Independent Tube Mills Pty Ltd v Pincove Pty Ltd
[2023] VSC 471
•10 August 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST
S CI 2016 04423
BETWEEN:
| INDEPENDENT TUBE MILLS PTY LTD (IN LIQUIDATION) (ACN 136 627 186) | Plaintiff |
| - and - | |
| PINCOVE PTY LTD (ACN 121 786 221) & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Steffensen AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 2 August 2023 |
DATE OF RULING: | 10 August 2023 |
CASE MAY BE CITED AS: | Independent Tube Mills Pty Ltd v Pincove Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2023] VSC 471 |
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PRACTICE AND PROCEDURE – Application for security for costs – Plaintiff in liquidation – Subrogated proceeding brought by insurer of plaintiff – Effect of assignment of rights under insurance policy to third parties – Quantum of security – Past costs and future costs – Principles to be applied – Application granted – Corporations Act 2001 (Cth) ss 562, 1335 – Nylex Corporation Pty Ltd v Basell Australia Pty Ltd [2009] VSC 97.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | M J Galvin KC | HFW Australia |
For the first defendant | P Atkin | Collin Biggers & Paisley |
| For the second defendant | S Senathirajah KC | Wotton + Kearney |
| For the third defendant | No appearance |
Contents
A.. Introduction
B... Applicable Principles
C.. Background Facts
D.. The Effect of the Deed and Transfer Order
D.1 Corplex’s submissions
D.2 Plaintiff’s submissions
D.3 Ruling
E... Quantum
E.1 Past costs
E.2 Future costs
F... Conclusion
HER HONOUR:
A Introduction
By summons filed on 15 May 2023, the second defendant (‘Corplex’) made an application for the plaintiff to provide security for costs under r 62.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic), or alternatively s 1335(1) of the Corporations Act 2001 (Cth).
Corplex seeks security in the sum of $1,334,685, of which $688,140 relates to costs incurred to date, and $646,545 relates to estimated future costs.[1] Corplex also seeks an order that, if security is not provided in accordance with the terms of the orders sought by Corplex in its summons, the proceeding as against Corplex be stayed until further order.[2]
[1]Corplex’s Submissions, 1 [1]. The quantum of security sought differs from that sought by the Summons, as explained in the third affidavits of Nicholas Lux filed on 30 June 2023. .
[2]Summons, 1 [3].
Corplex relies upon the second to fourth affidavits of Nicholas Lux filed on 15 May 2023 (‘Lux 2’),[3] 30 June 2023 (‘Lux 3’) and 28 July 2023 (‘Lux 4’), and its submissions filed on 3 July 2023 and reply submissions filed on 28 July 2023.
[3]Lux 2 is dated 5 May 2023, but was filed with this Court on 15 May 2023.
The plaintiff seeks that the application for security be dismissed; or alternatively, that any security be limited to an order for security up to the completion of a further mediation, and be no greater than $98,115 or alternatively $136,865.[4]
[4]Plaintiff’s Submissions, 1–2 [3]–[4].
The plaintiff relies on the first and second affidavits of Ali-Reza Abachi filed on 19 June 2023 (‘Abachi 1’) and 19 July 2023 (‘Abachi 2’), its submissions filed on 19 July 2023, and the expert report of Antonella Terranova filed on 16 June 2023.
B Applicable Principles
Section 1335 of the Corporations Act 2001 (Cth) provides that the Court may order security for costs where “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”.
The parties largely agree on the principles to be applied by the Court when considering whether to exercise its broad discretion to make an order for security for costs. I am grateful for the parties’ written submissions which address these in some detail.
I have had particular regard to the following authorities:
(a)First, Livingspring Pty Ltd v Kliger Partners[5] on the policy of s 1335 being to “protect a defendant against the risk of the plaintiff corporation’s impecuniosity”,[6] and the fact that the plaintiff’s inability to pay the costs “may itself be a factor, even a most significant factor, in the exercise of the discretion”;[7] and
(b)Secondly, Oswal v Australia and New Zealand Banking Group Ltd,[8] which summarises the relevant principles regarding delay and its impact on an application for security for costs that includes past costs. In that case, Justice Sifris refers to assumed unfairness to a plaintiff that arises from delay in making an application for security for costs, as it unfairly allows a plaintiff to proceed and incur costs on the assumption that no such application is to be made. At [44](d), his Honour states:
Despite delay, security may be granted for past costs (in whole or in part) where it is established that there is some conduct that negates the prejudice, harshness, or oppression, that is otherwise apparent when there is a delay and substantial costs have been incurred. The Court retains a broad discretion which requires all relevant facts and circumstances to be taken into account. Each case must be decided in accordance with its own peculiar facts and circumstances.
[5](2008) VR 377.
[6]Ibid 382 [16] (Maxwell P and Buchanan JA) (citations omitted).
[7]Ibid 382 [18], quoting Ariss v Express Interiors Pty Ltd (In Liq) [1996] 2 VR 507, 514 (Phillips JA, Ormiston and Charles JJA agreeing).
[8][2016] VSC 52.
On the question of delay, Dal Pont says:
The main concern is that the plaintiff may have incurred costs in pursuing the matter that it would not have incurred had the application for security been made (successfully) at the outset, and that these costs will effectively have been wasted if the security order threatens the plaintiff’s financial ability to continue with the action.[9]
[9]G E Dal Pont, Law of Costs (LexisNexis Australia, 4th ed, 2018) 1093 [29.124].
In Mathew (SA) Nominees Pty Ltd v Belconnen Automotive Pty Ltd,[10] Doyle J gave further guidance with regard to the balancing of delay against any prejudice to the plaintiff:
In a case where there is only minimal delay, or an adequate explanation for the delay, and the unfairness is limited, it may nevertheless be in the interests of justice that there be an order for security. The unfairness might be limited, for example, because there is no reason to think that [the] plaintiff is unable to provide security, and hence no reason to think that the plaintiff would have avoided the costs it has incurred had the application been brought earlier, or no reason to think that a “late” order for security will frustrate the proceedings.[11]
[10](2019) 133 SASR 408.
[11]Ibid 423 [80] (citations omitted).
In Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd,[12] the Court of Appeal considered what constitutes ‘sufficient security’ for the purposes of s 1335(1), at [63]–[65] of the judgment. Notably, the Court does not seek to provide “full protection” for the estimate of costs of the party seeking security; rather, a “broad brush approach” is taken to fix an amount that the Court considers adequate in all the circumstances of the particular case.[13]
[12][2017] VSCA 293.
[13]Ibid [63]–[65] (Tate and Kyrou JJA).
C Background Facts
The relevant background facts are not in dispute. I will state them as briefly as I can, focussing on the matters raised by counsel during the course of the hearing.
This proceeding has arisen from material damage occurring in 2010 to a steel mill then owned by the plaintiff. The plaintiff was wound up in 2014 and remains in liquidation. The most recent liquidator’s report dated 14 September 2022 states that the plaintiff’s creditors are owed approximately $30.7 million, as against asset realisations by the liquidator of just $300.30, with future realisations estimated at zero.[14] I am satisfied that the jurisdiction of s 1335 of the Corporations Act 2001 (Cth) has been prima facie enlivened, as there is reason to believe that the plaintiff will be unable to pay the costs of Corplex if required to do so.
[14]Lux 2, 10 [38], Exhibit NKL - 24.
QBE Insurance (Australia) Limited (‘QBE’) was the plaintiff’s insurer, and initially paid out $4.8 million to the plaintiff pursuant to the insurance policy, but denied liability to some extent. That denial of liability was the subject of Federal Court proceedings, and in October 2018, QBE was ordered to pay further amounts pursuant to the policy.[15] A copy of the policy is exhibited to Abachi 2 at pages 9–59. The insurance policy provides for a right of subrogation “at the expense of the Insurer” in condition 10(a).
[15]VID 527 of 2015, as disposed of by Beach J in Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Limited (No 2) [2018] FCA 1450: refer, in this respect, to Lux 2, 2 [7].
This proceeding was commenced on 31 October 2016 as a subrogated recovery action on instructions from QBE, and issued in the name of the plaintiff with the liquidator’s approval.[16] That is, it was commenced to seek recovery of the insured portion of the damage said to have been suffered. The (then) solicitors for the plaintiff, Hall & Wilcox, were also the solicitors for QBE.[17]
[16]See the letter dated 14 March 2018 from the plaintiff’s solicitors to Macpherson Kelley, solicitors for the third defendant, included as Exhibit NKL - 15 to Lux 2 at page 20.
[17]As recorded in the orders of Lansdowne AsJ made on 26 March 2018. See further, eg, the Second Defendant’s Submissions, 5 [13].
On the plaintiff’s case, the plaintiff’s rights under the QBE policy and associated choses of action against the defendants to this proceeding have been assigned on three occasions.
First, in 2014, the rights were assigned in equity by the plaintiff to Australian Pipe & Tube Pty Ltd (‘APT’).[18] APT issued proceedings in this Court against the same defendants as are sued in this proceeding, being S ECI 2017 00066 (‘APT Proceeding’). The APT Proceeding sought to recover the uninsured portion of the loss and damage suffered by the plaintiff.[19]
[18]Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Limited (No 2) [2018] FCA 1450, [95].
[19]Lux 2, 4 [14.3]; see also the Plaintiff’s Outline of Issues filed on 27 July 2018 in the APT Proceeding, 2 [9].
Next, in 2016, APT assigned the rights to Leaning Back Pty Ltd (‘Leaning Back’).[20]
[20]Australian Pipe & Tube Pty Ltd v QBE Insurance (Australia) Limited (No 2) [2018] FCA 1450, [96].
Most recently, APT and Leaning Back assigned and transferred to Final Stop Pty Ltd (‘Final Stop’) ‘all of their rights, entitlements and interest (if any) in and to the claims the subject of the APT Proceeding and their rights under this Deed’ pursuant to clause 3(f) of a deed of settlement and release entered into on 22 November 2018 (‘Deed’). The Deed was entered into between APT, Leaning Back, Final Stop and QBE. The plaintiff asserts that under the Deed, APT and Leaning Back’s equitable interest in the policy and cause of action in this proceeding were assigned to Final Stop.[21] However, I note that clause 3(f) of the Deed does not specifically refer to assignment by ATP to Final Stop of its rights under the policy. I will address this Deed in more detail shortly.
[21]See the Letter dated 27 July 2023 from the plaintiff’s solicitors to Colin Biggers & Paisley Lawyers, solicitors for the first defendant, [19], included as Exhibit NKL – 38 to Lux 4 at page 61.
The plaintiff did not file a statement of claim in this proceeding until 3 April 2018.
The third defendant made an application for security for costs in February 2018. This was dismissed upon QBE providing an undertaking to the Court and the third defendant that it would consent to orders that it pay any adverse costs ordered against the plaintiff in favour of the third defendant. This undertaking is recorded in the orders of Lansdowne AsJ made on 26 March 2018.
In July and August 2018, Corplex foreshadowed making an application for security for costs, but no application was ultimately made.
As set out in Lux 2, Corplex’s evidence is that because the proceeding by the plaintiff has always been conducted on a subrogated basis by QBE, Corplex has not (until now) sought to apply for security for costs.[22] Corplex says that, given that the action was proceeding as a subrogated recovery action controlled by QBE, where the only party who stood to gain from the proceedings was QBE, it was reasonable for Corplex not to have sought security for costs up until now. At the time, Corplex considered that should it ultimately defend the claim brought against it successfully, it would have a strong case for a non-party costs order against QBE. Further, Corplex says that it had good reason to believe QBE would hold sufficient funds to meet any costs order made against it in this proceeding.[23]
[22]Lux 2, 6 [22]–[24], 17 [57].
[23]Corplex’s Submissions, 2–4 [5]–[8].
It was submitted that Corplex was justified in reaching the conclusion that the expense and trouble of making a security for costs application was disproportionate to the risk that any costs order would not be met by QBE.[24]
[24]See, eg, Transcript of Proceedings, Independent Tube Mills Pty Ltd (In Liquidation) v Pincove Pty Ltd (Supreme Court of Victoria, Steffensen AsJ, 2 August 2023) 14 (‘Transcript’); Corplex’s Reply Submissions, 8.
I will now address the Deed in some detail. A copy of the Deed is exhibited to Abachi 1 at pages 28–36. Recital H of the Deed states that certain disputes have been settled on the terms of the Deed, being disputes in connection with Federal Court proceedings between the insured and QBE regarding QBE’s obligations under the policy, and issues arising from this proceeding and the APT Proceeding. This proceeding is defined in the Deed as the ‘QBE Proceeding’ in Recital E and clause 1.
Clause 3 of the Deed addresses the conduct of this proceeding and the APT proceeding. Clause 3 provides that the parties will each use their best endeavours to consolidate this proceeding with the APT Proceeding, or otherwise have the two proceedings heard together; or alternatively, that APT discontinue the APT Proceeding. The APT Proceeding was ultimately discontinued on 29 November 2018, seven days after this Deed was executed.
Pursuant to Clause 3(b) of the Deed, QBE is to have full control of and discretion in its conduct of this proceeding, subject to a duty of utmost good faith owed to Final Stop.
Pursuant to clauses 3(c) and (d) of the Deed, QBE is contracted to bear the costs, including any adverse costs orders, of this proceeding. QBE also agrees to be liable for the costs and any adverse costs orders in the APT Proceeding from the date that it assumes conduct of that proceeding. Whereas APT is liable for costs incurred prior to this date. Clause 3(d) provides an express indemnity from APT, Leaning Back and Final Stop in favour of QBE in respect of the costs incurred in the APT Proceeding prior to QBE assuming conduct.
Clause 3(h) of the Deed provides for any fruits of this proceeding and the APT Proceeding to be divided equally between QBE and Final Stop, after a priority payment to QBE of its legal costs and disbursements up to $500,000.
Clause 3(i) of the Deed prohibits QBE, without prior consultation with Final Stop, from discontinuing this proceeding on terms that would result in no net recovery after deduction of QBE’s legal costs under clause 3(h)(i) “[w]ithout first giving Final Stop the option of assuming the conduct of the QBE Proceeding and the APT Proceeding (and assuming liability for the costs, including adverse costs orders, of such proceedings)”.
A dispute has arisen between Final Stop and QBE in connection with the Deed. On 4 October 2022, Final Stop brought a proceeding in this Court against QBE, being S ECI 2022 03914 (‘Final Stop Proceeding’).
The statement of claim in the Final Stop Proceeding is Exhibit NKL - 36 to Lux 4. Final Stop seeks, inter alia, declarations as to the operation of clauses 3(h) and (i) of the Deed. Final Stop’s primary construction claim is set out at paragraph 39 of the statement of claim and prayer for relief paragraph A. In essence, Final Stop seeks a declaration that the effect of the Deed is that:
(a)clause 3(h) of the Deed applies only to any settlement and/or judgment funds recovered in this proceeding by reason of QBE’s conduct of the proceeding to settlement or judgment;[25] and
(b)clause 3(i) does not oblige Final Stop to assume any liability for QBE’s costs or any adverse costs orders made in this proceeding against either the plaintiff or QBE whilst QBE conducted the proceeding.[26]
[25]Statement of Claim in Final Stop Proceeding, [39(a)] included as Exhibit NKL – 36 to Lux 4 at page 31.
[26]Ibid, [39(b),(c)].
Alternative constructions and rectification of the Deed are sought in paragraphs 0 to 43 of the statement of claim and paragraphs B to D of the concluding prayer for relief. In paragraph F of the prayer for relief, Final Stop seeks an order that QBE transfer the conduct of this proceeding to Final Stop.
On 10 March 2023, Elliott J made orders in the Final Stop Proceeding, which included a transfer order pursuant to which Final Stop has assumed conduct of this proceeding in the place of QBE (‘Transfer Order’).[27] The orders of Elliott J were made by consent, and the Transfer Order provides that “[Final Stop] hereupon is to assume the conduct of proceeding S CI 2016 04423, assuming liability for the costs, including adverse costs orders of that proceeding”.
[27]Lux 2, Exhibit NKL - 20. The Transfer Order comprised order 2 of Elliott J’s orders made on this date.
Some further context to the Transfer Order is provided by the transcript of the hearing which preceded its making on 10 March 2023. First, it records a submission that QBE does not want to continue this proceeding, and that this needs to be addressed as the proceeding is presently on foot.[28] It also records a submission that the Transfer Order would, if made, give specific performance to the Deed,[29] and that it was ultimately made by consent.[30]
[28]Transcript of Proceedings, Final Stop Pty Ltd v QBE Insurance (Australia) Limited (Supreme Court of Victoria, S ECI 2022 03914, Elliott J, 10 March 2023) 4–5.
[29]Ibid 8.
[30]Ibid 15.
Final Stop’s counsel submitted that it is a live issue between Final Stop and QBE as to what is meant by the transfer of the conduct of the proceeding under clause 3(i) of the Deed; namely, whether the transfer of the conduct of the proceeding effects an assignment of the underlying rights in the proceeding from QBE to Final Stop, or something less than that.[31] That is, whether Final Stop is conducting the proceeding for its own benefit, or for the benefit of QBE.
[31]Ibid 4 [4]–[16], 18 [3]–[10].
The Final Stop Proceeding has been adjourned pending the outcome of this proceeding. This is because, absent any judgment or settlement in favour of the plaintiff in this proceeding, the construction issues as to the division of proceeds pursuant to the provisions of the Deed are moot.
Following the making of the Transfer Order, QBE’s solicitors filed a notice of ceasing to act in this proceeding on 29 March 2023. HFW Australia, the solicitors engaged by Final Stop to take over the conduct of this proceeding filed a notice of their acting for the plaintiff in this proceeding on 11 April 2023.[32]
[32]Abachi 1, 2 [6] – [8].
Corplex only became aware of the Final Stop Proceeding, the Deed and the Transfer Order on various dates since 23 March 2023, as addressed in Lux 2.[33]
[33]See also Corplex’s Submissions, 4–5 [10]–[13].
Upon becoming aware of the Deed and Transfer Order, by letter dated 28 March 2023, Corplex requested that QBE provide a written undertaking in favour of Corplex in terms which mirror that set out in the orders of Lansdowne AsJ made on 26 March 2018.[34] QBE refused to provide the undertaking sought, and did not provide any explanation for its refusal to do so.[35]
[34]Lux 2, Exhibit NKL - 29.
[35]Lux 2, Exhibit NKL - 30.
By letter dated 21 April 2023 to the plaintiff’s new solicitors, Corplex sought security for costs.[36] That request not having been complied with, this summons was filed on 15 May 2023.
[36]Lux 2, Exhibit NKL - 31.
D The Effect of the Deed and Transfer Order
The nub of the dispute is the effect of the Deed and Transfer Order, and whether this justifies Corplex’s delay in seeking security for costs.
D.1 Corplex’s submissions
Corplex submits that the full effect of the Transfer Order is not clear, but that it has two consequences:[37]
First, the assumption by Final Stop of conduct of this proceeding means that any [non-party] adverse costs orders (in favour of the defendants) in relation to costs incurred since the making of the Transfer Order are likely to be made against Final Stop and not QBE.
Second, there is a real risk that any adverse costs orders (in favour of the defendants) in relation to costs incurred by them before the making of the Transfer Order will be made only against Final Stop and not QBE, Final Stop having contracted to, and been ordered (by consent) to, assume liability for them.
[37]Corplex’s Submissions, 6 [17].
In this regard, Corplex essentially submits that the effect of the Deed is that:
(a)as submitted by the plaintiff, there has been an equitable assignment to Final Stop of the plaintiff’s rights under the QBE policy;[38]
(b)these rights include a right under condition 10 of the policy for adverse costs in the subrogated proceeding to be ‘at the expense of’ QBE; and
(c)by clause 3(i) of the Deed, Final Stop and QBE have agreed that Final Stop will bear those adverse costs in the event that Final Stop assumes the conduct of this proceeding.
[38]See the letter dated 27 July 2023 from the plaintiff’s solicitors to Colin Biggers & Paisley Lawyers, solicitors for the first defendant, [19], included as Exhibit NKL – 38 to Lux 4 at page 61.
Thus, Corplex argues that QBE’s liability to indemnify the plaintiff pursuant to the insurance policy is now in doubt.
Further, the Transfer Order is said to have been made by way of specific performance of the Deed. However, the meaning of this Deed – including clauses 3(h) and 3(i), and whether Final Stop is presently conducting the proceeding solely for its own benefit – is expressly the subject of dispute between Final Stop and QBE in the Final Stop Proceeding.[39] Thus, giving rise to further uncertainty.
[39]Ibid 5 [15]; see also Corplex’s Reply Submissions, 9–10 [27.3].
Corplex argues that the availability of a non-party costs order against QBE is now also in doubt, particularly with respect to future costs. In this regard, Corplex relies upon the principle that – where a party to litigation is insolvent, and a non-party has played an active role in the conduct of that litigation, and has an interest in the subject of the litigation – the non-party is liable to have a costs order made against it, should such order be required in the interests of justice.[40] Corplex says that the factors that a court might take into account when considering making a non-party costs order have fundamentally changed, in that (inter alia):
(a)Final Stop is now conducting the proceedings, to the exclusion of QBE; and
(b)on Final Stop’s case, as articulated by counsel in the Final Stop Proceeding, Final Stop is conducting the proceedings for its own benefit and not for the benefit of QBE.[41]
[40]Citing Knight v FP Special Assets Ltd (1992) 174 CLR 178: see, eg, Transcript (n 25) 15.
[41]Corplex’s Reply Submissions, 8–11.
Thus, it was argued that the availability of a non-party costs order against QBE is now in doubt. Corplex says that this explains the timing of this application for security for costs, as until now, there was no need to bring such application because it could proceed against QBE.[42]
[42]See above, [23] – [24].
Further, and in any event, Corplex argues that the prospect of a non-party costs order is not, of itself, an answer to an application for security for costs, citing Nylex Corporation Pty Ltd v Basell Australia Pty Ltd[43] at [22]–[23] (‘Nylex Corporation’).
[43][2009] VSC 97 (‘Nylex Corporation’).
Corplex also says that even if QBE remains liable to indemnify the plaintiff for the costs of this proceeding (including any adverse costs orders) pursuant to the terms of the insurance policy, this does not give comfort to Corplex, as any amount paid by QBE may be distributed to the insolvent plaintiff’s creditors, rather than be on-paid to Corplex.[44] It was submitted that s 562 of the Corporations Act2001 (Cth) would not require the liquidator to pay that amount to Corplex in the manner described in Nylex Corporation.[45]
[44]See, eg, Transcript (n 25) 11 [23]–[31]; Corplex’s Reply Submissions, 7.
[45]Nylex Corporation (n 41) [22] n 4.
Section 562 provides that where a company is “insured against liability to third parties”, the liquidator must pay any amount received from the insurer to the third party as a priority payment ahead of all other creditors.
In Nylex Corporation, the Court rejected the argument that the obligation of an insurer to indemnify a plaintiff against adverse costs orders in subrogated proceedings posed no risk to the defendant in recovery of those costs. Justice Mandie said that any amount paid by the insurer to the liquidator “would have to be paid into the pool available to all creditors and would not be directly available to the defendant”.[46] His Honour contrasted that position with one in which the relevant insurance policy covers liability to a third party, which would give rise to a priority payment by the liquidator to the third party under s 562.[47]
[46]Ibid [22].
[47]Ibid [22] n 4.
It was submitted that, since the insurance policy in this case was for business losses sustained by the plaintiff, it indemnified the plaintiff for its business losses; not the plaintiff’s liability to third parties. Thus, it was argued that s 562 would have no work to do, leaving any amount paid by QBE to a liquidator pursuant to the policy to be distributed to all creditors of the plaintiff.[48]
[48]Transcript (n 25) 40–1.
Corplex submitted that, in the circumstances of this case, it would be fair and appropriate that Corplex’s security for costs include past costs, on the primary basis that until Final Stop assumed conduct of proceedings, an order for said costs would lie against QBE; and also, because there had been no “unreasonable delay” on the part of Corplex.[49]
[49]Transcript (n 25) 16–17.
D.2 Plaintiff’s submissions
The plaintiff submits that there has not been any relevant change in circumstance which justifies Corplex seeking security at this late point in time.
The plaintiff says that QBE continues to have a contractual obligation to the plaintiff, enforceable by its liquidator, that the subrogated proceeding be “at the expense of” QBE pursuant to condition 10(a) of the policy. Thus, the plaintiff submits that QBE remains contingently liable to the plaintiff under the policy to indemnify it for costs which may be ordered to be paid by the plaintiff to Corplex in this proceeding. The plaintiff submits that neither the Deed, the Transfer Order nor Final Stop’s conduct of this proceeding affect QBE’s obligation to indemnify the plaintiff under the policy.[50]
[50]Plaintiff’s Submissions, 11–12 [50]–[52].
The plaintiff says that the effect of clause 3(i) of the Deed does not, on its terms, discharge or otherwise relieve QBE from its obligation to indemnify the plaintiff for adverse costs.[51] The plaintiff submits that any discharge of QBE’s liability to indemnify the plaintiff for adverse costs would need to be effected by way of a novation of the insurance policy, as obligations cannot be assigned. Since the plaintiff is not a party to the Deed, it cannot effect a novation of the policy.[52]
[51]Transcript (n 25) 21–2.
[52]Ibid 27–8.
Thus, the plaintiff submitted that the effect of clause 3(i) of the Deed is that Final Stop is granting an indemnity to QBE in respect of adverse costs which QBE is due to pay to the plaintiff under the policy.[53]
[53]In this respect see, eg, Transcript (n 25) 25–8.
The plaintiff submits that the Transfer Order simply enforced rights between QBE and Final Stop under the Deed. It does not purport to effect an assignment by QBE of its obligation under the policy to pay costs. Further, it does not bind the trial judge in this proceeding with respect to any costs orders they may consider appropriate in the exercise of their discretion.[54]
[54]Plaintiff’s Submissions, 11 [50].
The plaintiff also submits that, by reason of QBE’s continuing obligation to the plaintiff under the policy, the Deed and Transfer Order do not lead to any change to Corplex’s prospects of obtaining a third-party costs order against QBE.[55] The plaintiff argued that – contrary to what is set out in Nylex Corporation – s 562 of the Corporations Act2001 (Cth) would operate to ensure that any amount paid by QBE to the liquidator under the insurance policy would be on-paid to Corplex as a priority payment, rather than be distributed amongst the whole body of creditors.[56] That is, whilst the policy indemnified the plaintiff’s losses, condition 10 of that policy operated as insurance against the plaintiff’s liability to a third party for adverse costs incurred in subrogated actions brought by the insurer.
[55]Ibid 12 [54].
[56]Transcript (n 25) 34–5.
The plaintiff therefore says that the risk to Corplex remains unchanged, such that its delay in bringing this application cannot be explained, and that security should therefore not be ordered.
The plaintiff also says that the long-running nature of the proceeding, the past resolution of various interlocutory issues, the preparation and filing of a significant volume of evidence, and the concomitant incurring of costs, have all been borne on that basis that the plaintiff was not required to provide security. The plaintiff therefore says that it would be harsh and unfair to now require security for costs in these circumstances.[57]
[57]Plaintiff’s Submissions, 14–15 [64].
D.3 Ruling
In my view, the Deed and Transfer Order, of which Corplex has only recently become aware, are relevant matters that justify bringing an application for security for costs at this time.
I agree with Corplex’s submissions that the full effect of the Transfer Order is not clear. On its face, the Transfer Order purports to lay liability for any adverse costs orders in favour of the defendants at the feet of Final Stop and not QBE. The order makes no distinction between costs referable to the period through which QBE conducted the proceedings, and those which are referable to future costs. As evidenced by the statement of claim and the transcript of the hearing before Elliott J on 10 March 2023, the meaning and effect of clause 3(i) of the Deed, and the Transfer Order made in specific performance thereof, remains in dispute as between Final Stop and QBE – including as to how costs and adverse costs are to be apportioned between them.
Assuming for a moment that QBE is no longer liable to indemnify the plaintiff for any costs order made in Corplex’s favour, and that this rather falls to Final Stop, this is a significant change in risk from Corplex’s perspective. QBE is a listed entity, governed by prudential regulation. Final Stop has $12 in paid-up capital, does not hold any property, and does not have any security interests registered on the Personal Property Securities Register.[58]
[58]In this regard see, eg, Lux 2, 12 [41]–[43].
I will now address the question of whether QBE’s liability to indemnify the plaintiff under the policy has been effected by the Deed.
In my view, the argument raised by Corplex that QBE and Final Stop have reached an agreement that relieves QBE of its liability for adverse costs is a reasonable argument. Whilst I agree with the plaintiff’s submission that novation of the insurance policy would be required in order to transfer QBE’s obligation to the plaintiff under the policy, I am satisfied that the arguments raised by Corplex as to the assignment of the benefit of that obligation to Final Stop – and agreement by Final Stop under the Deed not to require QBE to meet it – are tenable.
I have some difficulty with the plaintiff’s argument that clause 3(i) must be read as an obligation upon Final Stop to indemnify QBE with respect to its obligation to pay the plaintiff’s costs, including adverse costs. The clause does not say this expressly. This is in contrast to that which is set out in clause 3(d) of the Deed, which addresses the costs obligations and associated indemnities consequential on a change in the control of the APT Proceeding.
Accordingly, in my view, and as a consequence of the Deed and Transfer Order, there is now doubt as to QBE’s liability in respect of costs payable by the plaintiff to Corplex. This doubt may explain why QBE has refused to provide an undertaking to Corplex in respect of adverse costs.
However, this application is not the forum in which the effect of the Deed upon the obligations of QBE and Final Stop are to be determined. The Court will consider the effect of the Deed in the Final Stop proceeding. Save than to express my view that the arguments raised by the parties are reasonable, it would not be appropriate for me to say anything further on this score.
I do not accept the plaintiff’s arguments that the Deed and Transfer Order do not lead to any change in Corplex’s prospects of obtaining a third-party costs order against QBE. Certainly with respect to future costs, there has been a fundamental change of position. QBE is no longer conducting the proceeding, and on Final Stop’s interpretation of the Deed, it is now conducting this proceeding for its own benefit, and is not required to share any proceeds with QBE as set out in clause 3(h) of the Deed. Further, given the uncertainty as to the operation of the Deed, it may be that the availability of a non-party costs order against QBE, in respect of costs incurred whilst QBE was in control of the proceedings, is more complicated than it was prior to the Deed and subsequent Transfer Order.
Like Nylex Corporation, in the circumstances of this case, I do not consider that there is no risk that Corplex will not be paid any costs order made against the plaintiff in its favour, whether by reference to a non-party costs order against QBE, or via the indemnity provided in the insurance policy. Having regard to the comments of Mandie J in Nylex Corporation, which suggest that s 562 would not operate to protect a defendant in the position of Corplex, and the parties’ competing arguments as to the correctness of that view, this demonstrates additional recovery risk on the part of Corplex in the event that QBE remains liable to indemnify the plaintiff under the policy.
The authorities make clear that delay is a significant factor that weighs against the granting of security for costs. However, in my view the change of position arising from the Deed and Transfer Order satisfactorily explains the timing of Corplex’s application. Upon notification of the existence of the Deed and Transfer Order, Corplex has acted promptly to seek security for costs. Prior to becoming aware of the Deed and Transfer Order, Corplex was justified in not seeking security for costs, safe in the knowledge that QBE was conducting the subrogated proceeding.
This explanation does, of course, need to be weighed against the extent of the unfairness to the plaintiff. Here, the plaintiff relies upon unfairness that will be presumed; namely, that it is unfair to grant security now, given that the plaintiff has expended costs on the basis that it was not required to provide security. However, no other specific prejudice arising to the plaintiff has been asserted.
Significantly, there is no suggestion that the costs expended to date by the plaintiff will effectively have been wasted if security is now ordered. The plaintiff’s counsel expressly disavowed any suggestion that an order for security for costs will threaten the plaintiff’s financial ability to continue with the action.[59]
[59]Ibid 37.
Accordingly, in the circumstances of this case, it is appropriate to exercise the discretion to award security for costs, and for that security to extend to past costs.
E Quantum
I will now turn to the question of quantum.
E.1 Past costs
The quantum for past costs sought by Corplex is addressed in Lux 3. Of the $688,140 now claimed, $334,806 is made up of disbursements.[60] The disbursements are detailed in Exhibit NKL-33 to Lux 3. I presume that the remaining $353,334 relates to solicitor and counsel fees incurred. No breakdown of this amount has been provided. Rather, Lux 3 gives further detail as to the nature and complexity of the proceeding, which is well-progressed.[61] Pleadings have been amended; discovery has been completed; 6 subpoenas have been issued to non-parties; and extensive lay and expert evidence has been exchanged, comprising 11 lay witness statements, 16 expert reports addressing liability and 10 expert reports addressing quantum. Tender bundles have also been prepared.
[60]Lux 3, 6 [24].
[61]Ibid 2–5 [10]–[23].
The plaintiff has not raised any complaint regarding the quantum of past costs for which security is sought.
It is not clear on Corplex’s materials whether the past costs sought are its estimate of party-party costs referable to its past costs; or alternatively, the quantum of costs Corplex has actually incurred to date, that is, the sum to which Corplex might be entitled if an award of indemnity costs were made. I infer from the precision of the amount sought in respect of past costs that it is the latter, viz. the amount of costs Corplex has actually incurred to date, rather than an estimate of what it might be entitled to on a party-party basis. Further, the failure to provide a more detailed breakdown of the past costs sought has made the task of assessing whether the quantum sought is adequate more difficult. Accordingly, in my view, it is necessary to make a broad-brush one-third discount of the “fees” portion ($353,334) of past costs claimed.
I will therefore order past costs in the amount of the disbursements particularised – plus $235,556 in respect of fees – giving rise to a total of $570,362. In my view, this quantum in respect of past costs is sufficient, having regard to the nature and complexity of the proceeding as addressed in Lux 3.
E.2 Future costs
I will now address the quantum of future costs.
The first defendant has only recently filed a notice of appearance. Corplex raised concerns as to how the first defendant’s participation in this proceeding might affect the quantum of security that ought to be awarded. Corplex is concerned that if the first defendant actively participates in the proceeding, this will lead to further costs which are not in its current estimates as to future costs. For this reason, Corplex invited me to defer consideration of quantum until after 11 August 2023, being the date of the next directions hearing before the managing judge, which will be the first directions hearing at which the first defendant will appear.[62]
[62]Transcript (n 25) 18.
In my view, it is appropriate to consider quantum on the materials presently before the Court, but grant liberty to Corplex to vary the quantum referable to future costs by reason of the participation of the first defendant in the proceeding.
With respect to future costs, the dispute between the parties was whether future costs should extend to only to time of a future mediation, or whether they should also include the costs of trial.
The plaintiff submitted that costs incurred up to completion of a further mediation is appropriate, as this is the “usual order”, and noting the Court has ordered conclaves of experts to seek to narrow the scope of dispute between them.[63] The recent participation of the first defendant in this proceeding was also pointed to as a factor which gives rise to the inevitable need for a future mediation, and increased prospects of settlement at that mediation.[64] Further, it was submitted that there is no prejudice to Corplex if the security is limited to a mediation, as it will have liberty to apply for further security should the matter not resolve.[65]
[63]Plaintiff’s Submissions, 10 [41], 15 [65].
[64]Plaintiff’s Submissions, 14–15.
[65]Transcript (n 25) 36 [17]–[30].
Corplex submits that the “usual course” to award costs up to mediation applies in circumstances where the proceeding is in the early stages and no mediation has yet occurred. That is not the case here. The proceeding is well-progressed, and mediations have already been conducted.[66] Further, Corplex notes that the current timetabling orders do not contemplate any further mediation, and that no party has otherwise sought a mediation.[67]
[66]Corplex’s Reply Submissions, 11 [29].
[67]Transcript (n 25) 18–20.
In my view, given the uncertainties which arise from the recent participation of the first defendant in this proceeding, it is appropriate to order security up until a future mediation. I agree with the plaintiff’s submission that there is no prejudice to Corplex arising from this course. Further, this will allow the parties, and if necessary, the Court, to consider the appropriate quantum of security for costs of the trial with the benefit of knowing the impact that the first defendant’s participation is expected to have on the estimated costs of trial.
The parties are in dispute as to the quantum of costs to the mediation. The plaintiff submits that the costs of interlocutory applications and subpoenas totalling $38,750 ought to be excluded. It was argued that these costs are speculative as it is unknown whether any interlocutory applications will be made or whether any further subpoenas will be issued.[68] I disagree, and accept Corplex’s submission that it is reasonable to estimate future interlocutory disputes. Further, I note that the costs estimate does not include the cost of preparing for or attending a future mediation. In my view, this needs to be accounted for, as it balances the suggestion that the amount of security sought, excluding the costs of trial, is excessive.
[68]Plaintiff’s Submissions, 15–16 [67].
Accordingly, I will order security for future costs up to mediation in the amount of $136,865, being the amount sought by the plaintiff, excluding the costs for trial.
F Conclusion
In my view, it is appropriate for an order to be made that if the security in the amount of $707,227 is not provided within a reasonable timeframe, that the proceeding be stayed as against the Second Defendant until further order.
I invite the parties to confer and agree upon orders arising from this ruling, including on the question of costs. I direct that the parties provide consent or competing minutes of order to my chambers by 18 August 2023, and thereafter, my chambers will advise whether a short further hearing is required to address any matters on which the parties are not agreed.
SCHEDULE OF PARTIES
| S CI 2016 04423 | |
| BETWEEN: | |
| INDEPENDENT TUBE MILLS PTY LTD (IN LIQUIDATION) (ACN 136 627 186) | Plaintiff |
| - v - | |
| PINCOVE PTY LTD (ACN 121 786 221) | First Defendant |
| CORPLEX PTY LTD (ACN 108 916 310) | Second Defendant |
| INTRAX CONSULTING ENGINEERS PTY LTD (ACN 106 481 252) | Third Defendant |
0
6
0