Kaias Racing Pty Ltd v Burke

[2009] VSC 586

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 6037 of 2009

KAIAS RACING PTY LTD (ACN 111 234 434)	Plaintiff
v
KIM BURKE	Defendant

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JUDGE:	KYROU J
WHERE HELD:	Melbourne
DATE OF HEARING:	9 December 2009
DATE OF JUDGMENT:	9 December 2009
CASE MAY BE CITED AS:	Kaias Racing Pty Ltd v Burke
MEDIUM NEUTRAL CITATION:	[2009] VSC 586

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PRACTICE AND PROCEDURE – Security for costs – Counterclaim – Undertaking by defendant not to pursue counterclaim if plaintiff fails to comply with order for security for costs.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff (and Defendant by Counterclaim)	Mr A Panna SC	Macpherson & Kelley
For the Defendant (and Plaintiff by Counterclaim)	Mr D McWilliams	Slater & Gordon

HIS HONOUR:

1. In this matter, I have decided to allow the appeal from the Associate Justice and to make an order that the plaintiff provide security for the defendant’s costs up to and including mediation in the amount of $43,000.  My reasons are set out in brief below. 

1. The plaintiff has conceded that the defendant has adduced sufficient evidence to satisfy the threshold requirement in r 62.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) that ‘there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so’. Accordingly, the focus of the parties’ submissions before me was on the discretionary factors that the Court ought to take into account in deciding whether to order security and, if security is to be ordered, the quantum of that security.

1. The defendant submitted that, as it has met the threshold requirement, the Court should have a predisposition to awarding security for costs.  I reject this submission.  Livingspring Pty Ltd v Kliger Partners[1] makes it clear that the Court has a broad discretion without any predisposition to awarding security for costs.  The Court said:

The threshold condition for the exercise of the power to order security defines the circumstances in which Parliament contemplated that the power would be exercised.  That is, the power was conferred for the purpose of protecting the defendant against the very risk which must be shown to exist before the power can be exercised.  In this sense, satisfaction of the threshold condition – demonstrating the existence of the risk – ‘calls for’ the fulfilment of the purpose for which the power was conferred.[2] 

[1](2008) 20 VR 377.

[2](2008) 20 VR 377, 382-3 [19] (citations omitted).

1. The defendant submitted that, by reason of the obvious risks of participation in a motor car race, the plaintiff will have difficulty in establishing that the defendant owed the plaintiff a duty of care or, if a duty was owed, that the duty was breached. The defendant relied on Division 4 of Part X of the Wrongs Act 1958 (Vic).

1. I do not regard the matters raised by the defendant in relation to the merits of the plaintiff’s claim as having any material bearing on the exercise of my discretion.  I accept the plaintiff’s submission that his claim is prima facie regular on its face, that it discloses a cause of action, that it is brought bona fide and that it is reasonably arguable.  While the defendant has pointed to potential difficulties in the way of the plaintiff succeeding, it is not for me, in this application, to express a view on the prospects of success.     

1. The plaintiff relied on the existence of a counterclaim, which is based largely on the same facts as the claim, as a discretionary factor against the making of an order for security for costs.  The plaintiff submitted that, as the defendant will incur the costs of establishing the evidentiary basis for its counterclaim in any event, it would be unjust to shut the plaintiff out from pursuing its claim by the ordering of security for costs. 

1. The defendant sought to meet this argument by proffering to the Court an undertaking that, if an order for security for costs is made and the plaintiff does not comply with that order, the defendant will not pursue its counterclaim further.  I note that the undertaking was offered for the first time at this hearing.  The defendant also pointed out that the plaintiff has not presented any evidence that an order for security for costs would have the effect of stultifying the plaintiff’s claim. 

1. In my opinion, the existence of the counterclaim in this case is not sufficient to warrant the refusal of an order for security for costs.  The substantial overlap in the facts relied upon for the claim and the counterclaim cuts both ways.  In the absence of the counterclaim, the plaintiff would need to present evidence about the circumstances of the accident and make submissions on the legal principles governing liability.  The existence of the counterclaim does not materially alter either the evidentiary or legal matters the plaintiff must prove and it is therefore unlikely to add significantly to the costs.  I agree with the defendant’s submission that, on its face, the counterclaim is largely defensive.  This is put beyond doubt by the undertaking that has been proffered to the Court. 

1. In arriving at its decision, the Court must balance the interests of both parties.  In this case, as there is no issue about whether the plaintiff will be able to meet any order for costs in favour of the defendant, I am satisfied that it would be unjust for the defendant to be forced to defend a claim which may well fail, without being able to recoup any of its costs. 

1. The defendant has submitted with some force that, in reality, this case is about two racing enthusiasts – Mr Kaias and the defendant – whose cars collided during a practice race.  It so happens that the vehicle driven by Mr Kaias is not owned by him but by the plaintiff, which is a corporation in which Mr Kaias is the sole director.  The plaintiff has sued the defendant, who is an involuntary party in this proceeding.  If the defendant loses and an order for costs is made against him, that order could be enforced against his assets and he could be bankrupted if his assets are insufficient to meet the costs.  On the other hand, if the plaintiff loses and an order for costs is made against it, Mr Kaias’ assets will not be at risk.  He can, if he so chooses, allow the company to be wound up if it does not meet any order for costs that is made against it. 

1. In all of the circumstances of this case, and having regard, in particular, to the parliamentary intention referred to in [3] above, and the matters stated in [10] above, the defendant has satisfied me that this is an appropriate case in which to make an order for security for costs.

1. As for quantum, both parties filed extensive affidavit material from their solicitors and experts.  The experts’ assessments may be summarised as follows:

(a)the defendant’s expert’s estimate of the defendant’s costs up to and including mediation was $107,755 compared to the plaintiff’s expert’s estimate of $47,141.80; 

(b)the defendant’s expert’s estimate of the defendant’s costs up to the commencement of the trial was $223,260 compared to the plaintiff’s expert’s estimate of $135,091.80; and

(c)the defendant’s expert’s estimate of the defendant’s costs until the conclusion of the trial was $303,610 compared to the plaintiff’s expert’s estimate of $179,442. 

1. I have reviewed the affidavit material.  Unsurprisingly, the defendant’s material tended to overstate its costs whereas the plaintiff’s material tended to understate the defendant’s costs.  Overall, however, I consider that the plaintiff’s material was more reliable.  I note that, since the defendant’s estimates were prepared, the defendant has conceded that some items were overstated or should not have been included.  Accordingly, I prefer the plaintiff’s estimates. 

1. I note that, while the plaintiff criticised the defendant’s estimates as being excessive and oppressive, it has not – for obvious reasons – levelled the same criticism at its own estimates.

1. As I said to the parties at the commencement of the hearing, the nature of the claim and the quantum involved in this proceeding cry out for a settlement.  I consider that, with the guidance of an experienced mediator, there are good prospects of the proceeding settling at mediation.  Accordingly, security for costs will be ordered only up to and including the mediation, with liberty to apply for further security if the proceeding does not settle at mediation. 

1. In my opinion, the amount of $47,141.80 which the plaintiff’s expert has assessed as the defendant’s party and party costs up to and including mediation should be discounted slightly to allow for potential vicissitudes such as settlement of the proceeding before mediation or disallowance by a taxing officer of some of the items included in the amount of $47,141.80.  I therefore fix the amount of the security for costs at $43,000. 

1. For the above reasons, I will make the order that I foreshadowed at the commencement of these reasons.  Before doing so, I will give the parties an opportunity to make submissions on the precise form of the order and any other orders the parties consider should be made at this stage to facilitate the progress of the litigation. 

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