Putney Group Pty Limited v The Royal Rehabilitation Centre Sydney

[2009] NSWSC 424

CITATION:	Putney Group Pty Limited v The Royal Rehabilitation Centre Sydney [2009] NSWSC 424
HEARING DATE(S):	05/05/09
JUDGMENT DATE :	27 May 2009
JURISDICTION:	Equity
JUDGMENT OF:	Forster J at 1
DECISION:	See para 98.
CATCHWORDS:	Security for costs - who is the real plaintiff - cross claim on grounds overlapping with those in claim - inability to pay costs: as at what time
LEGISLATION CITED:	Uniform Civil Procedure Rules 2005 (NSW)
CASES CITED:	Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324 Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 622 Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399 Concrete Constructions v Dalma Formwork [1999] NSWCA 16 Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq) (1979) 4 ACSR 492 Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 KDL Building v Mount [2006] NSWSC 474 KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 Re Travelodge Australia Ltd (1978) 21 ACTR 17 Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 Willey v Synan (1935) 54 CLR 175
PARTIES:	Putney Group Pty Limited (P1) Putney No 1 Pty Ltd (P2) Putney No 2 Pty Ltd (P3) Putney No 3 Pty Ltd (P4) Putney No 4 Pty Ltd (P5) The Royal Rehabilitation Centre Sydney (D1) Investec Bank (Australia) Limited (D2)
FILE NUMBER(S):	SC 2008/5844
COUNSEL:	Plaintiff: J. Stoljar SC and J.C. Hewitt Defendant: M.A.Jones
SOLICITORS:	Plaintiff: Shaw Reynolds Bowen & Gerathy (P1) Defendant: Clayton Utz (D1)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

FORSTER J

27 MAY 2009

(5844/08) PUTNEY GROUP PTY LIMITED v THE ROYAL REHABILITATION CENTRE SYDNEY

JUDGMENT

Nature of the proceedings

1 HIS HONOUR: There are two notices of motion before me. The first was filed on 13 March 2009 by the defendant, the Royal Rehabilitation Centre Sydney, seeking an order against the plaintiffs for the provision of security for its costs and other consequential relief. The second notice of motion was filed on 31 March 2009 by the plaintiffs, the Putney Group Pty Limited and others, seeks similar relief against the defendant.

2 Both motions were heard together.

3 A substantial amount of evidence was filed and relied upon by both parties, both in support of their own notice of motion and in opposition to the relief sought by the other. Substantial submissions were also provided to the Court.

4 Counsel for both parties approached the applications in a common sense and practical manner, taking no formal objections to evidence, not seeking to cross examine any of the witnesses and dealing with their respective applications in an expeditious manner. I found the submissions to be of great assistance and I have left them in the court file.

The Facts

5 For the purposes of these applications, I find the relevant facts to be as follows.

6 On or about 31 July 2007, the plaintiffs and the defendant entered into a deed, referred to as the Project Delivery Deed for Redevelopment of RRCS Putney Site, or “the PDD”, which provided, inter alia, that:

(a) in consideration of the payment by the plaintiffs of call option fees in an amount of $9 million, the defendant agreed to grant to them a call option to purchase at a price of $90 million five subdivided lots at the site owned by the defendant; and
(b) in consideration of the payment by the defendant of a put option fee in an amount of $50, the plaintiffs agreed to grant to the defendant a put option, under which the defendant could require the plaintiffs to purchase such lots for the said purchase price of $90 million.

7 Pursuant to the PDD, the plaintiffs provided to the defendant bank guarantees totalling $9 million, issued by Investec Bank (Australia) Limited. At the same time, the first plaintiff deposited $9 million into an account maintained with Investec to act as collateral for Investec’s obligations under the bank guarantees.

8 On or about 10 August 2007 the plaintiffs submitted applications to the Foreign Investment Review Board (“FIRB”) for approval to enter into the PDD.

9 On 27 August 2007 the plaintiffs received a response from FIRB to the effect that FIRB had no objections to the proposal, on condition, however, that the plaintiffs commenced continuous construction of the proposed development by 31 August 2008. The letter warned that the government considered compliance with the conditions imposed to be necessary to avoid the proposal being in conflict with the national interest and reminded the plaintiffs that the Foreign Acquisitions and Takeovers Act 1975 provided for substantial penalties on conviction for a breach of those conditions.

10 Under the terms of the PDD, the defendant was required to use all reasonable endeavours to procure registration of a subdivision plan of the subject property as soon as practicable. It was also required to keep the plaintiffs fully appraised of progress.

11 There was a delay in procuring the registration of the plan of subdivision. Whether, when and to what extent the defendant kept the plaintiffs informed of developments need not be determined for the purposes of these applications, but suffice it to say that the plaintiffs claim that they arranged their finance with St George Bank in anticipation of an early registration of the plan of subdivision, but that they were unable to obtain such finance beyond 31 July 2008. The plaintiffs say the blame for this state of affairs rests with the defendant, an allegation that the defendant refutes.

12 On 12 November 2008 the defendant wrote to the plaintiffs advising that the subdivision plan had been registered. The letter continued:

“We note that on service of this letter, the Unconditional Date has been triggered and is effectively today’s date, being 12 November 2008.”

13 The significance of that assertion was that under clause 2.2 of the PDD, the plaintiffs were required to pay to the defendant within 15 days of the Unconditional Date a sum of $9 million, failing which the defendant was entitled to make demand for payment under the bank guarantees provided by the plaintiffs.

14 Under the terms of the PDD, if such guarantees were called on, the plaintiffs came under an obligation to deliver to the defendant further bank guarantees by way of replacement.

15 On 18 November 2008 the plaintiffs wrote to the defendant asserting that the Unconditional Date had not been triggered by the defendant’s letter of 12 November 2008 by reason of the fact that the FIRB letter of 27 August 2007 had stipulated the commencement of continuous construction by 31 August 2008. As that had clearly not occurred, the plaintiffs claimed that the FIRB approval was no longer in effect, and that accordingly the PDD could no longer be performed.

16 In the absence of a reply, the plaintiffs again wrote to the defendant on 21 November 2008, seeking the defendant’s written confirmation by 5pm Monday, 24 November 2008 that it agreed that the Unconditional Date had not been triggered.

17 No such confirmation was received. On the contrary, on 24 November 2008 the defendant wrote to the plaintiffs restating its view that the Unconditional Date had been triggered and that the FIRB approval remained valid and effective.

18 On 26 November 2008 the plaintiffs wrote to the defendant and purported thereby to rescind the PDD. They also demanded that the defendant return the bank guarantees within five business days after that date.

19 On the same day, namely on 26 November 2008, the plaintiffs commenced these proceedings by approaching the Equity Duty Judge and obtaining orders for short service of a summons.

20 On 28 November 2008 the defendant responded to the effect that the plaintiffs were not entitled to rescind the PDD and that in the circumstances, the defendant did not accept their purported rescission. The letter continued to the effect that the defendant considered that the PDD remained on foot and that there was no basis for the plaintiffs to demand the return of the bank guarantees.

21 The plaintiffs’ summons, which was filed in court on 26 November 2005 sought the following relief:

“1 A declaration that upon the proper construction of the Project Delivery Deed for Redevelopment of RRCS Putney Site (‘the PDD’) made between the plaintiffs and the defendants on or about 31 July 2007, the Unconditional Date (as defined in the PDD) has not occurred.

2 Further, or in the alternative, a declaration that in consequence of the lack of FIRB Approval (as defined in the PDD):

(a) the PDD has been frustrated and, or alternatively;
(b) the condition for the completion of the PDD set forth in clause 1.3(a) of the PDD has not been satisfied;

such that the PDD is of no force and effect.

3 Further, of in the alternative, a declaration that the PDD was validly rescinded by the first plaintiff by notice dated 26 November 2008 pursuant to clause 1.3(e), or alternatively 25.1(a), of the PDD in consequence of which the PDD is of no force and effect.

4 Further, or in the alternative, orders that the plaintiffs be relieved from the forfeiture of the Call Option Fees (as defined in the PDD) on such terms as the court in the circumstances thinks fit under the general law, s 55(2A) of the Conveyancing Act 1919 (NSW) or otherwise.

5 Order that until further order, the first defendant by itself, its servants and agents be restrained from making any demand for payment under the Option Bank Guarantees (as defined in the PDD) pursuant to clause 2.6 of the PDD.

6 Costs.

7 Such further or other order as the court sees fit.”

22 The application for interlocutory relief sought in par 5 of the summons was heard by Justice Hamilton on 3 – 5 December 2008. His Honour delivered his ex tempore judgment on 5 December 2008. He extended the order that had previously been made, restraining the defendant up to and including 10 December 2008 from making a demand under the bank guarantees.

23 On 10 December 2008, with the consent of the parties, Honour made orders that provided for the $9 million the subject of the dispute to be withdrawn from Investec and to be deposited into a bank account for which the respective solicitors for the parties were joint signatories. The application for interlocutory relief was otherwise dismissed, costs being reserved.

24 On 16 December 2008 the plaintiffs filed a statement of claim and on 11 March 2009 an amended statement of claim. In the meantime, on 17 February 2009 the defendant filed a cross claim.

The Pleadings

25 By their amended statement of claim the plaintiffs seek the same relief as they had sought in the summons, together with the following further relief:

(a) Damages or alternatively equitable damages or compensation;
(b) Interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW); and
(c) In the alternative, an order that the amount of $9 million be refunded to the plaintiffs together with interest thereon.

26 By its statement of cross claim the defendant has sought the following relief:

(a) A declaration that the Unconditional Date (as defined in the PDD) was 12 November 2008; and
(b) An order that it be discharged from the undertaking given on its behalf to the Court, such that the $9 million the subject of that undertaking, and any accumulated interest, might be released to it for its own benefit.

27 In addition, the defendant also claims damages, interest and costs. The particulars of the defendant’s claim for damages include damages for loss incurred as a result of the failure by the plaintiffs to pay the agreed sum of $90 million, less the value of the lots. The particulars also include consequential losses said to be in an amount of at least $4,810,000 and a claim for loss of profit due to the defendant’s inability to reduce administrative costs as planned.

The Defendant’s Notice of Motion

28 I deal first with the defendant’s notice of motion for relief against the plaintiffs.

29 The defendant makes its application pursuant to UCPR Part 42 r 42.21(1)(d), or in the alternative pursuant to s 1335(1) of the Corporations Act.

30 UCPR Part 42 r 42.21 provides relevantly as follows:

“(1) If, in any proceedings, it appears to the court on the application of a defendant:
……
(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so, or

the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant’s costs of the proceedings and that the proceedings be stayed until the security is given.”

31 The defendant’s notice of motion also prayed in aid UCPR Part 42 r 42.21(e), but that basis of relief does not appear to be pressed.

32 Section 1335(1) of the Corporations Act provides as follows:

“(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.”

33 The evidence establishes, and there does not appear to be any dispute about this, that the first plaintiff is the sole shareholder of the second to fifth plaintiffs, the ultimate holding company of all of the plaintiffs being a company registered in the British Virgin Islands, with an office address in Gibraltar. All the plaintiffs are what are sometimes referred to as “special purpose vehicles”, with no existing Australian business or employees.

34 It similarly does not seem to be disputed that the plaintiffs’ liabilities exceed their assets by more than $3 million even on the assumption that the $9 million the subject of these proceedings is returned to them. The plaintiffs have not sought to establish their solvency on this application.

35 Furthermore, no evidence has been adduced by the plaintiffs to suggest that an order of the kind sought by the defendant would stultify these proceedings, or cause any hardship to the plaintiffs or to those standing behind them. Nor were there any undertakings or other security offered on behalf of the plaintiffs by any entity.

36 In light of those matters, it seems to me that the requirements of both UCPR Part 42 r 42.21(d) and s 1335(1) of the Corporations Act have been met so as to empower the court to make an order of the kind sought by the defendant, provided of course that the court considered it appropriate to do so.

37 Particularly in light of the fact that there is no evidence of any hardship that might be inflicted on the plaintiffs if such an order were made, were it not for the various submissions made on behalf of the plaintiffs, I would have no hesitation in making an order of the kind sought.

38 I deal with those submissions in turn.

Is the Defendant really the Plaintiff?

39 The first basis for opposing the order sought by the defendant is that in the plaintiffs’ submission, the defendant is in substance the plaintiff, and the plaintiffs are in substance the defendants, and that as a consequence, there are no grounds for making an order for security for costs against the plaintiffs. In particular, the plaintiffs submit that in exercising its discretion when considering an application for security for costs, the court is guided by the substance and not the form of the pleadings in deciding which party is in substance the plaintiff and which is the defendant. They submit that the court will not be bound by where the name of each party appears on the court record, but will consider which party is the real “attacker” or “commercial aggressor”. They further submit that the court is entitled to consider whether the party against whom an order for security for costs is sought is a true plaintiff or whether it has been forced into that role as a result of the defendant’s conduct. In support of those submissions, the plaintiffs cite a number of authorities, many of which are collected and discussed in the decision of Sundberg J of the Federal Court of Australia in Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 622.

40 It is not clear to me whether, in the present case, the plaintiffs go so far as to submit that where a party, which occupies the position of defendant on the court record, but is in substance the “attacker” or “commercial aggressor”, is necessarily prevented from obtaining an order for security for costs against the other party. If that submission is being made, I reject it.

41 The starting point of that enquiry must be the wording of UCPR Part 42 r 42.21(d) and that of s 1335(1) of the Corporations Act. By their terms, both provisions grant the Court power to make an order for security against a “plaintiff”. Section 3(1) of the Civil Procedure Act 2005 defines the term “plaintiff” to mean:

“A person by whom proceedings are commenced … and includes a person by whom a cross claim is made …”

42 There is no definition of the word “plaintiff” to be found in the Corporations Act.

43 There can be no doubt that the named plaintiffs in these proceedings are each a “plaintiff” within the meaning of s 3 of the Civil Procedure Act and, it would seem to me, likewise for the purposes of s 1335 of the Corporations Act. They are the entities by whom these proceedings were commenced. Whatever may be the actual role of the plaintiffs and the defendant in this case, in my view the court clearly can make an order for security for costs against the plaintiffs in this case.

44 However, the real question is not whether such an order can be made, but whether such an order should be made.

45 The passage most widely cited in this respect, being a part of a judgment of Dixon J (as his Honour then was), with whom Rich J agreed, appears in Willey v Synan (1935) 54 CLR 175 at 184 – 185, where his Honour said:

“The principle is that a party to judicial proceedings, who resides beyond the jurisdiction, should not be required to give security for costs unless, however the parties are arranged upon the record, he is the person invoking or resorting to the jurisdiction for the purpose of establishing rights or obtaining relief. The principal was considered by Maatschappij voor Fondsenbezit v Shell Transport and Trading Co [1923] 2 KB 166, where … Scrutton LJ … said: ‘The position, I think, extends to every case where the person against whom security is sought is really defending himself against attack, even if he be nominally a plaintiff, but really defending himself against defendants’ previous action against him’.”

46 It is to be noted that his Honour used the words “should not be required to give security”, rather than saying that such a party cannot be so required.

47 Other authorities referred to by the plaintiffs, including Heller Factors Pty Ltd v John Arnold’s Surf Shop Pty Ltd (In liq) (1979) 4 ACSR 492; Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289; and Amalgamated Mining Services Pty Ltd v Warman International Ltd (1988) 19 FCR 324 all discuss this issue not in terms of a power but in terms of the exercise of discretion.

48 The issue that goes to the exercise of the court’s discretion in this respect is whether the parties, designated as plaintiffs, and against whom an order for security for costs is sought, are indeed plaintiffs in the ordinary sense of the word, or whether they are in reality the parties “attacked” in the sense that a defendant is normally “attacked”. Admittedly, slightly different terminology is used in the various authorities to describe the position. As has already been noted, in Willey, Dixon J spoke of whether the person against whom security is sought is really defending himself against attack or against the defendant’s previous action against him. His Honour used the language of “the attacker”, or the actor or person seeking redress. In Amalgamated Mining Services, Wilcox J likewise spoke in terms of “attackers” and “defenders”. In Heller Factors, Mitchell J (as her Honour then was) was minded to consider whether “the plaintiff was a true plaintiff or had been forced into the position of a plaintiff because the defendant was empowered to take self-help procedure”. Smart J in Sydmar similarly considered whether the plaintiff was being forced to bring defensive proceedings “either directly resisting proceedings already brought or seeking to ‘halt self-help procedures’”.

49 Similar language is used in Mabrouk Minerals Pty Ltd v Mabrouk Holdings Ltd [2008] WASC 132 where Newnes J spoke of a party “having to sue in order to defend himself or herself against the other party’s prior attack, such as where a person has been forced to bring proceedings to protect their property from statutory acquisition or forfeiture.” And to return to the passage in Shell Transport, cited with apparent approval by Dixon J in Willey, the question is whether the person against whom security is sought is really defending himself against the defendant’s previous action against him.

50 In Willey itself, the Collector of Customs had given notice to a crewman, requiring him to commence an action for recovery of certain coins of which the Collector had taken possession, stating that in default of the crewman doing so, the coins would be condemned without further proceedings.

51 In Aquatown the defendant served on the plaintiff a statutory demand under the Corporations Law, which service similarly necessitated the commencement of proceedings to set aside such notice or suffer a deemed insolvency, leading very possibly to an order for winding up. Similarly in Re Travelodge Australia Ltd (1978) 21 ACTR 17, the plaintiff held stock in a company which had been the subject of a takeover offer. The plaintiff had not accepted the offer, but was subsequently served with a notice, the effect of which was that if the plaintiff did not commence proceedings, the defendant would have been entitled to acquire the plaintiff’s stock. It was in an endeavour to prevent this from happening that the plaintiff commenced proceedings. In that case, the court refused to make an order for security for costs against the plaintiff. Blackburn CJ said :

“[The plaintiff] is a person who invokes a special statutory procedure in order to preserve to himself a right which he considers a valuable one, which by the combined effect of a statute and the actions of the [defendant] may be taken away from him.”

52 In the present case, the plaintiffs submit that the dispute between them and the defendant was initiated by the defendant’s assertion contained in its letter of 12 November 2008 to the effect that the Unconditional Date under the PDD had been triggered by the said letter, and by its subsequent letter dated 24 November 2008. The plaintiffs submit that at that point of time, they had no practical option but to rescind the PDD and to commence these proceedings, because otherwise the defendant would have called upon the bank guarantees at the expiration of the 15 day period following 12 November 2008.

53 Alternatively, the plaintiffs submit that they were forced to commence proceedings and to seek interlocutory relief to prevent the defendant from taking the “self-help” measure of calling on the said guarantees.

54 I am of the view that on the facts, the foregoing cases are distinguishable from the present case, and that the plaintiffs cannot draw comfort from them.

55 While it is true that it was the defendant who first asserted that the Unconditional Date under the PDD had been triggered by its letter of 12 November 2008, that assertion did not necessarily compel in any practical or commercial, let alone legal, sense, the plaintiffs to take the course that they did. The service of the letter of 12 November 2008 and the assertion contained in it did not of itself have a necessary consequential effect of the nature that was common to the cases to which I have referred. In Willey, the coins stood condemned unless proceedings were commenced; in Travelodge the party serving the notice would have been entitled to acquire the plaintiff’s stock against the plaintiff’s wishes and in Aquatown, failure to commence proceedings would have resulted in a deemed insolvency. In each of those cases, the plaintiff was forced to commence proceedings or automatically face the relevant adverse commercial consequences.

56 By comparison, in the present case, no such commercial consequences necessarily followed. What the plaintiffs were concerned about was that the defendant might make a call on the bank guarantees and decided to take pre-emptive action to prevent it from doing so. Not only that, but the plaintiffs went further by purporting to rescind the PDD, and immediately commencing these proceedings, seeking both substantive relief in the form of declarations as to the validity of their purported rescission of the PDD, and also interlocutory injunctive relief.

57 The evidence does not reveal any request for an undertaking not to call on the bank guarantees, or of any threat on the part of the defendant to do so. It may, or may not have done so.

58 It would have been open to the plaintiffs to wait to see what, if anything, the defendant did. It would also have been open to the plaintiffs to seek injunctive relief limited to restraining the defendant from calling on the bank guarantees and restricting the substantive relief sought to a declaration that the Unconditional Date had not yet occurred.

59 Had they limited the ambit of their proceedings in that manner, the plaintiffs’ entitlement to resist an application for security for costs might have been stronger. I do not have to decide what the position would have been in that case. As it was, the plaintiffs went much further. In their letter of 26 November 2008, they purported to rescind the PDD, and in their proceedings they sought a declaration that the PDD had been validly rescinded. They also sought the other substantive relief which I have set out above. In that way, the plaintiffs did much more than merely defend themselves against attack. They went on the attack themselves. The plaintiffs’ first basis for opposing the order sought is rejected.

The Significance of the Cross Claim

60 The second basis relied upon by the plaintiffs in opposing the order sought by the defendant is that, in addition to filing a defence, the defendant has also filed, and continues to prosecute, a cross claim against the plaintiffs.

61 I have already set out the relief sought in the cross claim. The only cross defendants are the plaintiffs. There are no other parties involved. Investec, which had previously been joined by the plaintiffs as a second defendant is no longer a party to the proceedings, the plaintiffs having on 24 March 2009 filed a notice of discontinuance against it.

62 The relief sought in the cross claim falls into two categories. The first category of relief sought is in effect a mirror image of the claims made by the plaintiffs. Those claims raise no issues other than those already raised in the plaintiffs’ claim.

63 The second category of relief sought raises issues not directly raised by the plaintiffs’ claim. However, those claims, being in effect a claim for damages for what is claimed to be the plaintiffs’ wrongful repudiation of the PDD, are nevertheless directly related to, and flow from, the issues in the first category. The situation might have been otherwise if the defendant had sought relief by way of a cross claim in relation to matters that were unrelated to the other issues in the proceedings. That however is not the case. While it is true that this category of issues, and in particular the quantification of damages, will add to the length of hearing, the two categories of relief are closely interconnected, one flowing directly from the other.

64 In the course of the plaintiffs’ submissions, my attention was drawn to a number of decisions that deal with the issue of whether or not it is appropriate, or indeed open, for the court to make an order for security for costs against a plaintiff in circumstances where it is also a cross defendant pursuant to a cross claim brought by the defendant. It was submitted that in those circumstances it was not open to the court to make an order for security for costs against such a plaintiff. Alternatively, it was submitted that the existence of such a cross claim was a factor to be taken into account in determining whether or not an order for security for costs should be made and, if so, the amount in respect of which such order should be made.

65 While I have no difficulty in accepting this alternative submission, I cannot accept that the existence of a cross claim of itself deprives the court of its power to make an order against a plaintiff for security for costs. Neither UCPR Part 42 r 42.21(1)(d), nor s 1335 of the Corporations Act is in terms so restricted. I am not aware of any provision, either in the UCPR or in the Corporations Act, that would necessarily prevent the court from making such an order, and no such provision has been drawn to my attention. Rather, the issue that I consider requires determination is how the existence of a cross claim affects the court’s discretion in the particular case.

66 I do not consider that the cases to which I have been referred dictate a different result.

67 The plaintiffs relied heavily on the decision of the Court of Appeal in Concrete Constructions v Dalma Formwork [1999] NSWCA 16. That was an application for leave to appeal against a judgment of Rolfe J, sitting in the Construction List of what was then the Commercial Division of this Court. His Honour had dismissed a notice of motion filed on behalf of Concrete Constructions, the defendant in the proceedings before him, for an order for security for costs against Dalma Formwork, the plaintiff in those proceedings. Concrete Constructions had been the principal contractor in relation to a particular project and Dalma Formwork had been one of its subcontractors.

68 In the proceedings before Rolfe J, Dalma had commenced proceedings against Concrete Constructions for damages for alleged breaches of the subcontract. Alternatively, it sought a reasonable remuneration for subcontract works that it had performed, or in the further alternative, it sought damages for wrongful termination of the subcontract by Concrete Constructions. It also sought damages pursuant to s 52 of the Trade Practices Act 1974 (Cth).

69 By its cross claim, Concrete Constructions had claimed to be entitled to payment by Dalma pursuant to the agreement between them.

70 In refusing the make an order for security for costs against Dalma, Rolfe J referred to the judgment of Smart J in Sydmar, where Smart J had said that the factors relevant to the exercise of the discretion to order security for costs included whether substantially the same facts were likely to be canvassed in determining the action and the cross claim. Smart J had said that the court would be slow to allow a situation to arise where the action was stayed because of the inability of the plaintiff to provide security, and yet to allow the cross action covering substantially the same factual matters to proceed.

71 Rolfe J had also dealt with a number of other issues that had been raised before him, including whether Dalma’s lack of funds had been caused, or contributed to, by the conduct of Concrete Constructions. I might interpolate that by the time of the application for security for costs, an administrator had been appointed to Dalma.

72 As is recorded at [15] of the judgment of Sheppard AJA, with whom the other members of the Court of Appeal, namely Mason P and Handley JA, agreed, Rolfe J had begun his discussion of this matter by saying:

“In circumstances where the claim and the cross-claim arise out of the same, or essentially the same, factual matrix this, in my opinion, is a very important consideration. It has been frequently and consistently said by Judges sitting in this Division that an order for security will not generally be made in such circumstances, in the exercise of the Court’s discretion. It would, in my view, be quite wrong to preclude a party from litigating matters by way of a defence to a cross-claim merely because that party has been the initial institutor of the proceedings. The conduct of the other party may have forced the allegedly impecunious party to take the litigious initiative, whilst not constituting misconduct. Put simply if [Concrete Construction] seeks to recover any part of the debt the issues raised by Dalma in its claim would be available to it as a defence, and there has never been any suggestion that a party could be precluded from defending proceedings where the defence is bona fide, by reason of impecuniosity . It is, therefore, a somewhat arid exercise to be considering an application for security for costs if the plaintiff can be cast in the role of a defendant and can litigate the very matters the subject of its claim by way of defence.” [Emphases mine]

73 Rolfe J came to the conclusion that he should not order security for costs. The Court of Appeal dismissed the application for leave to appeal on the basis that it was not persuaded that his Honour’s discretion had miscarried.

74 As Sheppard AJA noted at [14], the question whether security for costs should be granted is a matter which calls for the exercise of the court’s discretion.

75 However, although where the claim and the cross claim arise out of the same, or essentially the same, factual matrix, an order for security will not generally be made, that is but one factor in the exercise of the court’s discretion. There is a significant difference between the facts in the proceedings before Rolfe J and the facts in the case before me. What appears to have influenced Rolfe J was the adverse effect that making an order for security for costs would have had upon the plaintiff’s ability to prosecute the proceedings, given its impecuniosity. His Honour specifically considered whether Dalma’s lack of funds had been caused or contributed to by the conduct of Concrete Constructions, as well as considering Dalma’s financial position generally. Even though these issues were ultimately decided adversely to Dalma, His Honour’s apparent concern at Dalma’s impecuniosity is obvious. By comparison, in the present case, as I have already noted, no evidence has been adduced by the plaintiffs to suggest that an order of the kind sought by the defendant would in any way stultify these proceedings or cause any hardship to the plaintiffs.

76 In these circumstances, I do not consider that the apparent overlap of issues between the claim and the cross claim prevent me from exercising my discretion in favour of making an order for security for costs.

77 In reaching that view, I am comforted by the approach taken in the recent decision of Brereton J in KDL Building v Mount [2006] NSWSC 474. In that case, his Honour appears to have had no difficulty in making an order for security for costs notwithstanding that a cross claim had been filed. His Honour found that there were some issues raised by the claim which were not raised on the cross claim, some issues were raised by the cross claim which were not raised on the claim, while other issues overlapped. His Honour took a pragmatic approach by making orders for security for costs in full in relation to issues raised only on the claim, and included in the order an amount of 50 per cent of the costs referable to issues that overlapped.

78 His Honour took a similar approach in his subsequent decision in Bevwizz Group Pty Ltd v Transport Solutions Pty Ltd [2008] NSWSC 1399, as did Beazley J (as her Honour then was) when sitting as a Judge of the Federal Court of Australia in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 202D-F.

79 For those reasons this second basis for opposing the order sought by the defendant is also rejected.

Delay

80 The third basis for opposing the order sought by the defendant is that the defendant has unduly delayed making this application and accordingly the application should be dismissed.

81 I do not accept this submission. Having regard to the urgent nature of the application for interlocutory relief instituted by the plaintiffs in December 2008, shortly before the end of the Law Term, there was no opportunity for the defendant to seek security for costs at the time of the hearing of that application.

82 The issue of the provision of security for costs was raised by the solicitor for the defendant on 11 December 2008, being the next day after the resolution of the interlocutory application. The defendant formally demanded security for costs on 23 December 2008. The plaintiffs responded on 16 January 2009, indicating that they were giving consideration to the issue. Further correspondence followed, but as no agreement could be reached, the defendant moved the Court by its notice of motion, which it filed on 13 March 2009. No criticism is, or can be, levelled at the defendant for the fact that its application was only heard on 5 May 2009.

83 Nor do I accept any of the other submissions that were put to me by senior counsel for the plaintiff to the effect that I should decline to make an order against the plaintiffs for the provision of security for costs.

Quantum

84 The next issue that arises is the quantum of the security that I should order. Before turning to the actual amounts put forward by the parties as being the appropriate amount, it seems to me that the stages of this litigation fall into three periods:

(a) the first period covers the time from the commencement of the proceedings until the filing of the defendant’s notice of motion on 13 March 2009;
(b) the second period spans the time between the date on which the notice of motion was filed and the date when the pleadings have been closed, when all evidence has been filed and all interlocutory steps, such as discovery, subpoenas and the like, have been completed and when the matter is ready to be allocated a hearing date; and
(c) the final period is from that date until the end of the hearing, including a week or so of intense preparation immediately prior to the hearing.

85 It does not seem to me appropriate to make an order requiring the provision of security for costs in respect of the first of those periods. While I note the submission made on behalf of the defendant to the effect that because the costs of the interlocutory application have been reserved, it is possible that an order for those costs will ultimately be made in favour of the defendant, nevertheless, I do not consider I would be justified, in the circumstances, to go back to require the plaintiffs to provide security for a period prior to the bringing of this application.

86 So far as the second period is concerned, I propose to make an order requiring the plaintiffs to provide security for the defendant’s costs. When doing so, I intend to make some adjustment in respect of the issues that are raised only by the cross claim, and those which are raised both by the claim and cross claim.

87 Finally, I do not intend at this stage to make any order for security for costs in respect of the third period. However, I wish to make it quite clear that the defendant has liberty to apply to the court for further security to be provided by the plaintiffs both in respect of the second period in the event that circumstances change, and of course in respect of third period. As to the latter, I would anticipate that if no agreement can be reached between the parties the defendant will make such an application when a hearing date is ready to be allocated, but before the intensive preparation for the hearing commences.

88 I should also indicate, however, that in the same way as the defendant has liberty to apply for further security, the plaintiffs will of course be equally entitled to resist any such application or, for that matter, to dispute the amount sought by the defendant.

89 So far as the actual quantum is concerned, I have given careful consideration to the evidence filed on behalf of the parties, setting out their respective estimates of the amounts that the defendant is likely to incur, or to have incurred, in the preparation of these proceedings between 13 March 2009 and the point of time when the matter is ready to take a hearing date. Doing the best I can, having regard to the competing evidence of the various deponents, taking into account the difference between the costs actually incurred and costs likely to be allowed on assessment, giving effect to a reduction in respect of issues raised only by the cross claim, and also taking into account the overlap of issues between the claim and the cross claim, I consider that the appropriate figure in respect of that second period is $200,000.

90 Assessments of this kind are hardly an exact science, but the said figure of $200,000 represents my judgment of the appropriate amount. It gives the defendant at least a measure of protection, without imposing unduly on the plaintiffs. The liberty to apply enables the court to make such further orders as circumstances may demand.

The Plaintiffs’ Notice of Motion

91 By their notice of motion filed on 31 March 2009, the plaintiffs also seek an order for security for costs against the defendant. However, that application can be disposed of shortly. As is clear both from UCPR Part 42 r 42.21(d) and from s 1335 of the Corporations Act, an order for security for costs can only be made against a plaintiff. As noted earlier, the plaintiffs submit that notwithstanding the formal nomenclature as the defendant, it is in substance the plaintiff for the purposes of the security for costs application. For the reasons that I have already given, I do not accept that submission, as in my view that the defendant is not only a defendant in name, but also in substance as well. I note however, that the defendant is also a cross claimant, and that in this context, the concept of “plaintiff” is to be interpreted broadly so as to include a cross claimant. For that reason, I am of the view the court does have the power to make an order against the defendant for security for costs, but I do not consider that such an order should be made in this case.

92 This is principally because I do not accept that the plaintiffs have established that there is reason to believe that the defendant will be unable to pay the costs of the plaintiffs if successful in its defence.

93 In a careful analysis, senior counsel for the plaintiffs has sought to persuade me that, based upon the financial material before me, there is reason to believe that the defendant will be unable to pay the costs in question. However, whatever may have been the case before the filing by the defendant of what has been referred to as the confidential evidence, it is now clear that the financial position of the defendant is such that there can be no doubt that it would be capable of meeting an order for costs in any amount that could reasonably be expected to be assessed in this case.

94 It is unnecessary for me to determine whether, as has been submitted by the plaintiffs, the defendant must not only be able to pay such costs, but must also be able to pay such costs as and when such costs become due and payable. Were it necessary for me to decide that issue, I would have thought it significant that a comparison of the provisions of s 1335 of the Corporations Act with the provisions of s 95A of that Act reveals that the latter provision refers to an ability to pay all debts “as and when they become due and payable”, whereas the former has no such requirement. It seems to me that the imposition of a like gloss on s 1335 does not sit comfortably with the absence of those words in that section. That discomfort is exacerbated by the fact that costs are usually assessed and payable some considerable time after the Court hands down its decision, giving an unsuccessful party time to liquidate such of its non-current assets as may be required to satisfy an adverse costs order. Certainly there is nothing to suggest in any of the authorities to which I have been referred that the respondent to a motion for security for costs must have liquid funds available at the time of the hearing of the motion. Its ability to liquidate its assets by the time any costs may become payable should be taken into account.

95 Accordingly, the plaintiffs’ notice of motion should be dismissed with costs.

96 Finally, the plaintiffs have submitted that any order for security should be in a form least burdensome to the plaintiffs. Such order must of course also be satisfactory to the defendant. Accordingly, I propose to leave it to the parties to agree, if they can, as to the precise form of the security to be provided. If they cannot agree, I will determine the issue.

97 I will also hear the parties on the issue of the costs of the defendant’s notice of motion, but my present inclination is that those costs should be the defendant’s costs of the proceedings.

98 Accordingly, I make the following orders:

(a) I direct that the parties bring in short minutes to give effect to the foregoing reasons;

(b) Insofar as the parties are unable to agree on the terms of such short minutes, each party is to bring in its own, together brief submissions in support of its own contention as to how any differences between them should be resolved; and

(c) The parties are to make arrangements with my Associate to have the matter relisted before me for the purpose of making formal orders.

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