Greenacre Business Park Pty Ltd v Deliver Australia Pty Ltd
[2014] NSWSC 1353
•01 October 2014
Supreme Court
New South Wales
Medium Neutral Citation: Greenacre Business Park Pty Ltd v Deliver Australia Pty Ltd [2014] NSWSC 1353 Hearing dates: 30 September 2014 Decision date: 01 October 2014 Jurisdiction: Equity Division Before: Robb J Decision: See par 63
Catchwords: PROCEDURE - costs - security for costs - application by plaintiff for security for costs of defending cross claim - cross claim extending beyond defence - whether defendant effectively becomes a plaintiff to the extent of the damages claimed by it - alternative application for dismissal under UCPR r 13.4 - exercise of discretion Legislation Cited: Australian Consumer Law s 18(1)
Civil Procedure Act 2005 (NSW) s 3
Corporations Act 2001 (Cth) s 1335
Uniform Civil Procedure Rules (NSW)Cases Cited: Bank of Western Australia v Daleport [2010] NSWSC 1207
Bevwizz Group Pty Ltd v Transport
Solutions Pty Ltd [2008] NSWSC 1399
Buckley v Bennell (1974) 1 ACLR 301
Neck v Taylor (1893) 1 QB 50
Nonox Australia v Certain Underwriters at Lloyds Subscribing to Contract No CV0263CGL [2014] NSWSC 221Category: Interlocutory applications Parties: Greenacre Business Park Pty Ltd (first applicant/first plaintiff)
Sam Harb Pty Limited (second applicant/third plaintiff)
Samstone Pty Ltd (third applicant/second plaintiff)
Deliver Australia Pty Limited (respondent/defendant)Representation: Counsel: R M McKeand SC (applicants/plaintiffs)
No appearance (respondent/defendant)
Solicitors: Simon Diab & Associates (applicant/plaintiffs)
Deliver Australia Pty Limited (self represented)
File Number(s): 2012/189729
Judgment
The plaintiffs in these proceedings, Greenacre Business Park Pty Ltd, Samstone Pty Ltd and H & H Enterprises Pty Ltd, originally sued the defendant, Deliver Australia Pty Ltd, in the District Court of New South Wales for non-payment of rent and for damages for repudiation of a lease.
The proceedings were transferred from the District Court to the Supreme Court to accommodate a cross claim by the defendant against two of the plaintiffs and another cross defendant, because the cross claim seeks damages in excess of the jurisdictional limit of the District Court.
The parties' claims
The plaintiffs allege in their amended statement of claim that the first two plaintiffs and the company that is the other cross defendant, as the owners of Unit U, 57-67 Roberts Road, Greenacre in this State, entered into a lease of the property to the defendant for the period from 2 September 2011 until 2 September 2014. Subsequently, the interest in the property held by the third cross defendant was transferred to the third plaintiff.
The plaintiffs allege that, on about 9 December 2011, the defendant vacated the property, and that since February 2012 the defendant has failed to pay rent or outgoings under the lease. The amount of rent and outgoings that were payable was $36,667.67 (including GST) each calendar month. The plaintiffs allege that, by letter written by their solicitor dated 31 May 2012, the lease was terminated by the plaintiffs.
It is sufficient to note that, by its amended defence, the defendant effectively admits these allegations.
However, the defendant in its defence pleads three matters that it claims had the effect that it is not liable to the plaintiffs.
First, the defendant alleges that it entered into the lease in reliance upon a representation made to it on behalf of the original lessors that for the term of the lease the defendant would have timely and uninterrupted access to the property. The defendant alleges, that, during the period 1 September 2011 to 9 December 2011, the road access point to the property was constantly obstructed and interrupted such that the defendant did not have use of the premises for warehousing and the general distribution of freight, which constituted its business. The defendant alleges that the representation was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) of the Australian Consumer Law, and that the defendant is accordingly entitled to the relief in prayer 1 of its amended cross claim. That is a claim for an order declaring the lease void from 2 September 2011, or alternatively 9 December 2011.
Secondly, the defendant pleads that the lease became impossible to perform in the manner contemplated by the parties to it, for the same reasons that the defendant alleges made the representation misleading or deceptive, with the consequence that the lease was frustrated.
Finally, the defendant pleads that the plaintiffs have failed to mitigate their loss by re-leasing the property at a commercial market rent.
In its amended cross claim the defendant, in terms, repeats paragraphs 13 to 33 of its defence, which are the paragraphs that plead the facts relevant to the defendant's claim under the Australian Consumer Law.
In addition to the claim in prayer 1 for an order declaring the lease void, the defendant seeks in prayer 2 an order compensating the defendant for loss of net income (approximately $1,518,000), the bond of $112,166.67 that the defendant paid in connection with the lease, leased office furniture of $51,800, relocation costs of $15,100, and staff redundancy costs of $59,958. The total amount claimed is $1,757,024.67.
The plaintiffs' notice of motion
By notice of motion filed on 13 August 2014 the plaintiffs, in substance, seek the following relief. First, they claim an order that the defendant, or alternatively its directors, Mr Nicholas Heath and Mr Matthew Blizzard, provide security for the plaintiffs' costs of defending the cross claim in the sum of $96,000; together with consequential orders. Alternatively, they seek an order that the cross claim be dismissed pursuant to UCPR r 13.4. Finally, they seek an order that Mr Heath pay the costs of the notice of motion and the cross claim.
The proceedings have been fixed for hearing before Nicholas AJ for three days commencing on 17 November 2014.
The parties' representation on the hearing of the notice of motion
On the hearing of the notice of motion the plaintiffs were represented by Mr McKeand SC. There was no appearance for the defendant. When the notice of motion was set down for hearing, the Acting Registrar made the usual order for hearing. My associate made enquiries to ensure that the defendant would comply with the usual order for hearing, and was advised by Mr Heath by email on 29 September 2014 that he would not be appearing the next day, when the notice of motion was to be heard. The defendant was initially legally represented, and affidavits filed on its behalf were filed by its legal representative. That legal representative filed a notice of ceasing to act on 22 May 2014. On 30 May 2014, at a directions hearing, Mr Heath appeared for the defendant. Mr Heath was permitted to speak for the defendant on that occasion, but he was directed to comply with UCPR r 7.2 if he wished to represent the defendant in respect of its further involvement in the proceedings. Mr Heath had not filed the affidavit required by that rule before the hearing of the plaintiffs' notice of motion (although he served on the plaintiffs an affidavit that purported to comply with the rule, which the plaintiffs tendered on the hearing). Mr Heath was also present in court on 2 September 2014, when the notice of motion was fixed for hearing. When, at the commencement of the hearing, the matter was called outside court, the defendant did not appear.
Mr Heath provided to the court through my associate, by email also dated 29 September 2014, a copy of an email that he sent to the plaintiffs' solicitor on 8 August 2014, in which he set out the defendant's response to the plaintiffs' solicitor's 24 July 2014 letter in which the plaintiffs demanded that the defendant provide security for costs. Mr Heath stated that the defendant would rely on the hearing of the notice of motion on the arguments contained in Mr Heath's 8 August 2014 email. Mr McKeand agreed that the court should deal with the plaintiffs' notice of motion on the basis that the defendant's response to the claim for security for costs was as set out in the email. I will return to the substance of the arguments put on behalf of the defendant.
The plaintiffs' application for summary dismissal of the cross claim
It is convenient to begin by dealing with the plaintiffs' claim for an order dismissing the defendant's cross claim under UCPR r 13.4. That rule provides for the dismissal of proceedings, or any claim for relief in the proceedings, if certain grounds are established. At its heart, the basis of the plaintiffs' claim for dismissal of the cross claim is that the defendant has served affidavits in support of the cross claim, to which the plaintiff has responded by serving evidence that, they said, incontrovertibly disapproves essential aspects of the defendant's evidence. The plaintiffs submit that their evidence "overwhelmingly" establishes that the defendant's case is false, although it is not entirely clear to me which of the specific grounds in r 13.4 are relied upon by the plaintiffs. Perhaps the plaintiffs rely upon all of them.
The proceedings have reached the stage in preparation where all of the plaintiffs' evidence on the claim and cross claim has been filed. The defendant has been given an opportunity to file evidence in reply to the affidavits of the plaintiffs' witnesses, but no affidavits have been filed. As I understand it, the proceedings are ready for hearing.
I raised with Mr McKeand during the course of argument the fact that the plaintiffs have sought an order under r 13.4 dismissing the cross claim, but they have not applied under r 13.1 for an order summarily dismissing those parts of the defence that plead the claim under the Australian Consumer Law, or that the lease was frustrated (both of which depend upon the same evidence, and which are addressed in the affidavits filed on behalf of the plaintiffs that I refer to above). Consequently, even if the court were to dismiss the cross claim, substantially all of the same issues (save for the issue of quantification of the defendant's compensation, if it succeeds in its claim under the Australian Consumer Law) would remain in the proceedings.
I should record that the plaintiffs rely upon 17 affidavits to establish the falsity of the defendant's evidence in support of its misleading and deceptive conduct and frustration defences, and the proposition that those affidavits establish that the evidence upon which the defendant relies is so clearly untenable as to justify the summary dismissal of the cross claim, some six or so weeks before the commencement of the hearing, would require a comprehensive and detailed consideration of that evidence. As a case management issue, including the making of an allowance of sufficient time to permit the court to give a properly considered judgment in the time that remains before the commencement of the hearing, a real question arises as to whether the court should decline to consider whether the cross claim should summarily be dismissed, if most of the same issues, and all of the same evidence, except for quantification of the compensation, remains to be dealt with by the trial judge.
Mr McKeand informed me that, notwithstanding the explicit reliance by the plaintiffs in their notice of motion upon r 13.4, the plaintiffs proposed to submit to the court that it should also summarily dismiss the parts of the defendant's defence that plead the facts that are material to the misleading and deceptive conduct and frustration defences. The problem with that approach, as I advised Mr McKeand, is that it would involve the court granting relief that the plaintiffs have not claimed in the notice of motion that was served on the defendant. Mr McKeand said that the plaintiffs would apply forthwith to amend their notice of motion, but I declined to entertain that application, as notice of the application to amend had not been served on the defendant.
The discretion that the court is entitled to exercise on an application made under UCPR r 13.4 is not limited to whether an order for dismissal should be made after a consideration of the application, but extends to whether the court should entertain the application at all. For cases in the Commercial List, Practice Note SC Eq 3 par 62 has the effect that, as a general rule, applications for summary judgment will not be entertained. There is no equivalent practice in the General List, but nonetheless it is a matter for the court to decide whether, in all of the circumstances, it is appropriate to entertain a summary dismissal application.
It is not possible to generalise, and it will often be an elusive exercise to try to place individual cases at a particular point on a continuum between cases that are clearly apt subjects for summary dismissal, and those that are not. However, for illustration, there may be cases where the claim is clearly dependent upon the establishment of essential facts, and evidence is available to the defendant that is, in practical terms, incontrovertible, or, by reason of an absence of denial, the court can clearly conclude that the plaintiff's case will fail. Particularly if the summary dismissal application is made relatively early in the course of the proceedings, the concurrence of the formation of a confident assessment that the case must fail, and the convenience of sparing the parties and the court wasted effort and expense, may justify the exceptional course of summary dismissal. However, towards the other end of the continuum, the plaintiff may serve evidence to support its pleaded claim, and the defendant may respond by serving evidence that, if uncontradicted, will most likely have the result of demolishing the plaintiff's case. This example will generally not be suitable for determination by summary dismissal application. That will particularly be so where, as in the present case with the plaintiffs, the defendant has acquiesced in the proceedings being fixed for final hearing. It is at the final hearing that the court will have the opportunity to consider the significance of cross-examination, to hear argument, and to consider all of the evidence in detail. If the court entertains a summary dismissal application in these circumstances, it will not have the benefit of cross-examination or argument, and will have to act upon the appearance of the evidence, before the plaintiff has the usual opportunity to challenge it. Consequently, the court will be required to consider all of the evidence, but instead of being able to decide simply on the balance of probabilities what the evidence establishes, the court will be required to make judgments about whether significant aspects of the evidence are incontrovertible, before the plaintiff is given the usual opportunity to controvert it. The ordinary process of judicial determination at the final hearing, which itself can be difficult, will be replaced by an exercise that is inherently fallible, and for practical purposes unnecessary.
In the present case the essence of the defendant's cross claim is that, before it entered into the lease, it advised the plaintiffs' representative of its particular commercial requirements, which included unhindered access from the highway to its premises of B-double trucks for the conduct of its supply chain transport distribution business. The defendant specifically sought confirmation that neither the plaintiff, nor the plaintiffs' agent, was aware of any significant site restrictions on large B-double vehicles accessing the property during the defendant's hours of operation. The defendant was assured that no such restrictions were known. In fact, as the plaintiff knew, a large national retailer was about to commence the construction of a substantial building at a location between the highway and the property to be leased, and, when construction began, access to the leased property was significantly impeded, with the consequence that the defendant suffered substantial damage to its business, and loss of income.
After the plaintiffs were served with the evidence of two witnesses who supported the defendant's case, they embarked upon the preparation of a response that, on appearances, comprehensively demolishes the defendant's case. The plaintiff has served evidence from a significant number of direct witnesses, including former employees of the defendant. The plaintiffs' evidence would appear to establish that, at the time the defendant's representative visited the property before entry into the lease, the construction works had already commenced, and were obvious. Further, even though the construction activities did cause some hindrance to the access way between the highway and the leased property, it was still possible for B-double trucks to pass unhindered each way, and a neighbouring occupier experienced no difficulty with its own business that depended upon unhindered access by B-double trucks. The defendant did suffer a loss of business, but that was not because of access problems, but it was caused by carriers refusing to do business with the defendant, but that was because the defendant had failed to pay for earlier services provided, because of its own cash flow problems. This summary does not do full justice to the plaintiffs' evidence.
A superficial review of the evidence justifies the conclusion that the plaintiffs' case appears to be very strong. Yet, in reality, the case remains one in which there is a contest between the evidence served by the defendant, and that served by the plaintiffs. The defendant has not availed itself of the opportunity to reply to the plaintiffs' evidence. It may be that the defendant now has no basis to contradict effectively the plaintiffs' evidence, but it ultimately is a matter for speculation and assumption at this stage, as to whether or not there is any basis upon which the defendant may be able to contradict the plaintiffs' evidence, even if only in cross-examination.
In all of these circumstances, in the exercise of my discretion, I decline to entertain the plaintiffs' application under r 13.4.
Mr McKeand asked the court, if it was not minded to entertain the application, to stand that part of the notice of motion over to the hearing, rather than to dismiss it. I am prepared to take that course in this case. In the intervening time the plaintiff may amend the notice of motion to seek summary relief in relation to the defence, as well as the cross claim. I doubt that at the hearing it will be more convenient to deal with the matter on a summary basis, rather than on the merits. However, that will be a matter for Nicholas AJ to deal with, and the survival of the notice of motion should not cause any inconvenience. It may be that the defendant will not appear at the hearing, just as it has not appeared on the present application.
As I will not make an order that the defendant's cross claim be dismissed, it will be premature for the court to consider the plaintiffs' application for an order that Mr Heath pay the costs of the application and of the defendant's cross claim.
Application for security for costs
It will now be appropriate to consider the plaintiffs' claim for an order that the defendant provide security for costs, and consequential relief. That application remains live, given that I have declined to entertain the application to dismiss the defendant's cross claim.
The plaintiff relies upon UCPR r 42.21(1)(d) and s 1335 of the Corporations Act 2001 (Cth). It has so often been held that the requirements of both provisions are essentially the same, that it is no longer necessary to cite authority to that effect.
As I have noted above, Mr Heath advised the court through my associate before the hearing of the application that the defendant relied upon the arguments contained in his email dated 8 August 2014 to the plaintiffs' solicitor. The first argument put by the defendant, is that it is the defendant, and a party to litigation that is defending itself is not ordinarily ordered to give security. Further "a defendant which counterclaims is ordinarily protected from providing security for costs if the subject matter of the dispute is not new - Neck v Taylor (1893) 1 QB 50". Secondly, security for costs should be refused because the application has been made very late in the proceedings only a few months before the trial is due to take place in mid-November 2014. Finally, an order for the provision of security for costs should be refused where the defendant's lack of funds has been caused or contributed to by the plaintiff. Mr Heath merely asserted that the alleged wrongful conduct of the plaintiff as pleaded in the defence "'caused' our business the significant distress that will be the basis of our counterclaim".
Mr Heath did not assert that the making of an order for security for costs would stifle the proceedings.
Mr Heath's email does not deny that the defendant is suffering financial difficulties that may make it unable to pay the costs of the plaintiff if ordered to do so. Mr Heath positively asserts that the defendant is suffering "significant distress", as part of his claim that security for costs should be refused because the defendant's impecuniosity is attributable to the plaintiffs' conduct.
The first question for consideration is whether "there is reason to believe that the plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so": UCPR r 42.21(1)(d).
Of course, it is the plaintiff in this case that has made the application for security for costs against the defendant, in respect of the costs of defending the cross claim, and incidentally, the costs of meeting the same issues raised in the defendant's defence.
It is clear that security for costs may be ordered against a defendant who is a cross claimant in the proceedings, as "plaintiff" is defined in s 3 of the Civil Procedure Act 2005 (NSW) as meaning "a person by whom proceedings are commenced... and includes a person by whom a cross-claim is made..."
The question of when a cross claimant may be the subject of an order for security for costs has been considered in a number of cases that have usefully been collected and considered by Brereton J in Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 at [11] - [18]. At [18] his Honour concluded:
[18] The position therefore seems to me to be that, as a matter of jurisdiction, the reference in the section and the rule to "plaintiff" extends to encompass a cross-claimant. However, as a matter of discretion the court will not make an order against a cross-claimant where the cross-claim arises out of the same matters as the claim and is purely by way of defence. If it extends beyond being purely by way of defence, then the court will have regard to the overall nature of the proceeding and the cross-claim to see whether it can be said that in truth the cross-claimant has become, in substance, a plaintiff.
I respectfully agree with Brereton J's reasoning and his conclusion. It is notable that his Honour distinguishes between cross claims that arise out of the "same matters" as the claim and are "purely by way of defence", and cross claims that extend "beyond being purely by way of defence". In the important case of Buckley v Bennell (1974) 1 ACLR 301 Street CJ at 307, in a passage extracted by Brereton J at [17] referred to a cross claim "which amounts simply to a defence to the action" (my emphasis).
The question that arises is as to how the court should distinguish between cross claims that arise out of the same matters as the claim and are purely by way of defence, and those that extend beyond being purely by way of defence.
The analysis of the pleadings in the present case that is necessary is relatively simple. In its amended statement of claim the plaintiff claims for unpaid rent and damages for breach of a lease. The defendant has admitted the elements of the plaintiffs' claim. The defence is one of confession and avoidance. The defendant says that the lease should be avoided by order of the court for contravention of the Australian Consumer Law. The lease was frustrated by the same events that falsified the representation alleged to have been made by the plaintiffs. The plaintiffs have failed to mitigate their loss. As I have noted, the defendant in its amended cross claim has repeated the pleading of its defence under the Australian Consumer Law, by using the pleading device "the cross claimant repeats paragraphs 13 to 33 of its defence". However, in addition to its claim for an order avoiding the lease, the defendant claims compensation calculated at $1,757,024.67, before interest.
The question is: has the defendant, in going beyond its claim for an order that the lease be avoided, and claiming an order for substantial compensation, gone beyond making a cross claim that is purely by way of defence, so that the court must have regard to the overall nature of the proceeding, and the cross claim, to see whether it can be said that in truth the defendant has become, in substance, a plaintiff?
The same question arose for consideration before Hislop J in Bank of Western Australia v Daleport [2010] NSWSC 1207. In that case the relevant defendant, in its amended cross claim, repeated and relied upon the allegations made in the amended defence, save in respect of the relief sought. As in the present case, in the cross claim the defendant sought substantial damages from the plaintiff in respect of the matter pleaded in defence. Hislop J at [12] also extracted and relied upon the conclusion reached by Brereton J in Bevwizz at [18]. His Honour concluded at [16]:
[16] In my opinion, the cross claim arises out of the same matters as the claim. However, it extends beyond being purely defensive and seeks to claim substantial damages far exceeding any alleged liability to the plaintiff. That claim will involve the plaintiff incurring costs which it would not have incurred had the cross claim been confined to matters relating to the defence of the plaintiff's claim. The first defendant has become, in substance, a plaintiff to the extent of the damages claimed by it and is, to that extent, susceptible to an order for security for costs. Any such order, however, would not include security for any part of the costs incurred in the defence of the proceedings.
I respectfully agree with the reasoning adopted by Hislop J, and have decided that the same result should be reached in the present case. The plaintiffs' case is effectively admitted, and in any event would require relatively little evidence to prove. The defendant's position is one of confession and avoidance. The defendant has made a very substantial claim for damages based upon the same allegations in its cross claim as were made in the defence. Strictly, as is reflected in par 34 of the amended defence, the matters pleaded concerning the Australian Consumer Law claim do not provide a defence in themselves, but will only do so if the defendant succeeds on its cross claim in obtaining the order avoiding the lease that it seeks in prayer 1. Substantially the whole of the evidence in the proceedings relates to the cross claim. While there is no proof, it is a reasonable inference that the size of the damages claim has motivated the plaintiff to marshal the extensive and comprehensive evidence that has been filed in response to the cross claim. The defendant has become, in substance, a plaintiff to the extent of the damages claimed by it in the cross claim.
It is therefore necessary to return to the question whether the evidence gives rise to a reason to believe that the defendant will be unable to pay the costs of the plaintiffs if ordered to do so, limited to the costs of the cross claim, and incidentally the same issues that are raised in the defence.
Although there is no evidence concerning the overall financial position of the defendant, for example in the form of relatively current financial accounts, the evidence satisfies me that there is "reason to believe" that the defendant will be unable to pay any relevant costs order in favour of the plaintiffs. As I have noted above, following a period in which the steps taken by the defendant in the proceedings were undertaken in the usual way on its behalf by a legal representative, that legal representative filed a notice of ceasing to act on 22 May 2014. On 30 May 2014 Mr Heath sought leave to appear for the defendant at a directions hearing on behalf of the defendant. The record of proceedings contains a note by the Acting Registrar in the following terms:
[Defendant] is unsure if they are going to contest matter (due to lack of funding). If contested - 3 day hearing. If uncontested - [defendant] must advise position on next occasion.
The defendant has not provided any specific confirmation to the court, or to the plaintiff, as to whether it has funds to contest the hearing.
The parties prepared for and participated in a mediation that the court ordered to be held on 8 July 2014. The mediation was unsuccessful.
On 24 July 2014 the plaintiffs' solicitor wrote a letter to Mr Heath in which they demanded that the defendant provide security for the plaintiffs' costs incurred in responding to the amended defence (in so far as it relied upon the cross claim) and the amended cross claim. The solicitor stated that those costs to the date of the letter were $98,858.10, and estimated the additional costs, assuming a three-day hearing, would be $50,000, giving a total of $148,858.10. On the stated assumption that the plaintiffs could reasonably expect to recover approximately 65% of the actual costs, the plaintiffs demanded security of $96,757.77.
The only response given by the defendant to the solicitor's letter is Mr Heath's email dated 8 August 2014. As I have noted, Mr Heath did not deny that the defendant was impecunious; but instead he asserted that the plaintiffs were responsible for the defendant's financial difficulties.
It is also of some significance that the defendant did not retain legal representation to defend the plaintiffs' notice of motion. If the defendant believes that its cross claim, which is likely to be for an amount in the order of $2,000,000 after interest is added, is a good claim, then the defendant's failure to secure representation to defend the plaintiffs' application for summary dismissal is some indication of financial difficulty.
These matters are in my opinion sufficient to give the court reason to believe that the defendant will be unable to pay the costs of the plaintiffs of the issues raised by the cross claim, if it is ordered to do so.
I should record that, by email received by my associate on 30 September 2014, the day after the plaintiffs' application was heard, Mr McKeand forwarded an email that he had received from Mr Heath that advises that the defendant has been placed into administration. Mr Heath's email has not formally been proved, but it appears to have been sent from the same email address as Mr Heath has sent other emails that are in evidence.
I formed my conclusion that there was reason to believe that the defendant would not be able to pay the relevant costs of the plaintiffs before I received notice of Mr Heath's email, but it is obvious for practical reasons that the email adds force to the conclusion that I reached.
The second step in the process of determining whether the court should make an order that the defendant provide security for the plaintiffs' costs is whether the court should exercise its discretion in favour of the making of such an order.
I have noted above that Mr Heath did not suggest that the making of an order for security for costs would stifle the defendant proceeding on its cross claim. Assuming the recent disclosure in Mr Heath's email is true, the defendant may well not be able to prosecute the cross claim for reasons of insolvency that have arisen quite apart from the consequences of any order for security for costs.
I do not accept the defendant's argument that the plaintiffs' claim should be dismissed because it has been made too late: UCPR r 42.21(1A)(l). There is no evidence that the plaintiffs had any inkling that the defendant may be in financial difficulties in relation to its capacity to meet any costs order, until Mr Heath made the announcement to the court on 30 May 2014 that I have referred to above. The parties then co-operated in participating in a mediation, and the plaintiffs made their demand for security for costs on 24 July 2014, only a couple of weeks after the mediation failed. The conduct of the plaintiffs has not been dilatory.
On the balance of the evidence the defendant has not established that its present financial difficulties were caused by the conduct of the plaintiffs alleged by the defendant in its defence in respect of its Australian Consumer Law claim. The balance of the evidence on that issue at this stage of the proceedings is heavily in favour of the plaintiffs. The defendant's argument is "somewhat circular" as McDougall J observed in relation to an equivalent argument in Nonox Australia v Certain Underwriters at Lloyds Subscribing to Contract No CV0263CGL [2014] NSWSC 221 at [24]. The defendant has not tendered any evidence that directly links its present predicament to any alleged conduct by the plaintiffs in 2011.
The defendant has not put any further reason forward as to why the court should not, in the exercise of its discretion, make an order for security for costs.
The third and final issue to be addressed is the amount of the security that the court should order the defendant to provide. It is well accepted that an order for security for costs is not intended to provide the party in favour of whom the order is made with a complete security or indemnity.
I have recorded the amount claimed by the plaintiffs, and the basis of that claim, above. The plaintiffs tendered evidence of an expert costs consultant in support of their claim. Somewhat strangely, that evidence only considered the reasonableness of the entirety of the plaintiffs' costs to date, with no discrimination between the plaintiffs' costs of their own proceedings, and their costs of dealing with the issues raised by the defendant in both its defence and the cross claim. The evidence also said nothing about the reasonableness of the plaintiffs' solicitor's estimate that future costs of $50,000 would be incurred.
Notwithstanding this deficiency in the expert evidence, I have accepted Mr McKeand's submission that the likelihood is that almost all of the costs will relate to the issues raised by the cross claim. Also, the estimate of $50,000 for the costs of preparing for and conducting a three-day hearing in the Supreme Court is, as a matter of experience, reasonably modest. As Mr McKeand submitted, the estimation of legal costs in any event is imprecise. The court can deal with any marginal deficiencies in the evidence by increasing the discount it might otherwise have applied to the estimate of likely actual costs, in fixing the amount of security to be provided.
In all of the circumstances I propose to order that the defendant provide security to the plaintiff for its costs of defending the cross claim, and dealing with the same issues in the amended defence, in the sum of $75,000. As the hearing is imminent, it will be appropriate to order the defendant to provide that security in one amount before the commencement of the hearing.
I will make the following orders:
(1) Order that the defendant, on or before 24 October 2014, provide security for the plaintiffs' costs of defending the defendant's cross claim in these proceedings in the sum of $75,000.
(2) Order that such security be given by payment into court or in such other manner as the court shall approve.
(3) Order that until such security is provided, the defendant's cross claim is stayed.
(4) Direct that, if the defendant fails to provide such security, the plaintiffs may make an application under UCPR r 42.21(3) for dismissal of the defendant's cross claim by notice of motion that is served upon the defendant in accordance with the rules on or before 7 November 2014 returnable at 10 AM on 17 November 2014 before Nicholas AJ.
(5) Stand the plaintiffs' notice of motion filed on 13 August 2014, in so far as it contains claims for relief other than an application for security for costs, over to 10 AM on 17 November before Nicholas AJ.
(6) Order that the plaintiffs' costs of the notice of motion filed on 13 August 2014, in so far as it claims an order for security for costs, be the plaintiffs' costs in the cause.
(7) Reserve the costs of the balance of the claims for relief in the plaintiffs' notice of motion filed on 13 August 2014.
(8) Order that exhibits may be returned in accordance with the rules.
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Decision last updated: 02 October 2014
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