Fortcon Pty Ltd & Anor v Babicka & Ors (Security for Costs)
[2025] VCC 616
•20 May 2025
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-23-06602
| FORTCON PTY LTD (ACN 149 230 348) | First plaintiff |
| and | |
| LENTINI HOLDINGS PTY LTD (ACN 120 230 408) | Second plaintiff |
| V | |
| ALOIS BABICKA | First defendant |
| and | |
| NADIA BABICKA | Second defendant |
| and | |
| MADRAKI INVESTMENTS PTY LTD (ACN 641 870 466) | Third defendant |
| and | |
| VIGGIANO INVESTMENTS PTY LTD (ACN 642 527 571) | Fourth defendant |
| and | |
| MAZS INVESTMENT GROUP PTY LTD (ACN 605 715 928) | Fifth defendant |
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JUDGE: | Her Honour Judge Kirton | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 November 2024, 18 December 2024 | |
DATE OF JUDGMENT: | 20 May 2025 | |
CASE MAY BE CITED AS: | Fortcon Pty Ltd & Anor v Babicka & Ors (Security for Costs) | |
MEDIUM NEUTRAL CITATION: | [2025] VCC 616 | |
REASONS FOR RULING
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Subject:Security For Costs
Catchwords: Security for costs – the threshold to order security – admissible evidence – unsigned and unaudited financial reports prepared for an undisclosed special purpose – lack of evidence – concerns about accuracy of the evidence – plaintiff trustee – right to indemnity from trust assets – power of unit holders in trust to remove trustee or dissipate trust assets before paying any costs order made against the trustee - need to minimise risk for defendants having to engage in further litigation to enforce a costs order – other discretionary factors – undertaking of director – delay
Legislation Cited: County Court Civil Procedures Rules 2018; Supreme Court (General Civil Procedures) Rules 2005; Corporations Act 2001 (Cth); Evidence Act 2008 (Vic).
Cases Cited:US Realty Investments LLC #1 v Need [2013] VSC 590; Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577; Ballymoss Pty Ltd v Kollaras & Co Pty Ltd (No 4) [2023] VCC 1268; Strategic Financial And Project Services Pty Ltd v Bank Of China Limited [2009] FCA 604; Warren Mitchell Pty Ltd v Australian Maritime Officers Union (1993) 12 ACSR 1; Juelle Pty Ltd v Buildev Properties Pty Ltd and Ors [2006] NSWSC 302; Harmonious Blend Building Corporation v Keene [2014] VSC 649; Harpur v Ariadne Australia Limited [1984] 2 Qd.R. 523; Cameron’s Unit Services v Kevin R Whelpton 11 ACLR 43; Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176; United Commercial Projects Pty Ltd v PHHH Investments No 2 Pty Ltd [2019] VSCA 192.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Clarke KC | Ascot Solicitors |
| For the Defendants | Mr N Andreou | Best Hooper Pty Ltd |
HER HONOUR:
Introduction
1The defendants have applied for orders that the plaintiffs pay into Court by way of security for costs up to and including the trial in the sum of $166,028.40, or such other sum as the court deems fit, and that the proceeding be stayed until the security is provided.[1]
[1]By summons dated 25 October 2024.
2Each party filed evidence and submissions prior to the hearing which commenced on 22 November 2024. The defendants raised apparent omissions in the plaintiffs’ evidence and the plaintiffs sought time to be able to file further evidence. I allowed the plaintiffs’ application and adjourned the hearing part heard. The plaintiffs then filed further evidence by affidavit with exhibits and the hearing resumed before me on 18 December 2024. I reserved my decision.
3Each party filed written submissions and made oral submissions during the two hearings. They also each relied on the following affidavits and the exhibits thereto:
(a) For the defendants, the affidavits of:
(i)Robert Sutherland McKay dated 25 October 2024 (First McKay Affidavit);
(ii)Robert Sutherland McKay dated 22 November 2024 (Second McKay Affidavit); and
(iii)Robert Sutherland McKay dated 17 December 2024 (Third McKay Affidavit).
(b) For the plaintiffs, the affidavits of:
(i)Senad Dizdarevic dated 21 November 2024, (First Dizdarevic Affidavit);
(ii)Senad Dizdarevic dated 22 November 2024, (Second Dizdarevic Affidavit);
(iii)Senad Dizdarevic dated 16 December 2024, (Third Dizdarevic Affidavit); and
(iv)Leo Fortuna dated 22 November 2024, (Fortuna Affidavit).
4The defendants submit that there is good reason to believe that the plaintiff companies do not have sufficient assets in Victoria to pay the costs of the defendants if ordered to do so. They say that despite requests by the defendants, and despite notice that the application would be made, the plaintiffs have failed to demonstrate that they hold any assets aside from their combined share capital of $14.00.
5The plaintiffs oppose the application, submitting that they do not satisfy the threshold requirement of impecuniosity, and in any event, the amount sought is grossly excessive.
6For the reasons set out below, I am satisfied that an order for security of costs should be made.
Relevant Background
7The first plaintiff (Fortcon) is a registered builder and the second plaintiff (Lentini) is a corporation that undertakes construction work together with Fortcon. At the time of hearing this application, the plaintiffs proposed to rely on a proposed amended statement of claim dated 16 December 2024 (the PASOC). In that document the plaintiffs alleged,[2] in summary, that:
(a) the first, second, third, fourth and fifth defendants are the registered proprietors of parcels of land in Coburg;
(b) they arranged to have Lentini named as the builder on the building permits;
(c) they entered into a binding agreement (agreement) with the plaintiffs for them to build warehouses on each of the land parcels;
(d) the plaintiff (it is not specified which plaintiff[3]) undertook preliminary work required to prepare for the construction of the warehouses;
(e) the plaintiffs scheduled the construction of the warehouses to commence and so did not commit to undertake other work until the warehouses were built;
(f) the defendants then wrongfully repudiated the agreement by informing the plaintiffs that they no longer intended to have the plaintiff (it is not specified which plaintiff[4]) build the warehouses;
(g) the plaintiff (it is not specified which plaintiff[5]) accepted the defendants’ repudiation; and
(h) as a result of the defendants’ repudiation of the agreement, the plaintiff (it is not specified which plaintiff[6]) has suffered loss and damage.
[2]Amended Statement of Claim dated 16 December 2024 (ASOC).
[3]ASOC (n 2) [16].
[4]Ibid [19].
[5]Ibid [20].
[6]Ibid [23].
8The defendants deny many of the substantive allegations.[7]
[7]Points of Defence dated 14 February 2024.
9The defendants requested on 10 July 2024 and 22 July 2024 that the plaintiffs provide supporting material showing that they hold sufficient assets in Victoria to meet any costs order against them. The plaintiffs failed to provide any such material.
10The plaintiffs were put on notice that if they failed to provide any material showing that they held sufficient assets, the defendants would file an application for security for costs without further notice.
Legal Framework
11There is no dispute between the parties as to the relevant principles to be applied in an application for security for costs. The application is made under r 62.02 of the County Court Civil Procedure Rules (the Rules), alternatively under s 1335 of the Corporations Act 2001 (Cth). The principles are set out in the decisions referred to by the parties, namely US Realty Investments LLC #1 v Need[8] (Need), Livingspring Pty Ltd v Kliger Partners[9] (Livingspring), and Trility Pty Ltd v Ancon Drilling Pty Ltd[10] (Trility).
[8]US Realty Investments LLC #1 v Need [2013] VSC 590 (‘Need’).
[9]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 (‘Livingspring’).
[10]Trility Pty Ltd v Ancon Drilling Pty Ltd [2013] VSC 577 (‘Trility’).
12Derham AsJ recently succinctly summarised the principles and factors to take into account in Need[11], as follows:
[11]Need (n 8), [18] – [38].
(a) the principles applicable to an application for security for costs brought against a corporate plaintiff under r 62.02 of the Rules and s 1335 of the Corporations Act are the same;
(b) the jurisdiction to make an order is enlivened, if it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if it is successful in its defence of the proceeding;
(c) the discretion to order or not to order security is unfettered, although like any discretion it must be exercised judicially. There is no general predisposition in favour of making an order for security once the jurisdictional threshold is passed. But impecuniosity is itself a significant discretionary factor and often a most significant factor;
(d) in exercising the discretion whether to order a company to give security for costs, the Court must carry out a balancing exercise. It must weigh the injustice to the plaintiff if it is prevented from pursuing a proper claim by an order for security, against the injustice to the defendant if no security is ordered and at trial the plaintiff's claim fails and the defendant is unable to recover costs from the plaintiff;
(e) the Court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, but also it will be concerned not to be so reluctant to order security that an impecunious company can use its inability to pay costs to put unfair pressure on the defendant;
(f) the burden rests on the defendant, from first to last, to persuade the Court that the order for security for costs should be made;
(g) there are, however, particular discretionary matters in respect of which the plaintiff must necessarily have the carriage. Thus if the plaintiffs, as in this case, assert that an order for security would impose on it such a financial burden as to stultify or frustrate the litigation, the plaintiffs must establish the facts which make good that assertion;
(h) as a general rule, where a claim is prima facie regular on its face and discloses a cause of action, the Court should proceed on the basis that the claim is bona fide with reasonable prospects of success in the absence of evidence to the contrary;
(i) assessing the plaintiffs’ prospects of success is not really a practicable test in any case of reasonable complexity… Although it will ordinarily not be practicable to reach any clear view about the merits of the plaintiff's claim, that is not to say that the merits are always irrelevant (unless totally lacking) or that the bona fides of the claim may be disregarded… The Court is not obliged to consider at length the merits of the claim, and to do so would ordinarily be a waste of resources;
(j) there is a well-recognised factor (sometimes called a principle), which may affect the exercise of the Court’s discretion, that the Court will not make an order for the provision of security if the order would operate to frustrate or stultify the plaintiff's arguable case legitimately instituted. The “stultification principle”, being a factor relevant to the exercise of the discretion, does not automatically lead to refusal of the application for security. It nonetheless "usually operates as a powerful factor in favour of exercising the Court's discretion in the plaintiff's favour”.
Has the jurisdictional threshold to order security been enlivened?
13As stated above, it is necessary, as a threshold question for the defendants to establish that the jurisdiction to order security is enlivened. That is, is there reason to believe, based on credible testimony, that the plaintiffs will be unable to pay the defendants’ costs?
14Her Honour Judge Ryan recently observed in Ballymoss Pty Ltd v Kollaras & Co Pty Ltd(No 4):[12]
The first question to be asked and commonly described as the “threshold requirement,” is whether there is a rational basis founded on credible testimony to believe that the plaintiff will be unable to pay the costs of a successful defendant. It is a low threshold which requires making a risk assessment – requiring a practical, common sense approach to the corporation’s financial affairs. No more than a rational basis for the belief is required. This requirement reflects the policy of protecting a defendant against the risk of a plaintiff’s impecuniosity. As Livingspring makes clear, the approach requires a practical risk assessment. In this instance, would there be a real risk that Ballymoss could not recoup its costs if it successfully defended the counterclaim?
[12]Ballymoss Pty Ltd v Kollaras & Co Pty Ltd (No 4) [2023] VCC 1268, 50-51 [186].
The defendants’ evidence
15The defendants’ evidence contained in the First and Second McKay affidavits included current company extracts for each plaintiff.[13] These show that as at the time the application was made:
(a) the first plaintiff, Fortcon, has issued shares of $2.00;
(b) the CreditorWatch summary for Fortcon is said to be high risk, with a tax default registered and the company having an outstanding debt to the Australian Tax Office of $220,114.72;
(c) the second plaintiff, Lentini, has issued share capital of $12.00;
(d) Lentini is a trustee entity and there is no evidence about the trustee’s right to indemnity or otherwise from the corpus of the trust assets; and
(e) neither plaintiff holds any real property in Victoria.
[13]Affidavit of Robert Sutherland McKay, dated 25 October 2024, Exhibit RSM-, 43 – 91 (‘First McKay Affidavit’).
16The plaintiffs filed evidence in an attempt to address these matters.
Plaintiffs’ evidence as at 10am on 22 November 2024
17The plaintiffs relied on an affidavit affirmed by the solicitor for the plaintiffs, Senad Dizdarevic.[14] He exhibited a number of documents including financial reports for the first and second plaintiff.
[14]Affidavit of Senad Dizdarevic, dated 21 November 2024 (‘First Dizdarevic Affidavit’).
18The defendants objected to the admissibility of the financial reports, under s 135 of the Evidence Act 2008 (Vic). This section provides:
General discretion to exclude evidence
The court may refuse to admit evidence if its probative value is substantially outweighed by the danger that the evidence might—
(a) be unfairly prejudicial to a party; or
(b) be misleading or confusing; or
(c) cause or result in undue waste of time; or
(d) unnecessarily demean the deceased in a criminal proceeding for a homicide offence.
19In relation to Lentini, the exhibit is a document headed “Financial Report for the period ended 30 June 2024” for “Lentini Holdings Pty Ltd as trustee for Lentino No.1 Trust.” The defendants highlight the following concerns with that document:
(a) A note which states “The special purpose financial statements … do not comply with any Australian Accounting Standards unless otherwise stated,”[15] and nowhere in the document is it otherwise stated.
(b) The firm which prepared the statements has disclaimed any responsibility for their contents, and stated:[16]
Our responsibility
On the basis of the information provided by the director of the trustee company, we have compiled the accompanying special purpose financial statements …
[15]First Dizdarevic Affidavit (n 14) Exhibit SD-1, 9.
[16]Ibid, Exhibit SD-1, 14.
Assurance Disclaimer
Since a compilation engagement is not an assurance engagement, we are not required to verify the reliability, accuracy or completeness of the information provided to us by management to compile these financial statements. Accordingly, we do not express an audit opinion or a review conclusion on these financial statements.
The special purpose financial statements were compiled exclusively for the benefit of the director of the trustee company who is responsible for the reliability, accuracy and completeness of the information used to compile them. We do not accept responsibility for the contents of the special purpose financial statements.
(c) There has been no declaration by Lentini’s director that the financial statements and the notes fairly present the trust’s financial position and that there are reasonable grounds to believe that the trust will be able to pay its debts as and when they become due and payable. Although those words are printed in the statements, the declaration is not signed or dated.[17]
[17]Ibid, Exhibit SD-1, 13.
20The defendants submitted that this document should not be allowed into evidence as it has little probative value in circumstances where:
(a) the financial statements expressly state they do not comply with any Australian Accounting Standards;[18]
(b) the financial statements were prepared for a “specific purpose,” but that purpose is unknown, as it is not stated in the document. Instead, the notes state only that the financial statements have been prepared “in accordance with the Trust deed to meet the needs of stakeholders and to assist in the preparation of the tax return;”[19]
(c) the document has not been approved or verified. It is not known if this is merely a generic template or draft. The accountant who prepared the financial statements is unnamed and they have not signed the financial statements;[20]
(d) the director of the second plaintiff has not signed the declaration in the financial statements;[21]
(e) the director has not sworn any affidavit in the proceeding deposing to the financial statements or the financial affairs of the company; and
(f) the solicitor who exhibited the financial statements has not given any evidence that he received any instructions from the director of the second plaintiff as to the accuracy of the financial statements.
[18]Ibid, Exhibit SD-1, 9.
[19]Ibid, Exhibit SD-1, 9.
[20]Ibid, Exhibit SD-1, 14.
[21]Ibid Exhibit SD-1, 13.
21In relation to Fortcon, Mr Dizdarevic exhibited a document headed “Financial Report for the period ended 30 June 2023” for “Fortcon Pty Ltd”.[22] The defendants point out the following concerns with that document:
(a) A note which states “The special purpose financial statements … do not comply with any Australian Accounting Standards unless otherwise stated.”[23]
(b) The firm which prepared the statements has disclaimed any responsibility for the contents of the statements, and stated:[24]
The responsibility of the director
The director of Fortcon Pty Ltd is solely responsible for the information contained in the special purpose financial statements, the reliability, accuracy and completeness of the information and for the determination that the basis of accounting used is appropriate to meet their needs and for the purpose that the financial statements were prepared.
Our responsibility
On the basis of the information provided by the director, we have compiled the accompanying special purpose financial statements …
[22]Ibid, Exhibit SD-1, 17 - 30.
[23]Ibid, Exhibit SD-1, 21.
[24]Ibid, Exhibit SD-1, 28.
Assurance Disclaimer
Since a compilation engagement is not an assurance engagement, we are not required to verify the reliability, accuracy or completeness of the information provided to us by management to compile these financial statements. Accordingly, we do not express an audit opinion or a review conclusion on these financial statements.
The special purpose financial statements were compiled exclusively for the benefit of the director who is responsible for the reliability, accuracy and completeness of the information used to compile them... We do not accept responsibility … for the contents of the special purpose financial statements.
(c) The director’s declaration that the financial statements and the notes fairly present the company’s financial position and that there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable, is not dated or signed.[25]
[25]Ibid, Exhibit SD-1, 27.
22The defendants submitted that this document should not be allowed into evidence as it has little probative value in circumstances where:
(a) the financial report is for the period ending 30 June 2023. The plaintiffs had provided no report for the financial period ending 30 June 2024;
(b) on the contrary, Mr Dizdarevic has deposed to Fortcon’s financial position for the financial year ending 30 June 2024,[26] without exhibiting any financial statements or records;
(c) the defendants’ evidence shows that Fortcon had a debt of $220,114.72 registered with the Australian Tax Office in November 2023. Fortcon’s financial report for the year 2023-2024 is therefore highly relevant and the omission of the financial statements for that year from Fortcon’s evidence is surprising. Significantly, the decision to not exhibit the financial statements has the potential to mislead the Court;
(d) the 2023 financial statements which were exhibited expressly state they do not comply with any Australian Accounting Standards;[27]
(e) the special purpose for the preparation of the financial statements is unknown, as it is not stated in the document. Instead, the notes state only that the financial statements have been prepared “to meet the needs of stakeholders and to assist in the preparation of the tax return;”[28]
(f) the accountant who prepared the financial statements has not signed the financial statements;[29]
(g) the director of the first plaintiff has not signed the declaration in the financial statements;[30]
(h) the director has not sworn any affidavit in the proceeding deposing to the financial statements or the financial affairs of the company; and
(i) the solicitor who exhibited the financial statements has not given any evidence that he received any instructions from the director of the first plaintiff as to the accuracy of the financial statements.
[26]Ibid, 3 [28].
[27]Ibid, Exhibit SD-1, 21.
[28]Ibid.
[29]Ibid, Exhibit SD-1, 28.
[30]Ibid, Exhibit SD-1, 27.
23Mr Dizdarevic also exhibited a Financial Report for the period ended 30 June 2023 in relation to Lentini.[31] This document contains the same deficiencies as the 2023 Report for Fortcon (set out above).[32]
[31]Ibid, 31 - 42.
[32]Ibid, 35, 39 & 40.
The admissibility of these Financial Reports
24The defendants submitted that these three financial report should not be admitted into evidence, for the reasons set out above. They referred to the Federal Court decision of Strategic Financial And Project Services Pty Ltd v Bank Of China Limited[33] (Strategic Financial) which concerned similar facts to the present matter. The applicant’s solicitor sought to tender a document described as “a copy of the financial statement relating to the second applicant for the financial year ended 30 June 2008.” His Honour Justice Moore rejected the tender of the document relying in substantial part on s 135 of the Evidence Act 1995 (Cth). He did so for two reasons; one concerned the lateness of the document, and the second, which is relevant to the present matter, concerned the nature of the document itself as follows:
(a) the document was described on its face as a special purpose financial report, prepared for use by directors and members of the company;
(b) the report was not audited, and the report itself states that the directors were solely responsible for the information contained in the report;
(c) although the report was prepared in accordance with certain accounting standards, the chartered accountants included a disclaimer that they do not accept responsibility to any other person for the contents of the special purpose financial report; and
(d) the director’s declaration in the report was not signed by any of the directors.
[33][2009] FCA 604 [33] – [35] (‘Strategic Financial’).
25Justice Moore noted that there are a number of authorities which have considered the admissibility of unaudited financial statements in the context of security for costs applications, including Warren Mitchell Pty Ltd v Australian Maritime Officers Union,[34] and Juelle Pty Ltd v Buildev Properties Pty Ltd and Ors[35] (Juelle). In those decisions the unaudited reports were accepted into evidence, but as his Honour noted, the fundamental difference between the special-purpose report in Juelle and the case before him was that the report in Juelle had been signed by the directors.
[34](1993) 12 ACSR 1 [5].
[35][2006] NSWSC 302.
26In Strategic Financial, Justice Moore stated: “[t]he present report appears to me to be of very limited probative value if it has not been adopted by the directors, having regard to the fact that the author of the document relied on information from the directors in compiling it.”[36]
[36]Strategic Financial (n 33) 11 - 12 [35].
27I find myself in the same position as Justice Moore, in that the financial statements before me are based on unaudited information provided by the directors, and the directors have not adopted the reports. The accountants have expressly disclaimed any responsibility for the contents of the reports, and there is no person, either a director or a solicitor on instructions from a director, who has confirmed the accuracy of the information. Accordingly I reject the reports being tendered in evidence.
28On the basis of the plaintiffs’ evidence discussed above, I would have been satisfied that the jurisdictional threshold to order security for costs had been met, namely there is reason to believe that the plaintiffs will be unable to pay the costs of the defendants if they are successful. However, the plaintiffs requested time to be able to file further evidence after hearing the defendants’ objections to their evidence. I allowed the plaintiffs’ application and stood the hearing down from the morning of 22 November 2024 to resume that afternoon.
Evidence and submissions as at 3.30pm on 22 November 2024
29The plaintiffs filed and served two further affidavits at approximately 3:20pm, prior to the hearing resuming at 3.30pm.
30In a second affidavit, Mr Dizdarevic stated that he had been provided with the Financial Report for Fortcon for the financial year ended 2024, and he had intended it to be exhibited to his First Affidavit, but that there was an administrative error and it was omitted.[37] He exhibited the Financial Report to his Second Affidavit. The copy exhibited was not signed and contained the same shortcomings as the 2023 report, discussed above.
[37]Affidavit of Senad Dizdarevic, dated 22 November 2024, 1 [5]–[6] (‘Second Dizdarevic Affidavit’).
31Mr Dizdarevic also exhibited Activity Statements from the Australian Taxation Office for both Fortcon and Lentini for the period 1 November 2023 to 22 November 2024. The Activity Statements indicate that there are no outstanding debts to the ATO.
32The evidence of Mr Fortuna in the Fortuna Affidavit was that Fortcon had paid the ATO debt of $220,114.72 on or about 8 November 2023. He stated that at present, neither Fortcon nor Lentini have any overdue or outstanding debts to the ATO.
33Mr Fortuna also referred to the Financial Reports for each of Fortcon and Lentini for the financial years ended 2023 and 2024. He stated that the figures contained in the financial statements are true and correct and he believes it is not unusual for his companies to have unaudited financial statements as it is not required for non-public companies. He stated that he had now signed the financial declarations in those reports and he exhibited the signed copies.
34The defendants submitted that this further evidence was still inadequate and did not adequately answer their belief that the plaintiffs will be unable to pay their costs if they are successful in their defence of the proceeding.
35The defendants had particular concerns about the evidence concerning Lentini. Counsel for the defendants Mr Andreou pointed out that the financial statements provided concerned the Lentino No.1 Trust, and were not of the plaintiff company Lentini. Although Lentini is the trustee of the trust, it is not known who stands behind the trust or what rights Lentini has to access the corpus of the trust.
36Mr Andreou referred to the decision of Harmonious Blend Building Corporation v Keene[38] (Harmonious Blend) as authority for the proposition that a defendant cannot assume a trustee has the assets of the trust. The facts in that case are similar to the present matter. In Harmonious Blend, the plaintiff’s affidavits disclosed that the plaintiff traded as a trustee for a Unit Trust, which traded as the builder. The plaintiff did not provide a copy of the trust deed and all of the financial information disclosed on the application explained the financial position of the trust, not that of the plaintiff. There was no evidence about distributions to unit holders. Based on the defendants’ searches, it appeared that the plaintiff would be unable to pay the defendants’ costs unless such costs were paid out of the assets of the trust.
[38][2014] VSC 649, 13-16 [40] – [46] (‘Harmonious Blend’).
37In the absence of any of the trust documents, the defendants submitted that there was no evidence enabling a proper assessment of the trustee’s entitlement to be indemnified from the assets of the trust nor evidence that the trustee’s activities in connection with the events the subject of the litigation and the litigation itself were authorised activities of the trust. The defendants also submitted that, although the court might be persuaded that the assets of the trust were sufficient to pay any costs that the plaintiff was ordered to pay on conclusion of the proceeding, there was no evidence of the plaintiff’s uncontestable right to funds from the trust sufficient to make that payment.
38His Honour Justice John Dixon agreed with the defendants’ submissions. He accepted the plaintiff’s contention that the trust traded well and had been trading for many years. He accepted the evidence of the trust’s net assets, and was satisfied that the trust was solvent and he was not satisfied that there was reason to believe the trust assets may be insufficient to pay an order for costs. However, his Honour noted that the difficulty with the plaintiff’s contention was that the trust would not become legally obliged to pay costs by any order made in the proceeding. It was the trustee which was the plaintiff, not the trust.
39His Honour then turned his attention to the solvency of the trustee and held as follows:[39]
I am unable to reach the same conclusion about the solvency of the plaintiff as the trustee in the like circumstance. I am not persuaded that the trustee has an incontestable right to summarily enforce its right of indemnity against trust assets in order to permit a timely discharge, without recourse to further litigation, of a liability to pay costs. Without an indemnity, I am persuaded there is reason to believe that the plaintiff would be unable to pay the costs of the defendants if successful in their defence.
…
On a practical, commonsense approach to the evidence, were the plaintiff to be removed as trustee of the trust following a judgment against it at trial and replaced with a trustee controlled other than by Mr Clark, examination of the evidence about its financial affairs shows the risk of the plaintiff’s impecuniosity. The unit holders might replace the trustee in order to ensure that Mr Clark could not cause the plaintiff to draw on the assets of the trust to pay costs. The plaintiff would be entirely dependent on the strength of its right to enforce its indemnity against trust assets when independently exercised against a possibly hostile or uncooperative new trustee. The likelihood of successfully enforcing indemnity in the future to enable a timely discharge of a costs liability cannot, on the evidence, be evaluated. The prospect of further expensive and protracted litigation cannot not be discounted.
[39]Ibid, 15 -16 [45]–[46].
40In the present matter, the defendants submitted that they are in the same situation. In the absence of any evidence that the trust would indemnify the trustee, or that the trustee would not be replaced following an adverse judgment, Mr Andreou contended that the defendants are justified in making this application for security for their costs.
41The defendants’ solicitors had raised these concerns with the plaintiffs’ solicitors prior to making this application and in July 2024 had requested the plaintiffs to provide copies of information including:
(a) Any trust deeds relating to trusts for which either of the plaintiff companies are beneficiaries;
(b) Income tax return declarations and ATO notices of income assessment for each of the plaintiff companies and any trusts for which either of them are beneficiaries;
(c) Business activity statements lodged with the ATO by each of the plaintiff companies and any trusts for which either of them are beneficiaries in the past 12 months;
(d) The ATO ‘Integrated Client Account’ statement(s) for each of the plaintiff companies and any trusts for which either of them are beneficiaries for the past 12 months; and
(e) Confirmation of whether any third-party persons have agreed to indemnify your firm in respect of professional fees and disbursements charged to the plaintiffs, whether as guarantor or as a third-party payer (a term defined in the Legal Profession Uniform Law), and the details of any such party.
42The plaintiffs’ solicitors replied on 10 July 2024 stating that their client would make discovery and would provide the information requested upon the director’s return from overseas. Despite the defendants allowing the plaintiffs further time to provide information, the requested information was not provided.
43Mr Andreou sought a short adjournment of the hearing to be able to seek further instructions including the possibility of serving a Notice to Produce on the plaintiffs. This was opposed by Mr Clarke. It was nearly 4.00pm on 22 November 2024 and the defendants had not had time to consider and give instructions regarding the Fortuna Affidavit or the Second Dizdarevic Affidavit which had been served at 3.20pm that day. I allowed the defendants’ request and adjourned the hearing of the summons part-heard to 18 December 2024. I was satisfied that the defendants could not be criticised for having failed to issue a notice to produce earlier (as suggested by Mr Clarke) as they had been entitled to rely on the plaintiffs’ statement they would provide discovery including the trust information, months earlier. Further, I noted that the plaintiffs had themselves received an adjournment to be able to file their further affidavits on 22 November 2024. Mr Clarke and Mr Andreou indicated they would attempt to agree procedural orders.
Events between 22 November and 18 December 2024
44Following the hearing on 22 November 2024, the defendants served a Notice to Produce on the plaintiffs. It appears there was some contest between the solicitors, as each filed affidavits, but when the hearing resumed on 18 December 2024, Mr Andreou advised that the plaintiffs had provided the trust deed to the defendants and the defendants no longer relied on the notice to produce. The notice falls away whatever the determination of the security for costs application may be.
The evidence as at 18 December 2024
45The plaintiffs filed and served a third affidavit of Senad Dizdarevic,[40] which exhibited the Lentini No.1 Trust Deed and documents discovered by the plaintiffs. Mr Dizdarevic said that the plaintiffs objected to providing the other documents requested on 10 July 2024, or those requested in the Notice to Produce, as it was vexatious and an abuse of process.
[40]Affidavit of Senad Dizdarevic dated 16 December 2024 (‘Third Dizdarevic Affidavit’).
46Mr Dizdarevic also confirmed that it was the plaintiffs’ view that the documents exhibited to the affidavit of Leonardo Fortuna (sole director and secretary of both plaintiffs), were sufficient to show “a very healthy financial position of both the first and second plaintiff.”
47In the Third Mackay Affidavit, Mr McKay deposed that he had received on 16 December 2024 the trust deed and discovered documents.
48Mr McKay has noted the evidence in the Fortuna Affidavit and the Third Dizdarevic Affidavit relating to the payment of Fortcon’s debt to the ATO. However, Mr McKay has also noted that the updated CreditorWatch Report for Fortcon obtained on 17 December 2024 and the ASIC extract both continue to record the outstanding ATO debt in the amount of $220,114.72. No explanation of any steps taken to expunge this ATO debt from CreditorWatch Report or the ASIC extract has been proffered by the plaintiffs.
49Mr Andreou submitted that despite the plaintiffs having had time to answer the concerns raised in November, nothing in the material they have provided has done that. The defendants’ maintain their position that the plaintiffs have not provided sufficient evidence to answer the defendants’ evidence that it appears that they will be unable to pay any costs order. The concerns and conclusions in Harmonious Blend are still appurtenant.
50The defendants submitted that while Lentini has provided a trust deed which indicates the trustee may be indemnified from the body of the trust, the unresolved issue is if and how the defendants will have the opportunity to enforce the indemnity. If the defendants have to litigate to enforce it, there is little value in the indemnity in the context of security for the defendants’ costs. They referred especially to clauses 1.4, 1.5 and 1.6 of the trust deed, which provides as follows:[41]
1.4 It is expressly declared that –
…
no Unit Holder shall by reason of any matter aforesaid or by reason of his relationship with the Trustees be under any obligation to indemnify the Trustees or any creditor of the Trustees against any liability or obligation incurred by the Trustees in the course of exercising their duties rights powers or authorities in relation to the Trust Fund or arising therefrom or in the course of carrying on any business hereby authorised or in the event of there being any deficiency in the assets of the Trust Fund as compared with the liabilities of the Trustees in relation thereto.
1.5 A Unit Holder is not liable for any loss or damage howsoever incurred or suffered by the Trustees in acting as Trustees of the Trust or otherwise in connection with the Trust to the extent to which the loss or damage exceeds so much of the consideration (if any) payable for issue of the Units held by the Unit Holder as may be unpaid and outstanding.
1.6 The Trustees expressly waive, release, forfeit and abandon all rights and remedies which they otherwise might have at law or in equity to recover from a Unit Holder monies by reason of any right of indemnity or subrogation notwithstanding that any such right may not be able to be satisfied or discharged in whole or in part out of the assets comprising the Trust Fund.
[41]Affidavit of Robert Sutherland McKay, dated 17 December 2024, Exhibit RSM-3, 92-93 (‘Third McKay Affidavit).
51The defendants also referred to clauses 10.6 and 11.4 of the trust deed, which state as follows:[42]
10.6 Without affecting anything in clauses 1.4, 1.5 and 1.6 hereof the Trustees shall be entitled to be indemnified out of the assets for the time being comprising the Trust Fund against liabilities incurred by them in the execution or attempted execution or as a consequence of the failure to exercise any of the trust authorities powers and discretions hereof or by virtue of being the Trustees hereof.
…
11.4 With the unanimous consent of the Unit Holders in writing or by Special Resolution of the Unit Holders in general meeting the Unit Holders shall be entitled to:
11.4.1 remove any Trustee; or
11.4.2 appoint any additional Trustee; or
11.4.3 appoint a Trustee in place of any Trustee who dies or retires or is disqualified or removed from office.
[42]Ibid, Exhibit RSM-3, 112-113.
The submissions in relation to Lentini and the trust
52Mr Andreou submitted that the effect of clauses 1.4, 1.5 and 1.6 is to prohibit the trustee (i.e. Lentini) recovering any money from the unit holders. If a distribution is made to the unit holders the money does not come back to Lentini to satisfy any costs order made against it in favour of the defendants. If there is a deficiency in the trust, Lentini cannot recover the deficiency from the unit holders.
53Further, he submitted that the combination of clauses 10.6 and 11.4 means that the Unit Holders can remove Lentini as the trustee at any time. (It is not known who the current unit holders are, although page 116 of the trust deed records that the original unit holders were two other trustee companies, Cosenza Pty Ltd as trustee for F & R Fortuna Family Trust, and Franze Investments Pty Ltd as trustee for the Franze Discretionary Trust No.2).
54If the unit holders remove Lentini as the trustee before it seeks to enforce the indemnity granted by clause 10.6, then the indemnity is useless. Mr Andreou suggested that if you were a unit holder and Lentini was facing a costs order in this proceeding, you would remove Lentini as the trustee to avoid the costs order. Alternatively, you could distribute the assets of the trust prior to the defendants enforcing the costs order.
55In those circumstances, the concerns raised in Harmonious Blend remain valid. A costs order in favour of the defendants would be against Lentini. Lentini has no assets of its own and a share capital of $12.00. If it is not indemnified by the unit holders of the trust, the defendants would have to engage in further litigation to be able to recover their costs. Alternatively, if Lentini is removed as the trustee, or if the corpus of the trust is distributed before enforcement, the defendants may have to engage in further litigation against the unit holders of the trust or any new trustee.
56Mr Clarke for Lentini submitted that the trust deed must be read in the context of the general principles of trust law. He referred to the text Jacobs Law of Trusts in Australia,[43] particularly at paragraph 21.04, where the authors state:
A trustee has a right to resort to and apply trust funds for the discharge of liabilities incurred in the authorised conduct of the trust.
…
The trustee is not bound to pay out of his or her own funds and then recoup; instead the trustee may recoup to put himself or herself in funds to discharge the liability in question.… The right of the trustee is given effect to by an equitable lien in favour of the trustee and over the [assets of the trust]… The lien is enforceable by a court order for sale of the trust property… Further, the lien carries with it the right to retain possession of the trust property pending satisfaction of the trustee’s rights; even the right to possession of beneficiaries who are sui juris and absolutely entitled may be suspended until the true state of account is established. The right of indemnity survives the trustee’s loss of office…
Where there has been a change of trustee and the assets are no longer in the former trustee’s possession, the claim may be made against the new trustee, and if necessary orders can be made whose effect would be to permit the former trustee to exercise the new trustee’s power to recover the property in the hands of beneficiaries…
[43]Heydon, JD and Leeming, MJ, Jacobs Law of Trusts in Australia (LexisNexis Butterworths, 8th edition, 2016) [21.04].
57Further, clause 1.4.3 of the trust deed in the present matter means that the unit holder has no obligation to indemnify the trustee if there are no assets. This is not an unusual provision; it is the same as applies to any shareholder.
The submissions in relation to Fortcon
58Mr Clarke also submitted that even the defendants’ submissions in relation to Lentini were accepted, there is no basis to believe that Fortcon would be unable to meet a costs order. Accordingly, even if the Court is not satisfied of Lentini’s capacity, the threshold to enliven the jurisdiction has not been reached because both plaintiffs would be jointly and severally be liable for the defendants’ costs and the threshold cannot be met.
59The defendants do not agree with this submission. They say the way the claim is pleaded, there is not a complete overlap between the two plaintiffs’ causes of action. Mr Andreou pointed out the uncertainties contained in the PASOC, which are set out at paragraph 7 above. Many of the allegations pleaded refer to one plaintiff, but do not specify which plaintiff. Similarly, the Prayer for Relief in the PASOC refers to one plaintiff only seeking relief. It is questionable therefore whether a costs order would be ordered against one or both plaintiffs, as it is not clear whether they are making the same claims or different claims. Accordingly the defendants contend that there is no overlap based on the PASOC.
60In response to that submission, the plaintiffs’ Counsel suggested that the reference to single plaintiffs was a typographical error, and the PASOC would be amended to refer to both plaintiffs in every instance set out at paragraph 7. Following the hearing, the plaintiffs prepared another version of their Amended Statement of Claim dated 20 March 2025 (the ASOC), and with the consent of the defendants, I made orders in chambers giving the plaintiffs leave to file this document on 28 March 2025.
61The ASOC resolves some of the issues in the PASOC identifying which factual allegations involved which plaintiff. For example, the ASOC now pleads that the agreement was with both plaintiffs and the defendants, that both plaintiffs undertook building work, Lentini was named on the building permit, the defendants paid some money to Lentini, the defendants repudiated the agreement with the plaintiffs, and both plaintiffs have suffered loss and damage of $1,504,549.60.
62The defendants submitted that notwithstanding those amendments, it still cannot be said that there is a complete overlap between the two plaintiffs’ claims. It is unlikely that findings would be made that both plaintiffs entered into the same contracts with the defendants, especially when they agree only Lentini was named on the building permit as the builder and only Lentini was paid by the defendants. Further, it is unlikely that both plaintiffs have suffered the same loss and damage if the agreement was repudiated by the defendants as is alleged. The calculations of loss and damage set out at paragraph 23 of the ASOC cannot apply to both plaintiffs equally. For example, it is alleged that both plaintiffs would have incurred the “costs and expenses of work done in preparation for building the warehouses,” being $325,000.00 for site management and administration, $230,300.00 for plumbing and drainage, $1,232,500.00 for structural concrete panels, $1,071,000.00 for other concrete, and so on. It is alleged that both plaintiffs would have made profits of 20% or 30% on each of those stages and that is the loss they are claiming. Accordingly, it cannot be said that the ultimate determination of the claims at trial will be identical for both plaintiffs. If the defendants succeed in defending some or all of the clams, it cannot be said that both plaintiffs are likely to be liable to the defendants for the same costs.
63Both parties referred to the decision of Harpur v Ariadne Australia Limited,[44] (Ariadne) where the Full Court of the Supreme Court of Queensland considered an application for security for costs where there were multiple plaintiffs. One of the plaintiffs was resident in the jurisdiction, was a man of substantial means and was the real plaintiff. The other three plaintiffs were companies with no assets within the jurisdiction or in liquidation. The Court determined that as the man of means resident plaintiff was the real plaintiff, and as the plaintiff companies had no claim independent of his but were joined as a means of establishing his rights, an order for security for costs was not called for.
[44](1984) 8 ACLR 835; [1984] 2 Qd.R. 523, 531 - 532.
64The Full Court discussed the circumstances in which an order for security for costs will be made, and held as follows:[45]
… what is the rule where there is more than one plaintiff? In such a case, all plaintiffs suing in the same interest and by the same solicitors and counsel, there is but one set of costs. If the defendants have an opponent who is worth powder and shot they have as much as any litigant is fairly entitled to...
The “two plaintiff” cases start with the situation in which one is out of the jurisdiction. Prima facie he ought to be ordered to provide security but his co-plaintiff is within the jurisdiction. In such a case it was considered that there was no ground for ordering security…
… the cases show that, unless there is ground for making an order for security against all the plaintiffs, it cannot be made against any…
In D’Hormusgee v. Grey ... an action brought against a defendant as a common carrier by two plaintiffs, one resident abroad. The statement of claim alleged a contract by the defendant with the plaintiffs jointly and in the alternative with each of the plaintiffs separately… The critical point was that each plaintiff was liable for the whole of the defendant’s costs.
Now in John Bishop (Caterers) Ltd. v. National Union Bank Ltd Plowman J. made an order for security against a company although there was a co-plaintiff within the jurisdiction who was a natural person. His Lordship distinguished the earlier cases on the footing that there was in those cases a complete overlap as he put it of the causes of action. Accordingly, as he was not satisfied that the natural person would necessarily be ordered to pay all of the defendant’s costs he ordered security…
In Pearson v. Naydler (supra) Megarry V-C., when it came to the exercise of his discretion saw some force in the submission that the true plaintiff was the corporation and it was not in reality a case of a plaintiff company which had a natural person as a true co-plaintiff. That decision is therefore also distinguishable…
The mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent to a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play. If however he is already available for whatever he is worth, the object of the legislation is seen to be satisfied…
[45]Ibid, 531-532 (citations omitted).
65The plaintiffs also referred to the Federal Court decision of Burchett J in Cameron’s Unit Services v Kevin R Whelpton,[46] which also concerned an individual and a company plaintiffs. His Honour declined to order security for costs, referring to Ariadne and holding as follows:
In the present case, of course, the hardship which is most relevant is the hardship to the applicants themselves. I think it is also relevant that the individual responsible for this litigation, Cameron, is not sheltering behind a corporate shield in order to protect some assets of his own from liability to meet a costs order. In the Ariadne case…, the Full Court of the Supreme Court of Queensland made it clear that in such a case the means of the individual concerned are “not really relevant”. What is relevant is that the company is not a stalking horse to enable someone else to evade personal responsibility. If he accepts responsibility, an impecunious natural person is entitled to rely on the general rule that poverty is no bar to a litigant.
[46]11 ACLR 43, 49-50.
Conclusion on the jurisdictional threshold
66I am satisfied that the defendants have established that it appears by credible testimony that there is reason to believe that the plaintiffs will be unable to pay the costs of the defendants if successful in their defences.
67I agree with the defendants’ submission that on the available material, there is nothing to suggest that the plaintiff companies hold any assets beyond their share capital of a combined $14.00.
68I have significant concerns about the weight to be given to the Financial Reports filed on behalf of Fortcon and Lentini. As discussed above, I would have refused them being admitted into evidence at all, had Mr Fortuna not later tried to rectify their shortcomings by signing the director’s declaration in each of the four reports and deposing that the figures contained in the financial statements are true and correct.
69I find it hard to accept that Mr Fortuna had sufficient time to, and actually did, check and verify each of the pieces of information contained in the 52 pages of the four reports in the very short timeframe between the hearing being adjourned at 12pm and his affidavit being filed at 3:20pm on 22 November 2024.
70Even if he did, at least one of the Financial Reports has been demonstrated to be incorrect. Fortcon conceded that it had a debt to the ATO of $220,114.72 and Mr Fortuna said that debt was paid on or about 8 November 2023. However, that debt or payment is not recorded anywhere in the Financial Report for the financial year 2023 – 2024. Further, it is showing on the most recent CreditorWatch report and the ASIC extract as still being unpaid. Even if this is an error in those records, the fact that Fortcon has done nothing to correct those records gives me little comfort in accepting the accuracy of the information provided by Mr Fortuna to his accountant to prepare the financial reports tendered. As noted above, his accountants have expressly stated they have not verified the information provided to them.
71Further, I accept the submissions made by the defendants in relation to Lentini and the risks involved with it being the trustee of a trust. A costs order in favour of the defendants would be against Lentini, not the trust itself. Lentini has no assets of its own and a share capital of $12.00. If it is not indemnified by the unit holders of the trust, the defendants would have to engage in further litigation to be able to recover their costs. Alternatively, if Lentini is removed as the trustee, or if the corpus of the trust is distributed before enforcement, which the trust deed permits, the defendants may have to engage in further litigation against the unit holders of the trust or any new trustee.
72I have noted the general principles relating to trustees and trusts in Jacobs, relied on by the plaintiffs. The principles are not controversial. However they all support the defendants’ argument that for it to recover costs from Lentini, further litigation may be necessary. As Jacobs said: “[t]he right of the trustee is given effect to by an equitable lien in favour of the trustee and over the [assets of the trust]… The lien is enforceable by a court order for sale.” While such an option may be available, it is inconsistent with the rationale that security may be ordered to avoid a defendant having to engage in further litigation. As Dixon J said in Harmonious Blend, “[t]he likelihood of successfully enforcing indemnity in the future to enable a timely discharge of a costs liability cannot, on the evidence, be evaluated. The prospect of further expensive and protracted litigation cannot not be discounted.”[47]
[47]Harmonious Blend (n 38) 16 [46].
73I also do not accept the plaintiffs’ submission that there is a complete overlap between the claims of each plaintiff and so any costs order would be made jointly and severally against both plaintiffs.
74The decisions of Ariadne and Camerons involve different fact situations to the present matter. Both of those decisions, and the cases they discussed, involved an individual plaintiff who was the controlling mind of and stood behind a company which was also named as a plaintiff. That is, the actions of the company are likely to have been the actions of the individual. It is easily foreseeable that any costs order would be made against both the individual and the company in those circumstances. However, in the present matter, the claims are brought by two distinct and individual companies, not by Mr Fortuna and a company. It is hard to see that each plaintiff would have had the same role in the building project. One was named as the builder, the other’s role is not specified. The ASOC pleads that there was no written contract, but instead an agreement was reached during oral conversations whereby both plaintiffs agreed to carry out work. There are no material facts pleaded specifying the work each plaintiff was to carry out. It is unlikely that both plaintiffs agreed to carry out the same building work for the same price for each defendant. It is logical that they each had different rights and obligations under the agreement (if there was one). Similarly, it appears unlikely that if the building works had gone ahead, each plaintiff would have spent the same amount and earned the same amount of profit. Accordingly, there are real questions as to whether the Court will find each defendant is legally liable to both plaintiffs under the same agreement and for the same breach, or whether both plaintiffs suffered the same loss and damage as each other. Those questions are quite different to the matters before the courts in Ariadne and Camerons and I have no difficulty in distinguishing them.
75For those reasons I am satisfied that my discretion under r 62.02 of the Rules, alternatively s 1335 of the Corporations Act 2001 (Cth), to make an order for the provision of security by the plaintiffs has been enlivened. I now turn to consider how that discretion should be exercised.
Relevant factors to consider
76As noted in decisions such as Trility and Need, set out above, it is uncontroversial that the discretion to award security for costs is unfettered and should be exercised having regard to all of the circumstances of the case. The Court must carry out a balancing exercise, weighing the injustice to a plaintiff if it is prevented from pursuing a proper claim by an order for security, against the injustice to a defendant if no security is ordered and at trial the plaintiff's claim fails and the defendant is unable to recover costs from the plaintiff. The task of the court is to decide which of any number of discretionary factors should be taken into account in determining whether to exercise the discretion and to give them the weight according to the particular circumstances of the case.
77In the present matter, the parties referred to the following considerations relevant to my discretion:
(a) the defendants’ delay in bringing the application and the plaintiffs’ conduct in the proceeding;
(b) the merits of the claim; and
(c) the undertaking offered by Mr Fortuna.
78The plaintiffs did not raise other factors such as stultification or frustration.
Conduct and Delay
79The defendants referred to the plaintiffs’ conduct in the litigation, relevantly:
(a) On 13 March 2024, the Court made timetable orders in the proceeding, which included an order for the parties to make discovery by 10 July 2024.
(b) The plaintiffs failed to make discovery until after being served with a Form 29D notice of default on 25 October 2024, and after their non-compliance was raised in the affidavit in support of the present application.
80The plaintiffs have thus caused unnecessary delay in the proceedings, by their failure to comply with court orders and their breach of their overarching obligation to disclose the existence of documents under s 26 of the Civil Procedure Act 2010 (Vic). Such conduct heightens the potential injustice to the defendants in the event that, despite being successful in the proceedings, they are unable to recover their legal costs.
81The plaintiffs point to the defendants’ delay in making this application. The proceeding was commenced in December 2023 and the defendants have filed defences, made extensive discovery and requested particulars before the issue of this summons in October 2024. They referred to Trility where Croft J cited the decision of Christou v Stanton Partners Australasia Pty Ltd[48] and held as follows:[49]
In Christou, Newnes JA said:
“It is, however, incumbent upon a defendant who wishes to obtain security for its costs to apply promptly for that relief once it is, or ought reasonably be, aware that the plaintiff would be unable to meet an order for costs. Security for costs is not a card that a defendant an keep up its sleeve and play at its convenience. Delay is an important consideration in the determination of an application for a security for costs because it is capable of causing prejudice or unfairness to the plaintiff. A plaintiff is entitled to know at the earliest opportunity, before it has committed substantial disruption or distraction in the conduct of the plaintiff’s case, and if the plaintiff is unable to provide security, the greater the costs that will have been wasted.”
The closer is the proximity of the hearing of the substantive proceeding to the time at which any application for security for costs is made, the more weight is likely to be given to the delay factor.
[48][2011] WASCA 176 [20].
[49]Trility (n 10) [56] - [57].
82In my view, the relevant period of delay in bringing this application is from December 2023 to 10 July 2024. There is no basis to conclude that the defendants delayed after 10 July 2024 in the issuing of the summons. The evidence establishes that:
(a) the defendants raised questions about the plaintiffs’ financial status in correspondence with their solicitors on 10 July 2024;
(b) the plaintiffs replied saying they would provide the financial information requested by the defendants when their director returned from overseas;
(c) the plaintiffs did not provide that information and the defendants then issued the summons;
(d) the plaintiffs ultimately only provided information in their affidavits filed on 19 November 2024 and 22 November 2024 at 3:20pm.
83Accordingly there is no basis for the plaintiffs’ argument that the defendants delayed during this period.
84Prior to 10 July 2024, the evidence establishes that:
(a) the plaintiffs’ writ and statement of claim were filed on 1 December 2023;
(b) the defendants filed a notice of appearance on 18 December 2023;
(c) the defendants filed a defence on 14 February 2024;
(d) the parties agreed timetabling orders to trial prior to the first directions hearing on 13 March 2024; and
(e) on 4 July 2024 the defendants carried out the searches of the plaintiffs.
85The defendants submit that even if there is an unexplained delay during this period, the plaintiffs must establish prejudice by the delay. They have not done so, and significantly, have made no submissions of any prejudice. The defendants relied on the following comments of the Victorian Court of Appeal in United Commercial Projects Pty Ltd v PHHH Investments No 2 Pty Ltd:[50]
Delay is always a relevant matter. Its significance will depend on the facts of each case. Delay will be of greater significance where there is evidence of prejudice. Generally, it cannot be presumed that delay, even substantial delay, is prejudicial.
… one way in which delay can be addressed is by limiting an order for security for costs to those costs incurred after the request for security was made, or after the application was brought.
[50][2019] VSCA 192 [39]-[40].
86The defendants’ original summons sought security for costs incurred prior to the issuing of the summons. During the hearing, Mr Andreou conceded that if delay is a factor, the defendants would seek security only for their future costs, from the date of the application (being 25 October 2024).
87I am satisfied there was an unexplained delay by the defendants prior to July 2024. The plaintiffs’ conduct in failing to provide discovery does not explain why the defendants did not raise their concerns about the plaintiffs’ financial situation prior to 10 July 2024. However, the plaintiffs have provided no evidence of any prejudice caused by the delay between December 2023 and July 2024, and have made no submission that they have suffered any prejudice. The concession made by Mr Andreou is appropriate and I am satisfied that while the delay is a relevant factor in the exercise of my discretion, it is negated by limiting any order for security to ‘future costs’, that is costs incurred or to be incurred after the issuing of the summons on 25 October 2024.
Merits of claim
88The plaintiffs correctly noted that consideration of the merits or prospect of success are necessarily limited in a security for costs application. However, they submitted that their claims are made bone fide and have good prospects of success. They suggested that the facts are analogous to a number of other decisions which were successful.
89Having said that, the plaintiffs also conceded that they no longer relied on their original statement of claim and would seek to amend it. They prepared the PASOC dated 16 December 2024 and on 18 December 2024 advised that the PASOC needed further amendment. I note that subsequent to the hearing and prior to this decision being handed down, the plaintiffs have filed and served the ASOC dated 20 March 2025. The parties attended a case management conference in April 2025 and agreed that the defendants would have to file new defences to address the ASOC. Based on those events, I consider I am not in a position to assess the merits of the claims as they were put during the hearing, as the plaintiffs conceded they needed to be amended. I am also not prepared to assess the merits of the claim based on the ASOC, when no defences have yet been filed and the parties have not addressed me on them. Accordingly, I do not consider the merits or otherwise of the claims to be a relevant factor in the exercise of my discretion.
Mr Fortuna’s Undertaking
90The plaintiffs also relied on a personal undertaking offered by their director Mr Fortuna to pay any costs order awarded against the plaintiffs.[51] The defendants submitted that they are unable to assess the value of the undertaking when Mr Fortuna has provided no evidence of his financial position.
[51]Affidavit of Leonardo Giuseppe Fortuna, dated 22 November 2024, 2 [13].
91The offer of an undertaking may be a relevant factor in the exercise of my discretion. As His Honour Justice Croft said in Trility, the Court may take into account the following in determining any application for security:[52]
(a) whether there are persons standing behind the company who are likely to benefit from the litigation and willing to provide the necessary security;
(b) whether the person behind the company has offered any personal undertaking to be liable for costs, and if so the form of the undertaking.
[52]Trility (n 10) 4 [16] (citations omitted).
92I agree with the defendants that, on the evidence before me, the value of the undertaking given by Mr Fortuna is unable to be calculated. First, I do not accept that Mr Fortuna is necessarily the person standing behind the plaintiffs. He is the sole director and shareholder of the two companies, but he does not appear to be a unit holder of the Lentino No.1 trust (as discussed at paragraph 53 above). Second, the undertaking was offered as part of the plaintiffs’ attempts to plug the gaps in their evidence during the hearing on 22 November 2024. It is one sentence in Mr Fortuna’s affidavit, with no detail of his capacity to meet his undertaking. As His Honour Croft J said, the form of the undertaking is a relevant matter. Mr Fortuna has provided no details of his undertaking. Is it backed by assets? Does he intend to offer any security?
93Instead, the proffered undertaking raised further questions, which the defendants’ solicitors expressed in writing to the plaintiffs’ solicitors on 29 November 2024.[53] The plaintiffs have failed to answer these questions despite having had several weeks to do so before the hearing resumed on 18 December 2024. Accordingly I give Mr Fortuna’s proffered undertaking little weight.
[53]Third McKay Affidavit (n 41), Exhibit RSM-3, 79.
Conclusion
94For the reasons set out above, I am satisfied that there is reason to believe, based on credible evidence, that the plaintiffs may not be able to pay a costs order in favour of the defendants at the conclusion of the trial. That enlivens my jurisdiction to make an order for security for costs. While there is no general predisposition in favour of making an order for security once the jurisdictional threshold is passed, impecuniosity is itself a significant discretionary factor and often a most significant factor.
95I am satisfied there is the risk of injustice to the defendants if no security is ordered and at trial the plaintiffs’ claims fail and the defendants are unable to recover costs from the plaintiffs. The plaintiffs have not contended they would be prevented from pursuing their claims by an order for security.
96None of the other discretionary factors raised by the parties tip the balance in the other direction. There was a short period of delay in issuing the summons, but this is not said to have caused the plaintiffs any prejudice. I am unable to assess the merits of the claim in circumstances where the plaintiffs stated the claim was to be amended. I give Mr Fortuna’s undertaking little weight in circumstances where he has not provided any details in support of the undertaking.
97Having regard to those considerations, weighing up the competing interests of the parties, I am satisfied it is appropriate to make an order for security. Having said that, I do not accept the amount of security originally sought by the defendants.
Quantum of security to be provided
98As noted above, the defendants’ original summons sought security for costs incurred prior to the issuing of the summons until the trial, which at that time was listed for 20 May 2025. During the hearing, Mr Andreou conceded that it was open to me to order security only for future costs, from the date of the application (being 25 October 2024). He also conceded that security costs could be ordered up to a certain point in the proceeding and then revisited after that time, rather than an order being made now for security to the trial date.
99I will make orders requiring the plaintiffs to provide security for the defendants’ costs from the date of the summons (25 October 2024) to the end of mediation (which date is still to be agreed between the parties or ordered). There will be liberty to apply for further security after mediation if the proceeding does not settle.
100I note that since the hearing on 18 December 2024, the parties attended a pretrial case management conference on 22 April 2025 with the Commercial Division lawyer and agreed the proceeding was not ready for trial. They agreed to adjourn the trial date from 20 May 2025 to 16 March 2026. My Orders dated 23 April 2025 record that the parties are in the process of discussing further timetabling orders, including dates for amended defences, discovery, subpoenas and expert reports. I also note they do not appear to have attended mediation, which was to have occurred by 28 February 2025. They have not proposed a new date for mediation but this should be included as part of the orders they are currently discussing.
101It appears from appears the First Mackay Affidavit that the amount of costs expended prior to 25 October 2024 was $67,183.43.[54] I am unable to assess the amount of costs between 25 October 2024 and mediation until the parties have agreed the new timetable. Accordingly, the parties must provide proposed orders to give effect to these reasons. Once the defendants are able to quantify their future costs to mediation, they should set out their calculations of the amount of security they seek. If they are unable to do so until after the next timetabling orders are made (due to be agreed or determined by 27 June 2025) then they should advise my chambers if they agree that the amount of security should be determined after that date, or if they seek other orders.
[54]First McKay Affidavit (n 13) 8-9 [30].
Costs
102As the defendants have succeeded in their application, absent any objection, it appears to be appropriate to make an order that the plaintiffs should pay the defendants’ costs of and associated with the application, including the two appearances, assessed on the standard basis on the County Court scale. I note that the defendants have made submissions that the first hearing day was wasted due to a lack of preparation on the part of the plaintiffs and a failure to provide material in a timely fashion. The costs order I have foreshadowed will pick up those costs. If a party seeks a different order, they have liberty to file submissions and any affidavits, followed by responses from the other party. Costs will then be determined on the papers.
- - -
Certificate
I certify that these 36 pages are a true copy of the ruling of her Honour Judge Kirton delivered on 20 May 2025.
Dated:20 May 2025
Jessica Meaney
Associate to Her Honour Judge Kirton
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