General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited (No 2)
[2023] FCA 556
•2 June 2023
FEDERAL COURT OF AUSTRALIA
General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited (No 2) [2023] FCA 556
File number: QUD 255 of 2020 Judgment of: DERRINGTON J Date of judgment: 2 June 2023 Catchwords: PRACTICE AND PROCEDURE – security for costs – applicant in proceedings being wound up – whether order for security would stifle action – applicant established that those who stand behind it and those who would benefit from the litigation are also without means – consideration of what needs to be shown of those who stand behind company or who would benefit from the litigation – whether reasonable to require those who stand behind the company to provide security – an order for security would stifle the proceedings – merits of the proceedings considered – application for security refused Legislation: Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
Evidence Act 1995 (Cth)
Federal Court of Australia Act 1976 (Cth)
Federal Court Rules 2011 (Cth)
Uniform Civil Procedure Rules 2005 (NSW)
Cases cited: Acohs Pty Ltd v Ucorp Pty Ltd (2006) 155 FCR 181
Adelaide (SA Pools & Spa) Manufacturing and Installation Pty Ltd v Westcourt General Insurance Brokers Pty Ltd [2016] SASC 60
All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840
Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (No 6) (1996) 64 FCR 79
Anderson v Canaccord Genuity Financial Ltd [2022] NSWCA 168
Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507
Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51
Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 388 ALR 577
Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301
Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Limited [2012] FCAFC 57
Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434
Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1
BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339
Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317
Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497
Cameron’s Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46
Capic v Ford Motor Company (No 2) [2016] FCA 1178
Carter v Mehmet t/as ATF Ian G Mehmet Testamentary Trust [2021] NSWCA 32
Chang v Comcare Australia [1999] FCA 1677
Chen v Golden Land Enterprises Pty Ltd (No 2) [2022] NSWSC 985
Chief Disruption Officer Pty Ltd as Trustee for the McDonald Family Trust v Michel, in the matter of Laava ID Pty Ltd [2022] FCA 148
Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd [2022] FCA 1309
Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 2) [2007] FCA 163
Cowell v Taylor (1885) 31 Ch D 34
Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11
Duke Holdings Ltd (in liq) v Duke Group Ltd (in liq) [2009] SASC 245
Environmental Defendants Office (Tas) Inc v Chipman [2003] TASSC 72
Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191
Equititrust Ltd v Tucker [2020] QSC 269
Equity Access Ltd v Westpac Banking Corporation (1989) ATPR ¶40-972
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564
General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited [2020] FCA 1562
Gold Village Pty Ltd (in liq) v Sharma [2021] VSC 600
Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd (2008) 67 ACSR 105
Grocon Group Holdings Pty Ltd v Infrastructure NSW (2020) 149 ACSR 112
Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523
Health & Life Care Ltd (recs and mgrs apptd) v Price Waterhouse (1993) 11 ACSR 326
Health Information Pharmacy Franchising Pty Ltd v Khoo [2010] FCA 438
Hells Angels Motorcycle Corporation (Australia) Pty Ltd v Redbubble Ltd [2016] FCA 530
Hill v Zhang [2019] FCA 1562
Hopkins v AECOM Australia Pty Ltd (No 5) [2015] FCA 1228
Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744
Imagecolor (SA) Pty Ltd (in liq) v Haslam [2002] SASC 200
J & M O’Brien Enterprises Pty Ltd v Shell Co of Australia Ltd (No 2) (1983) 70 FLR 261
Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd (1995) 16 ACSR 532
Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd [1995] FCA 381
Jazabas Pty Ltd v Haddad (2007) 65 ACSR 276
Jeffcott Holdings Ltd v Paior (1996) 15 ACLC 28
Jenyns v Public Curator (Qld) (1953) 90 CLR 113
Kavcor Pty Ltd (in liq) v Kavanagh [2005] NSWSC 1163
KDL Building Pty Ltd v Mount [2006] NSWSC 474
Kelly v MIS Funding No 1 Pty Ltd (2012) 300 ALR 675
Knight v Beyond Properties Pty Ltd [2005] FCA 764
Kordovoulos v Dixon-Hughes [2022] NSWCA 110
KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189
Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302
Longjing Pty Ltd v Perpetual Nominees Ltd [2017] NSWSC 1690
LRSM Enterprise Pty Ltd v Zurich Australian Insurance Ltd [2014] NSWCA 88
Madgwick v Kelly (2013) 212 FCR 1
Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560
Mecrus Pty Ltd v Industrial Energy Pty Ltd (2015) 327 ALR 523
Mt Nathan Landowners Pty Ltd (in liq) v Morris [2006] QSC 225
Nambour Valley Estates Pty Ltd v Henebery Holdings Investment Trust [2007] QSC 393
Newtrend Pty Ltd v Oceanic Life Limited [1990] WAR 1
Ollerenshaw v The Uniting Church in Australia Property Trust (NSW) [2017] NSWSC 1637
Omega Data Furniture Pty Ltd v Email Furniture Ltd [1995] FCA 641
P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321
Pasdale Pty Limited v Concrete Constructions (1995) 131 ALR 268
Passenger Transport Systems Pty Ltd (in liq) v Darwin Radio Taxi Co-operative Ltd [2000] FCA 147
Pearson v Naydler [1977] 1 WLR 899
Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378
Porter v Gordian Runoff Ltd [2004] NSWCA 171
Porter v Gordian Runoff Ltd [2004] NSWCA 69
Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222
Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326
Ryberg Telecommunications Pty Ltd (in liq) v Optus Mobile Pty Ltd [2011] NSWSC 1268
SAS Global Forrestdale Pty Ltd v Samsera Pty Ltd [2010] WASC 309
Schofield v TFS Manufacturing [2020] FCA 1526
Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201
Shackles v The Broken Hill Proprietary Company Ltd [1996] 2 VR 427
Soul Pattinson Telecommunications Pty Ltd v Subex Americas Inc [2009] FCA 651
Specialised Explosives Blasting & Training Pty Ltd v Huddy’s Plant Hire Pty Ltd [2010] 2 Qd R 85
The Airtourer Co-operative Limited v Millicer Aircraft Industries Pty Limited [2004] FCA 1400
Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltd [2005] WASC 164
Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52
Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd [2013] NSWCA 404
Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd (2014) 103 ACSR 201
Unified Pty Ltd v Cancer Council Western Australia Inc (No 3) [2011] WASC 161
Union Steel Pty Ltd v Union Steel Investments Pty Ltd [2020] NSWSC 1511
Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57
Yandil Holdings Pty Ltd v Insurance Company of North America (1985) 3 ACLC 542
Yes Home Loans Pty Ltd v AFIG Wholesale Pty Ltd [2008] NSWSC 1017
Zenith Corp Australia Pty Ltd v Optus Mobile Pty Ltd [2020] NSWSC 1110
Dal Pont, Law of Costs (LexisNexis, 5th ed, 2021)
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 261 Date of hearing: 10 March 2023 Counsel for the Applicant: Mr N Wood SC Solicitor for the Applicant: Clifford Gouldson Lawyers Counsel for the Respondent: Mr P O’Shea KC with Ms J Sargent Solicitor for the Respondent: King & Wood Mallesons ORDERS
QUD 255 of 2020 BETWEEN: GENERAL TRADE INDUSTRIES PTY LTD (IN LIQUIDATION) ACN 105 470 497
Applicant
AND: AGL ENERGY LIMITED ACN 115 061 375
Respondent
ORDER MADE BY:
DERRINGTON J
DATE OF ORDER:
2 JUNE 2023
THE COURT ORDERS THAT:
1.The application is dismissed.
2.The respondent pay the applicant’s costs of the application.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DERRINGTON J:
By an application dated 2 December 2022, the respondent in this proceeding, AGL Energy Limited (AGL), applied for an order pursuant to s 1335(1) of the Corporations Act 2001 (Cth) (Corporations Act), s 56(1) and (2) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) and r 19.01(1)(a) of the Federal Court Rules 2011 (Cth) (Federal Court Rules) that the applicant, General Trade Industries Pty Ltd (in liquidation) (General Trade), provide a further tranche of security for AGL’s costs of the proceeding in the sum of $657,981.72. It also seeks an order pursuant to r 19.01(1)(b) of the Federal Court Rules that the proceeding be stayed until such time as security is given, as well as leave to apply to increase the amount of security pursuant to s 56(3) of the Federal Court Act upon the giving of three days’ prior notice.
This application follows AGL’s earlier application for security, which was granted in General Trade Industries Pty Ltd (in liquidation) v AGL Energy Limited [2020] FCA 1562 (General Trade (No 1)). There, General Trade was ordered to provide $70,000 in security for costs and it did so in about March 2021.
The further security now sought by AGL is in respect of its costs for the period 1 November 2022 to the commencement of the final hearing in the proceeding, which is anticipated to take place sometime in 2023. It is sought on the basis that the existing security is inadequate to cover AGL’s costs up to the commencement of trial, which are expected to be substantial and are unlikely to be recouped by way of any adverse costs orders ultimately made against General Trade.
Background
The factual background to this proceeding is set out in General Trade (No 1) and need not be repeated here at any great length. Since that decision, however, General Trade has filed an Amended Statement of Claim and a Further Amended Statement of Claim, which together have effected material changes to its case. AGL has, in turn, amended its Defence. It is appropriate, for the purposes of this application, to draw from these revised pleadings the key contentions now in issue.
Further Amended Statement of Claim
General Trade was engaged by AGL, pursuant to a contract dated 20 December 2013 (the Construction Agreement), to carry out civil, electrical and mechanical works for the construction of certain facilities at AGL’s Wallumbilla LPG Plant and Silver Springs Plant (the Project). The Construction Agreement included an amended version of the AS4000-1997 General Conditions of Contract. A dispute emerged between the parties in relation to, amongst other things, particular payment claims made by General Trade in the course of the Project, which were contended to have been prepared in accordance with the Construction Agreement and the security of payment legislation in force in Queensland at that time. That dispute was ultimately sought to be resolved by the parties’ entry into a “Deed of Release” on or about 13 August 2014.
General Trade advances essentially two overarching claims:
(a)First, that AGL engaged in unconscionable conduct within the meaning of the unwritten law and in contravention of the Australian Consumer Law (ACL), being Schedule 2 to the Competition and Consumer Act 2010 (Cth), in connection with the negotiation and execution of the Deed of Release. This may be described as the “Unconscionable Conduct Claim”.
(b)Secondly, that AGL (by the Superintendent on the Project) issued certain directions or requests to perform additional works, which were carried out and became the subject of a further payment claim by General Trade, but which were not thereafter paid for by AGL. This may be described as the “Additional Work Claim”.
Central to the Unconscionable Conduct Claim is an allegation that AGL was aware at the time of the execution of the Deed of Release that General Trade was experiencing severe financial distress. This financial distress, to which AGL is alleged to have contributed, is said to have put General Trade in a position of special disadvantage relative to AGL, which was further exacerbated by the parties’ inherently disparate bargaining powers. AGL is also alleged, inter alia, to have failed to give reasons for its reduction of General Trade’s payment claims and to have breached its obligations under applicable security of payment legislation. It is said to follow that, in procuring the execution of the Deed of Release, AGL took advantage of General Trade’s special disadvantage in order to secure a material gain for itself; specifically, to allow it to “short pay” General Trade for work performed on the Project.
General Trade seeks $4,314,481.64 in damages under s 236 of the ACL, or in compensation under s 237 of the ACL, or in equitable compensation, for loss allegedly suffered as a result of this conduct. That figure represents the difference between the full amount to which General Trade claims it was entitled under its Payment Claims 1 to 11 made on the Project prior to entry into the Deed of Release (being $31,814,483.93, exclusive of GST) and the total amount ultimately paid to it by AGL in response to those payment claims and under the Deed of Release (being $27,500,002.29, exclusive of GST).
The Additional Work Claim begins with certain directions issued by AGL on or about 14 July 2014 and 12 August 2014, which required General Trade to demobilise from the Project sites, subject to certain conditions and in a particular manner. It is alleged that those directions required additional work to be completed, beyond what was contemplated by the scope of works under the Construction Agreement at that time. After making those directions, between 17 September 2014 and 12 December 2014, AGL (by the Superintendent) notified General Trade that it considered certain work to not be compliant with the Construction Agreement, and also directed General Trade to correct certain work. Again, it is alleged that these directions and notices amounted to requests under the Construction Agreement to perform additional work that was not otherwise within the scope of works. General Trade also identifies further items of alleged additional work undertaken at about this time, including work performed after 31 July 2014 in relation to pre-commissioning activities, and work in relation to the preparation of a material data records (MDR) index for the Project, which was “completed up to and including 31 July 2014”.
General Trade carried out all of these works and issued a final Payment Claim 12 that sought, in respect of them, the sum of $1,195,562.13. AGL has since failed or refused to make any payment in respect of Payment Claim 12. General Trade now seeks the sum of $1,195,562.13 by four alternative claims: damages for breach of contract, restitution lying as upon a quantum meruit, damages under s 236 of the ACL, and compensation under s 237 of the ACL.
The claim for damages or compensation under the ACL is made on the basis that AGL’s failure or refusal to pay any amount in respect of the relevant works constituted unconscionable conduct, since it knew or ought to have known that:
(a)it required or requested General Trade to perform those works;
(b)General Trade carried out the works;
(c)General Trade incurred costs and expenses in respect of the performance of the works;
(d)General Trade was entitled to be paid for the works; and
(e)the amount claimed by General Trade for the performance of the works was reasonable.
Amended Defence
In its Amended Defence, AGL contests a number of aspects of General Trade’s case. However, for the purposes of this application, its responses to the two overarching claims need only be summarised at a high level.
In respect of the Unconscionable Conduct Claim, AGL contends that it was not required to pay the payment claims made by General Trade, as they were not made in accordance with the Construction Agreement. For the same reason, it contends that the Superintendent was not required to issue any progress certificates in respect of those payment claims under the Construction Agreement, or any payment schedule under the applicable security of payment legislation. Further, and in any event, it says that General Trade was not at any special disadvantage; rather, it was apparent that it was an experienced industry participant capable of protecting and advancing its own commercial interests. Accordingly, it contends that it did not engage in any unconscionable conduct when entering into the Deed of Release with General Trade.
In respect of the Additional Work Claim, AGL contends on multiple grounds that the relevant work to which General Trade refers in its Further Amended Statement of Claim was not work for which it was entitled to be paid under the Construction Agreement. In the first place, certain clauses of the Deed of Release had the effect that General Trade had no entitlement to perform further work under or in accordance with the Construction Agreement, or any entitlement to receive payment for such work. In any event, it says that the work in question fell within the original scope of works to be performed by General Trade under the Construction Agreement, such that General Trade could not be entitled to any further payment. AGL contends further that it was not obliged to make any further payment because Payment Claim 12 was not issued in accordance with the Construction Agreement or the relevant security of payment legislation.
In relation to the quantum meruit claim, AGL contends that each category of work identified by General Trade fell within the original scope of works set out in the Construction Agreement, for which payment was already made pursuant to that contract or clause 1 of the Deed of Release. There is accordingly no basis to make restitution. Even if there was, it says that the fair value of the work should not exceed a fair value calculated by reference to the corresponding part of the agreed contract price.
Regarding the unconscionable conduct aspect of the Additional Work Claim, AGL makes an initial objection on the basis that the cause of action is deficiently pleaded. Subject to that, it contends that it did not have knowledge of the matters pleaded as the basis for General Trade’s allegation of unconscionable conduct. In any event, both parties were commercial entities capable of acting in their own best interests, such that General Trade could not be said to be at any special disadvantage of which AGL was aware. Finally, AGL contends that it was not required to pay General Trade in respect of the relevant works.
Other matters
General Trade’s Reply does not add any material allegations of fact to the case summarised above. In AGL’s submissions on this application, it identified that pleadings closed on 31 October 2022, and this was the point from which it proceeded to calculate its existing and anticipated costs of this litigation in the amount of $657,981.72.
Importantly, as General Trade does not dispute the quantum of security sought, it is unnecessary to consider the evidence adduced by AGL in support of the $657,981.72 figure. General Trade also did not dispute that it is presently impecunious, and will be unable to pay AGL’s costs if ordered to do so following the final hearing of the matter. Nor did it make any submission that the Court should, for the purpose of determining AGL’s application, conclude that AGL was the cause of its impecuniosity.
The relevant legislative provisions
The interlocutory application filed by AGL cited s 56(1) and (2) of the Federal Court Act and r 19.01(1)(a) of the Federal Court Rules as the jurisdictional basis for the primary order sought as to the provision of further security for costs. Section 56 of the Federal Court Act confers on the Court a discretionary power to make such orders, relevantly in the following terms:
56 Security
(1)The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her.
(2)The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs.
In its written submissions, however, AGL made reference also to the power to order security for costs conferred by s 1335(1) of the Corporations Act, which provides as follows:
1335 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.
On the hearing of the application, Mr O’Shea KC for AGL preferred to advance his case by reference to this provision, rather than s 56 of the Federal Court Act. General Trade did not object to this course, and it is appropriate to proceed on that basis.
In any event, it is unlikely that AGL’s election to rely on one discretionary power over the other would produce any different result in this case. Both s 1335(1) and s 56 have been regarded as conferring a discretion that is broad and essentially unfettered, albeit that it must be exercised judicially: Hopkins v AECOM Australia Pty Ltd (No 5) [2015] FCA 1228 [44], [57] per Nicholas J; Chopsonion Pty Ltd (Controllers Appointed) v Watts Meat Machinery Pty Ltd [2022] FCA 1309 [22] per O’Sullivan J. It has also been acknowledged in several prior decisions of this Court that, where (as here) an application for security for costs is made on the basis that the applicant to the proceeding is impecunious and will be unable to satisfy a potential costs order, there may be no practical difference in the operation of the two provisions: see Soul Pattinson Telecommunications Pty Ltd v Subex Americas Inc [2009] FCA 651 [6] per Perram J; Health Information Pharmacy Franchising Pty Ltd v Khoo [2010] FCA 438 [5] per Yates J; Austcorp Project Number 20 Pty Ltd v LM Investment Management Ltd (in liq) [2014] FCA 1371 [20] – [21] per Gleeson J (Austcorp). An obvious point of divergence is the inclusion of an express threshold requirement in s 1335(1) that “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”, but here General Trade has conceded this point.
As a result, the focus under both provisions turns to the several matters that have been recognised as potentially informing the exercise of the Court’s discretion. In considering these matters, it is important to remain cognisant of the onus borne by each party, as explained by Gleeson J in Austcorp at paragraphs [25] – [26] by reference to prior authorities:
[25] Once it appears by credible testimony that there is reason to believe that a corporation will be unable to pay the costs of the defendant if successful in its defence, there is an evidentiary burden on the party resisting the order for security for costs to establish a reason why security should not be granted: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30] … Topcide Pty Ltd v Charter Financial Planning Ltd [2010] FCA 1151 at [12] and Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222 at [9].
[26] Even so, the burden rests on the defendants, from first to last, to persuade the court that the order for security should be made: Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 at [21].
See also Mecrus Pty Ltd v Industrial Energy Pty Ltd (2015) 327 ALR 523, 528 [22] – [24] per Murphy J.
It follows that, in the present case, General Trade bears the evidentiary burden of establishing a reason why security should not be granted, though AGL retains the overall persuasive onus.
The competing contentions
A number of matters have been identified in previous decisions of this Court as being appropriate to consider as factors or guidelines in the exercise of the discretion to order security for costs: see, eg, Equity Access Ltd v Westpac Banking Corporation (1989) ATPR ¶40-972, 50,635 per Hill J; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189, 197 per Beazley J (KP Cable); Acohs Pty Ltd v Ucorp Pty Ltd (2006) 155 FCR 181, 185 – 186 [12] per Jessup J. It is unnecessary to consider each of them in this case, and the parties’ submissions have confined the dispute to only a narrower set of specific issues.
In particular, General Trade, as the party bearing the evidentiary burden, made two substantive submissions as to why security should not be granted:
(a)first, that the Court should find that the underlying litigation would be stifled if the security was ordered, and that this consideration ought be dispositive against granting the orders sought by AGL; and
(b)secondly, if the Court was to be satisfied that the litigation would be stifled if the security was ordered, that the Court should not grant the security on the basis of an assessment that General Trade’s case has poor prospects of success.
AGL did not raise any additional points in its written submissions, other than to contend that it did not cause General Trade’s impecuniosity. As noted, this was conceded by General Trade and does not need to be addressed further.
The two remaining matters the subject of the parties’ submissions may be addressed in turn.
The stifling effect of an order for further security for costs
Consistent with the statement from Austcorp set out above, it has been recognised that the onus of establishing that the making of an order for security for costs would stifle (or, to use the language of some other authorities, stultify) the suit rests on the party resisting security: Madgwick v Kelly (2013) 212 FCR 1, 19 – 20 [81] per Allsop CJ and Middleton J (Madgwick v Kelly); General Trade (No 1) [48].
General Trade’s submission as to the alleged stifling effect of any order for security in this case is properly treated as raising three separate, though related, questions. In the first place, in accordance with authority, it must be determined whether those who stand behind the impecunious corporate applicant (that is, General Trade) and those who are liable to benefit from the underlying litigation might themselves meet an order to provide security for costs. Secondly, as submitted by AGL, it must also be determined whether General Trade is otherwise capable of funding the litigation to completion, notwithstanding the position that it has taken in opposition to the present application. Finally, it must be determined whether, as General Trade contended in this case, any proven stifling effect of the order is to be treated as dispositive of the application for security for costs.
Underlying each of these questions is a more general pair of propositions, which were relied upon by General Trade in its written submissions and at the hearing: that “access to justice trumps costs recovery”, and that this principle “do[es] not apply differently in any fundamental way to a corporate plaintiff (in liquidation or otherwise)”. Given their apparent relevance to the questions arising for determination on this point, it is useful to begin by considering these propositions.
“Access to justice” in the context of an impecunious corporate applicant
It has been well established that the impecuniosity of an individual plaintiff or applicant to litigation will not afford sufficient reason, in and of itself, to order security for costs. The basis for this position is to be found in the oft-cited statement of Bowen LJ in Cowell v Taylor (1885) 31 Ch D 34 at 38 that, both at law and in equity, “[t]he general rule is that poverty is no bar to a litigant”. In this Court, it has been said that this “general rule” is derived from the principle that “citizens have a right of access to the courts”; a right that is “immanent in the rule of law”: The Airtourer Co-operative Limited v Millicer Aircraft Industries Pty Limited [2004] FCA 1400 [20] per Branson J. This right takes precedence over the opposing party’s concern that, if successful, an order for costs in their favour will be fruitless: Shackles v The Broken Hill Proprietary Company Ltd [1996] 2 VR 427, 428 per Byrne J (Shackles). However, impecuniosity will remain a relevant consideration in the exercise of the discretion to order security for costs, and such an order might properly be made against an impecunious natural person where other factors favour that result: Chang v Comcare Australia [1999] FCA 1677 [25] per Moore J; Knight v Beyond Properties Pty Ltd [2005] FCA 764 [32] – [33] per Lindgren J.
For almost as long as there has been this attentiveness to the plight of the impecunious individual applicant, the impecunious corporate applicant, in the same position, has been seen as requiring different treatment. Provisions such as s 1335(1) of the Corporations Act are of considerable antiquity, and make the very basis of the jurisdiction to order security for costs against a company the fact that the company is impoverished, albeit that this does not predispose the court to an exercise of its discretion one way or the other: see Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497, 505 – 511 per French J (Bryan E Fencott). The general practice with regard to companies has been said to be “just the opposite” of that prevailing in respect of individuals, and the company’s impecuniosity may be a “most significant factor” in the exercise of the discretion: Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] 2 VR 191, 195 [13], [16] per Winneke P and Phillips JA; Pearson v Naydler [1977] 1 WLR 899, 904 – 906 per Megarry V-C (Pearson). The policy objective served by s 1335(1) and its antecedents has been explained on a number of occasions as being, essentially, to ensure that the privilege of limited liability is not misused in such a way as to make the company a “stalking horse”, enabling those who stand behind it, and those who are liable to benefit from the proceedings that it has brought, to pursue their own interests in the action without facing any risk as to costs: see J & M O’Brien Enterprises Pty Ltd v Shell Co of Australia Ltd (No 2) (1983) 70 FLR 261, 263 per Bowen CJ; Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523, 532 per Connolly J (with whom Campbell CJ and Demack J agreed); Cameron’s Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1986) 13 FCR 46, 53 per Burchett J; Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 2) [2007] FCA 163 [25] per Mansfield J; All Class Insurance Brokers Pty Ltd (in liquidation) v Chubb Insurance Australia Limited [2020] FCA 840 [49] per Allsop CJ.
The practical effect of this was explained by Sheppard, Morling and Neaves JJ in Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 (Bell Wholesale) at 4, as follows:
[A] court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts.
In this way, a particularly clear case in which a court might order the provision of security for costs is where a secured creditor of the impecunious company instigates and financially supports the litigation: Sent v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201, 215 per Smithers J (with whom Sweeney J agreed); Nambour Valley Estates Pty Ltd v Henebery Holdings Investment Trust [2007] QSC 393 [29] per Daubney J. Likewise where the company is merely a “convenient financially bereft alter ego” for its shareholders: Tradestock Pty Ltd v TNT (Management) Pty Ltd (1977) 14 ALR 52, 59 per Smithers J. In such cases, the company is akin to an impecunious nominal applicant put forward to fight the case on behalf of the real applicant, who is not before the court, this being a long-recognised exception to the general rule that poverty is no bar to a litigant: Bryan E Fencott at 505, 511.
Against this background, the overall thrust of General Trade’s submission, that a corporate applicant’s right of access to justice ought to trump the respondent’s interest in costs recovery no less than would the same right of an individual applicant, might at first glance seem to impermissibly equate that which the law has consistently sought to distinguish. However, this is not what was contended. Mr Wood SC, who appeared for General Trade, did not deny that different policy considerations must attend the exercise of the power to order security for costs in respect of an impecunious corporation. He submitted that, this notwithstanding, the underlying concern of the court in access to justice ought to apply just the same.
So much might be accepted. The point to be made is that, while the impecuniosity of the corporate applicant introduces certain distinctive policy concerns, they do not exclude from consideration altogether the more fundamental interest in ensuring access to justice. The concerns must simply be addressed, in the manner suggested in Bell Wholesale and other cases, before that interest can be attributed the weight that it would ordinarily bear from the outset in the context of an impecunious individual applicant (other than, of course, a mere nominal applicant). That this interest in access to justice remains relevant in the case of an impecunious corporate applicant is made clear by statements to the effect that the court must be astute not to allow provisions like s 1335(1) of the Corporations Act to “be used as an instrument of oppression, as by shutting out a small company from making a genuine claim against a large company”: Pearson at 906; Health & Life Care Ltd (recs and mgrs apptd) v Price Waterhouse (1993) 11 ACSR 326, 330 – 331 per Olsson J; Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507, 514 per Phillips JA (with whom Ormiston and Charles JJA agreed) (Ariss). Indeed, a dogmatic insistence on distinct treatment for the corporate applicant and the individual applicant is apt to produce arbitrary outcomes: a person’s ability to contest an application made against them for security for costs may become more or less difficult merely on account of their decision to adopt (or decline to adopt) a corporate structure for their business operations.
The focus therefore turns to the first question posed above, regarding the position of those who stand behind General Trade.
The position of those who stand behind General Trade
The parties’ written submissions and affidavit material dealt with the position of several persons and entities who might be alleged to be standing behind General Trade and standing to benefit from any success that it might have in this proceeding. They are:
(a)the arm’s length unsecured trade creditors of General Trade, including in particular the four largest such creditors, being the Australian Taxation Office (ATO) (owed $818,622.15), the National Australia Bank (NAB) (owed $420,617.73), Titan Resources Camp Hire (owed $190,814.69) and Telstra (owed $107,317.85);
(b)the solicitors acting for General Trade in this proceeding;
(c)the liquidator of General Trade; and
(d)the shareholders of General Trade, Mr Geoffrey Pike (as holder of 5000 shares) and Pike & Co Pty Ltd as trustee for the Pike Investment Trust (as holder of 1 share).
There was also some evidence and submissions dealing with the possibility that General Trade might seek litigation funding from a commercial litigation funder.
It ought to be noted that the position of some of these persons and entities was addressed in General Trade (No 1). There, it was found that General Trade had not established that those who stood behind it and who were liable to benefit from this litigation were without means to provide security. For the purposes of this application, however, General Trade has put on additional evidence.
Before considering in turn the positions of each of the persons and entities identified above, it is necessary to address a threshold issue that attracted substantial attention in the hearing. That is whether, in order for General Trade to demonstrate that those standing behind it are not available to meet an order for security for costs, it is sufficient for it to provide evidence that those persons or entities are unwilling to meet such an order, or whether it is necessary for it to provide evidence that they are unable to do so. Again, this was addressed in General Trade (No 1). However, in deference to the parties’ submissions on this application, it is appropriate to traverse the point again in greater detail.
Unwilling or unable to meet an order for security for costs?
In seeking to resolve this issue, a useful starting point is the passage from the judgment of the Full Court in Bell Wholesale set out above. There, their Honours referred to the need for the company to establish that “those who stand behind it and who will benefit from the litigation if it is successful … are also without means”, and subsequently to the “impecuniosity of those whom the litigation will benefit”. The reference to the “means” and the “impecuniosity” of those standing behind the company suggests the focus to be on the inability of the persons to meet an order for security, not their unwillingness. Numerous authorities published in the wake of Bell Wholesale cited this passage without objecting to the suggestion in its language that the relevant disposition of those standing behind the company must be inability, rather than unwillingness: see, eg, Yandil Holdings Pty Ltd v Insurance Company of North America (1985) 3 ACLC 542, 545 – 546 per Clarke J (Yandil); P S Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321, 323 – 324 per McHugh J; Rhema Ventures Pty Ltd v Stenders [1993] 2 Qd R 326, 333 per Lee J; Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd (1995) 16 ACSR 532, 534 – 535 per Kiefel J; Pasdale Pty Limited v Concrete Constructions (1995) 131 ALR 268, 273 – 274 per Finn J; Omega Data Furniture Pty Ltd v Email Furniture Ltd [1995] FCA 641.
However, after addressing a number of decisions including Bell Wholesale, in Jalpalm Pty Ltd v Hamilton Island Enterprises Pty Ltd [1995] FCA 381, Cooper J stated as follows:
Where an approach has been made to others including creditors who might reasonably be expected to furnish security and they refuse to do so and the basis of the refusal is unexplained and not shown to be as a result of an inability to provide it, that refusal and the inferences, if any, to be drawn from it, are to be taken into account and be weighed in the exercise of a proper discretion. If the refusal of creditors to assist with security is because they form the view that the claim is unmeritorious or frivolous it does not follow that an impecunious company with impecunious shareholders or beneficiaries under a trust is automatically or necessarily relieved from an order for security for costs.
This passage can, on one reading, be taken to suggest that the relevant inquiry actually centres not just on the means of the persons standing behind the company, but also on the reasons that they give for their refusal to furnish security. This is largely consistent with the approach explained by Anderson J (with whom Kennedy and Ipp JJ agreed) in the subsequent decision in BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 (BPM) at 344 – 345, as follows:
The mere fact that there are creditors with the means to assist the company to give adequate security will not always be a decisive factor. The wealthy creditors may be few and the debts owed to them relatively small. The question is not simply whether there is a person who will derive some benefit from the action should it be successful and who can put up security. It is also relevant to consider whether it is reasonable that he should do so: Ford's Principles of Corporation Law, 6th (1992) par [308].
… I think the master is to be understood as having decided the correct question, namely whether in practical commonsense terms it was reasonable to expect the creditors of this plaintiff company to put up a very substantial sum as security for costs. Their likely attitude, their likely unwillingness to do so, was merely something to be discussed in that context, that is, as to whether in all the circumstances it would be reasonable to require the creditors to provide the first defendant with security for its costs …
On this view, the critical issue is not the ability or willingness per se of the persons standing behind the company, but instead the reasonableness of expecting them to meet the order for security for costs. It is not difficult to appreciate that this point might be informed to different extents by both ability and willingness. For example, citing this passage in BPM, O’Loughlin J in Passenger Transport Systems Pty Ltd (in liq) v Darwin Radio Taxi Co-operative Ltd [2000] FCA 147 (Passenger Transport Systems), [30] described the “virtual disinterest” in the proceedings shown by certain unsecured creditors (that is, in effect, their unwillingness), some of whom were identified as “well known trading houses” (that is, in effect, entities of some means), as being “a matter to be weighed in the balance” in the exercise of the discretion to order security for costs.
Shortly prior to the decision in BPM, Phillips JA in Ariss explained the aforementioned passage from Bell Wholesale in the course of addressing a submission on appeal that the exercise of the discretion under s 1335 at first instance had miscarried because an order for security was refused on account of mere “unwillingness” on the part of the creditors of the plaintiff company to contribute to the costs of the litigation, which was submitted to be an irrelevant consideration. For its part, the plaintiff contended that the order for security was actually refused because of “commercial impracticability”, which it regarded as a relevant consideration. Preferring the plaintiff’s characterisation of the reasons for the decision at first instance, Phillips JA proceeded to state as follows at 515 – 516:
It is true that commercial impracticability is not the same as plain want of means; and it is true also that in Bell Wholesale a Full Court of the Federal Court held that, if in that case the plaintiff company sought to resist the order for security for costs on the ground that to make the order would frustrate the litigation, then it was up to the plaintiff, itself impecunious ex hypothesi, to establish “that those who stand behind the action and who will benefit from the litigation if it is successful … are also without means”. To my mind, there is much force in the contention, advanced before us, that what was said in Bell Wholesale has perhaps been extended beyond its context in later cases. … There can be no absolute rule that, in order to resist an order for security on the ground that the litigation will be altogether frustrated, there must be evidence that those who will benefit from the litigation are without means; it will depend upon how the case is being put.
… Bell Wholesale decided only that, if the plaintiff relies upon a want of means to establish that the order cannot be met, the plaintiff must demonstrate that fact by reference, not to its resources (which ex hypothesi must be inadequate if the discretion is called into play), but by reference to the resources of those who will benefit from the litigation and who might reasonably be expected to meet some of the costs … In this case, however, the plaintiff does not rely upon want of means but upon “commercial impracticability”, meaning thereby the practical difficulty facing the plaintiff in gaining any advantage from (by applying to the costs of the litigation) such means as may exist in others, and notably its creditors. I see no reason why, as a matter of principle, that should not be a relevant circumstance when the plaintiff seeks to demonstrate that any order for security cannot be met — even though it be different from the circumstance that those who must meet any order for security are themselves without means.
There is much to be said for the view that the Full Court’s reference in Bell Wholesale to the “means” and “impecuniosity” of the persons standing behind the company was not intended to define specifically and exhaustively the evidence that is relevant to determining the stultifying effect of an order for security.
It follows that, in attempting to demonstrate that its claim will be stultified by an order for security for costs, it may suffice for the corporate applicant to make out the commercial impracticability of having those who stand behind it meet such an order. The availability of this avenue, as an alternative to demonstrating a want of means on the part of potential contributors, is supported by the observations of Doyle CJ (with whom Prior and Nyland JJ agreed) in Jeffcott Holdings Ltd v Paior (1996) 15 ACLC 28 at 32. There the Chief Justice framed the relevant question in essentially the same terms as were used in BPM, albeit without citation of that case; namely: “whether a shareholder or creditor or other person standing behind the company could reasonably be expected to satisfy an order for security”.
Even in the wake of these decisions, however, some cases continued to go no further than consideration of the means of those standing behind the impecunious company: see, eg, Tirops Safety Technology Pty Ltd v Lazer Safe Pty Ltd [2005] WASC 164 [47] – [53] per Newnes M although there Newnes M observed that there were no submissions that it would otherwise be “unreasonable” for shareholders to fund costs; KDL Building Pty Ltd v Mount [2006] NSWSC 474 [24] per Brereton J; Specialised Explosives Blasting & Training Pty Ltd v Huddy’s Plant Hire Pty Ltd [2010] 2 Qd R 85, 97 [45] – [47] per Muir JA (with whom Holmes JA and Philippides J agreed); Unified Pty Ltd v Cancer Council Western Australia Inc (No 3) [2011] WASC 161 [13] – [25], [31] per Allanson J. These cases are perhaps best explained as involving circumstances where the stifling effect of the order for security, or lack thereof, was so apparent on the evidence that consideration of subtler concepts of reasonableness, unwillingness or commercial impracticability was not required. Other first-instance cases adopted language suggesting an openness to explanations based on matters other than ability alone: see, eg, Kavcor Pty Ltd (in liq) v Kavanagh [2005] NSWSC 1163 [10] per Palmer J; Mt Nathan Landowners Pty Ltd (in liq) v Morris [2006] QSC 225 [29] – [35] per Mullins J (Mt Nathan Landowners).
Notwithstanding the trace of some inconsistency in the authorities so far surveyed, the decisions can collectively be reconciled to a significant extent by the observation that “mere” unwillingness, in the sense of straightforward disinclination, without further reasons, will not in and of itself make it unreasonable to expect those standing to benefit from the litigation to provide security. In attempting to demonstrate the unreasonableness of such an expectation, a decisive factor will be an absence of means on the part of the persons concerned, but it may also be relevant to show “commercial impracticability” of the type considered in Ariss.
This reasoning is broadly consistent with that adopted by Austin J in Fiduciary Ltd v Morningstar Research Pty Ltd (2004) 208 ALR 564 (Fiduciary v Morningstar). In that case, at 583 [79], his Honour stated as follows:
[I]t is not enough to identify a financially capable person who stands to benefit from the plaintiff’s success in the litigation. It is also relevant to consider whether it is reasonable to expect that person to put up security. If, for example, the plaintiff company is in liquidation and it would be in the interests of its creditors for the plaintiff to succeed, it would not be reasonable, in “practical commonsense terms” to expect a financially capable creditor of the company to give security if the debt is small: BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 344–5 per Anderson J.
At 583 [81], his Honour then stated that “the question for consideration is not whether those who stand to benefit from the plaintiff’s success in the litigation are obliged to willingly provide security, but whether they are able to do so”. His Honour went on to state at 583 – 584 [82] as follows, before finding that the corporate plaintiffs in that case had failed to establish that an order for security for costs would stifle the proceeding:
In the Jeffcott case at 32, Doyle CJ (with whom Prior and Niland JJ agreed) said that stultification may be shown not only in cases where those standing behind the company or standing to benefit from the litigation are unable to meet an order, but also when it would be “commercially impractical” to gain access to the resources of others. They gave as an example a case where an insolvent company sues for the benefit of its creditors, if there is no practical means of drawing upon the creditors’ resources. It seems to me that this principle is inapplicable in the present case, because there is nothing to suggest “commercial impractability” [sic] in drawing upon LLS to meet an order for security. The difficulty is only the unwillingness of LLS to come forward.
These statements tend to suggest that the ability of the persons standing behind the corporation will be a matter of foremost significance, alongside which it will be relevant to consider whether it is reasonable to expect those persons to provide security for costs. Commercial impracticability may inform this latter consideration, but mere unwillingness will not. So much can be accepted, except that it might perhaps be preferable to restructure the analysis such that the financial capacity of those standing behind the corporation is treated as a factor relevant to the reasonableness of the expectation that those persons might provide security, rather than a factor to be considered alongside that question of reasonableness.
All of this provides a convenient background against which to consider the statement of Hodgson JA (sitting alone) in Dae Boong International Co Pty Ltd v Gray [2009] NSWCA 11 [26] – [27] (Dae Boong). His Honour, after quoting the relevant passage from Bell Wholesale, noted:
[26] … Bell Wholesale does indicate that if a company wishes to have the benefit of a finding that litigation will be stultified, the company must prove that the persons who substantially stand to benefit are unable to provide the security. If that is not proved, it does not necessarily make the impecuniosity of the company and difficulties with providing security irrelevant; and if it can be shown that those persons are reasonably unwilling, even though possibly able, to provide the security, that may be a factor that would be taken into account.
[27] Ultimately it seems to me the question to be determined by the court is whether it is fair that the person being sued by the company should be in the position of having to incur substantial costs, in this case perhaps tens of thousands of dollars of costs, and being at risk of liability for the company’s costs, and yet have no real chance of recovering costs even if the action is unsuccessful, when there are persons who would benefit from the proceedings, who face no risk of liability for costs themselves and are either unwilling or unable to provide security.
The use of the word “unwilling” in this passage is perhaps unfortunate, in light of the above, but its appearance in the phrase “reasonably unwilling” in paragraph [26] can safely be understood as drawing its intended meaning closer to the standard indicated by the phrase “commercially impracticable”. By way of illustration, it may be “commercially impracticable” for the applicant to gain access to the resources of others because they are “reasonably unwilling” to expose their assets. “Mere” unwillingness, in the sense described above, is an altogether different and distinctly lesser standard.
Further support for this understanding is offered by the decision of Le Miere J in SAS Global Forrestdale Pty Ltd v Samsera Pty Ltd [2010] WASC 309, where, after canvassing a number of the above authorities, his Honour found on the facts of the case that 391 investors in a particular scheme were standing behind the plaintiff and were liable to benefit from its success in the proceeding. At paragraph [51], it was said that:
It may be inferred that it would be difficult to obtain the agreement of all 391 of the investors to equally fund any required security for costs or to obtain the agreement of some of the investors to fund the required security largely for the benefit of all of the investors. That is not merely a matter of the investors being unwilling to put up the security, it is a matter of commercial practicability.
Clearly, the final sentence of this passage is premised on the view that commercial impracticability is properly to be distinguished from “mere” unwillingness.
Next to be considered is the decision of Jacobson, Besanko and Perram JJ in Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Limited [2012] FCAFC 57 (Australian Equity Investors). There, at paragraphs [29] – [30], their Honours stated as follows:
[29] In this case, so Mr Lee SC submitted, the creditors were all at arms length and there was no evidence that they were involving themselves in the litigation. They could not, so viewed, be said to be “standing behind” AEI. They were not, for example, using AEI as a ‘stalking horse’. Further, the person who was standing behind AEI, Mr Moore, had offered his own personal undertaking.
[30] We do not accept these arguments. The passage in Bell Wholesale is not to be read like a statute and the discretion thereby ossified. It does not require that the class of those benefited by the litigation be divided into two further sub-classes viz those standing behind the applicant and those standing, presumably, elsewhere. The principle at play is a simple one: those who stand to share the benefits of litigation cannot shirk its burdens. We do not think the court in Bell Wholesale intended to say any more than that. Indeed this is clear from the last sentence of the passage quoted above which, in terms, talks only of those standing to benefit from the litigation. It follows that the concepts of ‘benefiting from’ and ‘standing behind’ are elements in the same concept. It is no surprise, therefore, that arms length creditors have been held to be persons to whom the principle applies: see, for example, Cosdean Investments Pty Ltd v Football Federation of Australia Ltd (No 2) [2007] FCA 163 at [15]–[29] per Mansfield J. Mr Lee SC invited us to regard Cosdean as wrongly decided because his Honour had misquoted Bell Wholesale by substituting an ‘or’ where there should have been an ‘and’. The relevant passage is at [25] and does not, so it seems to us, contain the suggested misquotation. Contrary to the submission put, we see nothing heterodox in Cosdean. Indeed, as Mansfield J there observed, security had on other occasions been ordered where it was reasonable that two major and arms length creditors be expected to contribute to the security ordered, citing Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd (1984) 1 FCR 311 at 314 per Toohey J. This is not to say that in every case where stifling is said to be the result of an order for security that the position of those benefitted by the litigation needs to be proved by an applicant. Each case depends on its own facts and an assessment of what is reasonable in the circumstances: cf Ariss v Express Interiors Pty Ltd (In Liq) [1996] 2 VR 507 at 515 per Phillips JA.
Two points should be made in relation to this passage. First, and most straightforwardly, their Honours appear to accept in the final sentence of paragraph [30] that the focus of the inquiry is the concept of “reasonableness”. This is consistent with many of the cases discussed above, which place emphasis on whether or not it is “reasonable to expect” those standing behind the corporation to provide security. Secondly, it seems that their Honours considered that, within this broad inquiry, it is incorrect to treat as decisive whether those persons who stand to benefit from the litigation also “stand behind” the impecunious corporate applicant. In the context of the arm’s length creditors discussed in Australian Equity Investors, this idea of “standing behind” the applicant might be likened to readiness to provide funding and other support for the litigation, including security for costs. The scenario is in this respect closely analogous to that of the unsecured creditors showing “virtual disinterest” in the proceedings in Passenger Transport Systems. It should not be thought, however, that this concept of “standing behind” is altogether irrelevant, and nothing in the judgment of the Full Court suggests that their Honours intended to go so far. It remains an appropriate matter to take into account, albeit one that might seldom be determinative in and of itself. Accordingly, an arm’s length unsecured creditor is not, by reason only of this degree of detachment from the applicant, automatically to be deemed a person from whom it is unreasonable to expect the provision of security for costs.
The question of unwillingness versus inability was again considered by the Full Court in Madgwick v Kelly, albeit in the context of a class action where the discretion to be exercised was not that conferred by s 1335 of the Corporations Act. Despite this different context, the joint judgment of Allsop CJ and Middleton J offers statements of principle that are of sufficient generality to be applied equally in the s 1335 setting. Most relevantly, after discussing with apparent approval the judgment of Hodgson JA in Dae Boong, their Honours concluded at 20 [83], in the circumstances of that case, that:
[I]t was not wrong for the primary judge to take into account the subject of unwillingness of people to contribute as a relevant factor. This has support in a number of cases: BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 344-345; Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507 at 515; and Jeffcott Holdings Ltd v Paior (1997) 15 ACLC 28 at 32. Of course, unwillingness in itself is not determinative, and the question of the reasonableness of any unwillingness to contribute must be considered in determining what is fair in all the circumstances. …
Considering a number of the authorities so far canvassed, Barrett JA (with whom McColl and Macfarlan JJA agreed) also regarded unwillingness to be a relevant consideration in LRSM Enterprise Pty Ltd v Zurich Australian Insurance Ltd [2014] NSWCA 88 (LRSM). In the context of arm’s length trade creditors, his Honour said at paragraphs [37] and [44] – [46]:
[37] … It is the ability of the plaintiff to meet an order for security that is in issue; and, just as the inability of persons standing behind it to give it financial support will be relevant to the inquiry, so too may be unwillingness of those persons (despite ability) and all other reasons for the unavailability of their support. A finding of stultifaction becomes available only to the extent that the reasons of relevant persons other than the plaintiff itself for not giving financial support truly reflect an inability, rather than unwillingness, of the plaintiff to marshall the relevant financial resources. It is for this reason that unwillingness of other persons is viewed differently from their inability.
…
[44] The creditors mentioned at [31] and [32] above are arm’s length trade creditors. They have no connection with the company or Mr Naboulsi akin to the connections that existed in the cases mentioned at [40] above – or, for that matter, the connection of the solicitors in Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd [2013] NSWCA 404 who were willing to continue acting in the litigation on a deferred payment basis. There is therefore a question as to whether those arm’s length trade creditors should be regarded as “standing behind” the corporate plaintiff in the sense relevant to this area of discourse.
[45] The focus is, of necessity, on resources that may reasonably be expected to be available to the company. An arm’s length trade creditor could be expected to make resources available only if it suited its own selfish commercial purposes to do so; and even then, the matter would be entirely in the discretion of the creditor. A creditor for a relatively small amount might well be content to see the company’s action stayed because of non-provision of security for costs and take its chances on having to write off its relatively small debt rather than increase its financial exposure. A creditor for a larger amount might take the view that there was no commercial justification for increased financial exposure to the particular debtor. Credit policies might be compromised. And any creditor might take the attitude reflected by the reply by Service Finance that it was commercially unacceptable to commit funds to litigation where there was no way of assessing the possible outcome. Another rational attitude would be that, if there were to be any financial assistance, the company should, in return, concede some measure of control or influence over the conduct of the litigation.
[46] Because of the range of rational and sensible attitudes of mere arm’s length creditors, it is artificial to insist on evidence of their inability, as distinct from unwillingness, when a corporate plaintiff seeks to prove that a requirement for the provision of security will stultify its action. The real issue goes to the practical capacity of the company to marshall financial resources – a process in which persons involved in the company’s internal decision-making and its ultimate economic success or failure are subject to expectations of financial commitment that do not fall upon independent parties with whom ordinary business transactions are undertaken.
There is perhaps some question as to whether the remark regarding “standing behind” the corporate plaintiff in paragraph [44] of his Honour’s judgment is consistent with what was said by the Full Court in Australian Equity Investors in the passage extracted above. While that issue is not without difficulty, the cases may be reconcilable if, as explained above, the Full Court’s judgment is not to be taken as suggesting that the concept of “standing behind” is wholly irrelevant, but is instead unlikely to be determinative in and of itself, particularly where there is other evidence as to the relevant person’s means and the extent of the benefit that they might receive in the event of the applicant’s success in the proceeding.
What was said in LRSM is otherwise in apparent harmony with what has been said in a number of the other authorities, set out above, regarding the relevance of “reasonable unwillingness” and “commercial impracticability”, though the language used by Barrett JA in the paragraphs extracted above perhaps needs to be read carefully. In particular, there is a danger in understanding his Honour’s judgment to suggest that, while the inability of the impecunious plaintiff to marshal the necessary resources is in issue, this inability can be demonstrated by evidence of unwillingness (in the sense of “mere” unwillingness) on the part of those standing behind it, in particular arm’s length creditors. This would go beyond the limits set and maintained in the prior authorities, and there is no clear indication that his Honour intended such a result. Indeed, between discussing the judgment of Hodgson JA in Dae Boong and the judgment of Allsop CJ and Middleton J in Madgwick v Kelly, his Honour stated at paragraph [43] that:
… proof by a corporate plaintiff of what might be termed rationally and practically reasonable unwillingness of creditors to give financial support is something that may be taken into account in the exercise of the undoubtedly wide discretion with respect to security for costs. …
This is perfectly consistent with a rejection of “mere” unwillingness as a relevant consideration, even in the case of an arm’s length trade creditor. The basis for that rejection is straightforward: if mere unwillingness was to suffice, it would be the practice of every creditor to assert as much, baldly and at the earliest opportunity, so as to preclude any finding that it is reasonable to expect them to provide security for costs. It would be far from satisfactory if a defendant’s ability to recover its costs could be defeated on such an arbitrary and opaque basis.
The potential conflict between Australian Equity Investors and LRSM was noted by Parker J in Longjing Pty Ltd v Perpetual Nominees Ltd [2017] NSWSC 1690 (Longjing). After recognising that the focus will be on the means of those who stand behind the litigation, and that “there is … no rule that mere unwillingness of a creditor to fund the litigation will in all circumstances require that creditor’s interest to be ignored”, his Honour relied on LRSM to distinguish the concepts of “standing to benefit” and “standing behind”. At paragraph [66], Parker J said:
… The two concepts are not the same. A person can stand behind litigation, by funding it or otherwise exercising a degree of influence or control over its course, without necessarily standing to benefit from the outcome at all. On the other hand, a person may stand to benefit from litigation without having, or seeking to exercise, any degree of influence over whether that litigation is pursued and how it is conducted. It may not be reasonable for litigation to be stifled by an order for security simply because a person who stands to benefit, but no more, from the litigation is not willing to provide the security (although this may be open to argument: see [71]–[72] below). But where a person stands behind the litigation as well as standing to benefit from it, it may properly be thought unreasonable for the proceedings to be allowed to continue if that person is not willing to provide security.
At paragraphs [71] – [72], his Honour discussed the decision of the Full Court in Australian Equity Investors. After quoting the passage from that decision which is extracted above, he went on to say:
This statement of principle does suggest that there may be circumstances where the fact that a creditor, who stands to benefit from the litigation, is at arm’s length will not be sufficient to defeat the application for security. At the very least, in such a situation it may be necessary to consider the prospects of success more closely as a discretionary factor. For his part, counsel for Longjing submitted that what the Full Court said is inconsistent with LRSM. It is not necessary to go into this for present purposes. …
For the reasons set out previously, it is not necessary to regard Australian Equity Investors and LRSM as inconsistent. The Full Court in the former case found that “benefiting from” and “standing behind” litigation are “elements in the same concept”, and that the general principle to be applied was that “those who stand to share the benefits of litigation cannot shirk its burdens”. The extent to which a person stands to benefit is therefore a significant consideration to be taken into account in the overall assessment of reasonableness. On this basis, their Honours held that the presence of an arm’s length creditor with the necessary means, who does not stand behind the litigation, but does stand to benefit from it, may support a finding that the litigation will not be stifled by an order for security. But the extent to which a person stands behind the litigation is not irrelevant. As explained in LRSM, that factor may bear on whether it is unreasonable to expect an arm’s length creditor to provide security, given their professed unwillingness to do so. Earlier cases have approached this latter question in terms of the “reasonable unwillingness” on the part of the person or entity in the position of the creditor, or the “commercially impracticability” of the applicant gaining access to the resources of others. There is nothing to suggest that the Full Court in Australian Equity Investors was intending to depart or in any way detract from those authorities.
A somewhat similar understanding of the decision in Australian Equity Investors was expressed by Allanson J in Phoenix Eagle Co Pty Ltd v Tom McArthur Pty Ltd [2019] WASC 378 [58], as follows:
… In Australian Equity Investors v Colliers International (NSW) Pty Ltd [2012] FCAFC 57 [30], Jacobson, Besanko and Perram JJ said, ‘The principle at play is a simple one: those who stand to share the benefits of litigation cannot shirk its burdens’. I do not see that statement as excluding the need to consider reasonableness. But the position of the directors, shareholders and creditors of the plaintiff, as persons who will share in the benefits of a successful action, should be taken into account in considering the question of reasonableness, and in assessing the weight to be given to the risk of stultification in the exercise of discretion.
The overall question therefore remains whether it is reasonable to expect the persons who stand to benefit from the litigation to provide security for costs. The extent to which those persons stand to benefit is a matter to be taken into account, but regard can properly be had to other facets of their position: namely, their means and their reasonable unwillingness to provide security.
Finally, there has been a recent series of first-instance decisions in which it has been said that a proceeding cannot be regarded as stultified unless those who stand behind the impecunious plaintiff are “unable (not unwilling) to provide the requisite security for costs”: see Ollerenshaw v The Uniting Church in Australia Property Trust (NSW) [2017] NSWSC 1637 [49] per Walton J; Zenith Corp Australia Pty Ltd v Optus Mobile Pty Ltd [2020] NSWSC 1110 [64] per Henry J; Grocon Group Holdings Pty Ltd v Infrastructure NSW (2020) 149 ACSR 112, 128 [113] per Henry J; Equititrust Ltd v Tucker [2020] QSC 269 [73] per Bond J. The same language was used in the much earlier decisions of Einstein J in Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 [66] and Yes Home Loans Pty Ltd v AFIG Wholesale Pty Ltd [2008] NSWSC 1017 [127].
One might explain these statements on the basis that the “unwillingness” to which they refer is what has been described above as “mere” unwillingness, in the sense of disinclination; that is, something substantially less than the “reasonable unwillingness”, informed by commercial considerations, that has been accepted to be a relevant factor in numerous other cases, including at the appellate level. To the extent that the statements must be taken to be suggesting that unwillingness of any kind will be irrelevant to the inquiry, they are inconsistent with that other authority and, with respect, should not be considered good law.
For the sake of clarity, the position that emerges from this survey of the authorities can be summarised in the following series of propositions:
(a)Where a corporate applicant is impecunious and it is alleged that an order for security for costs against it will stultify the litigation, it is necessary to consider the position of those who stand behind that applicant and those who will benefit from the litigation if it is successful.
(b)The overarching question is whether it is reasonable to expect those persons or entities who stand behind the applicant and those who will benefit from the litigation to provide security.
(c)In answering that overarching question of reasonableness, it will be relevant first to consider the means of the persons or entities concerned. That factor demands foremost attention because, if the persons or entities are demonstrably without means, then there may be no need to go further in order to demonstrate unreasonableness.
(d)Where that initial factor does not lead clearly to the conclusion that it would be unreasonable to expect those persons or entities to provide security, it will be relevant to consider the reasonableness of any expression of unwillingness on their part to do so. Approaching the matter from the perspective of the applicant, it might also be asked whether it is “commercially impracticable” for it to gain any advantage from such means as may exist in others.
(e)The determination as to whether or not the relevant persons’ or entities’ unwillingness is reasonable may be informed by the extent of the benefit that they stand to receive in the litigation, and the extent to which they “stand behind” the applicant, or the litigation more broadly, by funding it or otherwise exercising a degree of influence or control over its course. The former matter may be of particular significance, as a fundamental principle guiding the overall inquiry is that “those who stand to share the benefits of litigation cannot shirk its burdens”. For this reason, it is conceivable that, in certain circumstances, even arm’s length unsecured trade creditors who ostensibly do not “stand behind” the applicant, but do stand to benefit from the litigation, will reasonably be expected to provide security. On the other hand, if the persons or entities in question stand to receive only a very slight benefit that is wholly disproportionate to the security that they would be asked to provide, then that may assist the applicant in demonstrating that it would be commercially impracticable to have those external parties put up security for costs and/or that their unwillingness to do so is reasonable.
(f)Not relevant at any level of the inquiry is the “mere” unwillingness of the persons or entities to provide security for costs, in the sense of their straightforward disinclination, unsupported by any further reasons.
As to the form of the evidence required on this issue, it has consistently been recognised that the discharge of the onus borne by the impecunious applicant will usually necessitate that it puts on a full and frank statement of the assets and liabilities of the persons or entities who stand to benefit from its success in the litigation, including shareholders and creditors: see Newtrend Pty Ltd v Oceanic Life Limited [1990] WAR 1, 3 per Staples M; Westonia Earthmoving Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2013] WASC 57 [39] per Edelman J; Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 [90] per Bathurst CJ, Leeming JA and Barrett AJA (Live Board Holdings). Obviously, this will exclude arm’s length trade creditors, since they cannot reasonably be required to provide a detailed summary of their financial position to the applicant, nor can the applicant reasonably be required to go to the lengths of obtaining such details from them. Instead, where the party against whom security is sought is attempting to demonstrate that it would be commercial impracticable for its creditors to contribute to the costs of the litigation, that state of affairs will generally need to be established through evidence as to the approaches made to those creditors (particularly the larger ones) with requests for support: see Adelaide (SA Pools & Spa) Manufacturing and Installation Pty Ltd v Westcourt General Insurance Brokers Pty Ltd [2016] SASC 60 [53] per Doyle J.
The unsecured trade creditors
As set out above, General Trade has four major unsecured creditors to each of which it owes an amount in excess of $100,000. The affidavit of Mr David Stimpson, the liquidator of General Trade, dated 22 December 2022, identified a number of additional creditors to which the company is indebted in a range of smaller amounts. It also sets out the steps taken by the liquidator and his firm, SV Partners Insolvency (Qld) Pty Ltd (SV Partners), to contact those creditors and ascertain their willingness to fund the litigation, particularly in response to the first security for costs order in the amount of $70,000.
This evidence is supplemented by:
(a)an affidavit of Ms Eva-Maria Mueller (a Senior Accountant at SV Partners) dated 10 February 2023, in which she deposed to further attempts to contact creditors;
(b)an affidavit of Mr Brett Harron (a Manager of SV Partners) dated 10 February 2023, in which he identified the total amount owed by General Trade to unsecured creditors to be $1,816,699.94 as at 8 February 2023, and further deposed to additional attempts to contact the Deputy Commissioner of Taxation (as a representative of the largest unsecured creditor, the ATO) in relation to the possibility of it providing indemnity funding for the proceeding; and
(c)further affidavits of Mr Harron dated 24 February 2023 and 7 March 2023, both deposing to further correspondence with the Deputy Commissioner of Taxation regarding the request for indemnity funding.
In its written submissions, AGL advanced the global contention that “it cannot be said that the unwillingness or commercial impracticability of all arm’s length trade creditors has been proved”. However, it focussed more specifically on the position of the four largest unsecured creditors, and devoted particular attention to alleged deficiencies in General Trade’s evidence regarding the ATO’s disposition to providing assistance.
These submissions were, to some extent, overtaken by the evidence in Mr Harron’s 24 February 2023 and 7 March 2023 affidavits, which went some way to resolving the uncertainty in respect of the ATO’s position. It is perhaps for this reason that Mr O’Shea KC for AGL, at the hearing, acknowledged that the ATO was now “out of the picture” for the purposes of the application for further security for costs. No submissions were made in relation to the other unsecured creditors. Mr Wood SC for General Trade similarly proceeded on the basis that the issue as to the position of these creditors was “off the table”.
Given the position taken by Counsel at the hearing, it is unnecessary to traverse the evidence in any great depth. The affidavits are listed above and sufficed to demonstrate that the relevant creditors were unable or reasonably unwilling to contribute funds to provide security for costs. In particular, the liquidator of General Trade had approached the company’s creditors by multiple means seeking funding for the litigation. For various reasons, which were recorded in the affidavits, many of those requests for funding were turned down. Some of the more common reasons given by the creditors were that:
(a)the debts payable by General Trade had been written off;
(b)the debts in some cases were minimal, such that there was perceived to be little commercial benefit in contributing funds to the litigation; and
(c)certain creditors were not themselves in a financial position to provide funding.
In several instances, no response was received from the creditors to the requests made by the liquidator. It may fairly be asked, on that point, how far the impecunious applicant should be expected to go to make contact with its creditors in order to confirm their position in circumstances where earlier correspondence has been met with no response.
In answer, it might be supposed that the applicant must make at least a reasonable attempt to contact its creditors, with the reasonableness of the attempt to be assessed in all of the circumstances of the case. A “reasonable attempt” may require, in this context, a concerted effort on the part of the applicant, since it will presumably use the lack of a response from the creditor to argue that it was commercially impracticable for it to gain any advantage from such means as might have existed in that creditor, or that the creditor should be presumed to be reasonably unwilling or unable to provide security, and in turn argue that the litigation will be stifled by an order for security for costs. Those arguments can have serious implications, and the evidence grounding them should reflect this. The reasonableness of an attempt might also be influenced by such matters as the size of the debt in question, the difficulty of contacting the creditor (or the persons within the creditor company who are familiar with the debt and the litigation), and any prior indication of the creditor’s attitude towards the litigation.
It is unnecessary for the present purposes to consider in detail whether the liquidator’s further attempts to contact General Trade’s unresponsive creditors were reasonable in this sense. In the absence of any submissions from AGL to the contrary, there is certainly nothing on the face of the evidence to suggest that General Trade’s decision to make no further attempts to contact them was unreasonable. Many of the creditors in question were contacted by multiple means on multiple occasions, and none of them was owed a debt of such magnitude as to make it probable that they would seriously consider funding the proceeding. Most notably, numerous attempts were made to contact the largest unsecured creditor, the ATO, which finally provided its response on about 1 March 2023. There is no issue with the adequacy of ATO’s expression of unwillingness to provide indemnity funding on the basis that “the high risks associated with providing indemnity funding would significantly outweigh any potential benefits”: Cf Ryberg Telecommunications Pty Ltd (in liq) v Optus Mobile Pty Ltd [2011] NSWSC 1268 [15] per Black J.
It follows that General Trade has discharged its onus of demonstrating that its unsecured creditors cannot reasonably be expected to provide the further security for costs sought in this application.
The solicitors
A good deal of attention at the hearing of this application was devoted to the position of General Trade’s solicitors, Clifford Gouldson Lawyers (Clifford Gouldson). AGL alleged that they stood to benefit from the company’s success in this proceeding, as a creditor of the company, and that General Trade should therefore be required to prove that they are unable or unwilling to fund the litigation.
In addition to these points, AGL contended that, if General Trade was directed to complete work that it considered was not part of the works under the Construction Agreement, or if it considered that it received a direction to complete a variation, then it was entitled to object to completing those works or to issue a notice under General Condition 36.6(b) of the Construction Agreement. This contention responded to a point allegedly made in affidavit evidence filed by Mr Pike, but does not undermine to any significant extent the Unconscionable Conduct Claim as pleaded.
In a somewhat similar way, AGL also addressed in its written submissions an allegation in the Further Amended Statement of Claim that it was in breach of General Condition 37.2 of the Construction Agreement by failing to pay the amounts in General Trade’s payment claims. However, that allegation of breach does not seem, on the face of the Further Amended Statement of Claim, to be a component part of the Unconscionable Conduct Claim. This is perhaps something of an anomaly in General Trade’s pleading, to which I will later return.
On the whole, AGL’s submissions do not establish the Unconscionable Conduct Claim to be obviously hopeless. While AGL might arguably be right to point out certain irregularities in the way that General Trade has attempted to establish its entitlement to the $31,814,483.93 amount, including potential issues of infelicitous pleading and inadequate particularisation, and to identify associated shortcomings in General Trade’s existing evidence, this is not sufficient to demonstrate that General Trade has no real prospect of proving that entitlement and succeeding in its claim more broadly. At this stage of the proceeding, it remains possible for General Trade to put on additional evidence and provide further and better particulars. It might ultimately be the case that this material demonstrates an entitlement to some amount less than $31,814,483.93, but more than what was paid by AGL, such that a cause of action might be made out from a somewhat altered scenario.
One other point bears mentioning. As the Further Amended Statement of Claim presently stands, the causal connection between the alleged unconscionable conduct and the loss of $4,314,481.64, being the difference between the $31,814,483.93 sum of the payment claims and the $27,500,002.29 actually paid by AGL, is rather unclear. General Trade’s claim for the three alternative remedies on the Unconscionable Conduct Claim, all in the amount of $4,314,481.64, is pleaded at paragraph [67](a), which begins by stating, “by reason of the matters pleaded in paragraphs 33 to 41”. Within that range of paragraphs:
(a)paragraph [41] sets out the “loss and financial detriment” allegedly suffered by General Trade (including the amount of $4,314,481.64), which is said to be a result of the unconscionable conduct and contraventions of the ACL pleaded in paragraph [40];
(b)paragraph [40] draws the conclusion that, “[i]n the premises of the matters pleaded in paragraphs 37 to 39”, AGL engaged in unconscionable conduct “in entering into the Deed [of Release]”;
(c)paragraph [39], in turn, pleads a conclusion of unconscionable conduct and a failure to act in good faith on the part of AGL “[i]n the premises of the matters pleaded in paragraphs 37 and 38”; and
(d)the specific conduct alleged to be unconscionable is set out at paragraphs [37] and [38], including that “in the premises of the matters pleaded in paragraphs 33 to 35 above, the Respondent knew of the Applicant’s financial position”.
In this way, the various allegations in paragraphs [33] to [41] attempt to build upon one another to make an overall pleading of unconscionable conduct. It is, however, unclear what relevance the contents of paragraph [36] have to the Unconscionable Conduct Claim, and the reason for that paragraph’s inclusion in paragraph [67](a) is impossible to discern.
Most importantly, the conduct at the heart of the Unconscionable Conduct Claim, set out in paragraphs [37] and [38] of the Further Amended Statement of Claim, principally concerns the negotiation and execution of the Deed of Release in the particular circumstances prevailing at that time. It does not appear to have entailed any alleged impropriety on the part of the Superintendent, as agent of AGL, in valuing the payment claims pursuant to General Condition 37.2 of the Construction Agreement. This is despite the fact that, as set out above, demonstrating such impropriety might be considered a necessary step in establishing the loss: for General Trade to have been entitled to the $31,814,483.93 amount, there must have been some wrongdoing in connection with the Superintendent’s valuing the payment claims at a lesser amount.
It is difficult to say, in those circumstances, that the $4,314,481.64 loss was suffered “because of” the pleaded unconscionable conduct (to use the language of ss 236 and 237 of the ACL) or was otherwise sufficiently causally connected to that conduct to make out the alternative claim for equitable compensation. Put another way, if the pleaded unconscionable conduct had never taken place, General Trade would still have to prove another, apparently quite separate, point in order to obtain relief: namely, that there was some actionable problem with how the Superintendent valued its payment claims, and/or with how AGL thereafter paid them. As explained in relation to the fourth question above, there are some allegations of breach of contract in the Further Amended Statement of Claim going essentially to this point, but these allegations fall within the isolated paragraph [36] of the Further Amended Statement of Claim. As mentioned, the relationship between them and the claim of unconscionable conduct, as well as the relief sought on account of that unconscionable conduct, has not been made apparent.
Ultimately, neither party addressed this point on the present application for further security for costs. In such circumstances, it is inappropriate to treat the point as carrying any particular weight, especially since General Trade has not been afforded any opportunity to answer it.
Failure to demonstrate unconscionable conduct
In its written submissions, AGL responded to each of the matters pleaded by General Trade in the Further Amended Statement of Claim as comprising the alleged unconscionable conduct at the centre of the Unconscionable Conduct Claim. Mr O’Shea KC did not add further to these points in the hearing.
It is difficult to conclude from submissions of this nature that the claim of unconscionable conduct is “doomed to fail” in the sense required by the authorities. Faced with a claim of unconscionable conduct, the Court is required to engage in an evaluative exercise, assessing whether the impugned conduct is to be characterised as a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience and so be characterised as unconscionable: see Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 388 ALR 577, 598 – 599 [92] per Allsop CJ, Besanko and McKerracher JJ. That inquiry is, by nature, essentially fact-based and highly dependent on the evidence. It cannot readily be countered pre-emptively by a volley of legal and factual propositions, each of which is pitched at a fairly high level of abstraction — as AGL’s submissions necessarily had to be on an interlocutory application of this nature.
This conclusion follows all the more forcefully once it is acknowledged that, in order to succeed in its contention, AGL would effectively have to show that all of the instances of conduct pleaded by General Trade are not, individually or in any combination, even arguably unconscionable. It is sufficient, in light of this, to address just a few of AGL’s major submissions.
It was first submitted that General Trade was not at a special disadvantage relative to AGL because General Trade held itself out as a capable contractor with the resources to perform the Project and had contracted with AGL previously, and Mr Pike was an experienced businessperson on his own evidence. Reliance was placed on the decision of the Full Court in Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301, where it was said at 322 – 323 [64]:
At the time they were negotiating for the grant of the second lease, the Ranaldis and Executive Bloodstock were at a serious disadvantage. They had very little bargaining power. As a practical matter, they were not in a position to make any decision other than to pay the price demanded by the respondents. It may be accepted that the categories of special disadvantage are open and may extend to what French J, at first instance in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1893, called “situational disadvantage” as well as the constitutional disadvantages engendered by such disabilities as illiteracy or lack of education, illness or infirmity. It is not necessary for present purposes to explore the limits of those categories. On the findings of fact made by his Honour it is difficult to see how it would be correct to characterise the case as one of “special disadvantage” in the relevant sense. The disadvantage under which the Ranaldis and Executive Bloodstock laboured had arisen from a combination of considered commercial judgment (the decision to borrow heavily in order to purchase the business) and Mr Ranaldi’s oversight in neglecting to exercise the option in good time. These factors did not impair the Ranaldis’ ability to make a decision about the best course of action in the circumstances. At least in the case of an experienced business person there must, in our opinion, be something more than commercial vulnerability (however extreme) to elevate disadvantage into special disadvantage.
AGL placed particular emphasis on the final sentence of this passage, effectively suggesting that, because General Trade and Mr Pike were experienced industry participants, any alleged commercial vulnerability on their part in the present case could not constitute a special disadvantage. It is settled that mere inequality of bargaining power does not establish one party to be at a special disadvantage vis-à-vis its counterparty. It is also well established that the commercial experience of a party might weigh against a conclusion that its ability to make a judgment as to its own best interests in a particular scenario has been severely affected by any disabling condition or circumstance. However, in this case, General Trade relies on more than just inequality of bargaining power. It pleads that it was in severe financial difficulty, and that it was AGL’s “late payments, short payments and non-payments” that caused this difficulty.
Ultimately, these are all points on which General Trade ought to have the opportunity to go into evidence. While AGL might be right to submit that General Trade’s claim of special disadvantage contains certain elements that the authorities suggest to be insufficient to establish a claim of unconscionable conduct, it would be inappropriate on the present application to try to characterise in a general way the type of case that General Trade is bringing and then treat that general characterisation as a target on which to pin contrary statements of principle drawn from prior authorities. In this connection, it is apt to recall the statement of Dixon CJ, McTiernan and Kitto JJ in Jenyns v Public Curator (Qld) (1953) 90 CLR 113 at 118 – 119, cited on multiple occasions in more recent High Court decisions concerning statutory unconscionable conduct, that the application of the equitable principles relating to unconscionable conduct:
… calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [vulnerable party]. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. Indeed no better illustration could be found of Lord Stowell’s generalisation concerning the administration of equity: “A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case”.
A similar conclusion must follow in respect of AGL’s next submission, in which it contends that it did not exploit any alleged special disadvantage. AGL relies on evidence indicating that the settlement amount under the Deed of Release was fairly negotiated, and on the fact that the terms of the Deed were negotiated between General Trade’s solicitors and AGL’s in-house legal team, suggesting that there could be no exploitation or even any disparity in bargaining positions. Finally, AGL draws several propositions from the judgment of Gleeson CJ in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at 64 – 65 [14] – [16] to the effect that it is not unconscionable for one party to take advantage of its superior bargaining position to extract concessions from its counterparty in the course of negotiations.
Again, the impression one might gather from these submissions is that they characterise in relatively broad terms General Trade’s pleaded case as to this particular aspect of AGL’s alleged unconscionable conduct, identifying it essentially as a case about exploitation of unequal bargaining positions, and then assail that broad characterisation. However, it is not entirely clear that the characterisation captures the whole of the position pleaded by General Trade. Even if it did, it is not clear that AGL’s submissions would inevitably prove a definitive response to all of the evidence that General Trade might eventually put on in support of its position. In other words, it is simply too early in the proceeding to tell whether AGL’s submissions will succeed. General Trade’s pleaded position cannot be considered “obviously hopeless”.
The balance of AGL’s submissions on this issue are insufficient to produce a contrary result. Accordingly, it cannot be concluded that the Unconscionable Conduct Claim is inarguable or irregular, or that it fails to disclose a cause of action.
Additional Work Claim
In its written submissions, AGL addresses each of the three alternative causes of action relied upon by General Trade on its Additional Work Claim. These may be stepped through in turn.
Breach of contract
As explained in summary form earlier in these reasons, the Additional Work Claim captures a variety of different types of work allegedly undertaken by General Trade. They have been grouped by General Trade into four categories, namely:
(a)the “Demobilisation Works”, being the works required to demobilise plant, equipment and personnel following the directions given by AGL on or about 14 July 2014 and 12 August 2014;
(b)the “Further Works Following Demobilisation Directions”, being additional works required to be completed by reason of those 14 July 2014 and 12 August 2014 directions;
(c)the “Additional Directed Works”, being works performed after 31 July 2014 in relation to pre-commissioning activities and works performed in relation to matters directed, requested and required by the notices and the direction issued between 17 September 2014 and 12 December 2014 by the Superintendent; and
(d)the “MDR Works”, being the works in relation to the preparation of the MDR index for the Project up to and including 31 July 2014.
These categories were the subject of different treatment in AGL’s written submissions and in Mr O’Shea KC’s oral submissions in the hearing.
Mr O’Shea KC first submitted that the Demobilisation Works and the Further Works Following Demobilisation Directions already fell within the scope of works under the Construction Agreement, such that they were not “additional” works for which separate and further payment could be sought. He pointed specifically to Schedule 3 of the Construction Agreement, which broke down the original $12,005,579.46 contract sum into a number of smaller amounts that were payable upon the achievement of certain itemised milestones. Relevantly, the milestone at item 22 was described as “Wallumbilla Clean Up and Demobilization” and was assigned an amount of $15,000. A similar milestone was set out in item 29 for “Silver Springs Clean Up & Demobilization”. It was not wholly clear whether the contention being advanced was that General Trade had already been paid for these works, or whether the right to payment for the works had been lost by reason of the Deed of Release.
Regardless, at the heart of the issue is essentially a question of fact: General Trade claims that the relevant works were additional works not falling within the scope of works under the Construction Agreement, while AGL claims that they are not additional works because they do fall within the scope of works under the Construction Agreement. Whilst Mr O’Shea KC’s submission rightly points out that there is perhaps some prima facie basis to suspect that AGL’s characterisation is to be preferred, this is quite obviously a point on which further evidence will be required. The works in question must be identified with as much specificity as is reasonably possible and then compared to the scope of works under the Construction Agreement, the boundaries of which must also be ascertained with some precision. There is not, at this stage of the proceeding, sufficient material before the Court to facilitate this comparison exercise. Accordingly, it cannot be concluded that the claim in respect of the Demobilisation Works and Further Works Following Demobilisation is “obviously hopeless”.
As for the Additional Directed Works, Mr O’Shea KC submitted that these could not have been works that were performed under the Construction Agreement, because the parties had from 13 August 2014 been released from all performance of that contract by the Deed of Release (subject to certain exceptions set out in that document). There could accordingly be no claim for breach of contract in respect of AGL’s failure to pay Payment Claim 12 insofar as it pertained to those works. Notably, one of the exceptions within the Deed of Release was that it maintained the parties’ obligations in respect of rectification of defects, and there was some indication that the notices and the direction did relate to the rectification of non-compliant work on the Project. Mr O’Shea KC submitted that, insofar as the Additional Directed Works involved defect rectification, they were not “additional” works, as General Trade was already obliged to perform such works under the Construction Agreement without further payment. The same contentions appeared in AGL’s written submissions.
Again, these submissions do not establish the claim in respect of the Additional Directed Works to be “obviously hopeless”. In the first place, they do not deal with the alternative construction of the Deed of Release pleaded by General Trade, pursuant to which it is said that the Deed “did not have any operation with respect to works undertaken by [General Trade] outside that part of the Original WUC and Varied WUC in respect of which Payment Claims 10 and 11 related and were the subject of the Dispute [being the dispute that led to the entry into the Deed]”. This construction must be rejected before Mr O’Shea KC’s submission can fall for consideration. Secondly, the characterisation of the works the subject of the various notices and the direction as rectification works is again a question of fact on which evidence will be required. Without such evidence, it is not possible to characterise the works with sufficient certainty to determine the point once and for all.
Finally, Mr O’Shea KC made two submissions in relation to the inadequate particularisation of the Additional Work Claim. He pointed specifically to paragraph [52] of the Further Amended Statement of Claim, which is a bald assertion that the various notices and the direction issued between 17 September 2014 and 12 December 2014 were “[i]n fact and, on their proper construction … directions or requests to perform additional works”. He then contended that the basis for the amount of $1,195,562.13, claimed as damages for breach of contract (and claimed alternatively on a quantum meruit basis, or under the ACL for unconscionable conduct, as set out below), has not properly been explained, but instead left to be intuited from a lengthy and detailed spreadsheet of items of work performed by particular individuals or contractors on particular dates, each of which was assigned an “expense category” and a value, as set out in Annexure B to the Further Amended Statement of Claim.
Both of these points are entirely fair, but they do not show the Additional Work Claim to be inarguable. It is relevant to note that, in parallel to this application for further security for costs, it is understood that the parties are corresponding in relation to General Trade’s provision of further and better particulars. If these discussions do not remedy the defects of which Mr O’Shea KC complains, it is open to AGL to bring an application in this Court seeking orders that General Trade provide the necessary particulars. It is by that avenue that the issue should be resolved; it should not have any substantial bearing on the present application.
Quantum meruit
As identified by Mr Wood SC for General Trade in the hearing, a key issue arising from AGL’s submissions in relation to the Additional Work Claim was whether the various works identified by General Trade fell within, or outside of, the scope of works under the Construction Agreement. To the extent that they did not, he submitted that the claim was nevertheless arguable on an alternative quantum meruit basis. Mr O’Shea KC did not address this point in the hearing, but in AGL’s written submissions it was contended that General Trade had failed to establish the essential basis for the claim: that is, that the alleged additional work did not fall within the scope of works under the Construction Agreement or amount to rectification of defective work, and that General Trade had not already been paid a fair and reasonable amount for the works under the Construction Agreement or the Deed.
Ultimately, it does seem that General Trade pleads at least the basic facts necessary to make out its cause of action. Most importantly, at paragraph [59] of the Further Amended Statement of Claim, it pleads that the works in question were “additional works”. In context, this appears to be a pleading that the works fell outside the scope of works under the Construction Agreement. At paragraph [62], it is pleaded that the reasonable cost of the works was $1,195,562.13, this being the unpaid amount of Payment Claim 12 calculated in accordance with the spreadsheet at Annexure B to the pleading.
Again, there are obvious problems of inadequate particularisation in the quantum meruit claim. However, this issue ought to be addressed through the parallel process within which AGL is seeking further and better particulars, instead of through the present application for further security for costs. It should not be thought that this permits General Trade to take advantage of its own wrongdoing, so to speak, by using its apparently defective pleading to avoid the order now sought by AGL. The defect appears for the time being to be curable, and indeed it ought to be cured by the other process presently on foot. If it is not, one might imagine that AGL would be justified in making an application to strike out the offending parts of the Further Amended Statement of Claim.
Finally, it ought to be noted that Mr Macpherson made certain points in his affidavit regarding the viability of the claim given the decision of the High Court in Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560 (though that case was not specifically mentioned by name), and the fact that the Construction Agreement remained on foot notwithstanding the Deed of Release. These are complex issues of fact and law about which the parties should have the opportunity to make fulsome submissions. The points having been raised here only in a solicitor’s affidavit, they were not addressed in sufficient detail to permit the Court to draw any final conclusion as to their merits.
The further unconscionable conduct claim
This claim of unconscionable conduct centres on AGL’s failure to pay General Trade for the Demobilisation Works, the Further Works Following Demobilisation Directions, the Additional Directed Works and the MDR Works. It is alleged that General Trade carried out those works, as requested by AGL, and incurred costs and expenses in doing so, for which it was entitled to reasonable payment. AGL’s failure to make any payment in respect of the works is alleged to be unconscionable. In its written submissions, AGL contends that this claim has poor prospects of success for two reasons.
First, it submits that General Trade cannot establish any entitlement to the $1,195,562.13 sum sought pursuant to ss 236 or 237 of the ACL. AGL takes General Trade’s pleaded position to be that the entitlement to this payment “arises on the basis of the allegations made in support of the quantum meruit claim”. It then submits that, if General Trade was entitled to restitution on a quantum meruit basis, then it would be granted relief on that basis and it would not follow that it would also be granted the same relief on account of alleged unconscionable conduct. It submitted that, conversely, if General Trade failed to establish any entitlement to restitution, then it would not have any entitlement to the amount that AGL has, allegedly unconscionably, refused to pay.
The proposition on which this submission is founded appears to be correct. General Trade pleads the conclusion of unconscionable conduct at paragraph [66] of the Further Amended Statement of Claim, which begins: “[i]n the premises of paragraphs 59 to 65 above …”. Paragraphs [59] to [64] capture the whole of the quantum meruit claim. In this way, the conclusion of unconscionable conduct somehow incorporates the pleaded conclusion of the quantum meruit claim at paragraph [64], as follows:
The Applicant is entitled to restitution on a quantum meruit basis of a sum not less than $1,195,562.13 (GST excluded) in respect of the Demobilisation Works, the Further Works Following Demobilisation, the Additional Directed Works and the MDR Works, calculated in accordance with the items set out in Annexure B to this pleading.
AGL is therefore correct to submit that, strictly speaking, if the pleaded premises of the unconscionable conduct claim are made out, then General Trade is already entitled to a remedy in restitution. A further finding of unconscionable conduct would therefore seem superfluous, notwithstanding that it would be more difficult for General Trade to establish. Even if the conclusion in paragraph [64] is put to one side, it is difficult to understand how the recovery of the $1,195,562.13 sum by way of the unconscionable conduct claim could not be contingent on the success of each element of the quantum meruit claim. This having been said, however, the arguable redundancy of the unconscionable conduct claim does not establish it to be “obviously hopeless”.
Finally, AGL submitted that, in any event, the allegation of unconscionable conduct within the Additional Work Claim suffered from the same weaknesses as the overarching Unconscionable Conduct Claim, in that it will be difficult for General Trade to demonstrate any special disadvantage that was unconscientiously exploited by AGL. This submission misses the mark to some extent, as General Trade does not actually plead any special disadvantage or exploitation in connection with this cause of action. Even if it did, for the same reasons as are set out above in respect of the Unconscionable Conduct Claim, AGL’s submission does not at this stage of the proceeding demonstrate General Trade’s case to be “doomed to fail”.
Conclusion as to prospects of success
The Further Amended Statement of Claim is by no means a model pleading. Its flaws were very rightly highlighted by Mr O’Shea KC, and one might certainly hope that, as the proceeding progresses, steps will be taken by General Trade to remedy them. If not, the pleading, or the substance of the claims articulated therein, may be vulnerable to attack by way of a more directly targeted interlocutory application. However, for the purposes of this application, AGL’s submissions did not demonstrate, to the high standard required by the authorities, that General Trade’s case was so devoid of merit as to make appropriate an order for further security for costs. In these circumstances, and even though significant doubt has been cast upon the propriety of General Trade’s claims, it seems to be appropriate to treated the question of prospects of success as a neutral matter.
Conclusion
AGL seeks from General Trade $657,981.72 in further security for costs for the period 1 November 2022 to the commencement of the final hearing in the proceedings. For the reasons set out above, an order requiring General Trade to provide further security in that amount would have the effect of stifling the litigation. This weighs against the exercise of the Court’s discretion under s 1335 of the Corporations Act to make such an order.
At the same time, the two overarching claims advanced by General Trade in its Further Amended Statement of Claim are not clearly inarguable or irregular on their face. The prospects of its success in this proceeding must therefore be considered a neutral matter in the exercise of the discretion.
The fact that General Trade is impecunious, and will be unable to pay AGL’s costs if ordered to do so following the final hearing of the matter, while favouring an order for security for costs, does not sufficiently counteract the outcome suggested by the preceding considerations.
The orders sought by AGL are therefore refused. There is no reason why costs should not follow the event.
I certify that the preceding two hundred and sixty-one (261) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. Associate:
Dated: 2 June 2023
8