AE & E Australia Pty Ltd (in liq) v Sino Iron Pty Ltd
[2016] WASC 373
•16 NOVEMBER 2016
AE & E AUSTRALIA PTY LTD (in liq) -v- SINO IRON PTY LTD [2016] WASC 373
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 373 | |
| 16/11/2016 | |||
| Case No: | ARB:4/2016 | 25 OCTOBER 2016 | |
| Coram: | MARTIN CJ | 25/10/16 | |
| 8 | Judgment Part: | 1 of 1 | |
| Result: | Application granted | ||
| B | |||
| PDF Version |
| Parties: | AE & E AUSTRALIA PTY LTD (in liq) SINO IRON PTY LTD |
Catchwords: | Practice and procedure Security for costs Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 1335 |
Case References: | Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1 Famel Pty Ltd v Burswood Management Ltd (1989) ATPR 40-962 Natcraft Pty Ltd v Det Norske Veritas [2002] QCA 241 Sims v Suda Ltd [No 2] [2015] WASCA 180 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Appellant
AND
SINO IRON PTY LTD
Respondent
Catchwords:
Practice and procedure - Security for costs - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335
Result:
Application granted
Category: B
Representation:
Counsel:
Appellant : Mr A Thomas
Respondent : Mr J Garas
Solicitors:
Appellant : Colin Biggers & Paisley
Respondent : Clayton Utz
Case(s) referred to in judgment(s):
Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1
Famel Pty Ltd v Burswood Management Ltd (1989) ATPR 40-962
Natcraft Pty Ltd v Det Norske Veritas [2002] QCA 241
Sims v Suda Ltd [No 2] [2015] WASCA 180
- MARTIN CJ:
(This judgment was delivered extemporaneously on 25 October 2016 and has been edited from the transcript.)
1 AE & E Australia Pty Ltd (in liq) (AE & E) has commenced proceedings seeking an order that the award delivered in an arbitration between AE & E and Sino Iron Pty Ltd (Sino) be varied and/or set aside. Before any substantive step has been taken in the proceedings, Sino has applied for an order that AE & E provide security for Sino's costs of the proceedings pursuant to s 1335(1) of the Corporations Act 2001 (Cth) (the Act). These reasons are concerned only with the resolution of that application.
2 Both parties have adduced affidavit evidence relating to the application for security for costs. It is unnecessary to review that evidence in detail because the factual matters relevant to the exercise of the discretion conferred by s 1335 of the Act are not contentious. Those facts are:
(a) AE & E has not paid and cannot pay the amount it was ordered to pay in the final award delivered by the arbitrator, Professor Owen, on 21 June 2016;
(b) AE & E is in liquidation and is insolvent;
(c) Sino has brought its application for the provision of security for its costs in a timely manner;
(d) AE & E's appeal grounds as presently formulated will require the parties and the court to review in some depth the key issues determined in the arbitration and the reasons for the award which comprise 257 pages;
(e) neither the liquidators of AE & E, nor the creditors who might stand to benefit from the success of the proceedings brought by AE & E, have offered any personal undertaking as to costs, or to post any security for Sino's costs of the proceedings;
(f) although AE & E has some cash at bank, those funds are either committed to other purposes or could only be applied to the provision of security for Sino's costs with the approval of the court or the committee of inspection, or a resolution of the creditors, none of which have yet occurred;
(g) one of the joint liquidators considers that one potential source of any funds that might be provided by way of security for Sino's costs of the proceedings is through the utilisation of the services of a litigation funder;
(h) no agreement has yet been reached with a litigation funder for the provision of the resources necessary to support the prosecution of these proceedings challenging the award; and
(i) one of the joint liquidators estimates that it could take a number of months for AE & E to meet any order for security.
The contentious issues
3 These facts are sufficient to establish the jurisdictional pre-requisite to the exercise of a discretion conferred by s 1335 of the Act. AE & E does not contend that there is any reason why the discretion should not be exercised but raises two issues with respect to the manner of its exercise, namely:
(a) the amount of the security to be provided; and
(b) the time by which the security should be provided.
The amount of the security
4 Sino has provided a draft bill of its estimated costs in responding to the proceedings commenced by AE & E. That bill takes the form of a spreadsheet identifying each applicable item in the applicable scale of costs.1 The document identifies the time allowed by the scale and the hourly rate allowed by the scale in respect of each applicable item, and also sets out the time in excess of the scale and the total amounts in excess of the scale which Sino would expect to claim if not constrained by the limits imposed in respect of certain items within the scale. According to that spreadsheet, total costs allowable in accordance with the scale are estimated at just under $190,000. Total costs likely to be claimed if costs are ordered without regard to the limits imposed by the scale are estimated at approximately $387,000. The latter sum is not an estimate of Sino's actual costs but an estimate of the amount that would be claimed, assessed on a party/party basis without regard to the limits imposed by certain items within the scale. In that context, Sino seeks an order that security be posted in the amount of $320,000.
5 AE & E does not challenge any item or component of Sino's estimate of costs in accordance with the scale, or assessed without regard to the limits imposed by the scale. Rather, AE & E observes that the amount claimed as security is substantially in excess of the maximum available under the scale and points to authorities dealing with the meaning properly given to the expression 'sufficient security' used in s 1335 of the Act. In particular, AE & E submits that the court should not order an amount which constitutes an indemnity, relying upon Famel Pty Ltd v Burswood Management Ltd2 and cites more recent authorities to the effect that the security ordered should be no greater than absolutely necessary, relying upon Sims v Suda Ltd[No 2].3 AE & E further submits that it is relevant for the court to consider whether an appellant will be shut out of its appeal if security for costs were ordered, relying again upon Sims v Suda Ltd[No 2].4
6 AE & E's propositions with respect to the meaning and effect of s 1335 of the Act have not been contradicted by Sino in its written submissions and may be accepted for the purposes of this application. However, the description of the amount properly provided by way of security using generic terms such as 'sufficient' or 'not an indemnity' or 'no greater than absolutely necessary' will inevitably beg a number of questions which can only be answered by reference to the particular circumstances of the case under consideration.
7 I consider the following circumstances of this case to be relevant to the ascertainment of the amount properly provided by way of security for Sino's costs of the proceedings:
(a) on the current state of the evidence the only likely source of recompense for Sino's costs of the proceedings in the event that it successfully defends those proceedings and is awarded costs, will be the amount posted by way of security;
(b) although the amount which Sino requests by way of security exceeds the maximum amount available under the relevantly applicable scale, the nature and complexity of the proceedings, the amount in issue between the parties, and the complexities raised by the grounds of appeal currently identified by AE & E all support the conclusion that it is likely that whichever party is successful in these proceedings will seek and obtain an order that costs be assessed without regard to the upper limits imposed by certain items in the applicable scale;
(c) on the evidence, the only way these proceedings are likely to go forward is pursuant to an agreement with the litigation funder who will be required to provide not only any security which AE & E is ordered to post in respect of Sino's costs of the proceedings, but also AE & E's costs of the proceedings, which are likely to be substantial.
8 Given the amount of costs likely to be involved, the difference between requiring security to be posted in an amount equal to the maximum available under the scale or the amount sought by Sino is unlikely to mean the difference between securing or not securing the support of a litigation funder. Rather, I infer that the likelihood of securing that support will turn critically upon a prospective funder's assessment of the likely prospects of success of the proceedings, the consequences of success and the share of the benefits of that success which might be offered to the litigation funder in return for its support.
9 The estimation of an amount to be provided by way of security for costs will almost always be undertaken as a matter of impression rather than mathematical calculation because of the inevitable uncertainties with respect to the amount of assessable costs likely to be awarded in any proceedings. Taking into account the particular circumstances of the case which I have identified above, and in particular the fact that the amount provided by way of security may very likely be the only possible source of recompense to Sino in the event that it successfully opposes these proceedings, in my view the amount sought by Sino is reasonable, representing a little over 80% of the total assessable costs it estimates it will claim if successful in obtaining an order lifting limits in respect of certain items in the applicable scale. Accordingly, I will order that AE & E provide an amount of $320,000 by way of security for Sino's costs of the proceedings to be paid into court.
The time by which security should be provided
10 Turning now to the time by which security should be provided, Sino seeks an order that the security be provided in three tranches at various points in the process of preparing the proceedings for hearing, with the first payment to be made within 14 days. AE & E, on the other hand, submits that it shouldn't be ordered to provide any security for another six months given the likely time which it will take to negotiate an agreement with a litigation funder.
11 Often there is much to be said for the provision of security for costs on a progressive basis. However, in this case, the reality established by the evidence is that the only way in which these proceedings are likely to go forward is if AE & E secures the support of a litigation funder. That support is only likely to be secured if the relevant funder forms the view that the prospects of success and the likely benefit to be derived from the proceedings are sufficient to justify its investment. In those circumstances there is no reason to suppose that the proceedings would not be pursued to their conclusion if the support of a funder is secured. Accordingly, in the particular circumstances of this case, it does not seem to me that there is any advantage to be derived from ordering that security be posted in a series of tranches. It is preferable to order that the security be provided in its entirety by a particular point in time on the basis that the proceedings will be stayed until that security is provided, and dismissed if it is not provided.
12 When it comes to identify the point in time by which security is to be provided, the following circumstances are relevant:
(a) the contract giving rise to the dispute between the parties was entered into in 2008;
(b) the contract came to an end in 2010 prior to completion of the works;
(c) liquidators were appointed to AE & E in 2011;
(d) the arbitration hearing took place during 2013;
(e) the arbitrator's reasons for interim award were published in February 2016, and his final award was delivered in June 2016;
(f) while it must be accepted that any party to litigation suffers detriment while the proceedings remain on foot, Sino does not point to any particular detriment or disadvantage which it would suffer if the prosecution of these proceedings is delayed for a sufficient period to enable AE & E to exhaust possible avenues of litigation funding.
13 Taking all these matters into account, in my view it is appropriate to specify a time by which the security must be provided which will give AE & E an adequate opportunity to exhaust potential avenues of funding for the proceedings it wishes to pursue. Taking into account the fact that AE & E has been on notice of Sino's requirement that security be posted for some time, and of the need for AE & E to secure a source of funding to permit the prosecution of the proceedings which it has commenced, it is appropriate that AE & E provide the security to which I have referred not later than 10 March 2017. That time should, in my view, give AE & E sufficient opportunity to exhaust possible avenues of funding.
14 As I have mentioned, the proceedings should be stayed until security has been provided. In the event that security is not provided by 10 March 2017 or any extended date ordered by the court, the proceedings will stand dismissed.
15 In order to give effect to these reasons, the orders that I will make are:
(1) The appeal will be taken to be an appeal from both the interim award published by the arbitrator in February 2016 and the final award published by the arbitrator in June 2016.
(2) The appellant is to provide security for the respondent's costs of the proceedings in the sum of $320,000 by payment of that amount into court not later than 10 March 2017.
(3) Unless and until the appellant pays security in compliance with order 2 the proceedings will be stayed.
(4) If the appellant fails to comply with the second order above, the appeal will stand dismissed with costs.
(5) There be liberty to apply generally.
16 I will hear the parties in relation to the costs of this application.
1 Legal Profession (Supreme Court) (Contentious Business) Determination 2016.
2Famel Pty Ltd v Burswood Management Ltd (1989) ATPR 40-962, 50,515.
3Sims v Suda Ltd [No 2] [2015] WASCA 180 [19] (McLure P & Newnes JA), citing Commonwealth Bank of Australia v Eise (1991) 6 ACSR 1, 3 - 4 and Natcraft Pty Ltd v Det Norske Veritas [2002] QCA 241 [9].
4Sims v Suda Ltd [No 2] [2015] WASCA 180 [18] (McLure P & Newnes JA).
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