Construction Industries Australia Ltd (in liq) v WFI Insurance Ltd
[2016] WASC 404
•14 DECEMBER 2016
CONSTRUCTION INDUSTRIES AUSTRALIA LTD (IN LIQ) -v- WFI INSURANCE LTD [2016] WASC 404
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WASC 404 | |
| Case No: | CIV:1879/2016 | 3 NOVEMBER 2016 | |
| Coram: | PRITCHARD J | 14/12/16 | |
| 19 | Judgment Part: | 1 of 1 | |
| Result: | Order that security in the sum of $85,000 be paid into court or secured by a bank guarantee | ||
| B | |||
| PDF Version |
| Parties: | CONSTRUCTION INDUSTRIES AUSTRALIA LTD (IN LIQ) (ACN 137 079 095) KIMBERLY ANDREW STRICKLAND AND DAVID ASHLEY NORMAN HURT AS THE LIQUIDATORS OF CONSTRUCTION INDUSTRIES AUSTRALIA LTD (IN LIQ) (ACN 137 079 095) WFI INSURANCE LTD (ACN 000 036 279) |
Catchwords: | Security for costs Where plaintiff company in liquidation Where order that security be given not opposed Where litigation funder standing behind plaintiffs Who should provide security Quantum of security Form of security Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 1335 Rules of the Supreme Court 1971 (WA), O 25 |
Case References: | Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2016] WASC 353 Associated Euro Atlantic Shipping Corporation v Maritime Union of Australia (Unreported, FCA, 22 August 1997) Brundza v Robbie and Co (No 2) [1952] HCA 49; (1952) 88 CLR 171 CGU Insurance Limited v AMP Financial Planning Pty Ltd [2007] HCA 36; (2007) 235 CLR 1 Chartspike Pty Ltd (In Liq) v Chahoud [2001] NSWSC 585 Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 Concrete Logistics Pty Ltd v KBC Pty Ltd [2015] WASC 284 Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27 FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 Gendredge Pty Ltd v VDM Construction Pty Ltd [2011] WASC 353 Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm) [2004] WASC 52 Huntingdale Village Pty Ltd (Receivers and Managers Appointed) ATF Huntingdale Village Unit Trust v Perpetual Nominees Ltd [No 2] [2014] WASC 217 Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138 Lambert Leasing Inc v QBE Insurance (Australia) Ltd [2016] NSWSC 254 Moran v Schwarz Publishing Pty Ltd [No 2] [2015] WASC 35 Northern Southern Western Supermarkets Pty Ltd (Subject to a Deed of Company Arrangement) v HIH Casualty and General Insurance Ltd (In Liq) [2002] NSWSC 541 Radhika Pankaj Oswal v Australia and New Zealand Banking Group Ltd [2016] VSC 52 Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [No 2] [2010] WASC 225 Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd [No 2] [2010] WASC 27 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Plaintiff
KIMBERLY ANDREW STRICKLAND AND DAVID ASHLEY NORMAN HURT AS THE LIQUIDATORS OF CONSTRUCTION INDUSTRIES AUSTRALIA LTD (IN LIQ) (ACN 137 079 095)
Second Plaintiffs
AND
WFI INSURANCE LTD (ACN 000 036 279)
Defendant
Catchwords:
Security for costs - Where plaintiff company in liquidation - Where order that security be given not opposed - Where litigation funder standing behind plaintiffs - Who should provide security - Quantum of security - Form of security - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 1335
Rules of the Supreme Court 1971 (WA), O 25
Result:
Order that security in the sum of $85,000 be paid into court or secured by a bank guarantee
Category: B
Representation:
Counsel:
First Plaintiff : Mr P Lafferty
Second Plaintiffs : Mr P Lafferty
Defendant : Dr J Schoombee
Solicitors:
First Plaintiff : Kings Park Corporate Lawyers
Second Plaintiffs : Kings Park Corporate Lawyers
Defendant : SRB Legal
Cases referred to in judgment:
Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd [2016] WASC 353
Associated Euro Atlantic Shipping Corporation v Maritime Union of Australia (Unreported, FCA, 22 August 1997)
Brundza v Robbie and Co (No 2) [1952] HCA 49; (1952) 88 CLR 171
CGU Insurance Limited v AMP Financial Planning Pty Ltd [2007] HCA 36; (2007) 235 CLR 1
Chartspike Pty Ltd (In Liq) v Chahoud [2001] NSWSC 585
Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176
Concrete Logistics Pty Ltd v KBC Pty Ltd [2015] WASC 284
Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241
Gendredge Pty Ltd v VDM Construction Pty Ltd [2011] WASC 353
Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm) [2004] WASC 52
Huntingdale Village Pty Ltd (Receivers and Managers Appointed) ATF Huntingdale Village Unit Trust v Perpetual Nominees Ltd [No 2] [2014] WASC 217
Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138
Lambert Leasing Inc v QBE Insurance (Australia) Ltd [2016] NSWSC 254
Moran v Schwarz Publishing Pty Ltd [No 2] [2015] WASC 35
Northern Southern Western Supermarkets Pty Ltd (Subject to a Deed of Company Arrangement) v HIH Casualty and General Insurance Ltd (In Liq) [2002] NSWSC 541
Radhika Pankaj Oswal v Australia and New Zealand Banking Group Ltd [2016] VSC 52
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [No 2] [2010] WASC 225
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd [No 2] [2010] WASC 27
1 PRITCHARD J: The defendant has applied for an order that the first and second plaintiffs, or alternatively Esplanade Holdings Pty Ltd (the company that is funding the action), provide security for the 'first tranche' of the defendant's costs of this action in the sum of $90,000 and that the action be stayed pending the payment into court of that sum (the Application). The 'first tranche' of costs consists of those costs which have been, or will be, incurred in the early stages of the action, comprising completion of the pleadings, discovery, the anticipated issue of subpoenas with early return dates, and an early mediation, but does not include costs pertaining to the preparation of the action for trial.
2 Initially, the Application was opposed, but by the hearing of the Application an order for security for costs was no longer opposed. What was in issue was the amount of the security which should be ordered and the manner in which security for costs should be provided.
3 For the reasons set out below, I am satisfied that an order for security for costs should be made in respect of the first tranche of the defendant's costs in the action, that the amount of the security provided should be the sum of $85,000, and that the security should be paid into Court.
4 In these reasons for decision, I deal with the following matters:
1. The factual background and the basis for the Application;
2. Why an order for security for costs should be made;
3. The quantum of the security that should be provided for the first tranche of the defendant's costs in the action; and
4. The manner in which security for costs should be provided.
1. The factual background and the basis for the Application
5 In support of the Application, the defendant relied on affidavits sworn by its solicitor, Mr Byron Winburn-Clarke, on 13 September 2016, 12 October 2016 and 17 October 2016 (the first, second and third Winburn-Clarke affidavits, respectively). The plaintiffs relied on an affidavit sworn by Mr Rodney Carter, the director of Esplanade Holdings, sworn 6 October 2016, and on an affidavit of Mr Claudio Armelli-Cartillazzone, a solicitor for the plaintiffs, sworn 5 October 2016.
6 To date, only a writ endorsed with a statement of claim has been filed by the plaintiffs. The defendant has not yet filed a defence.
7 The first plaintiff is a company which provided construction, contracting and engineering services to commercial building, mining, and mineral processing industries. It is a subsidiary of Allmine Group Limited. Allmine and its subsidiaries were contracted to build the iron ore project known as the Sino Iron Project situated at Cape Preston, near Karratha.1
8 In about June 2013, all members of the Allmine Group were placed in receivership, and members of the firm Korda Mentha were appointed as the receivers.2
9 The second plaintiffs were appointed as the liquidators of the first plaintiff in June 2013.
10 The defendant is an insurance company which trades under the names Lumley General and Lumley General Insurance.
The plaintiffs' action against the defendant
11 The plaintiffs' pleaded claim is, in summary, as follows. In about May 2010, the first plaintiff says that it entered into an equipment hire agreement (the Hire Agreement) pursuant to which it hired items of plant and equipment (the Items) from Concreting Australia Pty Ltd. The Hire Agreement is said to have contained a list of the Items initially hired by the first plaintiff. However, the plaintiffs plead that further items of plant and machinery were subsequently hired by the first plaintiff from Concreting Australia, and it appears that that was also done pursuant to the Hire Agreement. The Items were used by the first plaintiff at various mine sites in Western Australia, including at the Sino Iron Project at Cape Preston, between 2010 and 2013.
12 The plaintiffs plead that it was a term of the Hire Agreement that the first plaintiff would insure the Items on a replacement basis, at market value, for the benefit of Concreting Australia, and that that insurance policy would cover the physical loss or destruction of, or damage to, the Items.
13 It does not appear to be contentious that in about mid-2012, the first plaintiff and the defendant entered into a contract pursuant to which the defendant agreed to indemnify the first plaintiff against loss or damage for the Items during the period of one year following entry into the contract (the Insurance Contract). The plaintiffs say that the first plaintiff was entitled to be indemnified under the Insurance Contract for any loss or destruction of, or damage to, the Items.
14 The plaintiffs plead that in or about 2013, during the term of the Insurance Contract, and without the first plaintiff's knowledge, the Items were 'removed by a person or persons unknown from the Sino Iron Project site', and that as a result, the first plaintiff suffered a physical loss of the Items and became entitled to be indemnified by the defendant in respect of that loss by virtue of the Insurance Contract.
15 The plaintiffs plead that in about January 2015, a claim was made to the defendant pursuant to the Insurance Contract, for indemnity in respect of the loss of the Items, and that the defendant breached the Insurance Contract by failing or refusing to indemnify the first plaintiff with respect to that loss. The plaintiffs' position appears to be that under the Insurance Contract, the defendant's failure to make a determination on the claim for indemnity within a reasonable time (which they say would be three months) had the result that the indemnity was deemed to have been refused under the Insurance Contract.
The nature of the Items and the quantum of the claim
16 Pleaded in the way I have summarised above, the plaintiffs' claim appears unremarkable. Factually, the case appears to be anything but. The plaintiffs claim that in excess of 63,000 Items - including sea containers, large trucks and other motor vehicles, generators and other large items of machinery, scaffolding, formwork and hand tools - were hired by the first plaintiff from Concreting Australia. The plaintiffs' claim is that all of those Items went missing during the one year term of the Insurance Contract, and they do not know their present location.
17 There are two further complicating factors. According to a claim submitted to the defendant by Northcliff Claims Services (an insurance claims company, acting on the instructions of the second plaintiffs) in January 2015 (the Northcliff report), some of the Items were in fact placed under the control of Korda Mentha when members of that firm were appointed the receivers of the Allmine Group. According to the Northcliff report, because some of the Items were not marked to identify their owner, Korda Mentha and the other parties then involved (which does not appear to have included the defendant) determined that it was 'impossible' to identify the legal ownership of the Items and reached a settlement of some kind to resolve claims of ownership in respect of the Items.3 Precisely how that bears on the plaintiffs' action against the defendant, or how it will bear upon the defendant's ultimate response to the action, is not yet entirely clear.
18 In addition, the Northcliff report indicated that the 'loss' of the Items in fact began in about mid-2011 (before the Insurance Contract was entered into).4 The author of the report went on to say that 'it is therefore unarguable that losses were occurring in an ever increasing spiral, as knowledge of the lack of adequate security became well known to site personnel'.5
19 The plaintiffs plead that the market value of the Items is just over $7.1 million, and they claim damages for breach of the Insurance Contract in that amount.
The defendant's position
20 As I have already observed, the defendant has not yet filed a defence. Its present position is that it has a defence to the plaintiffs' action because the plaintiffs have failed to provide it with the information it needs to assess the insurance claim, including information about the Items that were actually the subject of the Hire Agreement.
21 The defendant's solicitors have requested that the plaintiffs provide them with documents falling within 72 categories. The documents sought in those categories include documents related to proof of the ownership of the Items, documents which may be relevant to the market value of the Items (including registration details for motor vehicles), documents relating to any claims made in respect of any of the Items which were said to have been stolen from the first plaintiff prior to the period of insurance cover under the Insurance Contract, documents relating to the knowledge by the first plaintiff's directors of the theft of any equipment prior to and during the insurance period, all documents relating to investigations to ascertain which of the Items went missing during the insurance period, all police reports lodged in respect of any items which went missing during the insurance period, documents relating to the security arrangements on the Sino Iron Project and at other sites where the first plaintiff or related entities were operating, and documents relating to procedures for minimising loss or theft of plant and equipment at those sites.
22 It appears that the plaintiffs have provided the defendant with very few, if any, of the documents in the 72 categories of documents identified by the defendant. The defendant anticipates that the production and inspection of those documents will now be achieved through discovery and the issue to third parties of subpoenas with early return dates.
23 In addition, the affidavit evidence relied on in the Application, along with counsel's submissions, suggested that once the defendant has the documents in those categories, a range of issues will need to be considered to determine whether the defendant will accept the plaintiffs' claim to indemnity in whole or in part. Those issues will include identifying what Items are covered by the Insurance Contract (the terms of the Insurance Contract refer to insurance cover for Items declared or specifically noted in the Contract, whereas the defendant says that no Items were declared or noted); determining what actually happened to the Items; determining precisely when the Items went missing (and thus whether the 'loss' of each item occurred during the period of insurance; the extent to which any of the Items were located by Korda Mentha at other mine sites where the first plaintiff or related entities were engaged and the condition (and therefore the market value) of each of the Items at the time of its loss; and issues relating to whether the right to indemnity under the Insurance Contract has been negated by the conduct of the first plaintiff (for example, issues in relation to whether the Items were subject to any, or any adequate, measures to secure them against theft, and whether there was a failure by the plaintiff to comply with its duty of disclosure under the Insurance Contract (in relation to the previous loss of similar items of plant and equipment) or a failure to comply with its duty to advise the police in the event that any of the Items was stolen).
The funding of the action
24 As I have already observed, the action is being funded by Esplanade Holdings Pty Ltd. Mr Carter (who swore an affidavit for the purposes of the Application) is Esplanade Holdings' sole director. The terms of the litigation funding arrangement are set out in a deed executed by Concreting Australia, Esplanade Holdings and the first plaintiff, a copy of which was annexed to the first Winburn-Clarke affidavit (the Funding Deed). I refer to some aspects of that funding arrangement below.
2. Why an order for security for costs should be made
25 Although the plaintiffs do not now dispute that an order for security for costs should be made, it is nevertheless appropriate for me to indicate, briefly, why I am satisfied that such an order should be made.
26 The Court has an inherent and a statutory jurisdiction to make an order requiring a plaintiff to provide security for costs. In bringing the Application, the defendant relies primarily on s 1335(1) of the Corporations Act 2001 (Cth), which provides:
Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.
27 The precondition for the exercise of the Court's jurisdiction under s 1335(1), sometimes described as the 'threshold jurisdictional question', is whether it appears by credible testimony that there is reason to believe that the plaintiff corporation will be unable to pay the defendant's costs. If that condition is satisfied, the Court has jurisdiction to make an order for security for costs, and the question is whether it should exercise its discretion to make such an order.6
28 Various factors may be relevant to that exercise of discretion. They may include (but will not be limited to) the strength and bona fides of the plaintiff's case; the likelihood of the plaintiff being unable to pay the defendant's costs; whether the plaintiff's impecuniosity was caused by the defendant's conduct which is the subject of the claim; whether the application for security is oppressive; whether the award of security would deny an impecunious plaintiff a right to litigate; whether there are persons standing behind the plaintiff who are likely to benefit from the litigation; whether the persons standing behind the plaintiff have offered any security or personal undertaking to be liable for the costs, and if so, the form of such an undertaking; whether the plaintiff is in substance a plaintiff or whether the proceedings are defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self-help procedures; whether the application for security has been brought promptly; whether the defendant has any rights which it can exercise against assets of the plaintiff to satisfy an order for costs in its favour; and any factors relating to the public interest.7
29 The defendant also relies on O 25 of the Rules of the Supreme Court 1971 (WA) (RSC). Order 25 r 1 RSC provides that the Court 'may order security for costs to be given by a plaintiff, but no order shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him.' Examples of the grounds on which an order for security for costs might be made are set out in O 25 r 2 RSC. They include that the plaintiff is a company in liquidation or under official management, or a company in respect of which a receiver of its property has been appointed.8 The factors that the Court will take into consideration in the exercise of its discretion include those set out in O 25 r 3 RSC, namely the prima facie merits of the claim; what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff; and whether the normal processes of the Court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff. However, the factors relevant to the exercise of discretion under s 1335(1) of the Corporations Act will also be relevant to the exercise of discretion under O 25 RSC.9
30 The defendant has clearly satisfied the threshold test for jurisdiction under s 1335(1) and this case clearly falls within one of the categories of case referred to in O 25 r 2 RSC. The first Winburn-Clarke affidavit contains credible evidence that the first plaintiff will be unable to pay the defendant's costs if the plaintiffs are unsuccessful in the litigation. Mr Winburn-Clarke deposed that the first plaintiff's insolvency is such that it is not expected that a dividend will be paid to any class of creditor as a result of the liquidation of the plaintiff.10
31 This is also a case where it is appropriate to require the payment of security for costs. The following factors particularly support that conclusion.
32 First, I take into account the strength of the plaintiffs' case. It is neither necessary nor appropriate to attempt any detailed consideration of the plaintiffs' case at this stage, and given the very limited evidence before the Court, it is not possible to do so in any event. It suffices to say that while the plaintiffs have a prima facie claim as against the defendant, that claim is not without its difficulties. The defendant intends to argue that it cannot be said to have breached its duty of good faith by failing to determine the first plaintiff's claim for indemnity within a reasonable time, because it says that the plaintiffs have failed to provide information that the first plaintiff is contractually bound to provide to the defendant.11 It is also apparent from the matters discussed above at [23] that the defendant is ultimately likely to rely upon a number of bases for resisting the plaintiffs' claim for indemnity. Those bases pertain both to the liability of the defendant to indemnify and to the quantum of any indemnity it might ultimately be required to provide. It is also apparent that unless the parties are able to narrow the issues in dispute, any trial of the action will be lengthy.
33 Secondly, the evidence bearing on the first plaintiff's financial position suggests that it will have no capacity to pay any costs order which may be made against it if it does not succeed in the action.
34 Thirdly, the evidence does not support the conclusion that Esplanade Holdings is required to indemnify the plaintiffs for any costs orders which might be made against them in the action. The Deed provides that Esplanade Holdings will indemnify the plaintiffs in respect of any legal costs and disbursements they may incur, but that does not appear to include any adverse costs orders made against the plaintiffs.12 Furthermore, in addition to the right to terminate for a breach of contract, Esplanade Holdings is entitled to terminate the Funding Deed upon 14 days' notice to the first plaintiff and Concreting Australia.13 That would suggest that even if Esplanade Holdings is liable to indemnify the plaintiffs in respect of any adverse costs orders, its ongoing liability could be terminated at will. On the other hand, Esplanade Holdings will benefit, significantly, from any award of damages which the plaintiffs are able to obtain in the action.
35 Fourthly, the application for security for costs of itself is not oppressive. Security is sought, at this stage, only for the first tranche of costs incurred up until a mediation is held. (This is a case where the parties would be well served by an early attempt at mediation.)
36 Fifthly, the Application has been brought promptly.
37 Sixthly, an order for the provision of security for costs will not deny the plaintiffs the right to litigate. The Funding Deed provides that in the event that the defendant obtains an order for security for costs, Esplanade Holdings is to provide that security.14
38 I turn, then, to consider the issues in dispute between the parties.
3. The quantum of the security that should be provided for the first tranche of the defendant's costs in the action
The basis for the quantum of the security for costs sought by the defendant
39 Mr Winburn-Clarke prepared a draft bill of costs in which he estimated that the defendant's costs up to and including a mediation, but not including preparation for a trial, and including costs incurred to date, would amount to just under $90,000. That estimate was reached on the following basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 The bill of costs does not reflect the totality of the legal costs incurred by the defendant, because the 'costs to date' to which reference is made do not include counsel fees.
Esplanade Holdings should provide the security for costs
42 In my view, Esplanade Holdings should provide the security for costs in the present case, for three reasons. First, Mr Carter deposed that Esplanade Holdings was prepared to provide security for costs, albeit in the lesser amount of $20,000. Secondly, Esplanade Holdings stands to benefit, to a considerable extent, if the plaintiffs' action is successful. In my view, it is just that it should bear the burden of the risk involved for the defendant in an action brought by a company in liquidation. Thirdly, as I have already observed, the Funding Deed provides that in the event that the defendant obtains an order for security for costs, Esplanade Holdings is to provide that security.
43 For completeness, I note that counsel for the plaintiffs did not appear for Esplanade Holdings on the hearing of the Application. However, he confirmed that Esplanade Holdings had had input into the case he advanced to resist the Application (as evidenced by Mr Carter's provision of an affidavit in opposition to the orders sought by the defendant), and he confirmed that his submissions were made 'on the understanding of the position of the litigation funder as to how the security should be paid, and as to the quantum which would be appropriate'.16
The quantum of security which should be provided
44 I turn next to the quantum of the security which should be provided. In my view it is appropriate to proceed, as the defendant seeks, to order security for the first tranche of the costs incurred in the action up to the point of an early mediation. If the action is not able to be compromised at that stage, then the defendant will be at liberty to apply for further security for costs, if it sees fit. Any such application could proceed on a more accurate estimate of the likely costs which will be incurred by the defendant in the balance of the action, having regard to the issues which by then are revealed to be in dispute.
45 The task for the court in determining the quantum of the security for the costs of the first tranche of the action is to determine what amount would provide the defendant with an adequate security for its costs, if it is successful at trial.17 The aim is not to provide the defendant with a complete indemnity for its costs.18 Rather, the task for the court is to calculate the sum which it thinks just to order to be secured, having regard to a reasonable estimate of the likely taxable costs of the defendant in question.19 In making that assessment, the court does not engage in an exercise which is20
precisely arithmetical in character. The task essentially is one of discretionary judgment, reasonable estimation and projection … and ultimately it is one involving a technique of judicious estimation.
46 Counsel for the plaintiffs did not dispute the estimate of the costs that would be incurred in pleading a defence, nor the estimate of the costs of the defendant's provision of discovery.21 He also accepted that it may be necessary for the defendant to issue subpoenas to third parties, seeking the production of documents prior to trial, because the plaintiffs' position was that they were not in possession of many of the documents described in the 72 categories of documents sought by the defendant.22 However, he disputed the estimate of the time required to issue subpoenas.23 He also accepted that some time would be required to prepare for a mediation, although he disputed that the amount claimed was reasonable.24
47 Counsel for the plaintiffs also disputed the costs in respect of item 5 ('costs to date') on the basis that past costs should not be the subject of security for costs and that no explanation had been given as to why the costs relied upon had been reasonably incurred.25 I consider the question of security for costs already incurred below.
48 As for the costs estimated in respect of inspection of documents produced by the plaintiffs on discovery, counsel for the plaintiffs submitted that those costs were not reasonable. Counsel for the plaintiffs criticised as a 'guesstimate'26 the defendant's estimate of 10,000 pages of material which were said to be likely to be produced in respect of the 72 categories sought. However, he acknowledged that if there were 63,000 Items, there could be several thousand pages of documents which would relate to them and the issues arising in relation to them.27 He submitted that the amount sought by the defendant for inspecting those documents appeared to represent a complete indemnity for the time it was estimated would be spent, and that it was not appropriate to fix the security for costs on that basis.28
49 Counsel for the plaintiffs also submitted that this case was 'a standard insurance claim. It's not that complex at all'.29 He also submitted that assuming that there were 63,000 Items, it would 'take some time to try and chase down the documents but that doesn't make this actual case complex'.30 However, counsel for the plaintiffs ultimately accepted that if there were a large number of Items, then even if the issues identified by the defendant did not need to be addressed with respect to each individual Item, nevertheless, there would still be a large number of issues to be considered, presumably by reference to a large number of documents.31
50 In my view, it is not appropriate to assess the quantum of the security for costs which would be adequate by reference to the minutiae of the legal work likely to be undertaken at each stage of the litigation up until mediation. A more broadbrush approach is both preferable and reasonable. In my view, an amount of $85,000 for security for costs should be provided in this case. I have reached that view for the following reasons.
51 First, for the reasons already set out above at [16] - [18], this case involves considerable factual complexity. That factual complexity is likely to be manifested in a considerable amount of legal work in the early stages of the litigation when the documentary evidence is collected and assessed. While Mr Winburn-Clarke's estimate of the likely number of documents is merely his best estimate, I do not consider that it is an unreasonable estimate. The bulk of the documents are likely to pertain to ownership of the Items. Given the number of Items, a large number of documents is to be expected. His estimate of the time involved to consider that number of documents does not appear to me to be unreasonable, and the charge per hour is more than reasonable (representing, as it does, a rate only marginally above that permitted under the relevant scale for a restricted practitioner).32 The amount estimated for preparation for a mediation also appears to me to be reasonable, in all of the circumstances.
52 The only aspect of the estimated future legal costs which appears to me to be too generous is the number of hours likely to be involved in the preparation and issue of subpoenas. Given that the documents sought have been identified, the real work in the issue of subpoenas appears to me to be identifying the parties to whom they should issue. Allowing for four hours of work would be a more reasonable estimate.
53 Finally, the amount sought as security for the costs already incurred is not, in my view, unreasonable. Nor is this a case in which security for past costs should not be permitted.
54 The plaintiffs contended that the Court should not fix a sum for security for costs which takes into account costs incurred prior to the Application. There is no principle that a court cannot order the payment of security for costs which encompasses security for past costs. However, courts are sometimes unwilling to order the provision of security for costs which encompasses past costs, as a result of delay by a defendant in bringing an application, if to do so would be unfair to a plaintiff. If a defendant delays in bringing an application for security for costs, the plaintiff may have proceeded to incur costs which would not have been incurred had the application been brought promptly, or had the plaintiff been on notice of the intended application. In that event, if the plaintiff is unable to provide security for costs, the outcome may be harsh or oppressive because the costs incurred by the plaintiff will have been wasted.33 Furthermore, in my view, if a defendant delays bringing an application for security for costs, it may be inferred that the defendant was willing to bear the risk that its costs incurred in the period prior to that application being made may not ultimately be paid (if the application is not granted). In those circumstances, it is arguable that it would be unfair for the defendant to later seek to transfer that risk to the plaintiff by requiring security for costs for that period.
55 In the present case, however, it is unnecessary to dwell too much on the issue of past costs. That is because the evidence indicated that in excess of $40,000 in legal costs, including counsel fees, have been incurred since the Application was foreshadowed by the defendant. It appears that the legal costs billed to the defendant since June 2016,34 when the Application was first foreshadowed by the defendant, amount to just over $34,000 (including in excess of $10,000 in counsel fees), and that more recently a further $10,000 in fees has been incurred but not yet billed.35
56 I therefore proceed on the basis that the costs incurred by the defendant since the Application was foreshadowed by the defendant exceed $40,000. It is unnecessary to consider any additional costs incurred by the defendant prior to the Application having been made. Having regard to the nature of the issues involved in the action, as judged by reference to correspondence annexed to the affidavits in evidence, the quantum of the costs incurred in that period does not appear to me to be unreasonable.
4. The manner in which security for costs should be provided
57 Counsel for the plaintiffs submitted that 'we would prefer to have a bank guarantee' rather than a requirement to pay the security for costs into court.36 However, apart from referring, rather briefly, to a bank guarantee in his oral submissions,37 counsel for the plaintiffs did not put any evidence before the Court of the terms of the bank guarantee in contemplation. No explanation was advanced as to why the provision of security in the form of a bank guarantee was preferable in this case.
58 Counsel for the defendant submitted that the Court should not accept the provision of security for costs in the form of a bank guarantee in this case because no information had been provided by the plaintiffs as to how the terms of any such guarantee would operate, or as to the orders which would be required to be made to make clear what were the requirements for the security in that form.38 Having taken time, since the hearing of the Application, to research the point, I have been unable to locate any authority which establishes that the failure by a plaintiff to provide details of a proposed bank guarantee to the court warrants the refusal of the opportunity for the plaintiff to provide security for costs by way of a bank guarantee. On the contrary, there have been many cases where courts have ordered that security for costs should be provided by payment of a sum into court, or by a bank guarantee, on terms to be agreed between the parties.39
59 The question of the adequacy of the security to be provided encompasses not only the amount of the security but the form in which it is provided. The Court has a discretion as to how the security for costs should be provided. Commonly, but certainly not inevitably, security for costs is in the form of the payment of funds into Court by a plaintiff. However, in other cases, bank guarantees have been provided by plaintiffs, or litigation funders, or orders have been made that security be provided by a bank guarantee or in such other form as is acceptable to a defendant's solicitors or to the Court.40
60 There is, therefore, no reason in principle why the security for costs in this case should not be provided in the form of a bank guarantee, provided that that guarantee provides an adequate security for the payment of the defendant's costs, should it succeed in the action. A key question would appear to be whether the bank guarantee proposed would be revocable. That is a particularly pertinent question in this case, in view of the fact that the Funding Deed permits Esplanade Holdings to terminate the funding arrangement for any reason, on 14 days' notice. It would be unjust if it were able to terminate the funding arrangements at some point, and also to withdraw its security for the costs incurred by the defendant.
61 It was apparent at the hearing that the parties' counsel had not properly conferred about the terms on which a bank guarantee might be provided by Esplanade Holdings. The parties should undertake that conferral now.
62 I propose to make an order to the effect that the plaintiffs' action be stayed until security for costs is provided by Esplanade Holdings Pty Ltd in the sum of $85,000, which sum is to be paid into Court or secured by a bank guarantee on terms acceptable to the defendant or the Court. In the event that Esplanade Holdings seeks to provide a bank guarantee, but the terms are unable to be agreed, the plaintiffs will have liberty to apply.
1 Annexure BC10 to the first Winburn-Clarke affidavit.
2 Annexure BC10 to the first Winburn-Clarke affidavit.
3 Annexure BC10 to the first Winburn-Clarke affidavit.
4 Annexure BC10 to the first Winburn-Clarke affidavit.
5 Annexure BC10 to the first Winburn-Clarke affidavit.
6FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241.
7Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [6] (Edelman J).
8Rules of the Supreme Court 1971 (WA) O 25 r 2(e).
9Concrete Logistics Pty Ltd v KBC Pty Ltd[2015] WASC 284 [9] (Martino J); Crosswest Corporation Pty Ltd v Allstrike Enterprises Pty Ltd [2014] WASC 27 [14] (Beech J).
10 First Winburn-Clarke affidavit [5.4].
11 Cf CGU Insurance Limited v AMP Financial Planning Pty Ltd[2007] HCA 36; (2007) 235 CLR 1 [179] - [180] (Kirby J), [259] (Callinan & Heydon JJ); Lambert Leasing Inc v QBE Insurance (Australia) Ltd[2016] NSWSC 254 [72] - [73], [81] (Payne JA, Ward & Gleeson JJA agreeing).
12 Clause 7.2(b) of the Deed.
13 Clause 9.1, 9.2 and 9.3 of the Deed.
14 Clause 7.2(c) of the Deed.
15 Second Winburn-Clarke affidavit [4.5].
16 ts 52.
17Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm)[2004] WASC 52 [71] (Roberts-Smith J).
18Brundza v Robbie and Co (No 2)[1952] HCA 49; (1952) 88 CLR 171, 175 (Fullagar J).
19Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm)[2004] WASC 52 [53] - [58] (Roberts-Smith J, referring to Associated Euro Atlantic Shipping Corporation v Maritime Union of Australia(Unreported, FCA, 22 August 1997).
20Armada Balnaves Pte Ltd v Woodside Energy Julimar Pty Ltd[2016] WASC 353 [82] (Kenneth Martin J).
21 ts 37, 43.
22 ts 44.
23 ts 44.
24 ts 48.
25 ts 45 - 46.
26 ts 42.
27 ts 42.
28 ts 44.
29 ts 38.
30 ts 39.
31 ts 41.
32Legal Profession (Supreme Court) (Contentious Business) Determination 2016 (WA) sch 1 cl 11 Table A.
33 See, for example, Christou v Stanton Partners Australasia Pty Ltd[2011] WASCA 176 [20] - [23] (Newnes JA); Radhika Pankaj Oswal v Australia and New Zealand Banking Group Ltd [2016] VSC 52 [34] - [44], [54] - [55] (Sifris J) and the cases discussed therein.
34 Annexure BC14 of the first Winburn-Clarke affidavit.
35 Second Winburn-Clarke affidavit [4.6]; Third Winburn-Clarke affidavit, 10.
36 ts 48.
37 ts 48 - 50.
38 ts 53.
39 See, for example, Moran v Schwarz Publishing Pty Ltd [No 2] [2015] WASC 35 [88]; Huntingdale Village Pty Ltd (Receivers and Managers Appointed) ATF Huntingdale Village Unit Trust v Perpetual Nominees Ltd [No 2] [2014] WASC 217 [45]; Gendredge Pty Ltd v VDM Construction Pty Ltd [2011] WASC 353 [27]; see also Jaddcal Pty Ltd v Minson [No 2] [2011] WASC 138 [29]; Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [No 2] [2010] WASC 225 [40]; and Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd [No 2] [2010] WASC 27.
40 See Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm)[2004] WASC 52 [95] (Roberts-Smith J); Armada Balnaves Pye Ltd v Woodside Energy Julimar Pty Ltd[2016] WASC 353 [96], [114] (Kenneth Martin J); and see also Chartspike Pty Ltd (In Liq) v Chahoud[2001] NSWSC 585, and Northern Southern Western Supermarkets Pty Ltd (Subject to a Deed of Company Arrangement) v HIH Casualty and General Insurance Ltd (In Liq)[2002] NSWSC 541, discussed in Global Finance Group Pty Ltd (In Liq) v Marsden Partners (A Firm)[2004] WASC 52 [59] - [60], [61] - [68] (Roberts-Smith J).
11
19
2