New Zealand Pelt Export Company Ltd v Trade Indemnity New Zealand Ltd

[2001] VSC 46

SUPREME COURT OF VICTORIA
COMMERCIAL AND EQUITY DIVISION COMMERCIAL LIST	Not Restricted

No. 2043 of 2000

NEW ZEALAND PELT EXPORT COMPANY LIMITED	Plaintiff
v
TRADE INDEMNITY NEW ZEALAND LIMITED	Defendant

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JUDGE:	Warren J
WHERE HELD:	Melbourne
DATE OF HEARING:	15 February 2001
DATE OF JUDGMENT:	19 February 2001
CASE MAY BE CITED AS:	New Zealand Pelt Export Company Ltd v Trade Indemnity New Zealand Ltd
MEDIUM NEUTRAL CITATION:	[2001] VSC 46

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Security for costs – further order sought – two previous orders.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P. Crutchfield	Deacons Graham & James
For the Defendant	Mr R. Wilson	Hall & Wilcox

HER HONOUR:

1. The defendant seeks further security for costs against the plaintiff, two earlier orders for security having been made, by consent, and complied with in due course.  At this point in time a total of just over $80,000 has been paid by the plaintiff as security for costs.

Summary of claim

1. The plaintiff claims on a trade debtor insurance policy in respect of sales of animal hides during the period June 1998 to August 1998.  The defendant denies liability under the policy and, further, denies that the debts were the subject of the policy.  Further, the defendant alleges that the sales in question were made by a different entity, Kidort Limited, an associated company of the plaintiff. 

1. The proceeding was commenced on 15 May 2000 in the Commercial List.  Initially, an application was made for security for costs seeking the sum of $141,820.  On 9 June 2000 I ordered, by consent, security in the sum of $20,000. 

1. Thereafter the proceeding pursued a course of pleadings, amended pleadings and further directions hearings.  On 15 September 2000 I further ordered, by consent, further security in the sum of $60,000 up until and including the first day of trial.  Subsequently, there were further directions hearings and amendments to pleadings and a mediation. 

1. I am informed by the plaintiff that the proceeding is virtually ready to be fixed for trial.  There after further orders for additional discovery ordered on both sides on 15 February 2001 to be complied with.  However, I do not consider that the further discovery should delay the fixing of a trial date.  The defendant now brings a further applicant for security for costs for an additional sum of $146,946 in addition to the total sum of $80,003.24 ordered earlier.  The further amount claimed is sought by the defendant to cover the estimated party/party costs to date of approximately $105,000 and the estimated costs up to trial and of a ten day trial of $121,000.  The estimates are supported by an affidavit of Stephen Michael Polczynski on behalf of the defendant sworn 5 February 2001. 

1. In essence, Mr Polczynski, the defendant's solicitor, is of the opinion that the previous estimates of the defendant's party/party costs are not sufficient to meet the actual costs that the defendant is likely to incur and hence the security previously provided is inadequate.  It is further deposed that a revision in cost estimates takes into account the work that has in fact been undertaken and the circumstances surrounding amendments to pleadings and additional discovery.  There is no rebuttal by the plaintiff of the amount of costs that are relied upon in support of the application for additional security.  Rather, the plaintiff's position is that the application for further security for costs should be refused on the application of the usual principles but, in particular, the fact that the making of an order would unduly stultify the plaintiff's ability to pursue the proceedings. 

1. The fact that the defendant is an insurance company in proceedings against it for indemnity on a policy of insurance (where the existence of the policy is not in dispute) does not in itself mean that it is inappropriate to grant security for costs in favour of the insurer defendant.

1. However, the fact that the insurer is resisting a claim under a contract of insurance voluntarily entered into by it with a proprietary company is a matter relevant in the exercise of the court's discretion: Tenth Anemot v Colonial Mutual Insurance [1993] 2 VR 48 at 54; Prime Forme Cutting Pty Ltd v Baltica General Insurance Co (1990) 8 ACLC 29; Frankston Ambassador Pty Ltd v Cigna Insurance Australia Ltd (1991) 9 ACLC 790; c/f Irwin Alsop Services v Mercantile Mutual Insurance Co Ltd [1986] VR 61.

1. The court's discretion as to whether or not to order security for costs is unfettered; Tenth Anemot op cit; Sydmar Pty Ltd v Statewide Developments Pty Ltd (1987) 73 ALR 289. Relevant considerations include the following:

(a)whether the plaintiff's claim is made bona fide and has reasonable prospects of success; J & M O'Brien Enterprises v The Shell Company of Australia Ltd (No 2) (1983) 70 FLR 261 at 263.

(b)whether the plaintiff's lack of funds has been caused or contributed to by the conduct of the defendant: Southern Cross Exploration NL v Fire and All Risks Insurance Ltd [1985] 1 NSWLR 114, [1986] 4 NSWLR 491.

(c)whether the plaintiff's proceedings are merely a defence against "self-help" measures taken by the defendant;

(d)whether the making of the order would unduly stultify the plaintiff's ability to pursue the proceedings;

(e)the extent to which it is reasonable to expect creditors or shareholders to make funds available to satisfy any order for security which is made;

(f)whether the defendant has delayed in making the application for security: McLaughlin v Daily Telegraph Newspaper Co Ltd (1904) 1 CLR 143.

(g)whether the company in question is "a true plaintiff" or not: Sydmar Pty Ltd op cit; Tenth Anemot op cit.

1. In Tenth Anemot, McDonald J in refusing to order that the plaintiff provide security for the defendant insurer's costs (had this to say at p.56):

"Of relevance also, in my view, is the fact that the defendant [insurer] voluntarily entered into a commercial relationship with the plaintiff.  It did this knowing that the plaintiff was a proprietary company.  This is not a situation where the plaintiff who seeks relief against the defendant is otherwise a stranger to the defendant and one who the defendant has not been prepared to or who has not entered into a commercial relationship with.  Where such a voluntary commercial or contractual relationship exists, it is open to a person such as the defendant to provide protection for itself against the risk of being sued as part of its enterprise.  Such is particularly so when that party is an insurer.

The plaintiff's claim is to enforce the agreement which was voluntarily entered into between the parties.  That agreement is not disputed, nor is it disputed that the defendant has refused to indemnify the plaintiff under the same.  The defendant, while contending that it is not obliged to indemnify the plaintiff, has put forward no evidence in this application in substantiation of its claims that the plaintiff was in breach of its duty to disclose facts material to the risk or that the plaintiff is guilty of making a fraudulent claim under the policy.  Where a defendant insurer as in this case does put forward some evidence to substantiate its defence as pleaded in this case, the mere allegations made by its pleadings cannot cause the court to conclude that the claim made on the admitted policy is not a bona fide claim, nor one with a reasonable chance of success.  The fact that the defendant has not sought in any way to substantiate its defence is a relevant consideration and weights in the balance against the granting of the order sought.

Although on the evidence the claimed cause of the plaintiff's financial plight is the fire which occurred on 27 January 1992, it would appear from the evidence of Costikidis as contained in his said affidavit, the copy of which was tendered by the defendant, that the refusal of the defendant to indemnify the plaintiff for its loss under the terms of the admitted policy is a relevant factor as to why the plaintiff has not been able to resume trading and as to why it could not pay the defendant's costs if so ordered.  The type of policy as issued in the subject of the proceedings was of a type to protect the plaintiff from suffering the risk of damage suffered which would have consequential effects on its business enterprise.  It is the actions of the defendant in denying liability to the plaintiff which indirectly bring about the present financial difficulties of the plaintiff.  It is such difficulties that the plaintiff sought to insure against."

1. Mr P. Crutchfield of Counsel for the plaintiff submitted that there are powerful discretionary considerations also to why security should not be awarded in this case.  They included the following:

(a)the defendant has already been the beneficiary of two orders for security;

(b)the defendant is an insurer resisting a claim under an insurance policy;

(c)the plaintiff's lack of funds has been caused or contributed to by the conduct of the defendant and the defendant's impecuniosity has at all material times been known to the defendant;

(d)the plaintiff's claim is made bona fide and on the pleadings has reasonable prospects of success;

(e)the making of an order would unduly stultify the plaintiff's ability to pursue the proceedings;

(f)the defendant has not adduced any real reason why it should be entitled to an additional order for security at such a late stage;

(g)the matters raised in the amended reply are not materially different from the matters raised in the plaintiff's earlier reply.  The defendant was (or had the material available to it in order to be) in possession of all relevant information on 6 September 2000 to seek a higher award of security if it thought appropriate.  It is too late to seek to "top up" that award now;

(h)the nationality of the plaintiff (New Zealand) is of slight, if any relevance.

1. The position of the defendant was that it was entitled to further security for costs on the basis that the plaintiff is a company incorporated in New Zealand, has chosen to bring the proceeding in Victoria against the defendant which is also incorporated in Victoria, the plaintiff has no assets in Australia and, further, is a member of a group of companies known as the Kidort Group and which of itself should be in a position to demonstrate capacity to support the costs of the litigation or security as the case may be.  The defendant emphasises that there is no evidence to show that the plaintiff has assets in New Zealand or elsewhere against which an order for costs could be enforced.  The defendant asserts that the claim by the plaintiff that an order for further security will frustrate or stultify its claim lacks foundation.  The defendant relies upon the fact that the plaintiff is part of the Kidort Group and that there is no evidence that members of the group or its associates are unable to provide security.  The defendant particularly relies upon the observations of the Court of Appeal in Ariss v Express Interiors Pty Ltd (in liq) (1996) 2 VR 507 at 515 where Phillips JA observed that there is an onus on a plaintiff seeking to resist an application for security for costs on the basis of stultification to demonstrate foundation for such a claim. In this respect the defendant argued that the plaintiff has failed to demonstrate that those who are behind the company are who will benefit from the litigation if it is successful are without means. In my view this submission is misconceived in the context of the present matter. The fact that the plaintiff may or may not be associated with the Kidort Group is a factor I am unable to take into account. I must look at the plaintiff as the individual litigant. Furthermore, I am satisfied on the affidavits filed on behalf of the plaintiff, in particular that of Mr Conroy sworn 15 February 2001 that the company does not have any assets to support further security for costs. Furthermore, it is apparent that the Westpac Banking Corporation is the entity supporting the plaintiff in bringing the proceeding. Mr Conroy has deposed that Westpac will not provide any further resources.

1. Ultimately in the overall context of this matter I am satisfied that it is appropriate for the plaintiff to provide a further modest sum of security for costs for the trial. The amount of $80,000 has already been paid by way of security for costs.  In my view given the nature of the proceeding and the type of allegations involved and having the opportunity to consider the issues that are the subject of the litigation and discovery the security of costs in the sum of $80,000 prior to trial is not an insignificant amount.  In my view there needs to be a balance struck so that there is further security for the defendant but not such as to stultify the plaintiff in further proceeding with the matter.  Accordingly, given my familiarity with the pleadings and the various affidavits that have been filed and allowing for the fact that the matter is within the Commercial List it seems to me appropriate that prior to the commencement of trial the plaintiff provide further security for costs in the sum of an additional amount of $30,000.  In this regard the total security for costs benefiting the plaintiff would be the sum of $120,003.24. 

1. I will make orders accordingly.

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