Silverstone Holdings Pty Ltd v American Home Assurance Co

[2003] WASC 139

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   SILVERSTONE HOLDINGS PTY LTD -v- AMERICAN HOME ASSURANCE CO [2003] WASC 139

CORAM:   MASTER NEWNES

HEARD:   21 JULY 2003

DELIVERED          :   6 AUGUST 2003

FILE NO/S:   CIV 1371 of 1993

BETWEEN:   SILVERSTONE HOLDINGS PTY LTD

Plaintiff

AND

AMERICAN HOME ASSURANCE CO
Defendant

Catchwords:

Practice and procedure - Application for additional security for costs - Plaintiff trustee - Delay in application - Applicant insurer - Relevant principles - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 1335

Rules of the Supreme Court, O 25 r 1

Supreme Court Act1935 (WA), s 32

Result:

Additional security ordered

Category:    B

Representation:

Counsel:

Plaintiff:     Mr T Mijatovic

Defendant:     Mr G I Macnish

Solicitors:

Plaintiff:     TRM Legal Services

Defendant:     Cocks Macnish

Case(s) referred to in judgment(s):

Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1

BPM Pty Ltd v HPM Pty Ltd, unreported; FCt SCt of WA; Library No 960206; 17 April 1996

Frankston Ambassador Pty Ltd v Cigna Insurance Australia Ltd (1991) 9 ACLC 790

Irwin Alsop Services Pty Ltd & Anor v Mercantile Mutual Insurance Co Ltd & Ors [1986] VR 61

Maidstone Pace Health Club Pty Ltd v GRE Insurance Ltd (1990) 8 ACLC 386

New Zealand Pelt Export Co Ltd v Trade Indemnity New Zealand Ltd, unreported; SCt of Vic (Warren J); 19 February 2001

Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1

Prime Forme Cutting Pty Ltd & Ors v Baltica General Insurance Co & Anor (1990) 8 ACLC 29

Quichorn Pty Ltd (trading as Heidelberg Hotel) v Broad & Anor; unreported; SCt of Vic (Hayne J); 24 January 1994

Re Pavelic Investments Pty Ltd (1983) 1 ACLC 1207

Rickard Construction Pty Ltd (Administrator Appointed) v Bonacci Rickard (NSW) Pty Ltd [2000] NSWSC 1124

Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467

Tenth Anemot Pty Ltd v Colonial Mutual General Insurance Co Ltd [1993] 2 VR 48

Case(s) also cited:

Birch Investments Pty Ltd v Lim, unreported; SCt of WA; Library No 7396; 12 July 1988

Black v Eastern Goldfields Mining Co Pty Ltd, unreported; FCt SCt of WA; Library No 930039; 16 December 1992

Brown v Haig [1905] 2 Ch 379

Brundza v Robbie & Co (No 2) (1953) 88 CLR 171

Deltrend Pty Ltd (t/as Computable Technology) v AST Australia Pty Ltd (t/as ACS Computers) (1995) 16 ACSR 762

Foss Export Agency Pty Ltd v Trotman (1949) 79 WN(NSW) 1

Harpur v Ariadne Australia Ltd [1984] 2 Qd R 523

HP Holt Ltd v Chateau Hotels [1980] CLC 40-426

Imperial Bank of China, India and Japan v Bank of Hindustan, China and Japan (1866) 1 Ch App 437

Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440

Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621

Jennings Ltd v Cole (In Vol Liq) [1934] NZLR 55

Marrick Production Pty Ltd v Traders of Aust Ltd [1959] QWN 11

MA Productions Pty Ltd v Austarama Television Pty Ltd (1982) 7 ACLR 97

Newtons Travel Services Pty Ltd v Ansett Transport Industries (Operations) Pty Ltd (1982) 44 ALR 163

Prime Holdings Pty Ltd v Kanemaru (1992) 7 WAR 308

Procon (GB) Ltd v Provincial Building Co Ltd [1984] 2 All ER 368

Re J (An Infant) [1960] 1 All ER 603

Re JL Young Manufacturing Co Ltd; Young v JL Young Manufacturing Co Ltd [1900] 2 Ch 753

Re Strand Wood Co Ltd [1904] 2 Ch 1

REMM Construction (SA)Pty Ltd v Allco Newsteel Pty Ltd (1992) 57 SASR 180

Sarac v Croatian House Hrvatski Dom (Inc), unreported; FCt SCt of WA; Library No 950675; 12 December 1995

Savings & Investment Bank Ltd v Gasco Investments (Netherlands) BV [1984] 1 All ER 296

Silverstone Holdings Pty Ltd (as Trustee for Devereax Property Trust) v American Home Assurance Co (1997) 18 WAR 516

Southern Cross Exploration NL v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114

Warren Mitchell Pty Ltd v Australian Maritime Officers' Union & Ors (1993) 12 ACSR 1

Westralian Gold Mines Ltd v Westralian Minerals and Drilling Pty Ltd (In Liquidation) (1986) 4 ACLC 167

WH Humphries Nominees Pty Ltd v Commissioner of Main Roads (1991) 4 ACSR 729

Yandill Holdings Pty Ltd v Insurance Company of North America (1985) 3 ACLC 542

Zortec Australia Pty Ltd & Anor v R & I Bank of Western Australia, unreported; FCt SCt of WA (Murray J); Library No 920609; 13 August 1992

1. MASTER NEWNES:  This is an application by the defendant for additional security for costs, an order for security for costs having originally been made by Master Bredmeyer on 14 July 1994.  On that occasion it was ordered that the then plaintiff, Misty Isle Nominees Pty Ltd ("Misty Isle"), provide security for costs by payment into court of $20,000 within 28 days and a further $30,000 upon entry for trial.  The defendant says the latter amount is now inadequate in light of the magnitude and complexity that the action has since assumed. 

2. The application is brought pursuant to s 1335 of the Corporations Act2001 (Cth) and O 25 r 1 of the Rules of the Supreme Court. The focus, however, was on s 1335.

3. In this action, the plaintiff sues in its capacity as trustee of the Devereux Family Trust ("Family Trust") and as trustee of the Devereux Property Trust ("Property Trust") respectively.  It claims pursuant to an Industrial Special Risks insurance policy made between the plaintiff and the defendant in September 1986.  At that time, the plaintiff, as trustee of the Property Trust, owned a factory building at 10 Vulcan Road, Canning Vale, which it leased to Misty Isle.  Misty Isle was then the trustee of the Family Trust.  Misty Isle went into liquidation on 4 November 1987 and the plaintiff became the trustee of the Family Trust from that date. 

4. On 20 April 1987, the building and its contents were destroyed by fire. It is common ground that the fire was deliberately started by one John Devereux, who at the time was a director of both the plaintiff and Misty Isle. A claim was made under the policy on behalf of both Trusts. The defendant denied that it was liable under the policy, relying on a provision that excluded liability for damage caused by the dishonest act of the insured or its employee. This action was then brought in which the plaintiff claims the sum of $1,175,012, as trustee of the Family Trust, in respect of the contents of the building, and $362,988, as trustee of the Property Trust, in respect of the cost of reinstating the buildings, a total of $1,538,000. The plaintiff also claims interest. If it is successful in the action, bearing in mind that the relevant events occurred in 1986, the interest will be more than the principal sum. There is a dispute between the parties as to the amount of the interest. The plaintiff claims that interest would amount to $5,000,000, calculated on the basis that the interest under s 32 of the Supreme Court Act1935 would be at a compound rate.  The defendant says that interest would be simple interest and would be in the order of $2,167,000.  On either view, the claim is a substantial one. 

5. As I have mentioned, on 14 July 1984 Master Bredmeyer, on the defendant's application, ordered that the then plaintiff, Misty Isle, provide security for costs by way of a payment into court of $20,000 within 28 days and a further $30,000 upon entry for trial. 

6. The defendant seeks an order that the payment into Court on entry for trial be increased from $30,000 to $141,600.  That would mean that the total amount provided by the plaintiff by way of security for the costs of the action would be $161,600.  That figure is based on a draft bill of costs prepared by the defendant's solicitors in which they calculate that the defendant's total taxed costs after trial will be an amount of $161,601.91.

7. The defendant says that it has become evident since the original order for security for costs was made that the magnitude and complexity of the matter is much greater than was thought at that time, so that, for example, the trial that was then expected to take three days is now estimated to take 10 days.

8. I should say at the outset that I am satisfied that, as the matter now stands, the costs of the action for each party will greatly exceed those envisaged at the time that the original order for security for costs was made and that the amount then ordered would not now provide adequate security for the defendant.  The issue is whether additional security should be ordered.

9. The plaintiff contended that the considerations that are relevant on an original application for security for costs are applicable on this application.  It was contended that no different considerations apply where the application is to increase the amount of the security.  The defendant, on the other hand, submitted that the only issue on this application was whether the amount originally ordered remained adequate or whether circumstances had so changed that it was now inadequate.

10. In normal circumstances there would be much to be said for the defendant's approach.  However, in light of the fact that the original order was made some nine years ago, and given the magnitude of the amount now claimed by way of increase, I consider it appropriate to have regard to the same considerations that would apply if it were an original application.

11. There are two issues on an application under s 1335 of the Corporations Act:  first, whether it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay the defendant's costs if the defendant is successful; and secondly, if so, whether the Court in its discretion should make an order for security for costs. 

12. It is only if the first question is answered in the defendant's favour that the Court's discretion is enlivened.  Once enlivened, the discretion is unfettered. 

13. It is not in issue that the plaintiff is not carrying on business and has not carried on any business for many years.  It was deregistered from the Companies Register on 18 December 1991 for failure to file annual returns from 1985.  It was reinstated to the Register on 20 April 1993 for the sole purposes of conducting this action.  It has an issued capital of two shares of $1 each. 

14. The plaintiff has, however, filed an affidavit of a director of the plaintiff, Matthew Edward Levi, sworn on 26 March 2003, in which Mr Levi says that the plaintiff is solvent and that its assets substantially exceed its liabilities.  But it is not entirely clear from the affidavit what assets the plaintiff actually has.  In his affidavit Mr Levi says that, apart from the $30,000 which is held for payment of the next instalment of the security for costs already ordered, there is first, an amount of $17,000 ordered to be paid to it by other parties in separate litigation, secondly, the plaintiff's claim against Misty Isle (which is in liquidation) for rent, outgoings and other items (albeit the claim is not quantified in the affidavit) and thirdly, "its claim as trustee of the Devereux Family Trust of $159,802 for its portion of the claim against the defendant". 

15. Mr Levi says the plaintiff has no debts, apart from legal costs incurred in the prosecution of this action and those are all deferred until after the resolution of the action.  He says that the plaintiff's directors, creditors and others have paid in full all of the disbursements, copying fees and barristers' fees incurred since the commencement of the action.  It appears that they are providing the funds for the prosecution of the action.

16. It would appear then that, at best, the total of the funds that would be available to meet any order for costs against the plaintiff would be limited to $47,000, plus the $20,000 previously paid into court.  That is on the assumption that none of those funds are used in the meantime to meet the plaintiff's own costs and disbursements in the action, which Mr Levi has estimated will total some $650,000 by the end of the trial.

17. In the circumstances, I am satisfied that there is credible evidence which gives reason to believe the plaintiff will be unable to pay the defendant's costs if an order for costs is made in the defendant's favour at trial.

18. It is necessary then to turn to the question of whether, in my discretion, I should order that additional security for costs be provided.

19. The fact that there is good reason to believe the plaintiff will be unable to pay the defendant's costs is, of itself, a consideration of great weight in the exercise of the discretion:  BPM Pty Ltd v HPM Pty Ltd, unreported; FCt SCt of WA; Library No 960206; 17 April 1996; Rosenfield Nominees Pty Ltd v Bain & Co (1988) 14 ACLR 467 at 470. It is not, however, necessarily decisive and in the end the discretion must be exercised having regard to all the circumstances of the case.

20. The plaintiff says there are several reasons why the current application should be refused.  The first is delay.  The plaintiff says the first notice it received that the defendant sought additional security for costs was in about November 2002, some eight and a half years after the original order for security for costs was made.  Moreover, that was despite the fact that by letter of 12 March 2002 the plaintiff's solicitors had informed the defendant's solicitors of their intention to enter the matter for trial within seven days.  In fact, that letter led to a chain of correspondence between the respective solicitors for the parties from March to December 2002 regarding the adequacy of the certificate of readiness and the Papers for the Judge, as well as questions as to whether there were further interlocutory matters which needed to be dealt with before the matter was entered for trial.  

21. The plaintiff says that the delay in making the application has not been adequately explained and the delay is fatal to the application.  The plaintiff complains that the lateness of this application is consistent with the approach the defendant has taken throughout the proceedings, in which it has caused unnecessary delay by the manner it has approached a number of interlocutory steps.  Counsel for the plaintiff said that this application was made only when it appeared that the plaintiff was ready to enter the action for trial.

22. The defendant, on the other hand, denies the allegations of delay on its part and points out that the proceedings were first commenced by the plaintiff in April 1993, some six years after the cause of action allegedly accrued, and that the plaintiff did not file a statement of claim until 24 February 1994, a further period of some nine months.  It says the most recent application by the plaintiff to re-amend the statement of claim was made on 6 April 1999.  The plaintiff filed its reply and defence to counterclaim on 4 August 1999.  The defendant also points to a number of other periods of substantial delay in the proceedings, which it says were caused by the plaintiff, including the period between June 2000 and March 2002, in which, it says, the plaintiff took no substantive steps to progress the action.

23. The defendant denies that there has been unreasonable delay in bringing this application.  According to the defendant, a number of interlocutory matters remain outstanding in the action, including the provision by the plaintiff of the substance of its expert evidence, orders for the exchange of expert evidence, corrected Papers for the Judge and a corrected certificate of readiness.  It says that it did not bring this application until December 2002 because it was not until then that the plaintiff's solicitors appeared to be almost in a position to enter the matter for trial.  It also says that up to that time negotiations regarding possible agreement on the quantum of the claim had still not been finalised and, in view of that, and the absence of the plaintiff's expert evidence, the defendant was not able to reach a final decision on the likely costs of preparing for trial or the likely length of the trial.  Counsel for the defendant submitted that it had always been open to the plaintiff to enter the action for trial as soon as it was ready to do so and the defendant had not been prevented the action being entered for trial.  He observed that even as at the date of this hearing, 21 July 2003, the plaintiff had still not entered the action for trial.

24. I do not regard the plaintiff's explanation for the delay as satisfactory. Allegations of delay by a party cannot, of course, be considered in isolation but must be viewed in the context of the manner in which both parties have approached the litigation.  In this case there has been delay on both sides.  But even in that context, in my view there was undue delay by the defendant in bringing this application.  It knew from at least March 2002 that the plaintiff wished, and intended, to enter the action for trial as soon as possible.  It appears the only reason the plaintiff did not enter it was that its solicitors experienced considerable difficulties in getting the necessary papers into the proper form and because the defendant's solicitors contended there were still some matters to be attended to before the action could be entered for trial.  As I have said, that was the subject of correspondence between the solicitors for the parties stretching over the period from March to December 2002.

25. Moreover, even before March 2002 it must have been apparent to the plaintiff that the scope and costs of the proceedings would greatly exceed that which was envisaged when the original order for security for costs was made in 1994.  Yet it was not until about November 2002 that the defendant first gave notice that it would be seeking an increased amount by way of security for costs.  At no stage prior to November 2002 was any intimation given that additional security would be sought. 

26. However, while delay is a significant factor in the exercise of my discretion, it must be viewed in the light of any prejudice it has caused to the plaintiff and in the context of the circumstances of the case.  In the present case there is no evidence of any real prejudice to the plaintiff.  It has not, for instance, been suggested that the plaintiff would have done anything differently had an application been made earlier and, given the amount in issue and the capacities in which the plaintiff brings this action, it is not easy to see why the plaintiff would have taken any significantly different course.  There is no evidence that time has been expended or costs have been incurred which would not have been expended or incurred had the plaintiff had earlier notice of this application. 

27. The plaintiff's next contention is that the defendant has caused its current financial plight.  It argued, in effect, that it would be unjust to order security to be provided when the plaintiff's financial circumstances have been brought about by the conduct of the defendant. 

28. There is, however, an onus on the plaintiff to adduce evidence that the defendant is to blame for the plaintiff's lack of means:  Newtrend Pty Ltd v Oceanic Life Ltd [1990] WAR 1 at 3; BPM Pty Ltd v HPM Pty Ltd op cit at 13. 

29. I consider the material before me falls well short of discharging that evidentiary onus.  In his affidavit, Mr Levi merely asserts it to be the case that the defendant is the cause of the plaintiff's lack of means.  He simply says that the failure of the defendant to pay the claim meant that Misty Isle could not pay its debts and was wound up.  He also asserts that the defendant has caused any impecuniosity of the plaintiff by causing it to incur unnecessary costs in the prosecution of its claim.  It is difficult, however, to reconcile the last assertion with the statement elsewhere in Mr Levi's affidavit that the amounts which have been paid to date have been paid by creditors and other third parties, and that the costs of the action have been deferred. 

30. In any event, there is no evidence of the financial position of the plaintiff or Misty Isle before the defendant declined to pay the claim nor any other acceptable evidence which demonstrates that the current financial plight of this plaintiff is to be laid at the defendant's door.

1. Thirdly, the plaintiff says that it would be inappropriate to make an order for further security for costs in view of the high prospects of success that the plaintiff has in the action.

2. I do not consider that, on the material before me, I am in a position to reach any firm conclusion on the strength of the plaintiff's case.  The defendant, in essence, relies upon a provision of the policy which provides that the defendant will not be liable in respect of physical loss, destruction or damage directly or indirectly caused or arising out of any dishonest act on the part of the plaintiff or Misty Isle, or any employee of the plaintiff or Misty Isle.  At the time of the fire, Mr Devereux was a director of both companies.  He was subsequently convicted on his own plea of arson in connection with the fire.  The defendant says that the provision to which I have referred applies and it is not liable under the policy.  It contends that at the relevant time Mr Devereux was a director and employee of each company and, in each case, its guiding mind and will.  The plaintiff contends that, in respect of both Misty Isle and the plaintiff, Mr Devereux was not the guiding mind and will, nor was he an employee, of either company.  There are, in addition, issues as to the value of the property destroyed.

3. I do not think the merits of the case can weigh significantly in the balance, one way or the other.

4. Next, the plaintiff says that if security for costs in the amount claimed were ordered it would frustrate the action, as the plaintiff would not be able to provide the security out of the funds in its possession.  In his affidavit Mr Levi says the plaintiff has not sought further contributions from creditors or the Levi family to proceed to trial, as the action has been prepared for trial for the last 18 months and there had been no suggestion that further security for costs would be sought.  He says the plaintiff is not in a position, without the injection of further funds from creditors or the Levi family, to make such a payment into court.  He does not, however, say that such an injection of funds could not be obtained if sought.

5. In Bell Wholesale Co Pty Ltd v Gates Export Corporation (1984) 2 FCR 1, the Full Court of the Federal Court said:

   "In our opinion a court is not justified in declining to order security on the ground that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means.  It is not for the party seeking security to raise the matter; it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of security will frustrate the litigation to raise the issue of the impecuniosity of those whom the litigation will benefit and to prove the necessary facts."

6. See also Newtrend Pty Ltd v Oceanic Life Ltd op cit at 3; BMP Pty Ltd v HPM Pty Ltd op cit at 12.

7. There is no evidence of the identity or financial circumstances of the current beneficiaries of either Trust, nor of the creditors referred to by Mr Levi.  Mr Levi says in his affidavit that he and his mother, who are the directors of the plaintiff, have assets in excess of $4,000,000 and an income in excess of $150,000 per annum.  What, if any, interest Mr Levi and his mother have in the outcome of the litigation remains unexplained.  It appears, however, that members of the Levi family, presumably in their own interests, have previously provided funds for this action. 

8. There is, therefore, no evidence that those who stand behind the plaintiff, and who would stand to gain from the litigation if it were successful, do not have the capacity to meet an order for security for costs.  I am not therefore satisfied that the effect of an order for security for costs would be to frustrate the plaintiff's claim.

9. The plaintiff also contended that it was a relevant factor on this application that the defendant was an insurance company and that it was associated in some way with American International Group Inc. ("AIG"), a very large multinational insurer with offices around the world and immense financial resources.  The nature of the connection between the defendant and AIG was not established and, in the end, I do not consider that that connection, whatever it might be, is necessary to the plaintiff's submission.  That submission was, in essence, that where an insured sues an insurer for indemnity under a policy of insurance it is not appropriate to order the insured to provide security for the insurer's costs.

10. In Irwin Alsop Services Pty Ltd & Anor v Mercantile Mutual Insurance Co Ltd & Ors [1986] VR 61, the plaintiffs had taken out professional indemnity insurance policies with the defendants. Allegations were made against the plaintiffs by third parties that the plaintiffs had been negligent in their work as architects and engineers. The plaintiffs sought declarations that the defendants were liable to indemnify them in respect of any claims made by the third parties. The defendants applied for security for costs. The application was dismissed. Ormiston J said (at 65):

    " … Does the need for protection really arise in the present case?  No doubt even large defendants have a right to security in appropriate cases, but the defendants in the present case are two pools of insurance, one consisting of five companies and the other consisting of three insurers, including the Underwriters of Lloyds of London.  They are pre‑eminently loss bearing and loss sharing entities whose raison d'etre is their ability to shoulder the losses of others albeit on a commercial basis. …  The cost of inquiring into claims under policies is a day‑to‑day business expense of insurers, whether or not they pay on those policies.  Where there is no dispute as to the existence of a policy, as in the present case, then although that expense may be compounded by litigation, it will ordinarily be a continuation of the same exercise.  The expense of litigation is usually a burden of an exceptional kind for a defendant, but that cannot be said of these defendants, or indeed of any authorised insurers.  I believe the remedy given under section 533 [of the Companies (Victoria) Code] is designed to protect those who cannot adequately protect and cover themselves against the costs of litigation …

    In my opinion … it is not ordinarily appropriate to grant security for costs in favour of an insurer defendant, certainly where the existence of a relevant policy is not in dispute."

11. In Prime Forme Cutting Pty Ltd & Ors v Baltica General Insurance Co & Anor (1990) 8 ACLC 29, Brooking J did not accept that proposition. At page 32 his Honour said:

    "In a sense insurers are, as Ormiston J said, loss-bearing and loss-sharing entities, whose raison d'etre is their ability to shoulder the losses of others.  But (as his Honour's additional words, 'albeit on a commercial basis', recognise) they are, like other companies in the business world, in business to make a profit.  In the consideration of whether insurers stand in need of 'financial protection against companies taking advantage of limited resources to create a financial hazard for a successful defendant' it seems to me that the fact that the defendant is a very substantial company, in business as an insurer and accustomed to spread the risk by means of reinsurance and other arrangements, is not to the point.  It is true that, as Ormiston J. observed, the cost of enquiring into claims is a day-to-day business expense of insurers, whether they meet the claims or not.  But to go on and treat the cost of litigation as a mere extension of the cost of enquiring into claims and to say in effect that it is not unfair to expect an insurer to bear, in the event of the plaintiff's insolvency, its own costs of defending an action does not, with respect, seem to me to be right.  I do not think that sec. 533(1) should be viewed as a provision 'designed to protect those who cannot adequately protect and cover themselves against the costs of litigation'.  I believe that the remedy given by the section is designed simply to protect defendants sued by insolvent companies against the risk that an order for costs in their favour will be fruitless.  Of course a number of considerations may affect the exercise of the discretion, but I believe that the object of the section is not to be confined in the manner suggested.  If there is to be, so to speak, a general exclusion of insurers from the benefit of the section and the subparagraph in question of the rules of court, I do not see why similar considerations should not lead to the exclusion in general of other classes of defendant."

12. Brooking J then went on to give examples of other classes of defendant which, he said, might be regarded as peculiarly liable to be sued, including banks and other financial institutions, public authorities, newspapers and construction companies. 

13. In Frankston Ambassador Pty Ltd v Cigna Insurance Australia Ltd(1991) 9 ACLC 790, Beech J preferred the view expressed by Brooking J in the Prime FormeCutting case to the view expressed by Ormiston J in Irwin Alsop and also to the view Beech J had himself earlier expressed (following Irwin Alsop) in Maidstone Pace Health Club Pty Ltd v GRE Insurance Ltd (1990) 8 ACLC 386. In Frankston Ambassador, Beech J said (at 794):

    "Whilst the fact that a defendant is an insurer may be a matter to be taken into consideration when determining whether or not to make the orders sought, the fact that a defendant is an insurer cannot of itself be sufficient to debar it from obtaining an order for security for costs in an appropriate case."

14. In Tenth Anemot Pty Ltd v Colonial Mutual General Insurance Co Ltd [1993] 2 VR 48, McDonald J, having said that he preferred the views of Brooking J in Prime Forme Cutting, considered that the fact that a party seeking an order for security for costs is an insurer, and that such a party is resisting a claim under a contract of insurance voluntarily entered into by it with a proprietary company, are matters relevant for the Court to have regard to in the exercise of its discretion on an application for security for costs. 

15. In Quichorn Pty Ltd (trading as Heidelberg Hotel) v Broad & Anor; unreported; SCt of Vic (Hayne J); 24 January 1994, Hayne J considered that the fact that an applicant for security for costs is an insurer, and that it is resisting a claim under a contract of insurance which it voluntarily entered into, are matters that may be taken into account in the exercise of the discretion whether to order security, but there is no general predisposition against the granting of security to insurers and the question is always one of the exercise of an unfettered discretion.  The decision in New Zealand Pelt Export Co Ltd v Trade Indemnity New Zealand Ltd, unreported; SCt of Vic (Warren J); 19 February 2001, is to a similar effect.

16. It is also my respectful view that the views of Brooking J in Prime Forme Cutting are to be preferred to those of Ormiston J in Irwin Alsop.  I do not therefore accept that the defendant should be denied security because it is an insurer.  Nor do I consider that there is any predisposition against the granting of security to the defendant because it is an insurer.  At most, the circumstance that the defendant is an insurer which has voluntarily entered into the contract of insurance with the plaintiff on which the plaintiff sues is simply a factor to be taken into account in the exercise of the discretion. 

17. The fact that the defendant may have the capacity to absorb its own costs of the litigation by reason of its financial position is not, however, a relevant consideration on an application of this sort, whether the defendant be an insurer or otherwise:  Rickard Construction Pty Ltd (Administrator Appointed) v Bonacci Rickard (NSW) Pty Ltd [2000] NSWSC 1124 at [27].

18. The plaintiff also contended that it was a relevant consideration that the plaintiff had given an undertaking that, if the plaintiff were successful in the action, it would pay to the liquidator of Misty Isle sufficient funds to enable the liquidator to pay in full the debts incurred by Misty Isle while it acted as trustee of the Devereux Family Trust.  Counsel for the plaintiff argued that the plaintiff was therefore also performing a public function and the practice that security will not ordinarily be ordered against a liquidator should be applied.  He referred to Re Pavelic Investments Pty Ltd (1983) 1 ACLC 1207 per Blackburn J at 1207 ‑ 1208.

19. I do not consider that the practice in relation to liquidators should be applied in the present case.  In the first place, this action is not brought by a liquidator.  In the second place, there is no evidence of the amount of the debts of Misty Isle to such creditors, so the extent to which the amount of the claim was affected by the undertaking remained undisclosed.  As Blackburn J explained in Re Pavelic Investments Pty Ltd, the rationale for the rule in relation to liquidators is partly that the liquidator performs a public function on behalf of all the creditors and contributories of the company and partly that it is within the power of the Court in an appropriate case to award costs against the liquidator personally.  That rationale is not applicable to the present case.

20. The question then is whether or not, on balance, it is in the interests of justice that the plaintiff be required to provide an additional amount by way of security for costs. 

21. There has, I think, been unnecessary delay by the defendant in bringing this application.  On the other hand, as I have said, the plaintiff has not sought to establish that it has suffered any significant prejudice by reason of the delay and no such prejudice is apparent.

22. On the other side of the scale, it is an important consideration that the plaintiff brings this action, not for its own benefit, but for the benefit of those who stand behind the company, namely the creditors and the beneficiaries of the Trust, at least some of whom have provided funds to enable the plaintiff to prosecute the action but none of whom apparently has indicated any willingness to proffer any contribution by way of additional security for costs.

23. In the circumstances, I consider that this is an appropriate case for the plaintiff to be required to provide an additional amount by way of security for costs.

24. That leaves the issue of the amount that the plaintiff should be required to provide.  The plaintiff takes issue with the amount claimed by the defendant.  It is submitted that the draft bill of costs totalling $161,601.90 is based upon an assumption that the defendant will obtain an order for solicitor‑client costs, with a certificate for second counsel, for all of the hearings in the course of the proceedings.  Counsel for the plaintiff contended that on a party‑party basis the defendant would be entitled to costs in the order of $50,000 to $60,000 if successful at trial.  He also submitted that the defendant's substantial delays in the course of the action will lead to the result that the defendant will not obtain a costs order in its favour even if it is successful at trial. 

25. I might observe in passing that the plaintiff's criticisms of the amount of the defendant's draft bill appear to sit a little oddly with the assertion by Mr Levi in his affidavit that, if the plaintiff is successful at trial, it will be entitled to costs on a solicitor‑client basis in an amount of $650,000 - albeit, it is difficult to comprehend how costs of that magnitude could be incurred for a 10‑day trial of this nature. 

26. Nevertheless, I would not be prepared to order security in the amount claimed.  In my view a reasonable amount, in addition to the $30,000 previously ordered to be paid into Court on entry for trial, would be $70,000.  That will provide a total amount by way of security, including the sum of $20,000 previously paid into Court, of $120,000.