Callaghan Australia Pty Ltd v BTR Engineering (Australia) Ltd

[1997] FCA 111

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )
GENERAL DIVISION  )           No. NG 406 of 1994

BETWEEN:CALLAGHAN AUSTRALIA PTY LIMITED

Applicant

AND:BTR ENGINEERING (AUSTRALIA) LIMITED

Respondent

CORAM:Lehane J

PLACE:Sydney

DATE:13 February 1997

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J:  This is a respondent's motion for the provision by the applicant of security for costs.  It is unnecessary to describe the proceedings in detail.  The immediately relevant circumstances are that the applicant, which claims against the respondent damages amounting to approximately $1,750,000, is in liquidation.

The winding up of the applicant was preceded by the appointment of administrators under the Corporations Law. The appointment of the administrators occurred on 26 August 1996 and the winding up followed shortly thereafter. It is evident that there will be a substantial deficiency and, unless substantial recoveries result from these proceedings, unsecured creditors are likely to obtain little, if any, return from the liquidation.

Consequently, it is plain for the purposes of the motion that the applicant is to be regarded as impecunious.  So much is common ground.  It is also evident, and it is
conceded, that there are serious triable issues, raised by the applicant's claims against the respondent.

In circumstances such as these it is usual to consider, in relation to the question whether the effect of ordering the provision of security is oppressive in the sense that it operates to stifle litigation, whether there are standing behind the applicant persons who will benefit from the proceedings (if they are successful) and are themselves in a position to provide security for costs.  Persons in that position may be creditors of the applicant, they may be shareholders, they may be beneficiaries of a trust.  No doubt there may be persons standing to benefit from litigation instituted by a corporate applicant who stand in some different relationship to the applicant.

The relevant principle is clearly established.  It is laid down, for example, in the decision of the Full Court in Bell Wholesale Co Pty Limited v The Gates Export Corporation (1984) 52 ALR 176 and by the Court of Appeal of the Supreme Court of Queensland in Impex Pty Limited v Crowner Products Limited (1994) 13 ACSR 440. A recent example of the application of the principle, in relation to creditors of a company in liquidation, is to be found in the decision of Finn J in Pasdale Pty Limited v Concrete Constructions (1995) 131 ALR 286. The principle is uncontroversial and reported cases provide numerous examples of their application.

The basis of the principle is, of course, that ordinarily it is not unjust to order the provision of security in circumstances where those who will benefit from the successful
prosecution of a litigation are in a position to provide it, but because of the interposition of an impecunious corporation will not otherwise be liable to meet an order for costs that may be made against the applicant if the litigation which it has instituted is unsuccessful.  Because that is so, the cases to which I have referred make it clear that the court will ordinarily infer, in the absence of evidence to the contrary, that there are persons standing behind a corporation who will benefit if the litigation is successful and that those persons, or at least some of them, are in a position to provide security for costs.

Here, as I have said, the amount claimed by the applicant is approximately $1,750,000.  The estimated deficiency in the liquidation is slightly more than $2 million.  It is plain in those circumstances that if the litigation were, from the point of view of the applicant, to be wholly successful the unsecured creditors would stand to benefit considerably.

There is before me no evidence as to the identity of the creditors of the applicant or as to the ability of any of those creditors to provide security.  The evidence before me suggests only that the question of the costs of the proceedings has been considered by creditors and that they have been unwilling, at least to date, to contribute towards them.  There is evidence also no single creditor is owed more than 22 per cent of the total unsecured indebtedness of the applicant.  However, that fact standing alone is of no particular relevance: if authority is needed for that proposition it may be found in Pasdale.

A number of other matters were put to me by counsel for the applicant in support of his argument that in the circumstances of this case no security should be ordered. 
Principally, the matters relied upon may be summarised as matters going to oppression and alleged delay combined with the imminence of the trial of the substantive proceedings.

The matter put to me in relation to oppression came, I think, to this: that in addition to the circumstances that the applicant is insolvent and that the creditors are unwilling to provide security, where no one creditor is owed what might be described as a very substantial proportion of the applicant's total indebtedness, the court should take into account that the respondent is a major public company with (it was said) enormous resources; the present motion might therefore be characterised as an attempt to use those resources in stifling litigation by the use of economic muscle.

But I think it is clear that the question is not whether a respondent who seeks security for costs is of great, moderate or only little wealth.  The persons whose circumstances are relevant are the applicant and those who stand behind it.  If the evidence is that not only the applicant but also those who stand behind it are impecunious and unable to provide security, then an order for the provision of security might properly be regarded as stifling litigation which ought, in the interests of justice, to be allowed to proceed.  It is otherwise in circumstances where those standing behind a corporate applicant are in a position to provide security for costs where otherwise a successful respondent would have no recourse or no effective recourse against anyone to enforce an order for costs made in its favour.  I therefore reject the argument based upon oppression.

As for delay and the imminence of the proceedings, it appears to be true that although the matter of security was at least under active consideration and was probably the subject of correspondence at the time of the callover when the proceedings were set down for trial, no mention of the matter was made at the callover.  I do not, however, regard that as a matter telling strongly in favour of the applicant.  The question rather, it seems to me, is whether there was prompt notification by the respondent to the applicant that security might be called for; and on the evidence I do not think there is any proper basis for criticism of the respondent in that respect.  Indeed, it may reasonably be thought that the response of the applicant to the respondent's queries, when the respondent first discovered that administrators had been appointed, demonstrated, a rather relaxed attitude to what was obviously a serious inquiry and an inquiry which, it might be thought, was directed plainly towards the possibility of a motion such as that now before me.

The other matter put under this head was a combination of two circumstances; one, that the hearing is imminent (the trial has been set down for a period of a week commencing approximately two months from now) and the other that very substantial costs, perhaps the bulk of the total likely costs of the proceedings, have already been expended by both parties (particularly, no doubt, the applicant) so that it would be unjust to put an end to the proceedings at this stage by an order for security.  Again, however, I think those arguments in the circumstances of this case should be rejected.  It is not a case where a hearing has commenced or is so imminent that authority or principle require that an order for security, which would otherwise be made, should be refused.  On this question I venture to refer to a decision of my own in Crypta Fuels Pty Ltd v Svelte Corporation
Pty Ltd (1995) 19 ACSR 68. There is no reason to suppose in this case that there is not ample time, assuming those standing behind the applicant to be in a position and willing to provide security, for them to do so without seriously disrupting, or perhaps disrupting at all, the preparation of the case or its trial on the dates set down. That being so, the imminence of the hearing and the fact that substantial costs have already been incurred, provide no answer to the general principle that the applicant is entitled to reasonable protection against what is otherwise the prospect that it may ultimately be the beneficiary of an order for costs which will prove fruitless.

For those reasons, in my opinion this is a proper case for the making of an order for the provision of security for costs.  The question then arises as to the amount of that security.  On that issue, I have before me evidence of the solicitor in the firm acting for the respondent, primarily responsible for the conduct of these proceedings of the respondent's behalf.  She deposes as to the work likely to be involved in the future conduct of the proceedings and estimates substantially on an hourly basis that total costs of $128,610 will be incurred and suggests that approximately 60 per cent of that amount, that is, $77,166 is likely to be recoverable on a party and party basis on taxation.  She deposes also to her experience as a commercial litigation solicitor over a period of approximately seven years and it is on the basis of that experience that she makes her estimate.

The applicant on the other hand has tendered a report by a Mr T. H. W. Ryback, a costs consultant, who has expressed the opinion, based on a perusal of the respondent's solicitor's affidavit and on certain assumptions about the work likely to be involved, that the proper amount of party and party costs in accordance with the Rules is likely to be $32,363.  He then suggests that if 60 per cent of that amount were allowed on taxation, the sum allowed would be approximately $19,500.

A number of comments should be made.  First, if the sum of $32,383 was a proper starting point I can see no basis for its reduction by 40 per cent and none was suggested other than an application of a general proposition that the Court will not ordinarily order the provision of security for the full amount of estimated party and party costs.  Secondly, there is clear authority in decisions of this Court to the effect that an order for security is not necessarily intended to provide a complete indemnity.  Thirdly, there is ample authority equally for the proposition that there is no general rule applied in this Court that in ordering the provision of security one reduces an estimate of party and party costs by one third (as apparently is common practice in some other jurisdictions) or by any other particular amount.

It is I think necessary that I form a view on the basis of the evidence before me as to the amount of party and party costs likely to be incurred by the respondent in these proceedings and on the basis of that view to fix an appropriate amount of security.  Given the imponderables of litigation and the differences of opinion apparent in the evidence, it is of course not possible to perform that task with anything approaching absolute precision.  It is appropriate in my view to discount somewhat the estimate given by the solicitor for the respondent.  For example, there has been a controversy as to the applicant's discovery.  The evidence is that 54 folders of documents were provided by the
applicant, a great portion of which comprised either irrelevant or privileged documents and that some time was expended unnecessarily in establishing that that was so.  It appears ultimately that there will be approximately five folders of relevant documents.  The solicitor's estimate includes time spent inspecting the 54 folders, the amount involved being $10,500.  That I think should be substantially discounted.  The cost consultant, whose report has been tendered by the applicant, refers to a number of the particular items as to which the respondent's solicitors made an estimate and expresses the opinion in the case of some of those matters that they are not (as he describes it) party and party attendances and, as to others, that the amount of work estimated by the solicitor is likely to prove substantially excessive in relation to what will ultimately be allowed on taxation.

The respondent has filed an affidavit of the solicitor in reply to the cost consultant's evidence.  In that affidavit the solicitor deals with a number of those items and without going to them in detail I record that in a number of respects the responses appear to me to have substance.  I refer particularly to matters relating to the time spent on expert evidence and expenses in relation to witnesses.  As was pointed out also, the cost consultant's estimate takes no account of anything that might be allowed for care and consideration and I think it is a fair observation that the matter is reasonably complex.

In short, my view is that the likely amount of the respondent's party and party costs is likely to be an amount somewhat less than that estimated by the solicitor for the respondent and somewhat more than that suggested by the cost consultant whose report was tendered by the applicant.

I think that an appropriate estimate of the amount of party and party costs likely to be incurred by the respondent is approximately $55,000.  Because I regard that as a conservative estimate, it seems to me unnecessary and inappropriate to allow for any further reduction in arriving at an amount which the applicant should be ordered to provide by way of security.  That is so, in my view, having regard, among other matters, both to the amount of the applicant's claim and to the extent to which creditors of the applicant are likely to benefit should the claim succeed. 

Accordingly, in my view, the orders which should be made are that the applicant provide security in the sum of $55,000 for the costs of the respondent of and incidental to the proceedings and that the proceedings be stayed until such security is given.  My tentative view is that the respondent should have its costs of this motion, but I have heard no argument about costs and that is a matter on which counsel may of course address me if they wish.  I shall also hear counsel on the question of the form which the security should take.

[Argument ensued].

The orders which I make are:

1. That the applicant provide security in the sum of $55,000, to the satisfaction of a registrar of the court, for the costs of the respondent of and incidental to these proceedings. 

2. That the parties have liberty to approach a registrar for the purpose of settling the form in which security is to be provided.

1. That the proceedings are stayed until such security is given.

1. That the respondent's costs of its motion be costs in the proceeding.

   I certify that this and the preceding 9 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

   Associate:

   Dated:  13 February 1997

Heard:  13 February 1997

Place:  Sydney

Decision:  13 February 1997

Appearances:  Mr F D Curtis of counsel instructed by Glasheen & Quilty appeared for the applicant.

Mr S T White of counsel instructed by Clayton Utz appeared for the respondent.