Indigo Financial Money Pty Limited v Bolivar Road Pty Limited (in Liq) - [2012] SASC 214

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
INDIGO FINANCIAL MONEY PTY LIMITED & ANOR v BOLIVAR ROAD PTY LIMITED (IN LIQ)
[2012] SASC 214
Judgment of The Honourable Justice White
22 November 2012
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH DISCRETION OF COURT BELOW - IN GENERAL
CORPORATIONS - LEGAL CAPACITY AND RELATIONS WITH OUTSIDERS - EXTERNAL LITIGATION PROCEDURE - COSTS - SECURITY FOR COSTS - DISCRETION OF COURT - GENERAL PRINCIPLES
PROCEDURE - COSTS - SET-OFF
The respondents have applied, pursuant to s 191(j) of the Real Property Act 1886 (SA) and pursuant to an undertaking for damages given by the appellants, for an assessment of compensation in respect of losses said to arise from the appellants’ lodgement of and refusal to withdraw a caveat. A Master refused to make an order that the respondents provide security for costs on the application.
Held (dismissing the appeal): (1) The Master was correct in regarding the appellants’ significant existing liability to the respondents for costs in the action as giving rise to a potential for set-off sufficient to protect the appellants’ position; (at [46]).
(2) The Master did not err in taking into account the fact that the appellants have brought the respondents’ claim “upon their own heads”, given the appellants brought proceedings against the respondents on which they failed and also voluntarily proffered undertakings as to damages; (at [48]-[49]).
(3) However, the Master’s reasons do indicate some error in his approach to the exercise of the discretion; (at [26]-[27], [36]).
(4) Re-exercise of the discretion should not result in an order for security. As the appellants had sought and obtained an extension of the time for removal of the caveat on the basis of an undertaking as to damages, the Court should be slow to impose an impediment on the respondents taking advantage of that protection. In addition, the appellants have a form of security available to them by way of the potential for a set-off. Finally, the appellants have delayed unreasonably in bringing the application for security; (at [53]-[57]).
Corporations Act 2001 (Cth) s 443D, s 556, s 1335; Real Property Act 1886 (SA) s 191; Evidence Act 1929 (SA) s 67C; Supreme Court Civil Rules 2006 (SA) r 187, r 194, r 264, r 266, referred to.
Indigo Financial Money Pty Limited & Anor v Bolivar Road Pty Limited & Ors [2012] SASC 148; Indigo Financial Money Pty Limited v Bolivar Road Pty Ltd [2010] SASCFC 29; Indigo Financial Money Pty Limited v Bolivar Road Pty Ltd (No 2) [2011] SASCFC 39; KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) FCR 189; Octocane Pty Ltd v SRJ Property Development Pty Ltd (1999) 74 SASR 471; Jownal v Commonwealth Bank of Australia [1999] SASC 72; FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241; In re Pennington and Owen Ltd [1925] 1 Ch 825; J Earle Hermann Ltd v Council of Municipality of North Sydney (1914) WN (NSW) 166; Currie & Co v Law Society [1977] 1 QB 990; Robarts v Buee (1878) 8 Ch D 198; Kison v Papasian (1994) 61 SASR 567, considered.

INDIGO FINANCIAL MONEY PTY LIMITED & ANOR v BOLIVAR ROAD PTY LIMITED (IN LIQ)
[2012] SASC 214
Appeal from a Master

WHITE J. This is an appeal from a decision of a Master refusing to order that a defendant provide security for costs.[1]
[1] Indigo Financial Money Pty Limited & Anor v Bolivar Road Pty Limited & Ors [2012] SASC 148.
On 25 November 2008 the appellants commenced this action seeking various forms of relief in relation to money said to have been advanced by them to the defendant Bolivar Road Pty Ltd. The defendants to the action are Bolivar Road, Domain Funding Pty Ltd and Mr Najjar. The appellants also sought an extension of time for the removal of a caveat which they had lodged on 29 October 2008 on the title to land owned by Bolivar Road to secure an equitable mortgage claimed by the first appellant.
Upon the appellants providing undertakings as to damages, a Master made orders on 26 November 2008 and 3 December 2008 which, taken together, had the effect of extending until further order the time for the removal of the caveat.
Judgment dismissing the appellants’ substantive claim was delivered on 4 December 2009. Extensive appellate and interlocutory activity has occurred since then.
An order discharging the order extending the time for removal of the caveat was made on 1 April 2010. On 27 August 2010 the Full Court dismissed the appellants’ appeal against the judgment of the trial Judge.[2] On 13 September 2010 the appellants applied to have the appeal to the Full Court reopened. That application was refused.[3]
[2] Indigo Financial Money Pty Limited v Bolivar Road Pty Limited & Ors [2010] SASCFC 29.
[3] Indigo Financial Money Pty Limited & Anor v Bolivar Road Pty Limited & Ors (No 2) [2011] SASCFC 39.
Previously, on 15 December 2009, Bolivar Road and the third respondent, Mr Najjar (to whom I will refer collectively as the defendants) had applied for an assessment of compensation in respect of the losses they claimed they had suffered by reason of the appellants’ lodgement of and refusal to withdraw, the caveat. They sought that compensation pursuant to the undertakings which the appellants had provided to the Court when seeking the orders for extension and pursuant to s 191(j) of the Real Property Act 1886 (SA) (RPA).[4] No issue has been taken about the defendants bringing their claim for compensation under s 191(j) by way of interlocutory application in the present proceedings.
[4] Section 191(j) provides:
“any caveator other than the Registrar‑General who shall have lodged or refused or neglected to withdraw any caveat wrongfully and without reasonable cause, shall be liable to make compensation to any person who may have sustained damage thereby, and such compensation may be recovered by action: Provided that, if proceedings shall have been taken in the Court by the caveatee or other person interested, the amount of such compensation may be assessed by the Court acting in the same proceedings; or the Court may direct an action to be brought to ascertain and recover such amount;”.
As at 15 December 2009, the losses of Bolivar Road were said to amount to $670,001.48 and to be ongoing. Subsequently, on 8 August 2010 the defendants obtained a report from Mr Veronese, a chartered accountant. He estimated Bolivar Road’s losses resulting from the caveat at $1,666,611.26. Later again, another chartered accountant, Mr Fechner, estimated those losses at $1,431,387.00. Although Mr Najjar is a co‑applicant for compensation, he has not yet provided any particulars or evidence of any separate loss sustained by him. His counsel acknowledges that any damages recovered by him will be “incidental”.
Progress on the application for compensation has been protracted. The application was listed for hearing on 19 January 2011 but was adjourned. Thereafter there have been numerous directions hearings before a Master. The application is now listed for hearing on 18 February 2013.
On 22 December 2011, the defendants filed shortform claims for costs: $334,737.44 in respect of the trial; $86,308.25 in respect of the Full Court appeal; and $40,559.50 in respect of the application to reopen the appeal. This is a total of $461,605.19. The Master has reserved judgment on an application by the defendants for a “lump sum” adjudication of these costs.[5]
[5] Supreme Court Civil Rules 2006, r 264(5)(c).
The Federal Court made an order for the winding up of Bolivar Road on 16 December 2011.
On 24 February 2012, the appellants applied to have the defendants’ claim for compensation struck out for want of prosecution. That application failed. The appellants then (on 6 June 2012) applied for orders that Bolivar Road provide security for costs and that proceedings on the application for compensation be stayed until it does so. A Master refused that application.[6] The present appeal is against that refusal.
[6] Indigo Financial Money Pty Limited & Anor v Bolivar Road Pty Limited & Ors [2012] SASC 148.
It is not easy to see why the application for security was not brought as an alternative claim in the strike-out application. As I indicated to the parties during the hearing, this kind of seriatim presentation of interlocutory applications is not acceptable. Litigants are expected, so far as is practicable, to bring all their interlocutory applications at the one time so as to facilitate the expeditious determination of proceedings.
The Decision of the Master
The Master referred to the power in s 1335 of the Corporations Act 2001 (Cth) and to r 194 of the Supreme Court Civil Rules 2006. Section 1335(1) provides:
(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.
Rule 194(1) provides relevantly:
(1) The Court may order a plaintiff to provide security for costs if—
…
(e) the order is necessary in the interests of justice.
Each of s 1335 and r 194(1) empower a court to order a “plaintiff” to provide security. Although Bolivar Road is a defendant in the proceedings it did not contend that it is not a “plaintiff” for the purpose of these provisions. That was appropriate given that it is seeking relief under s 191(j) of the RPA as well as enforcement of the undertakings given to this Court.
The Master concluded that there was reason to believe that Bolivar Road will be unable to pay the appellants’ costs if they are successful in defending the claim for compensation.[7] This was because any award of compensation in favour of Bolivar Road is likely to be subject to priority claims by a secured financier, by its former solicitors who have asserted a solicitor’s lien for unpaid legal fees, and by the liquidator.
[7] Ibid at [30].
The Master’s conclusion regarding this threshold condition enlivening the discretion to award security was not in issue on the appeal. This makes it unnecessary to consider whether the appellants had shown reason to believe that Mr Najjar will be unable to satisfy an order for costs made against him and Bolivar Road jointly. It is also unnecessary to consider whether the prospect of a set-off against the appellants’ existing liability for costs (to which I refer later) meant that the threshold condition could not be satisfied.
The Master used the guidelines summarised by Beazley J in KP Cable Investments Pty Ltd v Meltglow Pty Ltd[8] as a framework for his exercise of the discretion, and concluded:
[34]The plaintiffs have a significant liability to the defendants for legal costs in this action. Apparently no offer has been made to resolve claims for compensation and damages. The amounts of these claims have varied between $670,000.00 and $1.6 million in assessment. It is reasonable for the Court to infer that the defendants will recover at least some award in respect of their claim. In my view these circumstances are sufficient for the Court to exercise its discretion not to order security for costs. In a sense the plaintiffs have brought the defendants’ claims upon their own heads not only by giving an undertaking for damages but also by subjecting themselves to the reach of s 191(j) of the Real Property Act in protecting the caveats as they did. In all the circumstances it would be unjust to require the defendants to provide security for the plaintiffs’ costs.
[8] [1995] FCA 76; (1995) 56 FCR 189.
The Appeal
The appellants seek appellate interference with a discretionary decision. They recognised that in that circumstance it is incumbent upon them to show that the Master has acted upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect the decision, mistaken the facts or failed to have regard to a material consideration. They also recognised the usual appellate reluctance to interfere with discretionary judgments concerning matters of practice and procedure.
The appellants imputed five errors to the Master.
The Cause of the Defendants’ Impecuniosity
In relation to the cause of the defendants’ impecuniosity, the Master concluded:
It is arguable that the defendants’ apparent impecuniosity is likely at least to some degree to have been contributed to by the plaintiffs’ conduct in caveating the [property] and in unsuccessfully pursuing litigation against them”.[9]
The appellants initially contended that there was no evidence to support the view that they had caused “the defendants’ apparent impecuniosity”. They recognised, however, that there was some evidence from which inferences to that effect may be able to be drawn. They submitted instead that the Master had erred by giving any weight to this consideration.
[9] Indigo Financial Money Pty Limited & Anor v Bolivar Road Pty Limited & Ors [2012] SASC 148 at [33(3)].
Evidence that the conduct of a party seeking security was a material cause of the impecuniosity of the party from whom security is sought is a relevant consideration on applications of the present kind.[10] Accordingly, the Master was not in error in regarding this as a relevant matter.
[10] Octocane Pty Ltd v SRJ Property Development Pty Ltd (1999) 74 SASR 471 at 477.
It is evident that the Master expressed himself in very circumspect terms on this topic. He said no more than that it is arguable that the appellants’ conduct was likely to have contributed to at least some degree to the defendants’ impecuniosity. Given this guarded language, I consider it improbable that the Master attached any material significance to this issue. Accordingly, this submission of the appellants fails.
Absence of Offer
The Master recorded in [34] that “apparently no offer has been made to resolve [the] claims for compensation and damages”.
The appellants submitted that the Master had had no evidence at all justifying this observation. The defendants acknowledged that that was so.
It was not of course open to either party to inform the Master of any Rules of Court offer. Rule 187(4) of the Supreme Court Civil Rules 2006 specifically prohibits the disclosure of a formal offer of settlement filed under that rule unless one or other of the circumstances specified in that subrule have occurred. Section 67C of the Evidence Act 1929 (SA) also precludes evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute. There are exceptions to that prohibition, but none are applicable presently. Thus, the Master could not have been given details of any Rules of Court offer or of any informal without prejudice offer.
Counsel for the defendants referred to Jownal v Commonwealth Bank of Australia[11] in which Lander J held that it may be relevant to the exercise of the discretion to know whether the defendant has made a payment into Court or filed an offer of consent to judgment.[12] However, given the absence of evidence in the present case on the topic, this does not assist the defendants and it is not necessary to consider how evidence of an offer, or the absence of an offer, if properly admitted may have been relevant to the exercise of the discretion.
[11] [1999] SASC 72.
[12] Ibid at [42].
I consider that the appellants have made good this ground of appeal.
Defendants’ Prospects of Recovery
The Master held in [34]:
The amounts of [the claims for compensation and damages] have varied between $670,000 and $1.6 million in assessment. It is reasonable for the Court to infer that the defendants will recover at least some award in respect of their claim.
It is possible that the Master intended this observation to be read in conjunction with the sentence immediately preceding it concerning the absence of any offers by the defendants to resolve the claims. He may have regarded this as indicating that it was likely that it would be the defendants who, in addition to recovering some damages or compensation, would be entitled to a costs order.
The appellant contended that there is scarcely any evidence, as opposed to assertions by the defendants, to justify the Master’s view that the defendants will recover at least some award. They submitted in any event that this was not a material consideration. That is because the discretion concerning an order for security for costs is made on the hypothesis that the claimants will fail in their claim and thereby incur a liability for costs.
In my opinion, there is force in this submission. As already seen, the threshold for the exercise of the discretion is reason to believe that the Corporation will be unable to pay the costs of the defendant if unsuccessful in his, her, or its defence. The discretion is therefore to be exercised in the context of that “future hypothetical fact”.[13] Its exercise is not to be negated by an assumption that the hypothetical fact may not be realised.
[13] FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd [2000] WASCA 69 at [49]; (2000) 22 WAR 241 at 253.
This does not mean that the strength of a plaintiff’s claim or of a defendant’s defence may not be material. In those cases in which the evidence is sufficient, a court may be able to make some preliminary estimate of the strength of the parties’ respective cases. But the difficulty of making assessments of this kind at the interlocutory level means that such predictions must necessarily be of a preliminary kind. That is especially so in this case as, at the time of the Master’s decision, the parties had not yet filed affidavits from all the witnesses on whose evidence they proposed to rely at the hearing of the claim for compensation.
The available evidence provided by the defendants indicates that, at least at this stage, their claims for compensation are based very much on matters of assumption and assertion. For example, Mr Fechner acknowledges expressly that he has simply assumed the matters of causation which the defendants will need to establish:
[2.7]My report assumes that if it were not for the Indigo/Tsoulos caveats the Project would have advanced through to completion in the normal course of business and in a normal commercial manner.
[2.8]My calculations assume the Defendants’ assertion that if it were not for the Indigo/Tsoulos caveats the Project would have advanced through to completion in the normal course of business and in a normal commercial manner and the delay periods indicated in the Report are attributed to the Indigo/Tsoulos caveats.
(Emphasis added)
It is not yet apparent how the defendants will make good the assumptions identified by Mr Fechner. I note that in relation to the report of Mr Veronese, Mr Najjar deposed simply:
I verify the facts assumptions and documents relied upon by Mr Veronese in his report.
A mere assertion of that kind will not establish the underlying facts necessary to validate the assumptions made by Messrs Veronese and Fechner.
It is also pertinent to note the evidence adduced by the appellants to the effect that the defendants were aware that the caveat should not be an impediment to the sub‑division of the land and sales of the sub‑divided blocks.
In these circumstances, I accept the appellants’ submission that the Master has erred in inferring that the defendants will recover at least some amount in respect of their claim. In my opinion, the evidence at this stage does not allow a conclusion to be reached in either direction.
The Plaintiffs’ Liability for Legal Costs

The Master commenced [34] of his reasons by observing that the appellants have a significant liability to the defendants for legal costs in this action.
Given the amounts claimed by the defendants under the costs orders, there is a sound basis for this observation. However, the Master’s reasons do not indicate the significance which he attached to this liability in the present context.
The most obvious possible significance is the potential for a set‑off. That is, the appellants setting off against their liability to the defendants under the existing costs orders, their entitlement to costs from the defendants in the event that they are found to have no liability to pay compensation. Such a set-off is authorised by r 266 of the Supreme Court Civil Rules 2006.
The appellants submitted, however, that such a set-off will not be possible. They advanced three matters in support. In my opinion, none of the three matters will have the effect for which the appellants contend.
First, the appellants contended that a costs order made against Bolivar Road could not be set off against the existing costs orders in favour of both defendants. They referred to In re Pennington and Owen Ltd[14] as authority for the proposition that a judgment debt cannot be set off against a separate debt. However, this submission overlooks that both Bolivar Road and Mr Najjar are claiming compensation. The circumstances of the case suggest that if they are unsuccessful, the Court will make a joint order of costs against them. Counsel for the defendants acknowledged that that was so. Thus, a costs order in favour of the appellants will be able to be set off against the existing costs orders in favour of the defendants.
[14] [1925] 1 Ch 825.
The appellant then referred to the fact that the defendants’ lawyers, Commercial and General Law Pty Ltd, have asserted a solicitor’s lien in respect of their unpaid costs of some $370,000 over the proceeds and costs recovered by Bolivar Road in this action. The appellant submitted that that lien would preclude any set-off.
A respectable line of authority runs counter to this submission and indicates that a solicitor’s lien applies only to the ultimate amount payable to the client. In J Earle Hermann Ltd v Council of Municipality of North Sydney[15] Simpson CJ said:
Where there are cross orders made in the same suit for payment of costs from A to B, and for payment of other costs by B to A, a set-off is prima facie allowed … and the costs may be directed to be set-off without regard to the lien of the solicitors, which only extends to the ultimate balance…[16]
Similarly, in Currie & Co v Law Society,[17] May J said:
[T]he set-off takes precedence over the solicitor’s particular lien, which will then be limited to the balance, if any, due to his client after the set off.[18]
Finally, Hall VC in Robarts v Buee[19] said:
The principle is that where a solicitor is employed in a suit or action, he must be considered as having adopted the proceedings from the beginning to the end, and acted for better or worse. His client may obtain costs in some matters in the suit or action, and not in others, and the solicitor takes his chance, and may ultimately enforce his lien for any balance which may appear to be in favour of his client.[20]
[15] (1914) 31 WN (NSW) 166.
[16] Ibid at 167.
[17] [1977] 1 QB 990.
[18] Ibid at 999.
[19] (1878) 8 Ch D 198.
[20] Ibid at 200. See also GE Dal Pont, Law of Costs (2^nd ed, 2009) at [27.26]-[27.29].
The appellants’ third submission on this topic was that the existing costs orders in favour of the defendants are secured to Bolivar Road’s financier, Orio Mortgage Finance Company Pty Ltd, which has a fixed and floating charge over its assets as security for a loan of $374,000. They referred in this respect to Kison v Papasian[21] in which King CJ held that the benefit of a judicial order for costs is a form of property. Thus the contention was that the benefit of the existing costs orders is already secured in favour of Orio.
[21] (1994) 61 SASR 567.
In my opinion, this submission fails for the same reason as does the second. It is the net or ultimate amount of costs payable to Bolivar Road which will be subject to Orio’s security. The appellants’ reference to the administrator’s right of indemnity under s 443D of the Corporations Act 2001 (Cth) and the liquidator’s statutory priority under s 556(1) of the Corporations Act 2001 (Cth) fails for much the same reasons.
The existing liability of the appellants to the defendants for costs is likely to exceed to a significant extent the potential liability of the defendants to the appellants in the event that their claims for compensation fail. Accordingly, if the Master’s reference to the appellants’ significant existing liability for costs to the defendants is understood as a reference to the potential for set-off, then he has, in my opinion, made no error. I will refer later to the significance of the defendants pressing for an adjudication of the quantum of their costs entitlement in advance of the hearing of their compensation claims.
Appellants’ Responsibility for their Predicament
The appellants also complained of the Master having taken into account his view that they have brought the defendants’ claims “upon their own heads” by giving the undertakings for damages and by subjecting themselves to the reach of s 191(j) of the RPA by lodging the caveat. They submitted that this was an immaterial consideration because, in almost all cases in which security is sought, it could be said that it is some conduct of the defendants which has led to proceedings being instigated against them.
In my opinion, the Master’s meaning is clear enough. This case is unlike most. The appellants were the plaintiffs in the action. They commenced an action forcing the defendants to come to court. Further, as a condition of obtaining a form of interlocutory relief, the appellants voluntarily proffered undertakings to the Court. There is a sense in which it can be said that they themselves have created the risk that in the event that the defendants’ claim for compensation fails, they may not be able to recover some costs.
On this basis, I do not consider that this complaint of the appellants is made good.
Summary on Appellants’ Submissions
This means that I consider that the Master has erred in relation to two of the matters to which he referred in [34] as being sufficient for the Court to exercise the discretion against awarding security. That is sufficient, in my opinion, to indicate that the discretion has been miscarried and that the Court should exercise it afresh.
Re-exercise of the Discretion
The parties referred to a number of authorities and considerations bearing on the exercise of the discretion. It is not necessary to refer to them all in these reasons.
In my opinion, two considerations point strongly against the exercise of the discretion in the appellants’ favour.
The first arises from a matter already mentioned. By their application for compensation the defendants are seeking to enforce the undertaking which the appellants proffered voluntarily to the Court as a condition of the Court granting them a form of interlocutory relief. The undertaking was intended to afford the defendants a measure of protection from loss in the event that the Court found that their caveat could not be sustained. Having sought and obtained relief on that basis, I consider that the Court should be reluctant to put impediments in the way of the defendants taking advantage of the protection which both the appellants and the Court contemplated they should have.
Secondly, the appellants do have available a form of security in respect of their entitlement to costs in the event that the defendants’ claims to compensation fail. That is by way of the set-off to which I referred earlier.
It is true that the defendants are presently seeking a quantification of their entitlements under the existing costs orders and, if allocaturs are issued, will be able to enforce them immediately. However, that is a matter which can be supervised by the Court. It is open to the Master to stay enforcement of the allocaturs until the determination of the defendants’ compensation claims. If the Master does not order a stay, the appellants’ application for security can be renewed in the circumstances then existing.
I also consider that the fact that the appellants did not bring the application for security in a timely way counts against them. As noted earlier, the appellants could, and in my opinion should, have brought their security application as an alternative to the strike out application. Had they done so, there would have been a saving in both time and costs.
Accordingly, I would exercise the discretion in the same way as did the Master.
Summary
For the reasons given above, I dismiss the appeal.