Oswal v Australia and New Zealand Banking Group Ltd
[2016] VSC 52
•24 February 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2011 4653
BETWEEN
| RADHIKA PANKAJ OSWAL | Plaintiff |
| and | |
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (ACN 005 357 522) & ORS | Defendants |
S CI 2012 1995
BETWEEN
| PANKAJ OSWAL | Plaintiff |
| and | |
| IAN MENZIES CARSON & ORS | Defendants |
S CI 2015 804
BETWEEN
| YARA PILBARA FERTILISERS PTY LTD (ACN 095 441 151) | Plaintiff |
| and | |
| PANKAJ OSWAL & ORS | Defendants |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8 February 2016 |
DATE OF JUDGMENT: | 24 February 2016 |
CASE MAY BE CITED AS: | The Oswal matters - application for security for costs |
MEDIUM NEUTRAL CITATION: | [2016] VSC 52 |
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PRACTICE AND PROCEDURE – Security for costs – Delay – Satisfactory explanation for delay – Security ordered for limited past costs because of delay.
PRACTICE AND PROCEDURE – Security for costs – Security ordered for future costs – No stultification of proceedings.
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APPEARANCES: | Counsel | Solicitors |
| For Mr and Mrs Oswal | Mr A J Myers QC with Mr Willis and Mr Holmes | Watson Mangioni Lawyers |
| For the ANZ Banking Group Limited and the Receivers | Mr P H Solomon QC with Mr D Lorbeer | Herbert Smith Freehills |
| For the Apache parties | Mr S M Anderson QC with Mr S L Friere | Clyde & Co |
| For Yara Australia and Chemical Holdings | Mr J A Redwood | Clayton Utz |
HIS HONOUR:
Introduction
In each of the three cases involving Mr and Mrs Oswal[1], the defendants referred to in paragraphs 6, 7 and 8 below, make application for security for their respective costs.
[1]Proceeding 4653 of 2011 is the claim made by Mrs Oswal. The basis of the claim is set out in previous judgments (See [2014] VSC 209 and [2013] VSC 615). I assume familiarity with the judgments. Defined terms bear the same meaning as in the judgments. Proceeding 1995 of 2012 is the claim made by Mr Oswal. The basis of the claim is set out in the judgments. Proceeding 804 of 2015 was transferred by the Federal Court of Western Australia. The Oswals are defendants and have made significant counterclaims. The basis of the claim and relevant background is set out in [2015] FCA 49. I assume familiarity with this judgment.
On 27 November 2015, I made orders for the filing and service of affidavits and submissions. By consent, it was agreed that the applications would be dealt with in two stages. First, whether the applicants were entitled to security and second, and in such event, the quantum of the security to be provided.
The first stage was due to be heard by Elliott J on 15 December 2015. However, his Honour was unable to hear the application and it was adjourned to 8 February 2016 before me.
On 2 February 2016, I dismissed an application by Mr and Mrs Oswal that I recuse myself from hearing the various applications for security for costs. I indicated that reasons would be provided at the time that reasons were delivered in the substantive application. The reasons are set out below.
At the time that I made the orders on 27 November 2015, the proceedings had been fixed for trial on 11 April 2016. The trials are now due to commence on 30 May 2016.
The summons in each case by the ANZ and the Receivers is dated 19 November 2015 and seeks security for both past and future costs.
The summons in each case by the Apache parties is dated 1 December 2015. Security is only sought for future disbursements.
The summons in each case by Yara Australia and Chemical Holdings is dated 2 December 2015. Security is only sought for future disbursements.
There is a compelling case for security. Mr and Mrs Oswal reside outside Australia, have no, or limited available, assets in the jurisdiction of Australia (or elsewhere), and have entered into a very favourable (to the funder) litigation funding agreement. The prospect of any recovery of legal costs and disbursements must be close to zero. The jurisdiction to grant security is enlivened and it is common ground that the Court has a wide and unfettered discretion which must be exercised having regard to all of the relevant circumstances.
Leading Counsel for Mr and Mrs Oswal, Mr A J Myers QC submitted that the ANZ and the Receivers were not entitled to security for past costs essentially because of their delay in bringing the applications. The submission in relation to security for the future costs of all parties was essentially that of stultification.
The relevant factual matters underpinning and informing the opposition by Mr and Mrs Oswal, based on delay, are what has been referred to as the Holdback Amounts and the correspondence and course of conduct of the parties prior to the making of the security for costs applications under consideration.
The Holdback Amounts
Mr and Mrs Oswal’s shares in YPH were sold to Yara and Chemical Holdings (then Apache Fertilisers Pty Ltd) for over US$500 million under two Share Sale Deeds.[2] The shares were sold in the exercise of rights granted by Mr and Mrs Oswal to ANZ under Share Mortgages and in Mrs Oswal’s case an Escrow Agreement, securing the indebtedness of Mr and Mrs Oswal to ANZ (including under indemnities and guarantees given by them to ANZ).
[2]Affidavit of Kenneth Alexander Adams sworn 25 November 2015 (‘Adams 1995 affidavit’); tabs 20 (Apache/Chemical Holdings) and 21 (Yara). The Deeds also comprise exhibits to the Adams affidavit in Proceeding 4653.
As part of the sale, US$15 million from the sale price was set aside to meet claims by Chemical Holdings under its deed, and US$5 million from the sale price was set aside to meet claims by Yara under its deed (the Holdback Amounts).
The monies were then held as specified in the Share Sale Deeds. If, after a particular time, some or all of the Holdback Amounts remained, that amount was to be paid to ANZ, and could be applied to any remaining indebtedness of Mr and Mrs Oswal to ANZ (including costs incurred in defending proceedings brought by the Oswals). It is only if, after the discharge of the Oswals’ indebtedness to ANZ, there was a surplus, that the Oswals would be entitled to any part of the Holdback Amounts.
A summary of the relevant provisions of the Share Sale Deeds is as follows:
(a) The consideration for the sale of the shares, under the Deeds, is the payment by Yara and Chemical Holdings of the ‘Sale Shares Purchase Price’: clause 3.1(c);
(b) The Sale Shares Purchase Price was to be paid:
(i) as to one part (the ‘Completion Payment’), to or at the direction of, relevantly, the Receivers: clause 4.3(c)(1);
(ii) as to another part (the ‘Holdback Amount’), to the Escrow Agent for deposit into an ‘Escrow Account’: clause 4.3(c)(2).
(c) Under clause 8.1, the Holdback Amount was paid into an ‘Escrow Account’. Under clause 8.2(c), ‘the Holdback Amount shall be utilised only for the satisfaction of any Claims under this deed and DoI Claims’.
(d) Under clause 6.11(a)(2), any payment made by, relevantly, ANZ or the Receivers to Yara or Chemical Holdings (as the case may be) in respect of any ‘Claim’ ‘will be paid out of the Escrow Account’ for so long as sufficient funds are available in the Escrow Account to satisfy Claims.
(e) ‘Claim’ is defined broadly to mean any claim, demand, legal proceeding or cause of action in any way relating to the relevant Share Sale Deed or the sale of the Sale Shares under the Deed. The definition includes a claim arising from a breach of warranty set out in each Share Sale Deed. A number of warranties are given by ANZ and the Receivers to Yara and Chemical Holdings under each Deed (see clauses 5.1, 5.2, 5.3 and 5.4). In addition, the definition includes a demand under an indemnity set out in the respective deeds.
(f) Indemnities are set out in clause 5 of each Share Sale Deed, namely:
(i) A ‘Litigation Indemnity’: It speaks, respectively, to Yara and Chemical Holdings. Under clause 5.7(a), ‘ANZ, RO and the Receivers indemnify the Buyer against, and must pay to the Buyer on demand an amount equal to, all Losses suffered or incurred by the Buyer … arising out of’, relevantly, any ‘Sale Shares Claim’ or any ‘Oswal Claim’. ‘Oswal Claim’ is defined to include ‘any Claim brought by [amongst others, Mr and Mrs Oswal] … arising out of the sale of the Sale Shares or this deed …’: para 3 of the definition;
(ii) A ‘Tax Indemnity’: Under clause 5.6(a), ‘if at any time [relevantly, YPF or YPH]] suffers a Tax Claim, then ANZ, RO and the Receivers must (in aggregate) pay, in accordance with clause 5.6(c), 16% [Yara Share Sale Deed, 49% under the Apache/Chemical Holdings Share Sale Deed] of the Tax Claim Amount for that Tax Claim’.
(A)‘Tax Claim’ is defined as ‘a notice of assessment or amended assessment, demand or other document issued or deemed to be issued or action taken by or on behalf of a Tax Authority as a result of which [relevantly, YPF or YPH] is liable to make a payment for Tax that relates to any period or part period ending on or before 30 June 2011 … ‘.
(B)Under clause 5.6(aa), ‘The obligations of ANZ, RO and the Receivers under clause 5.6(a) only apply to the extent that the total Tax Claim Amounts for all Tax Claims received or suffered by [relevantly, YPF or YPH] … less … any Tax Benefits for [relevantly, YPF or YPH] that arise from the matters that gave rise to the Tax Claims, exceeds A$36,959,000’.
(iii)ANZ, Mrs Oswal and the Receivers also give an ‘Excluded Contracts Indemnity’ to Yara and Chemical Holdings, being an indemnity in respect of all losses suffered by them arising out of any amounts being payable by YPF or YPH under any ‘Excluded Contract’: clause 5.8.
(g) Under clause 8.2(b), ‘the Holdback Amount shall be retained in the Escrow Account for a period of 24 months from Completion (the Escrow Period). At the end of the Escrow Period (subject to clause 8.4), Buyer and ANZ shall issue joint written instructions to the Escrow Agent to release to ANZ (or at their direction) any remaining funds in the Escrow Account (together with any income)’. The Escrow Period has been extended until the claims the subject of 4653 and 1995 are determined or the Holdback Amounts extinguished.[3]
[3]Adams 1995 affidavit, paragraph [22]; tabs 23 and 25-26 (Yara); tabs 22 and 24 (Apache/Chemical Holdings).
Exhaustion of the Holdback Amounts
As at 6 November 2015, the balances of the Escrow Accounts were:
(a) US$4,804,589.85 (Chemical Holdings); and
(b) US$64,362.50 (Yara).[4]
[4]Adams 1995 affidavit, paragraph [23].
ANZ has initiated procedures for authorising payment of the amounts of Yara and Chemical Holdings’ tax claims that it accepts are payable (approximately $6 million to Yara[5] and approximately $19 million to Chemical Holdings[6]). Obviously, the payments will exhaust the fund standing to the credit of the Escrow Accounts.
[5]Adams 1995 affidavit, exhibit KAA-1, tab 32.
[6]Adams 1995 affidavit, exhibit KAA-1, tab 33.
Previous application for security for costs
On 4 May 2012, ANZ made application for security for costs in the proceedings brought by Mr and Mrs Oswal. Security was sought up until the close of pleadings in an agreed amount. The Receivers also made an application for security for their costs in proceedings S CI 1995 of 2012. Both applications, as well as applications by Apache Fertilisers Pty Ltd and Yara Australia Pty Ltd were heard by Efthim AsJ, who granted each defendant security for its costs up until the close of pleadings.
On appeal, Whelan J reached a different conclusion from that of Efthim AsJ, deciding that security for costs ought not be granted. In reaching that conclusion, Whelan J found that:
(a) ‘The case for security for costs against each plaintiff is strong, indeed compelling, absent consideration of the sole ground upon which security was resisted before me, being the contention that the defendants already have sufficient security for their costs’ (at [4]).
(b) ‘If matters remain as they are, Yara will be able to recover all its costs of Mrs Oswal’s proceeding from the escrow account established under its share sale deed unless those costs exceed $US5,000,000, and Apache will likewise be able to recover all its costs unless they exceed $US15,000,000’ (at [59]).
(c) ‘If matters remain as they are, I would expect substantial balances to be paid to ANZ at the end of the escrow period. ANZ can then apply those balances and that interest to meet the $A1.77 million said to be outstanding on its debt, its own costs, and the costs of the receivers in both the Oswal proceedings’ (at [59]).
(d) ‘It is possible that things will not remain as they are’ (at [60]).
(e) The defendants ‘can bring a further application if and when they consider that they can demonstrate that the security represented by the respective holdback amounts is or may be inadequate. The Court has power to order security for past costs’ (at [63]).
The defendants subsequently brought an application for leave to appeal, which was refused by the Court of Appeal.
Correspondence relating to security for costs
On 12 May 2014, the Deputy Commissioner of Taxation indicated that he intended to issue amended assessments to YPF to disallow certain deductions.
On 6 June 2014, Herbert Smith Freehills wrote to Mr Oswal’s solicitors in Proceeding 1995[7] and the solicitors, then acting for Mrs Oswal in Proceeding 4653[8], indicating that, by reason of the amended assessments, YPF would incur a liability for tax of approximately $34.3 million and that upon the issue of the amended assessments, amounts payable to Yara and Apache/Chemical Holdings were likely to exceed the balance of the Holdback Amounts substantially. Mr and Mrs Oswal were thus invited to confirm that they were prepared to provide security for ANZ and the Receivers’ costs in their respective proceedings.
[7]Adams 1995 affidavit, exhibit KAA-1, tab 34.
[8]Adams 4653 affidavit, exhibit KAA-1, tab 35.
On 13 June 2014, I ordered that ANZ and the Receivers file and serve any further application for security for costs by 25 July 2014.
Correspondence followed between Herbert Smith Freehills and Mr Oswal’s solicitors.
By letter dated 17 June 2014,[9] the solicitors stated:
We await your response to the matters outlined above.
In the meantime, it would be entirely premature for your clients to bring an application seeking security for costs and our client reserves his right to rely upon this letter on the question of costs in the event that your clients were to do so without first providing a substantive response to the issues raised in this letter and giving our client an opportunity to make an informed response.
Moreover, as solicitors of the Court, it would be entirely inconsistent with your overarching obligations to allow your clients to proceed with a further application for security without first properly addressing the important matters raised by our client above.
[9]Adams 1995 affidavit, exhibit KAA-1, tab 35.
After further detailed correspondence, the position of Mr Oswal changed.
By letter dated 22 July 2014[10] (‘the 22 July Letter’), Mr Oswal’s solicitors asserted that, unless and until the expected amended assessments were issued, YPF did not have any liability to the Deputy Commissioner of Taxation that would set in train the anticipated claims by Apache/Chemical Holdings and Yara. The letter concluded:
In the circumstances, it appears, based upon the limited information provided and given that your clients still effectively hold at least US$13 million in the Escrow Account[s] as security for their costs (assuming the claims paid to date from the Holdback Amounts have been legitimately claimed and made, which is not admitted), that your clients are simply not in any position to make an application for further security by 25 July 2014 and that any such application would be, at the very best, premature.
[10]Adams 1995 affidavit, exhibit KAA-1, tab 41.
By letter dated 8 August 2014 to Mr Oswal’s solicitors in Proceeding 1995,[11] Herbert Smith Freehills indicated that, without accepting that the application then foreshadowed would be premature, ANZ and the Receivers would defer for a brief period making an application pending the issue of the amended assessments, which was foreshadowed to occur not before August 2014. The Court was also informed of this position.
[11]Adams 1995 affidavit, exhibit KAA-1, tab 42.
In the event, amended assessments were issued to YPH only in September 2015: in respect of the 2008 year (dated 14 September 2015),[12] 2010 year (dated 11 September 2015)[13] and 2011 year (dated 11 September 2015),[14] and a notice of liability to pay shortfall interest charge dated 11 September 2015[15] was also issued.
[12]Adams 1995 affidavit, exhibit KAA-1, tab 27 (page 456).
[13]Adams 1995 affidavit, exhibit KAA-1, tab 27 (page 462).
[14]Adams 1995 affidavit, exhibit KAA-1, tab 27 (page 466).
[15]Adams 1995 affidavit, exhibit KAA-1, tab 27 (page 474).
By notice dated 19 October 2015, Yara required ANZ to pay to Yara approximately $7 million under clause 5.6(a) of the Yara Share Sale Deed.[16] By notice dated 30 October 2015, Chemical Holdings required ANZ to pay approximately $22 million to Chemical Holdings under the Apache Share Sale Deed.[17]
[16]Adams 1995 affidavit, exhibit KAA-1, tab 30.
[17]Adams 1995 affidavit, exhibit KAA-1, tab 31.
By letters dated 13 November 2015, Herbert Smith Freehills wrote to Mr and Mrs Oswal’s solicitors in each of Proceedings 4653,[18] 1995[19] and 804,[20] foreshadowing applications for security for costs. The summonses seeking security for costs were filed on 19 November 2015.
[18]Adams 1995 affidavit, exhibit KAA-1, tab 38.
[19]Adams 1995 affidavit, exhibit KAA-1, tab 43.
[20]Adams 804 affidavit, exhibit KAA-1, tab 6 (to Mrs Oswal’s solicitors); tab 7 (to Mr Oswal’s solicitors).
Delay
ANZ and the Receivers submitted that delay was not a relevant factor because of the 22 July Letter. It was submitted that the Oswals should not be permitted to approbate and reprobate in circumstances when their solicitor said that an application in July 2014 would be premature. Mr Solomon QC asked rhetorically what date between July 2014 and November 2015 second applications for security should have been made?
Mr and Mrs Oswal submitted that it was abundantly clear to ANZ and the Receivers in mid-2014 that the Holdback Amount would not provide them with any security. On 12 May 2014, the Deputy Commissioner of Taxation had indicated that he intended to issue amended assessments to YPF to disallow certain deductions. Given the nature and amount of the claimed deductions, the amended assessments were to the knowledge of the ANZ and the Receivers likely to be large. Further, ANZ and the Receivers knew what their own costs were at that stage. It must, in the circumstances, it was submitted, have been apparent that the Holdback Amount would not be sufficient with the result that the invitation of Whelan J (at [63]) should have been taken up.
Delay is usually an important factor, and often a decisive factor in deciding whether to order security and in particular security for past costs. The main reason is that by such delay, the defendant has permitted the plaintiff, during the period of the delay, to incur costs, and often substantial costs, that may not have been incurred had the application been made promptly. If a plaintiff proceeds on the assumption that no such application will be made, it may be harsh and unfair to require security for such past costs. There are, of course, or may well be, other considerations which will excuse delay or balance the assumed and presumed prejudice that inevitably arises out of such delay.
In Colorado Products Pty Ltd (In Prov Liq),[21] Black J said —
It is well established that an application for security for costs should be brought promptly and, where that is done, an order for security for costs may extend not only to future costs but also to costs already incurred: Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd; Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd; Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd; Szanto v Bainton. Conversely, the Court is less likely to order security for past costs where there has been significant delay in bringing the relevant application: Karl Suleman Enterprises Pty Ltd (in liq) v Pham. There has been significant delay in this matter in progressing the Defendants' application for further security for costs, filed over 7 months ago, and substantial costs have been incurred during the period of delay. The Defendants submit that the Plaintiffs have been on notice of the Defendants' intention to apply for further security for costs since the further security for costs application was made on 31 August 2012. While that is correct, it is not an answer to the proposition that that application should have been, and was not, pursued promptly. That delay tends strongly against an order in respect of past costs and I do not consider that security should extend to past costs in the matter:
[21][2013] NSWSC 611 (citations omitted).
In LRSM Enterprises Pty Ltd v Zurich Australia Insurance Ltd,[22] Adamson J said —
[22][2013] NSWSC 324 (citations omitted).
56Delay is a relevant factor in determining whether to order security for costs: KP Cable. The longer the delay, and the greater the costs the plaintiff has been allowed to incur, the less likely it is that an order will be made: Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd.
57The defendant foreshadowed its application for security by letter dated 23 November 2012. By this time it was over four years since the proceedings were commenced in the District Court. The proceedings are listed for final hearing on 13 May 2013. By affidavit sworn on 30 November 2012 in support of the application, Stephen Vardanega, solicitor for the defendant gave the following explanation for the delay:
“[20]I am instructed and verily believe that an application for security for costs was not considered by the Defendant prior to service by the Plaintiff of all evidence upon which it proposes to rely in June 2012 (save further evidence in reply).
[21]From the time of service of the Plaintiff's evidence it became apparent to the Defendant’s lawyers from the expert opinion of Mr Watt [the defendant’s expert] and from the Plaintiff’s answers to interrogatories that at the time of the first the Plaintiff may not have been a financially viable entity.
[22]From the time of service of MN’s [Mr Naboulsi’s] statement it became apparent that the Plaintiff may not be able to pay the costs of the Defendant if ordered to do so.”
58Although the application is made relatively late in that almost all of the costs of preparing the matter for hearing have been spent, I am satisfied by Mr Vardanega’s evidence that the passage of time was not the result of any undue delay on the part of the defendant but that rather the defendant did not regard itself as being in a position to assess the strength of any proposed application at an earlier time. Although the defendant could have sought information from the plaintiff as to its ability to pay a costs order at an earlier time, it did not analyse the plaintiff’s pre-fire financial position until it had Mr Watt’s report.
59The plaintiff submitted that it was prejudiced by delay. There was no evidence from Mr Naboulsi that, had he known that an application for security for costs would be made, he would not have caused the plaintiff to commence the proceedings. Nor is there any evidence of what the plaintiff has spent in recent times, which it would not have spent had the application been made earlier.
60The lack of such evidence is not sufficient to rebut the inference of prejudice. In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd, Hodgson JA, with whom Basten and Campbell JJA agreed, said at [57]:
“In my opinion, it is not necessary, in order for a plaintiff to show prejudice from delay, that the plaintiff prove what the plaintiff would have done if the application had been made earlier; although if a plaintiff does prove that it would not have gone ahead with the proceedings if the application had been brought when it should have been, this would be a very powerful consideration against granting security in the case of a delayed application. In my opinion, where substantial costs have been incurred since the time when an application for security should have been brought, it would be unreasonable to deny the existence of prejudice unless the plaintiff can prove exactly what the plaintiff would have done if the application had been brought earlier.”
In Narradine Pty Ltd & Anor v Mascot Steel & Tools Pty Ltd & Ors,[23] Black J said —
22The Defendants contend, and I accept, that an order for security for costs may extend not only to future costs but also to costs already incurred, if an application for security for costs is made promptly: Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd above; Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd; Szanto v Bainton. Although I have held that the delay in bringing the security for costs application in this matter was not such to warrant refusal of security for costs generally, it tends against an order in respect of past costs and I do not consider that security should extend to past costs in this matter: Karl Suleman Enterprizes Pty Ltd (in liq) v Pham.
[23][2012] NSWSC 385 (citations omitted).
In Chapel Road Pty Ltd v Australian Securities & Investments Commission (No 2),[24] Schmidt J said —
22As discussed by Barrett J, as he was in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd it is well recognised that it may be unjust for a defendant to stand by and allow a plaintiff to work on the case and then to ask for costs, only after they have been incurred. The longer the delay and the more acts done in the interim, the more difficult it will be to persuade the Court that an order for security for past costs will not be unjust or oppressive.
23In this case it has been apparent to the parties for some time that significant additional costs have been incurred in the discovery process, costs not comprehended in the earlier consent orders. That development ought to have led to a prompt further application for security, if there was a concern as to the inadequacy of the security already provided. In the circumstances, as a matter of justice between these parties, any further security should be restricted to future costs.
[24][2012] NSWSC 511 (citations omitted).
In Australian Equity Investors, An Arizona Limited Partnership v Colliers International (NSW) Pty Ltd (No 5),[25] Cowdroy J said —
[25][2011] FCA 1041 (citations omitted).
16It is well established that an application for security for costs must be made promptly and that the failure to do so should prevent the delayed application from being granted: see Buckley v Bennell Design & Constructions Pty Ltd; Foss Export Agency Pty Ltd v Trotman; Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd and Others: Southern Cross Exploration NL and Others v Fire & All Risks Insurance Co Ltd and Others; Darelvale Holdings Australia Pty Ltd v Waterjet Designs Pty Ltd.
17One of the reasons to require a prompt application was considered by Moffitt P in Buckley v Bennell where his Honour said at 309:
The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or permits substantial sums of money towards litigating its claim.
18However, as was observed by Einstein J in Idoport Pty Ltd v National Australia Bank& Others:
On the other hand, evidence of delay does not necessarily render the application fatal on its own. The passage of time is merely one factor to be taken into account during the balancing exercise undertaken by the Court: Commonwealth of Australia and Another v Cable Water Skiing (Australia) Ltd. For example, security for future costs was awarded to the defendant in Commonwealth v Cable where there had been a delay of 4 years after the proceedings had commenced.
19In weighing up the various factors in order to determine the manner in which the Court’s discretion should be exercised, it is significant that some forewarning may operate to negate any delay. In Crypta Fuels Pty Ltd and Another v Svelte Corporation Pty Ltd and Others Lehane J referred to two factors which may have an impact upon delay. The first factor was the fact that the hearing or resumed hearing ‘was not immediately imminent’ and secondly:
...that there has been some forewarning: usually correspondence concerning the financial standing of those who might benefit from the success of an applicant or plaintiff, and often detailed correspondence foreshadowing an application for security for costs.
20In Southern Cross Exploration NL and Others, Waddell J referred to Lindsay Petroleum Co v Hurd in which the rationale of the doctrine of laches was explained. That is, that the length of the delay and the nature of the acts done during the interval might ‘cause a balance of justice or injustice in taking one course or another so far as relates to the remedy’. To similar effect, French J (as he then was) in Brian E Fencott and Associates Pty Limited said at 514:
The further a plaintiff has proceeded in an action and the greater the costs it has been allowed to incur without steps being taken to apply for an order for costs, the more difficult it will be to persuade the court that such an order is not, in the circumstances, unfair or oppressive.
21Colliers made it plain from the date of the Court’s decision in Arizona No 4 that it would be seeking further security. On 12 May 2011 orders were made by the Court making provision for Colliers to file their motion for further security for costs. Accordingly, Arizona has been on notice of the prospect of such application for many months. In these circumstances there can be no suggestion that Arizona has incurred costs unaware that the application would be made. It could scarcely be asserted in these circumstances that Arizona has acted to its prejudice in continuing with the litigation because the application had not been brought, or has otherwise been taken by surprise.
22Further, Arizona has not suggested that it would not have proceeded with the litigation or acted in some different way to the manner in which it has in fact acted. Further, taking into consideration the fact Colliers’ motion was filed a little over two months from the decision in Arizona No 4, the Court considers that there is no basis for finding that Colliers engaged in delay which should disentitle it to the relief it now seeks.
…
Past Costs
55Arizona submits that Colliers cannot seek security for costs for any past costs incurred in these proceedings. However, the grant of such award is entirely within the court’s discretion. Waddell J in Southern Cross Exploration NL at 122 said (of an equivalent provision):
It is submitted for the plaintiffs that the court has no power to make an order for security in respect of costs which have been incurred before the making of the order. In my view the words of the subsection are in sufficiently wide terms to give the court such a power.
56For other examples of this principle see: Electrona Carbide Industries Pty Ltd v Tasmanian Government Insurance Board; Bryan E Fencott and Associates v Eretta Pty Ltd; Brocklebank & Co v The King’s Lynn Steamship Co; Procon (Great Britain) Ltd v Provincial Building Co Ltd.
57Whether an award for security for past costs is granted will depend entirely on the circumstances of the particular matter. An important consideration is whether a party has delayed in making the application for security such that costs have been incurred in respect of which that party now seeks security and which the other party might not have incurred. However, where a party has already incurred costs and applies promptly for security it is more likely that such past costs will be taken into consideration by a court in determining the appropriate security: see Sagacious Procurement Pty Ltd v Symbion Health Ltd.
58Where costs have been incurred over a long period of time, it is unlikely that an award for past costs will be made: see Southern Cross Exploration NL and Others; Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd.
59There was a delay of two months in the filing of this motion following delivery of the judgment in Arizona No 4. However, upon the application of the above authorities and Arizona’s knowledge of Colliers’ intention to file a motion seeking further security, such delay is not sufficient to disentitle Colliers to a security for both past and future costs.
In Christou v Stanton Partners Australasia Pty Ltd,[26] Newnes JA said —
[26][2011] WASCA 176 (citations omitted).
20It is, however, incumbent upon a defendant who wishes to obtain security for its costs to apply promptly for that relief once it is, or ought reasonably be, aware that the plaintiff would be unable to meet an order for costs. Security for costs is not a card that a defendant can keep up its sleeve and play at its convenience. Delay is an important consideration in the determination of an application for security for costs because it is capable of causing prejudice or unfairness to the plaintiff. A plaintiff is entitled to know at the earliest opportunity, before it has committed substantial resources to pursuing the litigation, whether it will be required to provide security. The later an application is made the greater the likelihood that it will cause substantial disruption or distraction in the conduct of the plaintiff's case, and if the plaintiff is unable to provide security, the greater the costs that will have been wasted. The oft-cited words of Moffitt P in Buckley v Bennell Design & Constructions Pty Ltd are apposite:
The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money toward litigating its claim.
21I would add that in an era when the need to ensure the efficient use of judicial resources has become increasingly important, delay may also be significant in that regard. A late application which frustrates the action will mean that the judicial resources already devoted to the case will have been wasted. Where it results in the adjournment of an imminent trial it will often have the result that the trial dates will be wasted: see Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd.
22There are, however, degrees of delay and the effect of delay will vary according to the circumstances. The reason for the delay will also be an important consideration. Where delay has occurred it will not necessarily bar an order for security for costs, but generally the longer the delay, the more proximate the hearing and the more that has been done by the plaintiff to advance the case, the greater will be the significance of the delay and the more difficult it will be for the defendant to persuade the court that an order for security for costs will not be unfair or oppressive: Bryan E Fencott& Associates Pty Ltd v Eretta Pty Ltd.
23In order to show prejudice it is not necessary for a plaintiff to establish what it would have done differently if the application had been made earlier (although such evidence would be an important consideration in the exercise of the discretion); prejudice will generally be regarded as inherent in substantial delay: Green v CGU Insurance Ltd.
In Karl Suleman Enterprizes Pty Limited (in liquidation) v Pham and Ors,[27] Schmidt J said —
[27][2010] NSWSC 886 (citations omitted).
49The plaintiff also resisted any further order on the basis of the defendants’ delay. The authorities make it clear that an application for security must be made promptly. The same obligation must apply to an application or further security.
50In my view the defendants’ delays in making and pursuing their applications support the refusal of the orders sought, at the very least in relation to past costs.
51The lapse of time since the proceedings were commenced in 2002 and the current order for security was consented to in 2005, given the very substantial blow out in costs, which began from the time of the amendment of the claim in 2006 and the problems which then began to emerge with the discovery sought, does not assist the defendants’ case.
52It was argued for the defendants that this was an unusual case, because the plaintiff has been aware since the making of the 2005 consent orders, that the defendants were entitled to seek further security, if their costs’ estimates were exceeded. In my view, this does not assist the defendants. The express reservation of the right to seek additional security and the delay in pursuing a further application, if it became evident that the defendants’ costs estimates would be exceeded, which was not acted on while the preparation of the case was permitted to proceed, with all parties incurring very substantial additional costs in the meantime, weakens the defendants’ case. There has not been an adequate explanation for the delay.
53I am unable to accept, as the defendants submitted, that it was appropriate to wait until discovery had concluded and a significant part of the evidence served, before their applications for further security were pursued, even if it could be accepted, as the defendants argued, that the real cost blow out did not become apparent until 2008. I do not accept that submission on all of the evidence, but if I did, there is still delay. In the circumstances that delay would not support a costs order in relation to past costs.
54That the plaintiff has not been spending its own funds in the meantime, having had the benefit of a litigation funder and only being obliged to repay the funder in relation to costs incurred up to the time of the termination of the agreement, if funds are recovered from the defendants, as was argued by the defendants, is not to the point. That is not an argument consistent with the emphasis placed in the Civil Procedure Act on ensuring ‘just, quick and cheap’ litigation and proportionality of costs.
55During the defendants’ delay in pursuing further orders as to security, the plaintiff has incurred very extensive costs in pursuit of its case, as have they. The plaintiff has put its evidence on and a large part of the defendants' evidence is also on, including expert evidence.
56 The liquidator was forced to terminate the earlier funding arrangement, once further security was sought, given the magnitude of what was sought and the litigation funder’s attitude to the provision of such an amount of further security. Had security been sought in a more timely way, it may be that the litigation would never have proceeded to the point that it now has. In the circumstances, considerations of oppression plainly arise, in a context where it is settled that long and unexplained delay may be fatal to any security application (see for example Morris v Hanley.
57In Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd, Barrett J explained:
28The reason why delay acts against an applicant is that it allows a plaintiff to proceed without interruption and without any warning that his or her preparations and expenditures on them may be rendered worthless by the intervention of a stay brought about by inability to furnish security. The point was made in these terms by Einstein J in Liberty Grove (Concord) Pty Ltd v Mirvac Projects Pty Ltd:
“The comprehensive treatment of the appropriate principles which fall to be considered in relation to applications for security for costs to be found in Idoport v National Australia Bank (‘Idoport’) (at [69] and following) is accepted as correct for present purposes. One of the first and most important such principles concerns the need for an application for security for costs to be made promptly: Foss Export Agency Pty Ltd v Trotman; Buckley v Bennell Design & Construction Pty Ltd; Southern Cross Exploration NL v Fire and All Risks Insurance Co Ltd. The authorities have recognised that it would often be patently unjust to permit a defendant who stood by and allow a plaintiff to work on their case to ask for security after expenses had been incurred: Smail v Burton; Re Insurance Associates Pty Ltd (in liq). Indeed the longer the delay, the proximity of the hearing and the more acts done during the interval, the greater the significance of the delay and the more difficult it will be to persuade the Court that an order for security will not, in the circumstances, be unfair or oppressive: see French J in Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd.”
58After the earlier consent orders were made in 2005, the question of further security was raised in 2007, but not pursued until 2009 and not heard until 2010. In the meantime very considerable additional costs were incurred. There is still a further tranche of security to be provided under the existing orders. The defendants’ delay in pursuing a further order, expressly contemplated as it was by the earlier orders, is in this case a factor which weighs considerably against the grant of the orders sought. I am of the view, in all of the circumstances, that justice does not permit any further orders for security in respect of past costs. Like the conclusion reached in Tim Barr Pty Ltd, in this case I am satisfied that the orders sought in respect of past costs would lead to an unacceptably oppressive result.
In Crypta Fuels Pty Ltd & Another v Svelte Corporation Pty Ltd & Ors,[28] Lehane J said —
I was referred to a number of other decisions, particularly relating to delay including, notably, the decision of Waddell J in the Equity Division of the Supreme Court of New South Wales in Southern Cross Exploration N.L. v Fire and All Risk Insurance Co. Ltd. Without referring in any greater detail to those authorities, my conclusion from a consideration of them is that there is first and foremost a proposition accepted in every one of the cases which is that if an application for security for costs is to be made it must be made promptly.
Obviously, there are degrees of promptness and obviously, equally, security for costs being a discretionary matter, there are cases where delay will weigh more heavily with the court than it does in other cases. In Southern Cross Exploration, for example, Waddell J held that it was appropriate to order that security be provided for costs well into a very long hearing. It is notable, however, that in the cases where, despite delay, an order has been made for the provision of security, there have been present at least one and usually two other factors. One is that the hearing or resumed hearing was not immediately imminent, certainly not as immediately imminent as it is in these proceedings. The other is that there has been some forewarning: usually correspondence concerning the financial standing of those who might benefit from the success of an applicant or plaintiff, and often detailed correspondence foreshadowing an application for security for costs. In this case, there is, so far as anything before me indicates, no history of correspondence or suggestion or question about matters relevant to the provision of security before the notices of motion were actually filed and served.
[28][1995] 19 ACSR 68 at 71 (citations omitted).
In Bryan & Fencott & Associates Pty Ltd v Eretta Pty Ltd & Ors,[29] French J said —
[29](1987) FCR 497 at 514-5 (citations omitted).
(iv) Delay
140.The application for security must be made promptly - Foss Export Agency Pty. Ltd. v. Trotman, Buckley v. Bennell (supra) at 308.
141.The further a plaintiff has proceeded in an action and the greater the costs it has been allowed to incur without steps being taken to apply for an order for security for costs, the more difficult it will be to persuade the Court that such an order is not, in the circumstances, unfair or oppressive.
142.The same broad principle holds true where the application is, as in this case, to increase the amount of security already ordered.
143.Its application is mitigated by the fact that the plaintiff will have been placed on notice by an earlier application that security for costs is an issue.
144.In this case the original order was made without opposition by the applicant.
145.Further, the parties were given liberty to apply on 2 days notice.
146.It has been said that delay on the part of the defendant may give rise to a waiver of the defendant's entitlement to security for costs - Jennings Ltd. (In Holding) v. Cole, Roumeli Food Stores (NSW) Pty. Ltd. v. The New India Assurance Co. Ltd.
147.In Southern Cross Exploration NL v. Fire & All Risks Insurance Co. Ltd. Waddell J. said that the approach to delay should reflect the following well known passage in Lindsay Petroleum Co. v. Hurd:-
“...Two circumstances, always important in such cases
(that is where a defendant relies on the doctrine of
laches) are, the length of the delay and the nature of
the acts done during the interval, which might affect
either party and cause a balance of justice or injustice
in taking the one course or the other, so far as relates
to the remedy.”
148.In the context of the broad discretion under s.533 and consistently with that approach delay is best regarded simply as a factor whose consequences are to be weighed in the balance in determining what is just between the parties.
149.In the circumstances of this case, including the existence of the previous security order, the inclusion of a provision for liberty to apply and the absence of any evidence of prejudice, I do not consider that there is any basis for a finding that the lapse of time since the original order weighs against the making of an order for further security.
For present purposes, the relevant principles that emerge from this necessarily brief review of the authorities, are in my view the following:
(a) Delay in making an application for security for costs, or further security for costs, is a most important and often a critical factor, essentially because it unfairly allows a plaintiff to proceed and incur costs on the assumption that no application is to be made.
(b) Delay is more significant, and often critical, in relation to security for past costs although it may also be a relevant factor in relation to security for future costs.
(c) Prejudice to a plaintiff is assumed and presumed because of the delay. However, each side may adduce evidence in support of, or against, such prejudice.
(d) 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.
The decision of Whelan J — containing the express invitation — was delivered on 24 August 2012 following a hearing on 9 and 17 August 2012. At this point there was $5,007,674.61 in the Yara account and $18,938,117 in the Apache Fertilisers account.
In May 2014, the amounts were $2,927,541.76 and $14,436,974.02 respectively. The Deputy Commissioner of Taxation had indicated that amended assessments would be issued. All parties had been joined. The ANZ and Receivers’ costs were substantial. The parties with Litigation Indemnity Claims were likely to incur substantial costs payable ahead of ANZ.
The Holdback Amount continued to reduce. In December 2014, the amounts were $1,905,757.86 and $11,132,620.35 respectively. This represented a substantial reduction — and clearly changed circumstances — since the decision of Whelan J in August 2012, particularly in circumstances where much more was known in relation to claims on the Holdback Amount, and the resultant inevitable conclusion that nothing would be left for the ANZ and the Receivers in respect of their costs which contemplated a surplus or balance of the Holdback Amount.
In April 2015, the amount in the Apache Fertilisers account had halved from the amount as at 24 August 2012. It was $9,049,481.81. In June 2015, it was $6,622,051.84. All parties costs were increasing at a rate that many would consider alarming.
The answer to the rhetorical question posed by Mr Solomon QC as to when between July 2014 and November 2015 the application should have been brought is self-evident. It is not necessary to delineate a point in time. It is sufficient to say that it should have been well before November 2015, particularly in circumstances where ANZ and the Receivers did not accept the position asserted by Mr Oswal’s solicitor in the 22 July Letter, namely that any application for security for costs would be premature.
The proceedings, which are on any view substantial, had been fixed for trial on 11 April 2016. These applications are truly last minute applications (albeit with some justification as set out below) that should ordinarily be discouraged. The applications should ideally have been brought much earlier.
I am not in the circumstances and facts of this case, attracted by the submission that it was necessary to wait the issue of the revised assessments and that this was simply acceding to the warning of those from whom security was sought as to the premature nature of the application. The simple answer is that it was neither necessary, nor desirable, to wait. In July 2014, at the time of the letter suggesting that any application would be premature (a position that the ANZ and the Receivers did not agree with), the position had sufficiently deteriorated since the decision of Whelan J and was deteriorating every day.[30] The Holdback Amount was going down and costs were increasing. The financial position had changed in the two years since the decision of Whelan J. At some point — well before November 2015 — it was incumbent on the ANZ and the Receivers to make the application. In fact, I had made an order to such effect on 13 June 2014.
[30]Legal costs and disbursements of the ANZ and (presumably) the Receivers as at 24 August 2012 were about $2.2m. By 22 July 2014 they were about $17m.
However, notwithstanding such delay, and in relation to the applications before me, the 22 July Letter is of some importance.
In my opinion, and in the peculiar circumstances of this case, and notwithstanding the delay, as I have found, it is neither harsh, nor unreasonable, for the ANZ and the Receivers to obtain some security for costs prior to 19 November 2015. The prejudice that ordinarily follows from such delay, namely, the (unfair) incurring of substantial costs by the Oswals while the ANZ and the Receivers stood by, is, in the circumstances, and because of the 22 July Letter (being in fact an invitation or directive to delay), absent.
Accordingly, although there has been delay because, as I have found, the applications could and ideally should have been brought earlier, the failure to bring them has not resulted in Mr and Mrs Oswal incurring very substantial costs on the assumption that no such application or further application would be made. In fact, the contrary is the case. They incurred costs well knowing that a later application would be made. In fact, it was the Oswals that encouraged, and indeed insisted, on the later application. The short point is that they knew the application was coming, and that it would have come earlier but for the 22 July Letter. They did not proceed and incur costs in ignorance. The assumption that usually causes the harshness and oppression is to a great extent absent, a position brought about by their conduct.
However, in the exercise of my discretion, I consider that there are other factors that are relevant to the extent to which security should be ordered for past costs. Despite the forceful submission made by Mr Solomon QC to the effect that it was artificial and inaccurate to divide the costs into past and future, a submission that does have some basis,[31] I nevertheless consider that it is a useful approach.
[31]According to Mr Solomon, given the procedural history in relation to security for costs, and in particular the decision of Whelan J, and the specific basis of such decision (at [63]), all costs would be and were intended to be secured if the Holdback Amount was insufficient. In this sense, it was unnecessary to distinguish between past and future costs.
By waiting until the revised assessments were issued, of course at the suggestion of the Oswals, the applicants risked making the application after or about the time the proceedings were fixed for trial. In a large case such as this, this is not desirable. It is not in the interests of the parties or the Court. In recent times, large litigation has severely tested the resources of the Court. If the resources of the Court are in place and the trial does not proceed, or is unreasonably delayed because of appeals or failure to adequately provide security, if ordered, huge wastage and misallocation of resources may ensue. The interests of the Court are also a proper and entirely appropriate consideration in relation to any application for security for costs. From this point of view the application was made late.
The matter is not free from difficulty. However, doing the best I can and taking all matters into consideration, I consider that the ANZ and the Receivers should have security for their costs but not from 22 July 2014, and certainly not from some time in 2012. Notwithstanding the delay which, for the reasons given, is of limited assistance to the Oswals, the application should have been made by the end of October 2014 at the latest. On 3 October 2014, I fixed the proceedings (other than proceeding 804 which had not yet been transferred) for trial on 3 August 2015.
Once the proceedings had been fixed for trial, consideration should have been given to making the application, in light of the changed circumstances, the disagreement with the Oswals’ solicitor’s suggestion that any such application would be premature, and the trial date. The application should have been made by the end of October 2014. In my view, and in light of all of the circumstances, it would be harsh and unreasonable, despite their conduct, to require the Oswals at this late stage to provide security for costs going back four years to 2012. This would not be fair or in the interests of justice.
The 22 July Letter was no more than a position taken by a party in adversarial and heavily contested litigation. The adversary and addressee not unexpectedly rejected the position and agreed to wait for a brief period. The wait was far longer than that, and it was unnecessary to wait for the formal assessments. Even without them, it was clear that ANZ and the Receivers were substantially exposed in relation to costs.
For these reasons (and subject to paragraph 63), security for the past costs of the ANZ and the Receivers should be ordered only with effect from 1 November 2014.
All parties should (subject to paragraph 63) have security for their costs or disbursements in accordance with their respective applications, from the date of their respective applications up to and including the first day of trial. I am not persuaded by the stultification argument which was in any event only faintly pressed. The evidence is entirely lacking.[32]
[32]The Oswals have incurred costs to date in excess of $38m. The litigation funder stands to gain an enormous amount, if the claims succeed. The evidence as to the financial position of the funder, the potential beneficiary, is entirely lacking. Further, the Oswals are running numerous actions in other Courts.
I do not accept the argument that in this case, the issue of stultification could only properly be assessed if the amount of security requested was known. First, the staging of the applications was by consent. Second, and in any event for the most part, the quantum of costs was sufficiently known. Finally, given the matters raised in relation to stultification, it would not have made any difference.
In the exercise of my discretion, I am not prepared to order any security for costs in Proceeding 804. The issues that have been fixed for trial in that proceeding are of limited compass and these issues and evidence, to a sufficiently great extent, overlap with the other two proceedings.
Recusal
It is not necessary to deal with this aspect. The suggested basis, namely that I expressed a negative view or a bias against certain proposed arguments intended to be raised by the Oswals (and refused documents relating to such arguments) has no force because the arguments were not pressed during the hearing of the applications.
Cross-examination of deponent
At the commencement of the hearing Mr Solomon QC applied for leave to cross-examine Mark Gerald Popplewell, primarily on his affidavit of 3 February 2016, dealing with stultification issues. I refused the application. On interlocutory applications it is only in exceptional circumstances that cross-examination should be permitted. This is not such a case or application where leave should be granted. Having read the affidavit, I formed the view that it was not sufficiently probative and of such weight that required — in fairness given its late filing — further exploration by way of cross-examination.
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