Fire Containment Pty Limited ACN 109 155 044 v Peter Robins
[2011] NSWSC 444
•17 May 2011
Supreme Court
New South Wales
Medium Neutral Citation: Fire Containment Pty Limited ACN 109 155 044 v Peter Robins & Ors [2011] NSWSC 444 Hearing dates: 10 May 2011 Decision date: 17 May 2011 Jurisdiction: Equity Division Before: Hallen AsJ Decision: (i) On the notice of motion for security for costs:
(a) Order that the Defendant's notice of motion is dismissed.
(b) Order that the Defendants pay the Plaintiff's costs of the notice of motion for security.
(ii) On the notice of motion to set aside part of the notice to produce:
(a) Order that Paragraphs 1 and 3 of the Defendants' notice to produce be set aside.
(b) Note that the Defendants have liberty to issue a fresh notice to produce and that such notice to produce be served no later than 7 days from the date of the making of these orders.
(c) Order the Defendants to pay the Plaintiff's costs of the notice of motion limited to the fee paid for filing that notice of motion.
(d) In relation to the costs of each party preparing written submissions, those costs to be costs in the cause. And that is limited to only the notice of motion to set aside part of the notice to produce.
Catchwords: Application for security for costs and to set aside part of notice to produce Legislation Cited: Corporations Act 2001 (Cth)
Fair Trading Act 1987 (NSW)
Trade Practices Act 1974 (Cth)Cases Cited: 15 Management Pty Ltd v Newstar Sports Management Pty Ltd & Ors [2009] NSWSC 1208
Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Limited [2004] FCA 1400
Ariss v Express Interiors Pty Ltd (In Liq) [1996] 2 VR 507
Bank of Western Australia v Daleport [2010] NSWSC 1207
Baycorp Capital Ltd v Dex Consulting Pty Ltd [2010] NSWSC 156
Beach Petroleum NL v Johnson (1992) 7 ACSR 203
Bell Wholesale Co. Ltd v Gates Export Corporation [1984] FCA 34
Buckley v Bennell Design & Construction Pty Limited (1974) 1 ACLR 301
CBS Records Australia Ltd and Others v Telmak Teleproducts (Aust) Pty Ltd [1987] FCA 432
Commonwealth v Cable Water Skiing (Aust) Limited (1994) 14 ACSR 760
Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68
East Grace Corporation v Xing (No 1) [2005] FCA 219
FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 156 FLR 116
Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664
Funds First Pty Ltd and 2 Ors v Owners Corporation Strata Plan 66609 and 10 Ors (No 2) [2008] NSWSC 428
Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105
Hurworth Nominees Pty Ltd v ANZ Banking Group Ltd [2005] NSWSC 1360
James and Others v Australia and New Zealand Banking Group Ltd and Others (No 1) (1985) 9 FCR 442
Jazabas v Haddad [2007] NSWCA 291; [2008] 65 ACSR 276
KP Cable Investments Pty Ltd v Meltglow Pty Ltd and Ors [1995] FCA 76; (1995) 56 FCR 189
Laderma International v Taurean Systems [2009] NSWSC 905
Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377
Momentum Mortgages Ltd and Equity Trustees v Elmowy and Meehan [2010] NSWSC 950
Nord v Truitt (1987) AIPC 90-457
Old Kiama Wharf Company Pty Ltd v Betohuwisa Investments Pty Ltd [2011] NSWSC 214
P S Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 65 ALJR 642
Porzelack KG v Porzelack (UK) Limited [1987] 1 WLR 420
Sas Global Forrestdale Pty Ltd v Samsera Pty Ltd [2010] WASC 309
Sugarloaf Hill Nominees Pty Ltd As Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19
Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [No 2] [2010] WASC 225
Yandil Holdings Pty Ltd v Insurance Co. of North America (1985) 3 ACLC 542Category: Procedural and other rulings Parties: Fire Containment Pty Limited ACN 109 155 044 (Plaintiff)
Peter Robins (first Defendant)
Mark Prior (second Defendant)
Trafalgar Fire & Safety Pty Limited ACN 136 955 685 (third Defendant)
Trafalgar Passive File Solutions Pty Limited ACN 136 970 913 (fourth Defendant)Representation: Counsel:
Ms M Painter (Plaintiff)
Ms B K Nolan (Defendants)
Solicitors:
Adams & Partners (Plaintiff)
Tiernan & Associates Lawyers (Defendants)
File Number(s): 2009/289282
Judgment
The Notices of Motion
There are two notices of motion that were listed before the Court for hearing. The first, in time, is a notice of motion that the Defendants filed on 16 November 2010, seeking an order that the Plaintiff provides security for the Defendants' costs of the proceedings until the hearing, by paying into court $196,673.87, or by otherwise providing security for that amount in a manner satisfactory to the Defendants; that until the security was provided, the proceedings be stayed; that all orders currently in place for the case management of the proceedings be stayed until the motion seeking security was determined; and for costs of the notice of motion.
The second is a notice of motion that the Plaintiff filed on 24 November 2010, seeking an order that Paragraphs 1 and 3 of a notice to produce dated 8 November 2010, issued by the Defendants, be set aside, and an order for costs.
During the course of the hearing, the parties were able to reach agreement on the production of documents that would satisfy Paragraph 3. There were discussions as to the category of documents that each side was content to accept as appropriate. In so doing, it was accepted, without admitting that it was bad in form, that the paragraph of the notice to produce should be set aside.
In relation to paragraph 1 of the notice to produce, after some discussion, the Defendants, in order to save time, and again without admission as to its form, accepted that it would be more cost effective for another notice to produce specifying, more precisely, the documents sought, and that, accordingly, this paragraph should be set aside also.
The Defendants will now issue a new notice to produce. Bearing in mind the date for hearing, it should be served within 7 days of the making of these orders.
Because very little time was spent on this aspect, the parties accepted that the Defendants should pay the Plaintiff's costs, limited to the fee for filing the notice of motion. I shall make an order to this effect. Otherwise, it is not necessary to say anything more about the notice of motion.
The Plaintiff resisted the Defendants' application for security for costs. On that notice of motion, there were several affidavits read on each side and the deponent of each was cross-examined.
Background Facts
The substantive proceedings were commenced by Summons filed as long ago as 29 July 2009. The Plaintiff has alleged that the Defendants engaged in conduct which amounts to misleading and deceptive conduct within the meaning of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW), and which amounts to common law passing off, and it seeks damages. (I was informed that pleadings have been filed.)
There were also interlocutory proceedings by the Plaintiff for injunctive relief that were resolved by the acceptance of undertakings given by the Defendants, which undertakings remain in force.
It appears that discovery has been completed, subpoenas have been issued, the affidavits in chief of the Plaintiff and of the Defendants, as well as affidavits in reply, have been exchanged. The matter has been assigned a hearing date which is less than a month away. It is listed for 5 days.
I was informed that the matter had been set down for hearing on 16 November 2010, the same day as the notice of motion for security for costs was filed. However, despite this having occurred, and even though the matter has been before the court since then, neither party made any application to have the notice of motion for security dealt with expeditiously, or otherwise before 10 May 2011, when it was listed for hearing and heard.
On the morning of the hearing, the Plaintiff sought to file, and read, an affidavit of the director of the Plaintiff. This affidavit had annexed to it a copy of the Plaintiff's Profit & Loss Account, and Balance Sheet, for the year ending 30 June 2010, an unsigned and undated income tax return for the financial year ending 30 June 2010, and a profit & loss account summary, covering the period 1 July 2010 until 30 April 2011.
I was not impressed by the Plaintiff's reasons for late service of this affidavit and the documents annexed to it. Thankfully, Mr Shields, the expert accountant relied upon by the Defendants, who had sworn an affidavit in the proceedings, had an opportunity to consider the affidavit whilst he was at court. For this reason, and because counsel for the Defendants, sensibly, took no objection to it being filed, read, or relied upon, I granted leave to file and read that affidavit.
The relevant facts of which I am satisfied, following the reading of the affidavits and the cross-examination of the deponents, are as follows:
(a) The Plaintiff is a limited liability company.
(b) The Plaintiff only has nominal capital of two issued $1.00 ordinary shares.
(c) The Plaintiff has granted a fixed and floating charge in favour of the Australia and New Zealand Banking Group Limited; four fixed charges in favour of Esanda Finance Corporation Limited; two fixed charges in favour of Ford Credit, a division of FCA Holdings Limited; and a fixed and floating charge in favour of the Commonwealth Bank of Australia. (It is said, on behalf of the Plaintiff, that these relate to motor vehicles owned by the company subject to hire purchase arrangements.) It has substantial current liabilities.
(d) The Plaintiff is not the registered proprietor of any real property in New South Wales.
(e) In his expert opinion, Mr Shields, whose evidence on this application I accept, concluded that the Plaintiff would be unable to meet an adverse costs order, either in the amount sought, or even half of it, based on the material that he has reviewed. The most recent financial information provided did not cause him to alter the conclusions that he had expressed in his affidavit sworn in March 2011.
(f) The financial records of the Plaintiff for the financial years ending 2007, 2008 and 2009, revealed losses having been sustained by the Plaintiff in each financial year. In the financial year ending 2010, a copy of which was annexed to the affidavit filed this morning, net assets/equity with a value of $47,000 was revealed. Mr Shields indicated that he had some doubts about the accuracy of those accounts since that result would mean that there would have had to be an injection of funds of about $182,000 into the Plaintiff, the source of which was not disclosed. He said that even these accounts revealed that the Plaintiff had sustained a loss in the 2010 financial year.
(g) Mr Shields determined that the Plaintiff has a deficiency of assets, assuming financial information for 2010 is accurate, of between $125,513 and $475,588 if the Plaintiff were wound up.
(h) In addition, Mr Shields gave evidence that some of the documents that he had seen were inconsistent one with the other.
(i) The Plaintiff's legal costs to December 2010 are in the order of $100,000, which costs are said by him to have been paid. However, the payment of those costs is not expressly disclosed in the accounts.
(j) The estimated costs of the Defendants as sought ($196,673.87) was based on costs already incurred to the date of the hearing of the notice of motion ($125,000 approximately) with the balance being estimated costs and disbursements until the date of trial (about $70,000).
(k) The Defendants' solicitor had calculated those costs on the indemnity, rather than on the ordinary, basis.
(l) The Defendants' solicitor estimated that the costs for work to be done until the hearing, calculated on the ordinary basis, would equate to about 70% of the costs calculated on the indemnity basis, and would, therefore, be, about $50,000. The estimate of costs already paid would equate, on the same basis, to $87,500.
Security for Costs
The application for security for costs is made rule 42.21(d) of the Uniform Civil Procedure Rules 2005 ("UCPR"), or under s 1335 of the Corporations Act 2001 (Cth).
UCPR rule 42.21 relevantly provides:
"(1) If, in any proceedings, it appears to the court on the application of a defendant:
....
(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or
...
the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given.
(2) Security for costs is to be given in such manner, at such time and on such terms (if any) as the court may by order direct.
(3) If the plaintiff fails to comply with an order under this rule, the court may order that the proceeding on the plaintiff's claim for relief in the proceedings be dismissed.
(4) This rule does not affect the provisions of any Act under which the court may require security for costs to be given."
Section 1335 of the Corporations Act relevantly provides:
"Costs
(1) 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.
(1A) Subsection (1) does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation.
(2) The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs."
Despite the difference of wording as to what has been described as "the threshold question", I accept that "the applicable principles have been developed - and applied - on the assumption that they apply equally to the rule of court and to the statutory provision": Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377; followed by Hislop J in Bank of Western Australia v Daleport [2010] NSWSC 1207 at [7]. Brereton J, in Funds First Pty Ltd and 2 Ors v Owners Corporation Strata Plan 66609 and 10 Ors (No 2) [2008] NSWSC 428 at [3], described such differences as there may be between the rule and the section as "fine distinctions".
Under either the rule or the section, there is no requirement for the applicant for security to establish that the Plaintiff would not be able to meet any costs order made against it. Rather, what must be established is that there is reason to believe that it would be unable to do so: FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 156 FLR 116, and, in particular, the reasons of Pidgeon and Owen JJ at p 122 [22]; Momentum Mortgages Ltd and Equity Trustees v Elmowy and Meehan [2010] NSWSC 950 at [6]; Bank of Western Australia v Daleport at [17].
A useful description of the test is found in Beach Petroleum NL v Johnson [1992] FCA 110; (1992) 7 ACSR 203 at 205, where von Doussa J said:
"In my opinion the power of the court under s 1335 arises if credible evidence establishes that there is reason to believe there was a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on the service of the allocatur, if judgment goes against it. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. The degree of likelihood of the plaintiff corporation being unable to pay the costs, along with all the circumstances, actual and possible, about its financial position, would be then taken into account in the exercise of discretion, and in framing the orders of the court if the decision is to order security."
The test that the applicant must satisfy is not a demanding one: Hurworth Nominees Pty Ltd v ANZ Banking Group Ltd [2005] NSWSC 1360 at [41].
The vice sought to be cured by the rule and the section is the risk that a defendant faces, or defendants face, by reason of a plaintiff's impecuniosity. Each provision provides the court with the means to require that the defendant, or defendants, be secured against that risk. It has been said by Ormiston J in Nord v Truitt (1987) AIPC 90-457 at 37936:
"The statutory obligation to give security for costs is the price for the privilege of limited liability."
The power to order security has been described as a power which is 'essentially one of risk-management between the parties having regard to their legitimate interests both as applicant and respondent': East Grace Corporation v Xing (No 1) [2005] FCA 219 at 6.
The discretion to order security for costs is unfettered and should be exercised having regard to all the circumstances of the case without any predisposition in favour of the award of security: KP Cable Investments Pty Ltd v Meltglow Pty Ltd and Ors [1995] FCA 76; (1995) 56 FCR 189 per Beazley J. The power given to the court is broad ( James and Others v Australia and New Zealand Banking Group Ltd and Others (No 1) (1985) 9 FCR 442 at 444; Bell Wholesale Co. Ltd v Gates Export Corporation [1984] FCA 34; (1984) 2 FCR 1 at 3), but must be exercised rationally: CBS Records Australia Ltd and Others v Telmak Teleproducts (Aust) Pty Ltd [1987] FCA 432; (1987) 72 ALR 270 at 285). The power must also be exercised judicially and should not be exercised "arbitrarily, capriciously or so as to frustrate the legislative intent": Airtourer Co-operative Ltd v Millicer Aircraft Industries Pty Ltd [2004] FCA 1400 at [17] per Branson J.
The discretion should be exercised in all of the circumstances of the particular case so as to attempt to achieve a balance between ensuring that protection is provided to the defendant and, on the other hand, avoiding injustice to the plaintiff by unnecessarily shutting it out or otherwise stultifying it in the conduct of litigation: Buckley v Bennell Design & Construction Pty Limited (1974) 1 ACLR 301; Bank of Western Australia v Daleport at [22].
On an application for security for costs under either provision, three issues usually arise: (i) whether the ground referred to in the provision is established; (ii) if the ground is established, whether, as a matter of discretion an order should be made; and if each of the other two questions are answered affirmatively; (iii) the quantum of any order to be made and the terms on which it might be made.
In determining the answer to the first question, the court is required to form an opinion about what the financial position of the plaintiff will be at the time of judgment and immediately after. An important consideration will also be the financial position of the plaintiff at the time of the application, however this is not the sole consideration: 15 Management Pty Ltd v Newstar Sports Management Pty Ltd & Ors [2009] NSWSC 1208 at [30].
In Sugarloaf Hill Nominees Pty Ltd As Trustee for the Richard and Anna Trust v Rewards Projects Ltd [2011] WASC 19, Corboy J, in the Supreme Court of Western Australia, usefully summarised the relevant principles which I set out:
"[35] As to the determination of the threshold question:
(a) The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs. It is necessary to make an assessment of the risk that the corporation will be unable to pay - an assessment that will be imprecise. A "reason to believe" is a low threshold test: Livingspring [15]-[16].
(b) However, the need for credible testimony is an obvious safeguard to ensure that the application is not founded purely upon speculation. To that extent, I agree with the observation of Lee J in Warren Mitchell that "speculation as to insolvency or financial difficulties likely to confront the corporation will be insufficient to ground the exercise of the discretion" (5).
(c) Determining whether a corporation will be unable to pay involves two considerations. First, it is necessary to fix the time at which the plaintiff's inability, or apprehended inability, is to be assessed. That generally requires an opinion to be formed at the time of judgment and immediately following. Second, it is necessary to identify the range of assets to which recourse might be had for the purpose of enforcing an adverse costs order. Generally, the relevant assets will be those that might be immediately realised and those which could be realised in sufficient time to enable the plaintiff to comply with a costs order in the usual terms: Professional Vending Services Pty Ltd v Christou [2010] FCA 580.
...
[36] As to the exercise of the discretion conferred by s 1335 of the Corporations Act :
(a) The discretion is unfettered: Westralian Goldmines Ltd v Westralian Minerals & Drilling Pty Ltd (in liq ) (1986) 4 ACLC 167; FFE Minerals ; Livingspring and BBC Nominees .
(b) The factors that may be relevant to the exercise of the discretion were said by Beech J in BBC Nominees (citing French J in Carey-Hazell v Getz Brothers & Co (Aust) Pty Ltd [2004] FCA 1334) to include:
(i) whether the application for security had been brought promptly;
(ii) the strength and bona fides of the plaintiff's case;
(iii) whether the plaintiff's impecuniosity was caused by the defendant's conduct the subject of the claim;
(iv) whether the application for security was oppressive in the sense that it was being used to deny an impecunious applicant a right to litigate;
(v) whether there were persons standing behind the plaintiff who were likely to benefit from the litigation and who were likely to provide the necessary security;
(vi) whether the persons standing behind the plaintiff have offered any personal undertaking to be liable for the costs, and if so, the form of such an undertaking;
(vii) whether the applicant was in substance a plaintiff or the proceedings were defensive in the sense of directly resisting proceedings already brought or seeking to halt the defendant's self-help procedures.
(c) To that list can be added the inability of the plaintiff to pay the defendant's costs; indeed, in BPM Anderson J observed that the fact that the court had reason to believe that the plaintiff could not pay the defendant's costs was the starting point for the exercise of the discretion (citing Megarry VC in Pearson v Naydlar (1977) 1 WLR 899 and Connolly J in Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523. In Harpur , Connolly J observed that:
... once the legislature has made it legitimate to regard the lack of means of the plaintiff and its likely inability to meet an order for costs, this must always be a consideration of great weight and it will frequently be the determining factor (529).
(d) The public interest may also be added to the list of relevant factors: Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 [71].
(e) There are obvious and practical limits on the extent to which an assessment can be made of the substantive merits of the plaintiff's claims and the defendant's defence. The court will generally not be required to investigate in considerable detail the likelihood or otherwise of success in the action: Swansdale [72]-[74], citing Gartner v Ernst & Young (No 3) [2003] FCA 1437."
The weight to be given to any circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances that have to be weighed: P S Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 65 ALJR 642 at 643.
Determination
I approach my task on the issue of security for costs without any predisposition, either in favour of the application or against it: Ariss v Express Interiors Pty Ltd (In Liq) [1996] 2 VR 507 at 514.
Whether the ground referred to is established
My first task is to determine whether there is reason to believe that the Plaintiff will be unable to pay the costs of the Defendants if ordered to do so. This jurisdictional condition must be satisfied before the discretionary power to order security for costs is enlivened: FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69; (2000) 22 WAR 241 at [21]; Sas Global Forrestdale Pty Ltd v Samsera Pty Ltd [2010] WASC 309 at [10]. The threshold test is not whether the Plaintiff will be unable to pay the Defendants' legal costs.
Having read and heard the evidence, particularly of Mr Shields, I am satisfied that there is reason to believe that the Plaintiff will be unable to pay the costs of the Defendants if it is unsuccessful, and if the Defendants obtain an order for costs. Ultimately, there was faint opposition to me reaching this conclusion.
Whether, if the ground is established, as a matter of discretion an order should be made
If the ground is established, the question, then, is whether security should be refused for some reason: Yandil Holdings Pty Ltd v Insurance Co. of North America (1985) 3 ACLC 542 and Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564; [2004] NSWSC 664 at [35]-[36]; Baycorp Capital Ltd v Dex Consulting Pty Ltd 2010] NSWSC 156 at [13].
I shall deal with the relevant factors referred to previously. These are well-established factors that the court usually takes into account in exercising its discretion whether or not to order security for costs.
(a) Promptness in bringing the application
There was no dispute that there had been a delay by the Defendants in bringing the application for security.
The Defendants attempted to explain their delay as follows:
i. The Defendants' business is a small nascent business commenced in, or about, May 2009.
ii. The Defendants have, until recently, apparently been of the belief that the matter would be the subject of either an informal or formal mediation.
iii. The Defendants have not had the funds in order to bring a security for costs application earlier.
iv. Matters learned by the Second Defendant in or about August, September and November 2010 were matters that caused concern for the Second Defendant in particular with respect to the financial viability of the Plaintiff. Until then, the Defendants did not have a cause for concern.
Even if all explanations are true, I do not accept that they provide satisfactory reasons for the Defendants delay. In relation to (i) and (iii), the very fact that the Defendants' business is small, with limited funds, would mean that faced with litigation that was bound to be expensive, the Defendants, and their legal representatives, should have considered the need for security for costs at an early stage of the litigation. Had they done so, the matters raised in (iv) might have become apparent much sooner.
I am satisfied that there was no evidence to found the belief in (ii). To the contrary, the evidence appears to be that neither side turned its, or their, mind to mediation. Certainly, neither side sought the other's view to attending mediation.
Even if I accept that there was nothing to raise a concern in the mind of the Defendants until August or September 2010, the notice of motion was not filed until 16 November 2010.
"[T]here are cases where delay will weigh more heavily with the court than it does in other cases": Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at 71 per Lehane J. However, I accept that delay is not an automatic bar to the making of the order for security for costs: Commonwealth v Cable Water Skiing (Aust) Limited (1994) 14 ACSR 760. The court may have regard to the length of the delay, the reasons for it, the nature of the acts done during the intervening period and whether security is sought both for future costs and those that have already been incurred.
There is a most useful, and in the circumstances of the present case, an extremely apt, statement on the significance of delay in an application for security to be found in the recent decision of Pembroke J in Old Kiama Wharf Company Pty Ltd v Betohuwisa Investments Pty Ltd [2011] NSWSC 214, in which his Honour said:
"Significance of Delay
[10] Applications for security for costs must be made promptly. Delay is the antithesis, and should usually be the nemesis, of a security for costs application. A plaintiff must be given an early opportunity to decide whether it is prepared to provide security or whether, faced with an order for security, it would prefer for commercial reasons not to continue with the litigation. The opportunity to make that choice should be given to a plaintiff in advance of the expenditure of substantial moneys in the conduct of a litigation and the preparation of evidence. These principles apply with particular significance to companies in liquidation where, of necessity, the liquidator must negotiate and make commercial decisions in conjunction with a third party creditor or creditors interested in the outcome.
[11] The words of Moffitt P in Buckley v Bennett ( sic ) Design & Constructions Pty Ltd (1974) 1 ACLR 301 (CA) at 309 deserve to be repeated:
The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim.
[12] It is inconsistent with this underlying policy and principle that the defendants' applications for security should be brought more than eight months after the commencement of the proceedings. Substantial time and legal expense has already been spent in contested interlocutory proceedings, as a result of which Ward J gave a judgment on 22 December 2010. Since then, the proceedings have been in the Expedition List on at least three occasions; the plaintiff's evidence has been served; the defendants have agreed to directions for the service of their evidence by 15 April; and a hearing date has been fixed with the consent of all parties."
In the present case, as in Laderma International v Taurean Systems [2009] NSWSC 905, delay is also important for another reason, namely because the security sought by the Defendants includes security for their past costs. I have stated the amounts for past costs that have been calculated.
In Laderma International v Taurean Systems , McDougall J commented that "normally, delay is significant not in itself but because it causes prejudice to the other party". In my view, even if it cannot be demonstrated that the plaintiff has placed any actual reliance on the failure to seek security for costs, the issue is that because the defendant has not applied promptly, the plaintiff suffers prejudice because it is denied the opportunity to reconsider its position prior to incurring further costs itself.
As to the question of prejudice, in this case, the evidence reveals that the Plaintiff has incurred about $100,000 in costs since the commencement of proceedings. Although it has not sought to prove what it would have done had the application been brought earlier, it would be unreasonable to deny the existence of some prejudice to the Plaintiff: Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 [57]; Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd [No 2] [2010] WASC 225 at [24].
Here, the application for security was brought over 15 months after the commencement of the proceedings. Substantial time and expense on both sides has already been spent and incurred. The hearing date is imminent. I do not accept that any of the matters asserted satisfactorily explain the lengthy delay in bringing the application. Overall, the circumstances of the delay are such as to preclude an order for security for costs.
(b) Strength and bona fides of the Plaintiff's claims
It has been said that the Court should avoid attempts to go into the merits 'unless it can be clearly demonstrated ... that there is a high degree of probability of success or failure'; Porzelack KG v Porzelack (UK) Limited [1987] 1 WLR 420 at 423.
This does not involve a detailed evaluation of the Plaintiff's prospects, but only the formation of a view whether the claim is bona fide or a sham. The Defendants have not submitted that the claim is a sham. Unless obviously hopeless, the prospect of success or failure is of little relevance: Jazabas v Haddad [2007] NSWCA 291; [2008] 65 ACSR 276 at [83].
It has not been suggested that the Plaintiff's case is not bona fide or that it is unarguable. Accordingly, this factor does not assist the Defendants.
(c) Whether the Plaintiff's impecuniosity was caused by the applicants for security
This factor appears irrelevant also. The Plaintiff does not assert impecuniosity. What it does say is that "the Defendants have contributed in an adverse fashion to the Plaintiff's financial position" because "the Plaintiff has expended considerable funds in protecting its trading rights against what it characterizes as the Defendants' actionable conduct".
I do not think that there has been enough evidence read on the application on behalf of the Plaintiff to enable me to determine if that is or is not so.
(d) Whether the application is oppressive
This factor appears also to be irrelevant. "Oppressive" in this context, means likely to stultify the litigation. There is no evidence that the application, if successful, will have that effect. To the contrary, counsel for the Plaintiff accepted that it would not.
(e) The existence of persons standing behind the Plaintiff, who are likely to benefit from the litigation, and who will provide security if called upon to do so
This factor is irrelevant in the absence of evidence that the litigation will be stultified in the absence of those coming forward to proffer security.
(f) Have persons standing behind the company offered any personal undertaking?
No one has come forward but for the reasons set out above this is irrelevant.
(g) Security is ordinarily ordered only against a party who is, in substance, a plaintiff
The Plaintiff, in this case, is such both in form and in substance.
(h) The public interest
This factor too is irrelevant.
As a matter of discretion and because of the significant delay, I am of the view that security should not be ordered at this late stage. I consider that, in all the circumstances, it is not appropriate to require the Plaintiff to provide security for costs.
If each of the other two questions is answered affirmatively, the quantum of any order to be made and the terms on which it might be made
It is unnecessary for me to determine this issue in view of the conclusion to which I have come.
Orders
On the notice of motion for security for costs, I make the following orders:
(a) That the Defendant's notice of motion is dismissed.
(b) That the Defendants pay the Plaintiff's costs of the notice of motion for security.
On the notice of motion to set aside part of the notice to produce, I make the following orders:
(a) That Paragraphs 1 and 3 of the Defendant's notice to produce be set aside.
(b) Note that the Defendants have liberty to issue a fresh notice to produce and that such notice to produce be served no later than 7 days from the date of the making of these orders.
(c) Order the Defendants to pay the Plaintiff's costs of the notice of motion, such costs to be limited to the fee paid for filing that notice of motion.
(d) In relation to the costs of each party preparing written submissions, those costs to be costs in the cause. And that is limited to only the notice of motion to set aside part of the notice to produce.
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Decision last updated: 02 June 2011
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