Quad Consulting Pty Ltd v David R. Bleakley & Associates Pty Ltd
[1991] FCA 385
•28 JUNE 1991
Re: QUAD CONSULTING PTY LIMITED
And: DAVID R. BLEAKLEY AND ASSOCIATES PTY LIMITED
No. N G243 of 1990
FED No. 385
Practice
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Burchett J.(1)
CATCHWORDS
Practice - security for costs - factors to be taken into account in exercising discretion to increase security already provided pursuant to a consent order - relevance of the fact of consent and that the original security was provided, by the terms of the order, for the whole of the proceedings, and not simply up to the end of pleadings or some other stage of preparation - whether there is a "two-thirds rule" in respect of the finding of the quantum of security - particular matters affecting the exercise of the discretion involved.
HEARING
SYDNEY
#DATE 28:6:1991
Counsel for the Applicant: Mr G.T. Johnson
Solicitors for the Applicant: Messrs Werry Altobelli
Counsel for the Respondent: Mr N.A. Cotman
Solicitors for the Respondent: Messrs Marshall Marks Kennedy
ORDER
The Court orders that the application made in the respondent's notice of motion be refused with costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
In a notice of motion filed on 30 May 1991, the respondent seeks an order, pursuant to s. 1335 of the Corporations Law, requiring the applicant to give further security for costs. This motion is a fresh step in what has become a procession of applications. Following the institution of the principal proceedings on 10 May 1990, the respondent, at the earliest convenient date, notified the applicant and the court that it sought an order for security for costs. What then occurred is recited by Beaumont J. in his reasons given in a later application to which I shall refer. It is sufficient here to recount that an order for security was made on 28 June 1990, after the submission of short minutes providing for the court to note the agreement of the parties that the applicant would provide security for costs. The short minutes did not, in accordance with a practice which is sometimes followed, contain any indication that the agreed amount of security had been assessed in respect of anything less than the entire course of the action, so far as it could then be foreseen. The order made by the court was likewise unqualified. It was complied with, and the matter proceeded.
In March 1991, when the principal proceedings had been set down for a hearing then estimated to take three days commencing on 5 April 1991, an application for further security for costs came before Beaumont J. His Honour refused that application with costs, for reasons which he published on 22 March 1991. In those reasons, Beaumont J. stated:
"The present application is one not merely for security, but for further security against the background of an earlier agreement on the amount of the security to be provided in respect of the whole proceedings."
On 5 April 1991, the hearing of the principal proceeding commenced before me. Unfortunately, a witness suffered a collapse just before lunchtime, so that the hearing could not immediately proceed, and the matter was stood over to recommence on 19 August 1991, when five days were expected to be available.
On 30 April 1991, there came before me an application, made out of time, for leave to appeal under s. 24(1A) of the Federal Court of Australia Act 1976 in relation to the decision, on the application for further security, which had been made by Beaumont J. I made an order refusing leave with costs.
What the respondent now brings is a fresh motion, in which it contends that the situation has changed since the amount of security was fixed, and also since the decision given by Beaumont J. on 22 March. It is said, whereas the hearing had been anticipated to last three days, it is now common ground that it will probably last five days on top of the part of a day which it has already taken. The argument was put, on behalf of the respondent, as if it were unquestioned fact that the original fixing of an appropriate amount for security for costs was done on the basis the duration of the hearing would be three days. The evidence did not bear out this assumption. The estimate of three days was made at the much later date when the matter was fixed for hearing. It does not follow that the case was thought to be likely to finish so quickly when the security was fixed. At that time, the applicant's case stood pleaded as based on ss. 47, 52, 53(f) and 53(g) of the Trade Practices Act, 1974. There was then no cross-claim. But by the time the matter came before Beaumont J. in March, there had been communications between the parties as a result of which it was to be expected the s. 47 claim would not be pursued. In fact, it was subsequently abandoned. The holding of a view, in March, that the case would be likely to take three days by no means leads to the conclusion that, at an earlier date, the parties were so ill-advised as to think a s. 47 claim could probably be dealt with in such a short time. By March, that claim was about to be abandoned, although it remained on foot.
In fact, since the making of the original order for security, the complexity of the matter has been reduced considerably by the deletion of the s. 47 claim, but on the other hand, a cross-claim has been added which (despite the submission of the respondent to the contrary) would be likely to account for part of the present estimate of the time required for the hearing, while it would not, upon ordinary principles, be a matter calling for any increase in the security.
Beaumont J. rejected the application made to him, after taking into account several considerations which he set out. (I should say, at once, that I respectfully agree, subject to what follows, with his Honour's statement of the law.) In the first place, he was prepared to assume in the respondent's favour that the sum provided might not be adequate to indemnify the respondent in respect of its costs. But he cited authority for the proposition that the court "does not set out to give a complete and certain indemnity" to a respondent: Brundza v. Robbie and Co. (1952) 88 CLR 171 at 175, a decision of Fullagar J., which was followed by Toohey J. in Menhaden Pty Ltd v. Citibank N.A. (1984) 1 FCR 542 at 547; and see also Bryan E. Fencott and Associates Pty Ltd v. Eretta Pty Ltd (1987) 16 FCR 497 at 515. The authority on which Fullagar J. had relied was a decision in which a strong Court of Appeal (Cotton, Fry and Lopes L.JJ.) asserted that "the court never ordered security to be given for such an amount as would entirely cover the costs", but "only ordered security to be given of a reasonable amount". That decision was The Aberdare and Plymouth Co v. Hankey (1888) 32 SJ 644, and in order to illustrate the sense in which the propositions stated in it are to be understood, it is useful to note that the Court of Appeal there, under the particular circumstances, held 200 pounds "would be sufficient" as security for costs sworn to amount to 500 pounds. Beaumont J. referred to an English convention of fixing security at about two-thirds of the party and party costs of the defendant up to the stage in proceedings in respect of which security is ordered. But he also accepted that the matter is ultimately one of discretion. As Fullagar J. said in Brundza at 174: "It is a matter of discretion, involving the weighing of various considerations one against another."
As far as concerns the matter of the conventional fixing of security at about two-thirds of the expected party and party costs, I have been referred to some authorities which do not appear to have been cited to Beaumont J. In Procon (GB) Ltd v. Provincial Building Co Ltd (1984) 2 All ER 368, the Court of Appeal considered a note in the English Supreme Court Practice, 1982 vol. 1 p 440 suggesting such a conventional approach. Cumming-Bruce L.J. concluded (at 375-376) that the court has "an unfettered discretion" and that
"there is no solid reason for a general and arbitrary practice whereby, after estimating party and party costs up to the date of the proceedings for which security is ordered, an arbitrary fraction of one-third is knocked off before the order for security is made. ... On the contrary, ... the principle is this: the security should be such as the court thinks in all the circumstances of the case is just. If security is sought, as it often is, at a very early stage in the proceedings, the court ordering security will be faced with a situation in which a solicitor or his clerk has made an estimate of the costs likely in the future to be incurred; and probably the costs already incurred, or paid, will be a very small fraction of the security that the applicant is seeking. At that stage one of the features of the future of the action which is relevant is the possibility that the action may be settled, perhaps quite soon. In such a situation it may well be sensible to make an arbitrary discount of costs estimated as the probable future costs, but whether one-third is likely in any given case to be a sensible discount, and whether any discount at all should be made, will depend on the view of the court on consideration of all the circumstances."
He went on to say that the note in the Practice was "expressed in too dogmatic and inflexible terms". Griffiths L.J. (at 379) said: "In the normal course of things it is to be expected that the court will, to some extent, discount the figure it is asked to award." He contemplated, in some cases, "discount by as much as one-third", and commented:
"Furthermore, if very little information is put before the court on which it can estimate costs, then again it will be reasonable to make a large discount ... . But, having said that, it would be quite wrong, in order to avoid the mental discipline involved in examining the particular facts of the case to determine what is a just figure, to apply a rule of thumb and just reduce every estimate by one-third to avoid trouble, and if any such practice has been insidiously developing it is, as I say, time that it was stopped."
Procon, as Griffiths L.J. made clear (at 379), was a case where the judge "had the opportunity of looking at the bills". It was a building case involving very large sums already incurred and paid, so that the bills were available to be produced to the court. The primary judge, in those circumstances, had declined to apply the note in the Practice, and the Court of Appeal was dealing with an appeal against his exercise of discretion, which was dismissed. It should also be observed that the foundation case cited by Cumming-Bruce L.J. at 374-375, Dominion Brewery Ltd v. Foster (1897) 77 LT 507, was a case in which, in fact, the Court of Appeal, though without reference to any two-thirds rule, reduced the computed amount of 1,000 pounds to 600 pounds, that is, rather less than two-thirds. Procon has been referred to in two Australian cases: Bruce Pie and Sons Pty Ltd v. Mainwaring (1985) 1 Qd R 401 at 404 and Electrona Carbide Industries Pty Ltd v. The Tasmanian Government Insurance Board (1985) Tas R 68 at 74. In the former case, McPherson J. (at 404) commented concerning Procon: "The decision confirms that the quantum of the security to be provided is a matter for discretion." He reduced the security sought from $95,000 to $80,000, having taken a number of considerations into account. In the latter case, Cox J. (at 71) described the discretion as "an unfettered one". He made an order which provided much less than full indemnity, but allowed for review after ten days of hearing.
The breadth of the discretion of a judge dealing with an application for security for costs has, of course, been repeatedly emphasised: Bell Wholesale Co Ltd v. Gates Export Corporation (1984) 2 FCR 1; Cameron's Unit Services Pty Ltd v. Kevin R. Whelpton and Associates (Australia) Pty Ltd (1986) 13 FCR 46; Bryan E. Fencott and Associates Pty Ltd v. Eretta Pty Ltd (1987) 16 FCR 497 at 515. Consistently with these authorities, I think it remains open to the court to apply a discount of about two-thirds, not because it is a conventional figure to deduct, but because in all the circumstances of the particular case such a discount seems appropriate. In many cases, judges have done so, and this is the origin of the practice which was held in Procon to have been too rigidly stated. The discount may be seen to be appropriate particularly in cases where the chances of settlement, or the possibility that substantial amounts may be taxed off the bill, or the prospect or actuality of off-setting costs orders, may provide a tangible basis for reducing the amount proposed. In making a reduction, apart from some specific matter, the court will bear in mind the view accepted by Fullagar J. that the object is not to set out to give a complete and certain indemnity, but to order security to be given "of a reasonable amount". In Menhaden, Toohey J., expressly basing himself on what Fullagar J. had said in Brundza, ordered security in the sum of $12,000 in respect of costs estimated at $20,000. That, of course, was less than two-thirds, but Toohey J. commented that the estimate had seemed high.
Attention was directed by Beaumont J. to the scope of the action, by comparison with what might reasonably be taken to have been considered as its scope when the security to be given in respect of it was originally fixed. That is a factor which may be weighed in relation to questions of delay: Southern Cross Exploration NL v. Fire and All Risks Insurance Co Ltd (1985) 1 NSWLR 114. It seems to me, for reasons I have already indicated, that this is not a case in which it can possibly be concluded that the parties substantially underestimated the likely duration of the case at the time when the security was fixed. On the other hand, it is plain that the estimate of three days, subsequently given, should have been able to be seen as an underestimate a considerable time ago. The delay which occurred prior to the making of the application to Beaumont J. was relevant upon that application and, insofar as I must look at the whole of the circumstances, is still relevant. Beaumont J. referred to Devenish v. Jewel Food Stores Pty Ltd (1990) 94 ALR 664 at 666. Reference may also be made to Brundza at 175, where Fullagar J. made it clear he regarded a delay of 39 days as "substantial" for the purposes of the rule that "applications for security for costs must be made promptly". In Janus v. A.G.C. Advances Ltd (unreported, 19 October 1988), Pincus J. refused to follow a more lenient view expressed in Bryan E. Fencott and Associates Pty Ltd v. Eretta Pty Ltd at 515, and held there is a "prima facie rule ... that applications for security should be made promptly". With respect, I think this is in accordance with the main stream of authority; it certainly finds support in the cases particularly relied on by Pincus J.: James v. Australia and New Zealand Banking Group Ltd (No. 1) (1985) 9 FCR 442 and Smail v. Burton (1975) VR 776.
One other matter to which Beaumont J. made specific reference was the fact that the amount of the security originally ordered was fixed by agreement, and the order was made by consent. His Honour referred to R D Werner and Co Inc v. Bailey Aluminium Products Pty Ltd (1988) 80 ALR 134. In that case, Woodward and Foster JJ., in their joint judgment (at 139), and Jenkinson J. (at 146), cited the earlier decision of the full court in E.I. Du Pont de Nemours and Co v. Commissioner of Patents (1987) 16 FCR 423. All the judgments in that case declined to treat the fact that an interlocutory order had been made by consent as giving it an immunity from subsequent alteration by the court. However, Sheppard J. (at 424) made it clear that the fact that the order was a consent order was a material matter to be taken into account, and Beaumont J. reiterated this proposition (at 432). In my judgment (at 434-436), I was concerned to maintain the right of the court to keep control over procedural directions, and to assert what I saw as the true construction the contract embodied in a consent to an order of that kind should generally receive, but I did not differ from Sheppard and Beaumont JJ. in treating the fact of consent as material to the exercise of the court's discretion. Indeed, I expressed agreement with the reasons of both of them.
Like Beaumont J., I consider the original agreement here to be a most relevant matter. It was not limited to security up to a particular stage of preparation of the action for hearing. It is true that the hearing is now expected to take longer than was suggested a few months ago, although it is not at all clear that the parties, at a time when s. 47 raised live issues, took the same view. But even if they did, there must be balanced against the extra two and a fraction days a number of other considerations. The applicant now has set-offs, in respect of any liability for costs it may incur, which were not available when the original amount was fixed or when it was reconsidered; orders for costs in the applicant's favour have been made by Beaumont J. on the previous application for further security, and by me on the application for leave to appeal against the decision of Beaumont J. Expensive expert evidence, which almost certainly must have been anticipated, has been rendered unnecessary by the withdrawal of the claim under s. 47. In other words, the changes do not all favour an increase in the amount of security. Furthermore, security was originally ordered at a time when there was no cross-claim. A cross-claim is a material matter to be taken into account. The respondent is itself seeking damages against the applicant and others upon causes of action which may be seen, in some respects, as mirror images of the applicant's cause of action against the respondent. Plainly, the respondent would not have been entitled to an order for security for its costs had it launched independently its claim against the applicant. In some cases, the pursuit of a cross-action may leave a right to security for costs unimpaired. That will generally be because of the nature of the issues raised by each party, and the relationship between those issues. The cross-claimant may remain truly a defendant in the whole proceeding. But in this case, even when raised as a cross-action, the claim made against the applicant is a quite distinct claim "in the nature of a new action": per Cotton L.J. in Winterfield v. Bradnum (1878) 3 QBD 324 at 326, agreeing with Brett L.J. (as Lord Esher then was). Although action and cross-action arise out of the same transactions, the cross-action is not raised as a shield against the applicant's claim. It asserts a claim by the respondent that could, in practical terms, only succeed if the applicant substantially failed, as well as claims against cross-respondents who are not applicants. The respondent is seeking to establish its own independent claims to awards of damages. In my opinion, a just exercise of discretion would take this factor into account, as well as all the circumstances of the litigation.
Furthermore, the circumstances of the litigation, if the agreement was indeed for a lower amount than might otherwise have been expected, may well provide the explanation. Counsel for the applicant referred me to Amalgamated Mining Services Pty Ltd v. Warman International Ltd (1988) 19 FCR 324. The parties may have considered there was a serious question whether the respondent should be regarded as the true aggressor in the present litigious conflict, within the meaning of the principle there discussed. The contrary has not been shown. In my opinion, the onus is on the respondent, which seeks to disturb a consent order, to show, not merely a change of circumstances, but a change that should fairly lead to an alteration of the consent order. If it is left open that the order may have represented a compromise upon the issue raised by Amalgamated Mining Services, at least as a matter of discretion, such a case may not be made out. The prospective magnitude of a s. 47 claim certainly suggests the agreed sum was a compromise.
There is yet another complicating factor which may have led to compromise. The case, as it has developed before me, might have been seen at its inception as one where the financial prospects of the applicant were choked off by the very actions of the respondent the rightness or wrongness of which defines the dispute. This consideration would militate against the requirement of security for costs: Bruce Pie and Sons Pty Ltd v. Mainwaring (1985) 1 Qd R 401 at 405.
Although abandonment of the s. 47 claim was under consideration at the time when the matter came before Beaumont J., it was only finally abandoned subsequently. Its abandonment involved a significant reduction in the potential cost of the action. Each of the matters taken into account by Beaumont J. is still applicable, while it is also true that if the extra two and a fraction days of hearing were the only change, it would not follow that a different result should be reached. Taking all the circumstances into account, I am not satisfied that I should exercise my discretion to vary the order for security which has been made. Although I have been influenced by the general considerations to which I have referred, I should add that the evidence proffered by the respondent in respect of the anticipated costs to be incurred in connection with the hearing was not persuasive. Under cross-examination, a number of areas where it could not be accepted were exposed. I think the views of the Deputy Registrar who considered the matter at the stage when it was before Beaumont J. are more reliable.
For these reasons, the application is dismissed with costs.
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