The Shed People Pty Ltd (in Liquidation) ACN 008 189 188 v Turner & Ors No. Scciv-99-89

THE SHED PEOPLE PTY LTD v TURNER & ORS
[2003] SASC 404

SULAN J: This is an appeal from an order of a Master of this court made on 26 November 2001 in the following terms:
“1That unless and until the plaintiff provides a form of security to the value of $30,000 in respect of the defendant’s costs, this action be stayed.
2The security to be provided in a form acceptable to the Court and to the defendants.
3The plaintiff to pay the defendants’ costs of the application and order.
4I certify fit for senior counsel.”
Background
The appellant, The Shed People Pty Ltd (In liquidation) is the plaintiff. The defendants, the respondents to this appeal, are Frederick Mark Boyd Turner, Frederick William Nitschke, Phillip George Scales Pty Ltd, David J Hart Pty Ltd and Alfio Macolino Pty Ltd. The appellant carried on a business of the sale and installation of sheds for industrial, rural and domestic use.
On 10 December 1997, by an order of the Supreme Court of South Australia, Bruce James Carter was appointed provisional liquidator of the appellant. On 3 February 1998, by an order of this court, the appellant was wound up on the ground of insolvency and Bruce James Carter was appointed liquidator.
At all material times, Phillip George Scales was a director of Phillip George Scales Pty Ltd, David J Hart was a director of David J Hart Pty Ltd and Alfio Macolino was a director of Alfio Macolino Pty Ltd. Messrs Turner, Nitschke, Scales, Hart and Macolino are solicitors. The firm name under which they practice is Scales and Partners. The proprietors of the firm are the respondents.
On 28 January 1999, the appellant commenced an action in the Supreme Court of South Australia against the respondents. The action arises from the preparation of an agreement. The appellant alleges that the respondents aided, abetted, counselled, procured or were knowingly concerned in a contravention of s 205 of the Corporations Law which prohibits a company providing financial assistance for the purchase of its own shares. The appellant seeks damages from the respondents as a result of that contravention. The appellant claims that its solicitors, the respondents, were negligent in the preparation of the agreement. The appellant alleges that it sustained a loss of $387,166.55 and seeks to recover that loss. The respondents have denied liability. The fourth respondent, David J Hart Pty Ltd, is separately represented.
Application for security for costs
On 13 September 2001, the fourth respondent sought an order for security for costs. On 14 September 2001, the first, second, third and fifth respondents sought a similar order. Both applications were brought pursuant to s 1335(1) of the Corporations Act 2001 and Rule 100.01 of the Supreme Court Rules. Section 1335(1) states:
“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.”
Rule 100.01 of the Supreme Court Rules states:
“The Court may order security for costs to be furnished:
(a)where the plaintiff is a mere nominal plaintiff and is in a condition of poverty or insolvency;
(b)where the plaintiff is ordinarily resident out of the jurisdiction;
(c)where the residence of the plaintiff is incorrectly stated in the summons with an intention to deceive;
(d)in circumstances authorised by any statute;
(e)where for special circumstances the justice of the case so requires.”
On 26 November 2001, a Master ordered that the appellant provide a form of security to the value of $30,000 in respect of the respondents’ costs. The Master accepted that, pursuant to s 1335(1) of the Corporations Act, the fact that the appellant was wound up in insolvency was credible evidence that the appellant was unable to meet the respondents’ costs if unsuccessful in the action. The Master made reference to the fact that the liquidator was funded for the purpose of the action pursuant to an agreement with Royal and Sun Alliance Insurance Australia Limited and Lumley General Insurance Limited (“underwriters”), referred to as the Insolvency Litigation Insurance Agreement, (“ILIA”). He considered that because the respondents are not a party to the Agreement, and by operation of clause 4.1 of the Agreement, which authorises the underwriters to cease funding the proceedings when they form the view that there are not reasonable prospects of success, if the respondents were successful, they may be left to bear their own costs. The Master determined that where there are two substantial insurance bodies standing behind the appellant, who stand to gain 30 per cent of any amount recovered against the respondents, then there is no reason why the appellant should not be required to provide security for costs, even if the appellant is itself impecunious. I shall refer to the terms of the ILIA in more detail later in these reasons.
Background to the appeal
On 3 December 2001, the appellant filed a notice of appeal against the decision of the Master. On 17 December 2001, the fourth respondent filed a notice of cross-appeal against the Master’s decision in which it contended that the value of the security ordered was inadequate. On 18 December 2001, the first, second, third and fifth respondents made a similar application. The appeal and cross-appeal was first heard by Wicks J on 13 March 2002. Upon his retirement and before he had delivered judgement, the appeal was referred to Lander J. By agreement of the parties, Lander J was to consider the submissions put to Wicks J, without further oral argument. Before he had delivered judgment, Lander J was appointed to the Federal Court. The matter was then transferred to me.
Application to receive the undertaking
On 28 August 2003, the appellant made an application for specific directions. At that hearing, undertakings of Mr Bruce Carter, the liquidator, were proffered in the following terms:
“1That the liquidator undertakes to notify the defendants in writing within 24 hours of notice of termination of the Insolvency Litigation Insurance Agreement; and
2That the liquidator undertakes to make a claim under the Insolvency Litigation Insurance Agreement in respect of any cost orders in the defendants’ favour.”
The respondents opposed the application and submitted that the appellant was seeking to adduce fresh evidence, which should be rejected. In reserving my decision on the appeal and cross-appeal, I indicated that I would consider the appellant’s further application at the same time. I first turn to that application before dealing with the appeal.
Mr Harris QC, counsel for the appellant, submits that the undertaking should be received by this court to support the evidence presented on appeal, as it addresses the concern of the Master and the respondents that the liquidator might not make a claim under the Agreement, and that the respondents might be unaware for a period of time of such termination, thereby continuing to work and incur costs. Mr Harris QC submits that I should receive the undertakings on two bases. Firstly, he argues that if the Master was in error and his discretion miscarried, I should consider the undertaking in exercising the discretion afresh. Secondly, he submits that as soon as practicable after the undertaking was notified to his solicitors it was proffered. It was not available to be given at the hearing before the Master or at the hearing before Wicks J. There is no explanation given as to why it was not forthcoming earlier.
Mr Slattery, counsel for the first, second, third and fifth respondents, submits that if this evidence is received then the liquidator ought to give some reason as to why the undertaking was not given before the Master and Wicks J.
Mr White QC, counsel for the fourth respondent, submits that this court should not receive the undertaking at this late stage. As to the first ground put by Mr Harris QC, it is submitted that the application is premature and should be made if the court finds the Master was in error. The first question is, therefore, to determine whether the Master has fallen into error. Mr White QC referred to the decision of Martin J in Nedlands Pty Ltd (in liq) v Chisholm to support the proposition that a court of appeal should only interfere with a Master’s decision if it were satisfied that he had made an error.[1] He argues that since evidence of the undertaking only came into existence on 5 June 2003, six months after the decision of the Master, then it cannot bear on the question of whether the Master has made an error.
[1] [2001] SASC 144, 18 and 19 April 2001; 9 May 2001, (unreported BC200102240)
Mr White QC further submits that the issue to be determined upon this application is whether the material presented to the court is fresh evidence. He argues that the material is not fresh evidence and at its best is only evidence of a change of position by the liquidator, which is immaterial to the appeal. He submits that this material should have been put forward at the outset of the application for security for costs, and the appellant has had ample opportunity to do this.
Mr White QC submits that if, on the other hand, it were to be treated as an application to introduce fresh evidence, then the application must fail because it does not satisfy the test for the introduction of fresh evidence. He submits the application fails because the undertakings could have been proffered before the Master. It was always within the liquidator’s power to proffer the undertaking, and he cannot now suggest that, because he chose to withhold such an offer, the fact that it has now come into existence should mean that it could be treated as fresh evidence. Mr White QC further submits that the undertaking proffered is not adequate protection to the respondents in any event because the undertaking to pursue any claims cannot guarantee payment. It cannot be predicted what the relationship may be between the appellant and the underwriters. If the underwriters deny liability, the respondents will be left unsecured, awaiting the resolution of the dispute between the liquidator and the underwriters.
I agree with the submissions of Mr White QC. The material does not bear upon whether the Master has made an error. I accept Mr White QC’s submission that the undertaking is not fresh evidence and is only evidence of a change of position of the liquidator. The undertaking could have been proffered at the outset before the Master. Furthermore, I accept the argument and submission of Mr White QC that even if the undertaking were proffered, it would not adequately secure the respondents’ costs. I refuse the application.
The appeal
The appellants advanced seven grounds of appeal. Mr White QC divided these grounds into four different categories. He combined grounds one, two, three and six into the complaint about the alleged sufficiency of the ILIA. As these grounds all deal with the sufficiency of the ILIA, it is convenient to deal with them together.
Grounds 1, 2, 3 and 6
Mr Harris QC submits that the discretionary consideration under s1335(1) of the Corporations Act 2001 is not enlivened because it was not established by “credible evidence” that the respondents are at risk of not being reimbursed their costs in the event that the appellant’s action fails. He argues that by virtue of the ILIA, the discretion under s1335 could not be exercised by the Master. He points to the alleged sufficiency of the ILIA to show that the appellant will be able to meet the costs of the respondents if unsuccessful in the proceedings. Mr Harris QC referred to the decision of the Full Court in Jeffcott Holdings Ltd v Paior & Ors where Doyle CJ said:
“The starting point in any such case is that in deciding upon an application for security for costs under s 1335(1) of the Corporations Law the court is asked to exercise a discretion…The scope of the discretion is unqualified by the statutory provision. The discretion arises once it is established, as a matter of fact, that there is reason to believe that the corporation will be unable to meet the costs of the defendant if the defendant is successful.”[2]
[2] (1997) 15 ACLC 28 at 31
With respect to Rule 100.01 of the Supreme Court Rules, Mr Harris QC says that the effect of Olsson J’s judgment in Health and Life Care Ltd (Receivers and Managers Appointed) v Price Waterhouse is that Rule 100.01 brings the rule into line with s1335 of the Corporations Act. In that case, Olsson J said the discretion arising under SCR 100.01(d) necessarily casts the net as wide as the incorporated provisions of s1335.[3]
[3] (1993) SASC 4092 at para [18]
Mr White QC submits that the threshold requirement of s1335(1) is satisfied by proof of the fact that the appellant is in liquidation and is insolvent. He submits that the Master made no error in concluding that this was credible evidence.
The current approach in this State is that an application for security should proceed on the basis that there is no pre-disposition in favour of one party or the other.[4] In John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Ltd, Mitchell J, who delivered the principal judgement of the Full Court, said:
“I am of the opinion that to approach s 363 [the precursor of s 1335 of the Corporation Act 2001] with a pre-disposition to make an order for security for costs would be to fetter the discretion which the legislation has left unfettered. It would be, as it seems to me, equally wrong to exercise the discretion in favour of making an order merely because the section enables such an order to be made as it would be to refuse an order merely because the company is impecunious.”[5]
In Spiel v Commodity Brokers Australia Pty Ltd (in liq), Bollen J stated:
“The discretion is a wide one. The judge or magistrate asked to order security for costs should not approach the application with any predisposition at all. I think it follows that the circumstances in which the discretion should be exercised in favour of making an order cannot be stated exhaustively. Nor should there be any attempt to do so. The judge or magistrate must decide according to his view of the justice of the case. There should be no complaint at the imprecision of that statement. Beyond saying that the judge or magistrate must behave judicially one cannot define or delimit or categorise the circumstances in which security should be ordered to be given. It is quite another thing to speak of some matters which are capable of assuming importance in an application for security.”[6]
[4] John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 22 SASR 20; Jeffcott Holdings Ltd v Paior & Ors (1997) 15 ACLC 28
[5] John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 22 SASR 20 at 34
[6] (1983) 8 ACLR 410 at 415
The discretionary test of s 1335(1) is not one of solvency or insolvency, but rather the ability to pay costs of the action in the event that the respondents should be successful. Having said that, the insolvency of a company is a significant factor which the court may and is entitled to take into account when determining whether the discretion is enlivened. I am of the view that the Master was correct in exercising his discretion. I now turn to the question of whether the ILIA provides sufficient security for the purposes of s1335.
The first ground of complaint is that the Master erred in finding that the respondents, if successful, may be left to bear their own costs if the underwriters terminate the Agreement before delivery of judgment. Mr Harris QC submits that there is reason to accept that the appellant, although in liquidation, would be able to meet the costs of the respondents if they were unsuccessful in the litigation. He argues that the terms of the ILIA between the appellant and the underwriters is what makes the difference.
The Insolvency Litigation Insurance Agreement (ILIA)
There is exhibited to an affidavit of Natasha Lee Riach, sworn on 30 October 2001, a copy of the ILIA. The insured is “The Shed People Pty Ltd (In liquidation)”, as it is the only person named as “the insured” in the certificate of insurance. Mr Bruce Carter is named in the Agreement as the administrator, but not in the certificate of insurance. It is clear, however, that in the Agreement, the expression “the insured” is to include Mr Carter as administrator in addition to “The Shed People Pty Ltd (In liquidation)”.
The principal features of the ILIA between the underwriters and the appellant are set out below. According to the certificate of insurance, the insurance commences on the date on which the liquidator accepts the terms offered but, in any event, within fourteen days of the offer of insurance having been made. The date of issue is 15 July 1999. The insurance expires when notice is served in accordance with clause 4.1 of the Agreement. The respondents are not parties to the Agreement.
Paragraph 2 of the ILIA provides:
“GENERAL:
2.1In consideration of the Underwriters entering into this Agreement, the Insured disposes to the Underwriters the share of the Recovery Amount specified in the Certificate of Insurance.
2.2During the period of insurance the Underwriters shall:-
2.2.1pay the Expenses as and when the claims are submitted to it by the Solicitor and/or the Insured; and,
2.2.2Indemnify and keep indemnified the Insured against all and any claims for costs, expenses, damages, judgment debt, pecuniary penalty or financial exposure (“Third Party Claim”) incurred by the Insured in a Proceeding or in a Proceeding in which the Subject Entity is a party (“the Indemnity”)
PROVIDED THAT:
2.2.2.1If a Third Party Claim arises prior to the commencement of the period of insurance the Underwriter will not indemnify the Insured for the amounts referrable to that Third Party Claim.
2.2.2.2If a Third Party Claim arises during the period of insurance the Underwriter will indemnify for all amounts referrable to that Third Party Claim whether incurred prior to or during the period of insurance.
2.2.2.3If the Third Party Claim arises after the ceasing of the period of insurance in accordance with Clause 4 the Underwriter will indemnify the Insured for the amounts referrable to that Third Party Claim if incurred during or prior to the period of insurance.”
The premium is stated to be reimbursement of expenses incurred plus 30 per cent of the balance of the recovery amount remaining after the reimbursement of expenses, subject to recovery taking place. Clause 4.1 of the Agreement states:
“The insurance commences on the day specified in the Certificate of Insurance and ceases when the Proceeding is concluded or Underwriters form the view that there are not reasonable prospects of success in the Proceeding based on the opinion of the Solicitor or that it is not commercially viable to pursue the Proceeding and in such circumstances the Underwriter shall notify the Insured accordingly (“the Notice”) PROVIDED ALWAYS that the Underwriters shall be and remain liable for any Expenses or claims in respect of costs incurred during the period of insurance.”
The appellant submits that the Master erred in finding that, in the event that the ILIA was terminated, the respondents could have incurred significantly greater amounts of costs and have no prospects at all of obtaining any order other than a stay. Mr Harris QC argues that in the event of the Agreement being terminated pursuant to clause 4.1, the liquidator being an officer of the court is duty bound to inform the court and the respondents of that material change. He argues that it cannot be proposed that there is a possibility that the liquidator, who has a responsibility to advise the court of the termination of such an agreement, would fail to do so.

Mr White QC submits that there would be a time lapse between the time that the underwriters arrived at a view that it is no longer commercially viable to continue the proceedings and the time the solicitors, knowing that the Agreement is no longer in place, can inform the court and therefore the respondents. In those circumstances considerable costs could have been incurred which could not be recovered. It seems to me that it would be unreasonable to expect the respondents to simply rely upon an obligation on the part of the liquidator to advise the court. Although security for costs may be available at the present time, there is no guarantee that it will always be available.
The appellant further submits that the Master erred in finding that the disclosure of the indemnity to the respondents was not sufficient security. In this respect, the appellant argues that this application was premature. It was submitted that the Master’s interpretation of the ILIA was misconceived in that he found the respondents may be left to bear their own costs if the underwriters terminated the Agreement before the delivery of judgment.
Mr White QC submits that the underwriters may terminate the insurance at any time if they form the view that there are not reasonable prospects of success or that it is not commercially viable to pursue the proceedings. It is therefore possible that the respondents could be left to bear their own costs. He submits that as the respondents are not party to the Agreement, they have no means of direct enforcement under the terms of the Agreement and are entirely dependent upon the liquidator, when and if an order for costs is made against the appellant, in enforcing the Agreement. He further argues that the efficiency of the indemnity is inadequate because there is a cap on the liability of the underwriters in the Agreement. Mr White QC submits that the security which might be available under the Agreement might well be nil or at least partial only and that will be because some of the cap has been used up already and the balance will be used up in the future conduct of the matter by the appellant and in the further costs that may be incurred by the respondents.
The respondents are not party to the ILIA. They have no means of direct enforcement of any obligations arising under the Agreement. It would be possible for the Agreement to be terminated simply by mutual consent of the liquidator and the underwriters, without the respondents knowing. The Agreement has been brought into existence to fund the costs of certain litigation. Its purpose was never to act as security between the respondents and the liquidator. The Agreement is not a guarantee. I consider the Master was correct in his application of s 1335(1) of the Corporations Act. In my opinion, there is no substance in these grounds of appeal.
Ground 4 - delay
The appellant submits that the Master failed to give sufficient weight to the unexplained delay of the respondents in bringing the application for security for costs. The appellant argues that the Master should have refused the application on the basis that the respondents knew the appellant’s financial position since the outset and the unexplained substantial delay is fatal to the application. The appellant submits that the proceedings were issued in early 1999 and a period of two and a half years elapsed before the respondents sought an application for security for costs in July 2001. The appellant points to the significant costs that have been incurred in the course of preparing this matter for trial as prejudice for the delay.
Counsel for the appellant relies on the decision of 21st Century Promotions v Telstra Corporation (No 2).[7] In that case, Wicks J said that delay is a factor weighing against an order for security for costs. He held that the plaintiff had incurred considerable expense in bringing the case to a stage where it was part-heard and if security had been sought and obtained promptly on the commencement of the action, the plaintiff would have been able to assess its position at that time and decide whether or not to proceed with the action at a stage when costs incurred were comparatively minimal.[8] The appellant also referred the court to the decision of Matheson J in Walters v Yarash.[9] The delay in that case was in excess of three years. His Honour found that the Master was correct to be influenced by the delay in refusing to order security for costs. He said:
“The delay here was very long indeed…The defendants had ample opportunity to apply earlier. They have had many applications, for example, in regard to the plaintiffs’ statement of claim, and in regard to discovery and production of documents…They have known of the first plaintiff’s financial position from the outset. In my opinion, the delay is fatal.”[10]
[7] (1999) SASC 48, 18 February 1999, (unreported BC9900349)
[8] Ibid at 3.
[9] Walters and Others v Yarash Pty Ltd (In liq) and Others (1994); 14 April and 27 May 1994 (unreported BC9400661)
[10] Ibid at 6.
Mr White QC submits that there has not been substantial delay, but merely a lapse of time, which was known to the Master. Mr White QC points to the history of the proceedings which shows that the parties have been preoccupied with issues of discovery. In relation to the dispute about discovery, there was a hearing before a Master who ruled in favour of the appellant. There was then an appeal to Debelle J who ruled against the appellant and there was an application for leave to appeal to the Full Court, which was refused. Mr White QC submits that these proceedings were required and were no more than solicitors fulfilling their professional duties to protect the privilege of their client. He argues that the delay, if any, has not caused prejudice to the appellant because the appellant was successful on each of the disputes.
Mr White QC argues that a period of two years and one month is not a long delay. He referred to the decision of Martin J in Nedlands v Chisholm where the delay was in excess of four years.[11] In that case there was considerable delay between the filing of the application and its final determination, but notwithstanding this, Martin J did not think that the delay was such as to weigh heavily in the balance to decline the order for security. He said:
“Generally speaking, the issue of delay has caused me some disquiet. In particular, there was a considerable delay before the application was heard. In a practical sense, the delay was caused by other applications made by the defendant. As a consequence, the plaintiff incurred considerable costs in defending the other applications, but it did so in the knowledge that the application for security for costs was pending. I am not prepared to infer that the defendant actively sought to delay the hearing of the application for security while other applications in this Court were determined.”[12]
[11] Nedlands Pty Ltd (in liq) v Chisholm [2001] SASC 144 (unreported BC200102240)
[12] Ibid at 3 para [14]
This matter appears to have been particularly active. Proceedings were commenced on 28 January 1999 and in the following two and a half years or so some eighty documents have been filed. Further, the interlocutory proceedings appear to have been such that on two occasions issues have been the subject of an appeal. The question of delay was argued fully before the Master. Delay is a factor bearing on the exercise of discretion, but is only one factor. The delay in this matter has caused me some concern. However, on balance, I do not consider it was so excessive to cause me to interfere with the Master’s decision.
Ground 5 - frustration of proceedings
Mr Harris QC submits that the Master erred in exercising his discretion to order security by overstating the relevance of a person standing behind an impecunious plaintiff, who stands to gain if successful. He argues that this factor is only relevant to the extent to which the appellant seeks to rely on the order for security stultifying the litigation in that appellant being unable to provide security does not inevitably lead to the conclusion that the making of the order will stultify the appellant’s claim. In Jeffcott Holdings, the Full Court held that although the discretion is unfettered, it must be exercised according to considerations that are appropriate to the subject matter of the discretion. One factor which the court considered to be relevant was whether the making of an order would mean that the corporation is unable to continue its proceedings. Indeed, in this case, in his affidavit, sworn on 25 October 2001, the liquidator states:
“There are insufficient funds in the administration of the plaintiff company to meet a security for costs order. I am able to prosecute the within action by virtue of an Insolvency Litigation Insurance Agreement which I have entered into with Royal & Sun Alliance Insurance Australia Ltd and Lumley General Insurance Ltd. The said Agreement does not provide for the payment of funds up front, which would be necessary in order to meet a security for costs order. Accordingly, if security for costs is ordered against the plaintiff, I will be required to discontinue the proceedings.”
In Jeffcott Holdings Doyle CJ said, however:
“That makes relevant the question of whether a shareholder or creditor or other person standing behind the company could reasonably be expected to satisfy an order for security.”[13]
[13] Jeffcott Holdings Ltd v Paior & Ors (1997) 15 ACLC 28 at 32
The relevance of a person standing behind an insolvent company was considered in Bell Wholesale Co Pty Ltd v Gates Export Corporation.[14] In that case, Sheppard, Morling and Neaves JJ, held that a court is not justified in declining to order security on the ground that to do so will frustrate or stultify the litigation unless a company establishes that those who stand behind it and who will benefit from the litigation, if it is successful, are also without means.[15] The court said that it is not for the party seeking security to raise the matter, but for the company seeking to resist an order for security on the ground that the granting of the 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.[16]
[14] (1984) 52 ALR 176
[15] Ibid at 179.
[16] Ibid at 180.
Mr White QC submits that although stultification of the appellant’s right to litigate may be a factor relevant to the exercise of a judge’s discretion to order security, where there are persons standing behind the plaintiff, who are able to provide security, it is generally appropriate to order security. Mr White QC argues that the persons standing behind the appellant are substantial financial entities and it could not be suggested that either of them would lack the ability to provide security. He further submits that where an application for security is resisted on grounds that the granting of the security will frustrate the litigation, the onus is on the party relying on it to prove the necessary facts. Mr White QC argues that the only attempt by the liquidator to satisfy that onus was the making of bald assertions and conclusions, without disposing to the primary facts.
I agree with the submissions of the respondents. The appellant is able to continue the litigation because standing behind the appellant are two companies which, as part of their business, engage in financing those involved in litigation. They will receive a share of the proceeds of the litigation, if successful. It is to be implied from the appellant’s assertion, that the underwriters are prepared to reap the rewards of a successful action, yet are not prepared to carry the usual risk to the unsuccessful party if the litigation fails. The appellant’s assertion that an order for security for costs will stultify the litigation is unconvincing.
I consider that the Master made no error in taking into account that there are two substantial insurance companies standing behind the appellant who could reasonably be expected to satisfy an order for security.
Ground 7- indemnity
The appellant submits that the Master failed to have regard to, or failed to have sufficient regard to the indemnity available from the respondents’ own insurers. He argues that all the respondents, with the exception of the fourth respondent, have the protection of being indemnified for their costs by an insurer. He submits that this has been held to be a relevant factor in relation to whether or not to exercise the discretion to grant security for costs but concedes that it is not a decisive factor. Mr Harris QC referred the court to the decision of the Full Court in Remm Construction v Allco Newsteel.[17] In Remm, King CJ said:
“In weighing the factors affecting the provision of security for costs, the ability of the defendant to absorb the costs, if he is unable to recover them from the plaintiff, is a relevant consideration. Any insurance cover would be relevant in assessing that factor.”[18]
[17] (1992) 57 SASR 180
[18] Ibid at 186.
Mr White QC did not put a submission, as the fourth respondent does not have indemnity. Mr Slattery submits that in Remm there was a contractual provision that required the insurance to exist and the existence of the insurance in those circumstances was a matter that might have been taken into account. He argues that in the alternative if the court was to take the insurance indemnity into account it should be given virtually no weight.
The fact that four of the respondents are indemnified is a factor to which I must have regard. I do not consider it is of such weight in this case to cause me to overturn the Master’s decision. Other matters to which I have referred persuade me that the Master’s decision to order security was justified.
The cross-appeal
Mr White QC submits that the Master erred in that the value of the security ordered was inadequate. The Master ordered that the plaintiff provide a form of security to the value of $30 000. He submits that the costs of the fourth respondent’s solicitor up to the first day of the trial were estimated at $23 310 plus photocopying. He submits that the costs of the other respondents fees up to the first day of the trial were estimated to be $26 907.05. Neither estimate was challenged by the appellant at the hearing of the respondent’s application for security for costs. Mr White QC further submits that the Master did not apportion between the defendants the sum secured. Mr Slattery made a similar submission.
Mr Harris QC submits that to say there is no submission addressed in relation to the question of quantum does not mean an acceptance of the quantum by the appellant, or an inappropriateness of the Master to look at the question of whether or not two sets of costs were appropriate.
The Master is entitled to have regard to his own experience as to what may be reasonable. The Master considered the affidavits of the respondents in support of the quantum to be ordered. He said:
“The defendants’ solicitors have each provided estimates as to the likely extent of the costs to be incurred. In fact, they have included the total costs of trial, whereas the Court ordinarily only makes orders in circumstances such as these up to the first day of trial. In any event, I have made my own estimates, based on the proposals put by the solicitors for the defendants. I consider that security to the value of $30,000.00 should be provided in respect of the combined costs of the defendants.”
Although the Master did not provide detailed reasons, he had regard to the submissions and made his own estimate. In my view there is no reason to interfere with the Master’s determination. However, I consider that an apportionment should be made between the respondents and I refer the matter back to the Master for his consideration.
Conclusion
I order that the Master apportion the amount of $30,000 ordered for security for costs between the parties.
In all other respects I dismiss the appeal and cross-appeal.
JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE IN JUDGMENT
[1] [2001] SASC 144, 18 and 19 April 2001; 9 May 2001, (unreported BC200102240)
2 (1997) 15 ACLC 28 at 31
3 (1993) SASC 4092 at para [18]
4 John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 22 SASR 20; Jeffcott Holdings Ltd v Paior & Ors (1997) 15 ACLC 28
5 John Arnold’s Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 22 SASR 20 at 34
6 (1983) 8 ACLR 410 at 415
7 (1999) SASC 48, 18 February 1999, (unreported BC9900349)
8 Ibid at 3.
9 Walters and Others v Yarash Pty Ltd (In liq) and Others (1994); 14 April and 27 May 1994 (unreported BC9400661)
10 Ibid at 6.
11 Nedlands Pty Ltd (in liq) v Chisholm [2001] SASC 144 (unreported BC200102240)
12 Ibid at 3 para [14]
13 Jeffcott Holdings Ltd v Paior & Ors (1997) 15 ACLC 28 at 32
14 (1984) 52 ALR 176
15 Ibid at 179.
16 Ibid at 180.
17 (1992) 57 SASR 180
18 Ibid at 186.

[2003] SASC 404

15 December 2003