration. Paragraph 4.4 says “the third party says that it is solvent and is able and intends to fully defend the allegations in this action” (underlining added). It does not say that it has, and will continue to have, the resources to do so. No reasons are deposed to about why it declined to give the further information about its current position and future intentions as have been requested by the defendants.
Under the principle in Blatch v Archer (1774) 98 ER 969; Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371-2, the evidence put forward by the third party on its financial position and future intentions is to be weighed in the light of its power and capacity to adduce such evidence and the power and capacity of the defendants to contradict it. The third party clearly has a capacity, if it choses to do so, to adduce much more evidence about its present financial position and future intentions. While it is not compelled to do so, its failure to do so is a factor to be taken into account in what inferences the Court may draw from the whole of the evidence before it. There is no suggestion that the defendants have any capacity to adduce any evidence about these matters further than what they have already done.
I do not accept the third party’s submission that I must accept the affidavits of Mr Coyle as they are the only evidence before me on the relevant matters. It is now conceded there were errors in the first affidavit. I do not suggest that they were lies by Mr Coyle, but while some explanation for them has been given in correspondence Mr Coyle has not deposed to how he came to depose to matters on 28 October 2008 which were less than the whole truth. The likely inference is that the third party did not give him full and proper instructions. This casts some doubt over the reliability of the information and belief evidence put forward by him in the second affidavit. In any event I am entitled on the whole of the evidence to draw such inferences as are properly available on that evidence even though they may be inconsistent with the information and belief evidence deposed to by Mr Coyle.
I ask myself the question what would the third party have done in this situation if its intention was to divest itself of its assets in the near future and to give the defendants a “Pyrrhic” victory if they are ultimately successful on the third party claim so that they would not have to pay costs. The answer would seem to be similar to what is contained in the second affidavit and correspondence between the solicitors. That does not mean that any such intention has been proved. However, on the application of the principle in Blatch v Archer it shows that there is a significant risk that if the defendants succeed in the third party proceedings the third party will then not be in a position to satisfy any order for costs against it (as well as the third party claim).
The defendants’ counsel conceded that if there was evidence that the third party was properly insured against any liability on the third party claim they would not have their present concerns about a “Pyrrhic” victory. However, the third party has declined to answer the questions posed of whether it is insured and about the details of any such insurance.
The third party’s counsel suggested that if the defendants had any real concern about the third party’s ability to meet any judgment on the third party claim they could pursue a freezing order under R 247. That course is open to the defendants but they have not yet taken it. If the defendants subsequently obtain such an order, which also includes security for their costs, there would be a basis to re-visit the third party’s application for security for costs. I must decide the security for costs application on the circumstances as they exist at present.
Having regard to the matters set out in my Reasons (No 1), as summarised in its [22] above, I consider that the additional factor of a significant risk run by the defendants in not recovering their costs if the third party claim is successful
tips the balance in their favour and makes the proper exercise of the discretion that the order for security should be refused.
I have today made the following orders:
1Third party’s application for security for costs dated 20 October 2008 is refused.
2Question of costs reserved.
3Fit for counsel.