Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd
[2017] VSCA 293
•18 October 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0093
| TRAILER TRASH FRANCHISE SYSTEMS PTY LTD and DALE COONEY | Applicants |
| v | |
| GM FASCIA & GUTTER PTY LTD | Respondent |
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| JUDGES: | TATE and KYROU JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 4 October 2017 |
| DATE OF JUDGMENT: | 18 October 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 293 |
| JUDGMENT APPEALED FROM: | GM Fascia & Gutter Pty Ltd v Trailer Trash Franchise Systems Pty Ltd (Unreported, County Court of Victoria, Judge Morrish, 28 July 2017) |
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PRACTICE AND PROCEDURE – Application for leave to appeal against a discretionary interlocutory order of County Court – Applicable principles.
PRACTICE AND PROCEDURE – Security for costs – Impecunious corporate plaintiff – Defendants sought security in the amount of $48,617.28 – Plaintiff’s counsel conceded that security in the amount of $13,000 would be reasonable – Judge ordered security in the amount of $10,580 based on judge’s own calculations – Judge’s discretion to fix quantum of security miscarried – Appeal allowed.
PRACTICE AND PROCEDURE – Security for costs – Form of security – Observations on undesirability of security in the form of a personal undertaking.
PRACTICE AND PROCEDURE – Order for costs – Judge ordered defendants to pay plaintiff’s costs of security for costs application even though defendants succeeded – Judge’s discretion to award costs miscarried.
PRACTICE AND PROCEDURE – Civil Procedure Act 2010 – Overarching obligations to cooperate, use reasonable endeavours to resolve dispute and ensure costs are reasonable and proportionate – Whether parties’ conduct inconsistent with overarching obligations.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr K Wolahan | Mills Oakley |
| For the Respondent | Mr L E P Magowan | PCL Lawyers |
TATE JA
KYROU JA:
Introduction and summary
This is an application for leave to appeal against an order made by a judge of the County Court requiring the respondent to provide further security for the applicants’ costs of a proceeding in that Court.
The respondent, GM Fascia & Gutter Pty Ltd, is the plaintiff and the applicants, Trailer Trash Franchise Systems Pty Ltd (‘TTFS’) and Dale Cooney, are the defendants in the County Court proceeding. Mr Cooney is a director of TTFS. That proceeding relates to a dispute between the first applicant in its capacity as franchisor under a franchise agreement and the respondent in its capacity as franchisee (‘Franchise Agreement’).
It is common ground that the respondent is impecunious. On 15 July 2016, the County Court made an order by consent that the respondent provide security in the amount of $15,000 to cover costs for the period from the commencement of the proceeding until the conclusion of a mediation which ultimately took place on 7 April 2017. Following the mediation, the applicants sought further security in the amount of $48,617.28 to cover costs for the period from the conclusion of the mediation until the end of the first day of the trial (‘Security Period’). Counsel for the respondent conceded that an order in the amount of approximately $13,000 would be reasonable for that period.
In a ruling made on 28 July 2017 (‘Ruling’), the judge ordered: that the respondent provide security in the amount of $10,580 in the form of an undertaking to pay that amount by the father of the sole director and shareholder of the respondent; and that the applicants pay the respondent’s costs of the application.[1] The judge arrived at the amount of $10,580 by undertaking her own calculations.
[1]GM Fascia & Gutter Pty Ltd v Trailer Trash Franchise Systems Pty Ltd (Unreported, County Court of Victoria, Judge Morrish, 28 July 2017).
The applicants seek leave to appeal on the basis that, in fixing the quantum of the security for costs at $10,580 and in awarding costs to the respondent, the judge’s discretion miscarried.
For the reasons that follow, the application for leave to appeal will be granted and the appeal will be allowed.
Facts and procedural history
TTFS sells franchises in a business called ‘Trailer Trash’ which supplies trailer-mounted skip bins for hire.
On 12 January 2016, the respondent commenced the County Court proceeding against the applicants. It alleged that TTFS breached the Franchise Agreement, contravened the Franchising Industry Code and engaged in misleading, deceptive and unconscionable conduct, and that Mr Cooney was knowingly involved in such conduct. The applicants deny the respondent’s allegations.
On 10 June 2016, the applicants filed a summons (‘Summons’) pursuant to r 62.02 of the County Court Civil Procedure Rules 2008 (‘Rules’) seeking the following orders:
1The [respondent] give security for the [applicants’] costs up to and including the first day of the trial of this proceeding in the amount of $40,000 or such other sum as the Court considers appropriate in a form satisfactory to the Prothonotary by 30 June 2016.
2The [respondent] pay the [applicants’] costs of and incidental to this application.
3Such further or other orders as this Honourable Court deems fit.
The Summons was supported by an affidavit of James Tobin, a partner at Mills Oakley, the solicitors for the applicants, sworn on 10 June 2016 (‘Mr Tobin’s first affidavit’). Mr Tobin is an experienced commercial litigation lawyer. Relevantly for present purposes, in his first affidavit, Mr Tobin estimated that the applicants’ costs up to and including the first day of trial, calculated in accordance with the County Court scale, would be $39,139.64. The estimate was based on 16 items of work for a solicitor and seven items of work for counsel, including the following:
Description
Time/Folio
Amount
per unit/
hour/folioAmount
Attendance on witness [solicitor]
3 attendances 20 units per witness
$31.04
$1,862.40
Any necessary witness statements [solicitor]
3 witness statements 20 folios per statement
$45.76
$2,745.60
Conference with Counsel in preparation for trial [solicitor]
3 conferences 20 units per conference
$31.04
$1,862.40
Attendance at trial by solicitor (first day)
6 hours
$308.80
$1,852.80
To draw and settle defence and witness statements [counsel]
10 hours
$440.80
$4,408.00
To advise on evidence [counsel]
5 hours
$440.80
$2,204.00
Conference in preparation for trial [counsel]
3 conferences 2 hours per conference
$440.80
$2,644.48
Appearance at trial (first day) [counsel]
Full day
$4,403.00
$4,403.00
The estimate of $39,139.64 included items totalling $12,966.68 which related to the Security Period. They were the third, fourth, sixth, seventh and eighth items in the above table.
Prior to the hearing of the Summons, the respondent agreed to deposit $15,000 into a controlled money account[2] as security for the applicants’ costs up to and including the mediation. On 15 July 2016, an order was made by consent to give effect to that agreement, and the hearing of the Summons was adjourned to at least seven days after the mediation. The order reserved the costs of the application.
[2]See the definition of ‘controlled money account’ in s 128(1) of the Legal Profession Uniform Law, which is in sch 1 to the Legal Profession Uniform Law Application Act 2014.
On 14 September 2016, procedural orders were made by the County Court including for the provision of expert reports and for a mediation to take place in November 2016. The respondent filed a report of a forensic accountant but the applicants did not file an expert report.
On 3 March 2017, the County Court made an order setting down the proceeding for trial on 16 August 2017 on an estimate of 3–4 days. The order made no provision for witness statements or affidavits.
The mediation did not take place in November 2016 but was delayed until 7 April 2017. The proceeding did not settle as between the applicants and the respondent.[3]
[3]The proceeding settled as between the respondent and another director of TTFS who was the third defendant to the County Court proceeding.
On 21 April 2017, the applicants’ solicitors wrote to the respondent’s solicitors seeking further security in the amount of $75,000 to secure the applicants’ costs of the proceeding ‘up to and including trial’. They stated that if funds were not received by 28 April 2017, the applicants would seek to have the Summons relisted.
On 26 April 2017, the respondent’s solicitors requested the applicants to specify the items that made up the amount of $75,000.
On 7 June 2017, the applicants provided a breakdown. The breakdown — which was said to cover costs up to ‘the first day of trial’ — included amounts for witness statements, affidavits and an expert report.
On 14 June 2017, the respondent’s solicitors rejected the demand for further security in the amount of $75,000.
On 23 June 2017, the applicants requested the County Court to relist the Summons. It was scheduled for further hearing on 27 July 2017.
At 2pm on 26 July 2017, the applicants served on the respondent a second affidavit sworn by Mr Tobin that day (‘Mr Tobin’s second affidavit’). In that affidavit, Mr Tobin stated that the mediation took place on 7 April 2017 instead of in November 2016 due to delays by the respondent. He said that his best estimate of the applicants’ costs for the Security Period calculated in accordance with the County Court scale was approximately $48,617.28, itemised as follows:
Description Time/Folio Amount per unit/ hour/folio Amount Attendance on witness [solicitor] 3 attendances 20 units per witness $31.44 $1,886.40 Any necessary witness statements [solicitor] 3 witness statements 20 folios per statement $46.40 $2,784.00 Preparation for trial by solicitor 65 units per day for 5 days $31.44 $10,218.00 Conference with Counsel in preparation for trial [solicitor] 3 conferences 20 units per conference $31.44 $1,886.40 Attendance at trial by solicitor (first day) 6 hours $393.00 $2,358.00 To draw and settle witness statements [counsel] 12 hours $440.00 $5,280.00 To advise on evidence [counsel] 6.5 hours $440.00 $2,860.00 Preparation for Trial [counsel] 6.5 hours a day for 5 days $440.00 $14,300.00 Conference in preparation for trial [counsel] 3 conferences 2 hours per conference $440.80 $2,644.48 Appearance at trial (first day) [counsel] Full day $4,400.00 $4,400.00 $48,617.28
The respondent’s solicitor, Richard Ashley, swore an affidavit on 27 July 2017 in which he said that the delay in the mediation was caused by the applicants. In relation to the application for further security, Mr Ashley stated that the application ‘ought to be denied … as [it] has been significantly delayed and would prejudice the [respondent’s] ability to proceed with the Trial which is scheduled to commence in three weeks’. The affidavit did not comment on the quantum of the security sought by the applicants.
County Court hearing
Although the Summons was listed for hearing on 27 July 2017, the hearing did not conclude until 28 July 2017.
The respondent submitted that, due to the applicants’ unexplained delay in applying for further security following the mediation, the Court should not award further security. The respondent also submitted that the amount sought by the applicants was excessive. The respondent emphasised that the amount sought greatly exceeded what was sought in Mr Tobin’s first affidavit in respect of the Security Period (namely, $12,966.68)[4] and that there was no explanation in Mr Tobin’s second affidavit as to the increase from $12,966.68 to $48,617.28.
[4]See [11] above.
In response to the respondent’s submissions, the judge raised the possibility of security being provided by ‘a person [giving] a guarantee to meet an order for costs’[5] rather than the respondent being required to make a payment. The judge also offered to adjourn the hearing to give the respondent an opportunity to adduce evidence as to any prejudice arising from the applicants’ delay and as to the quantum of the costs sought by them. The respondent declined the offer.
[5]Transcript of Proceedings, GM Fascia & Gutter Pty Ltd v Trailer Trash Franchise Systems Pty Ltd (County Court of Victoria, 00098 of 2016, Judge Morrish, 27–28 July 2017) 19 (‘Trial transcript’).
After noting that the work referable to the Security Period in Mr Tobin’s first affidavit totalled $12,966.68,[6] counsel for the respondent conceded that a rounded-up amount of $13,000 would be reasonable for that period.[7]
[6]See [11] above.
[7]Trial transcript 28.
In response to questions from the judge, counsel for the applicants conceded that some amounts in Mr Tobin’s second affidavit were excessive. For example, counsel said that ‘five days preparation for counsel [for the trial] is probably over-egging it’.[8]
[8]Trial transcript 31.
The judge then determined that an appropriate amount for security for the Security Period was $10,580 based on the following calculations of the judge:
Solicitor:three hours to confer with and proof witnesses at $310 per hour: $930
Solicitor:two hours to deal with the Court Book: $620.
Solicitor:five hours of general preparation: $1,550.
Counsel:four hours of preparation for trial at $440 per hour: $1,760
Counsel:one day for the first day of trial: $4,400
Counsel:three hours for conferences: $1,320
At the conclusion of the first day of the hearing, the judge adjourned the hearing to 28 July 2017 to provide the respondent an opportunity to adduce evidence that its sole director and shareholder had the financial capacity to satisfy any guarantee to be given by him as security for costs for the Security Period. The judge stated the following:
I think it is appropriate to order either security for costs or a guarantee in the amount of $10,580 calculated in the method I have indicated. I am satisfied that the threshold has been met to justify either a security for costs or a guarantee to be provided by the director [of the respondent].
I appreciate, as has been pointed out on the authorities, there is inherent prejudice caused by delay in bringing the application, but the application was always on the cards and it is not really clear to me what actual prejudice has been occasioned as to outweigh the prejudice to the [applicants] in not having such security since if the [applicants] are successful, meaning that if the [respondent’s] claim is dismissed the prejudice of being out of pocket for a substantial award of costs is a high one. So on those grounds I would exercise [my] discretion in favour of an order or a guarantee and I would make it in the sum indicated, $10,580.[9]
[9]Trial transcript 36–7.
These observations are reflected in the notes that the judge included in the order she made on 27 July 2017:
THE COURT ORDERS THAT:
1 The matter be adjourned to 2:15pm Friday 28 July 2017.
…
AND THE COURT NOTES:
IThe court is satisfied that some form of security for the [applicants’] costs in the amount of $10,580 should be given by or guaranteed on behalf of the [respondent];
IIThe court is satisfied on the balance of probabilities that it is appropriate to exercise the discretion to make such an order or receive such a guarantee despite the [applicants’] delay in seeking the order since any presumed prejudice caused by the delay does not outweigh the need for the order, given the impecuniosity of the [respondent] and the other measures that can be taken to mitigate against any such prejudice (namely permitting a personal guarantee to be given on behalf of the [respondent] to meet that amount in the event of a costs order ultimately being made in favour of the [applicants] PROVIDED that the court is satisfied that the guarantor proposed has the financial means to pay such an amount if ordered to do so);
IIIThe hearing was adjourned until 2.15pm on 28 July 2017 to enable the [respondent] to obtain a personal guarantee as contemplated above; and
IVIf it is proposed to offer such a personal guarantee, the nominated guarantor must be made available to be cross-examined on 28 July 2017 about his/her financial capacity to honour the guarantee if ordered to do so.
When the hearing resumed on 28 July 2017, the respondent proposed that security be provided in the form of an undertaking by Terrence Maher, the father of the sole director and shareholder of the respondent. He is a retired public accountant without any criminal convictions for dishonesty. He gave evidence: that he and his wife had equity of $650,000 in their home; that he owned a 20 per cent interest in land worth $5.5 million; that he had a line of credit with his bank which enabled him to draw down up to $50,000; and that an amount of $50,000 in his superannuation fund was available to be drawn down at any time. It is to be noted that the applicants were not given any notice of the evidence to be given by Mr Maher and that Mr Maher did not produce any documents to support his oral evidence. Prompted by the judge, Mr Maher called up his bank balance via internet banking on his mobile phone and showed it to the judge and counsel. This indicated that the amount of $35,837.20 was available to be drawn down.
At the conclusion of Mr Maher’s evidence, the judge described her tentative view as follows:
I am satisfied that Mr Terrence Patrick Maher is a man of financial means and good reputation. I am satisfied that he would not risk that good reputation by a possible contempt proceeding being brought against him if he does not honour the undertaking in the form that is proposed. He appreciates the consequences of breaching any such undertaking.[10]
[10]Trial transcript 48.
The applicants’ counsel submitted that an undertaking by Mr Maher was less advantageous to them than a payment by him into a controlled money account.
Judge’s ruling and order
On 28 July 2017, the judge delivered the Ruling orally. She confirmed her findings set out at [32] above and stated that she was satisfied that Mr Maher had ‘the means to honour a guarantee to pay costs in favour of the [applicants] capped at $10,580’.[11]
[11]Ruling 62.
As to the security being in the form of a personal undertaking by Mr Maher, the judge applied the following statement of principle in DIF III Global Co-Investment Fund L.P. v BBLP LLC:[12]
[I]n exercising its broad discretion as to the form of security for costs in the relevant security circumstances, the Court will usually apply the following principles:
(1)the plaintiff is entitled to propose security in a form least disadvantageous to it;
(2)the plaintiff bears a ‘practical onus’ of establishing that the proposed security is adequate and does not impose an ‘unacceptable disadvantage’ on the defendant;
(3)in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and
(4)based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.[13]
[12][2016] VSC 401 (‘DIF’).
[13]DIF [2016] VSC 401 [40].
In relation to the first principle in DIF, the judge stated that she ‘took account of the fact that any prejudice to the [respondent occasioned by the late application for security] might be mitigated by a form of security that did not require the [respondent] to pay it immediately in to court.’[14] The judge concluded that, on the basis of Mr Maher’s evidence, there was ‘an adequate source to secure any order for costs in favour of the [applicants] to the capped amount’.[15]
[14]Ruling 63.
[15]Ruling 63.
In relation to the second principle in DIF, the judge considered whether the applicants would suffer unacceptable disadvantage as a result of the form of the security on the basis that enforcing an undertaking may involve contempt of court proceedings against Mr Maher. She concluded as follows:
I do not consider that it is an unacceptable disadvantage in the circumstances of this case, given Mr Maher’s standing in the community as a retired public accountant with no prior convictions for dishonesty, … who has … assets to back him up and the inherent improbability that he would rather go bankrupt and face a contempt proceeding than honour a relatively modest order.[16]
[16]Ruling 64.
In relation to the third principle in DIF, the judge stated that she was satisfied on the evidence of Mr Maher that the proposed security satisfied the protective object of providing a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff.[17]
[17]Ruling 64.
In relation to the fourth principle in DIF, the judge concluded as follows:
I need to determine how justice is best served in the particular circumstances of the case. It’s a balancing exercise. On the one hand I must be sure that a defendant who is sued by an impecunious plaintiff will have an available source of funds to meet any costs order that may be made in its favour. On the other hand, such a form of security must not be such as to be any greater than that which is necessary to satisfy the purpose for which the security is offered.
I have taken into account the tardiness of the application and how that might interfere with the preparation of the case for trial. In all of the circumstances, I am satisfied that it is appropriate to allow the security to be given in the form of an undertaking.[18]
[18]Ruling 64–5.
The judge decided that the applicants should pay the respondent’s costs of the security for costs application for the following reasons:
I noted that the application for the security for costs was made relatively late in the piece. There was no obligation on the [respondent] to enter into negotiations and offer up security of costs unless asked to do so or at least ordered to do so. Unfortunately, although the [applicants] indicated their intention to seek such security, no action was taken until essentially the eleventh hour. The trial is listed to commence shortly.
Moreover, the … amount that was claimed early in the piece was quite high and was, in my view, unjustified in all the circumstances of the case. In any event, it was not until the afternoon of the day before the matter was listed before me that any evidence was provided to support the application. That gave the [respondent] no time to engage in any further negotiations to avoid the cost of the hearing since it is likely that the fees would have been incurred prior to that time.
I note that in oral discussion the [respondent’s] counsel offered $13,000 by way of security. That was rejected. After examining in some detail the claim that was said to justify the amount sought to be secured, I came to the calculation of $10,580. That is not to say it is literally a mathematical calculation based on known factors, it is the best estimate that I could give to justify the security. In my view the material should have been filed at an earlier time to enable the matter to be resolved between the parties without incurring further costs.[19]
[19]Ruling 66–7.
On 28 July 2017, the judge made the following order:
OTHER MATTERS:
The Court notes the undertaking given by [Terrence] Patrick Maher to pay any adverse costs order as against the [respondent] in relation to the [applicants’] costs of the proceeding [for the Security Period] fixed to the maximum value of $10,580.00.
THE COURT ORDERS THAT:
1 The [Summons] is dismissed.
2The [applicants] pay the [respondent’s] costs of and incidental to the Summons … insofar as those costs relate to the [applicants’] application for further security for costs to cover the [Security Period], to be taxed on a standard basis by the Costs Court in default of agreement, and payable immediately on taxation or agreement. The costs of the Summons … are otherwise reserved.
Events relating to the County Court proceeding after the judge’s Ruling
On 9 August 2017, the applicants’ solicitors informed the respondent’s solicitors that they intended to seek leave to appeal against the Ruling and that the trial scheduled for 16 August 2017 would have to be vacated. The respondent did not consent to the trial date being vacated.
The application for leave to appeal against the Ruling was filed on 14 August 2017.
On 17 August 2017, Judge Cosgrave decided that ‘the ends of justice are best served by vacating the trial.’[20] The trial is now due to commence on 26 February 2018 on an estimated duration of five days.
[20]GM Fascia & Gutter Pty Ltd v Trailer Trash Franchise Systems Pty Ltd [2017] VCC 1123 [12].
Grounds of appeal
The proposed grounds of appeal are in the following terms:
1The learned judge’s discretion miscarried in dismissing the [Summons] and accepting the undertaking of Mr Terrence Maher because, having found the discretion to award security for costs was enlivened, her Honour:
arelied on irrelevant matters to find that $10,580 was sufficient quantum of security for [the Security Period]; and
bfailed to take into account a relevant consideration being the evidence of Mr Tobin as to the appropriate quantum of security.
2The learned judge’s discretion miscarried in deciding to award costs to the Respondent, because in exercising that discretion, her Honour:
amistook the facts and concluded erroneously that the Respondent made an offer to the Applicants for security, which was rejected;
bmistook the facts and concluded erroneously that there was a delay in providing supporting material;
crelied on irrelevant considerations in deciding that the security sought by the Applicants was unduly high; and
dfailed to take into [account] a relevant consideration, being that as security had effectively been ordered, and costs follow the event, the Applicants would ordinarily be entitled to a favourable costs order.
Should leave to appeal be granted?
In Karam v Palmone Shoes Pty Ltd,[21] this Court held that, in an application for leave to appeal against an interlocutory order made by the County Court, the test set out in s 14C of the Supreme Court Act 1986 (‘SCA’) is to be applied, rather than the test in Niemann v Electronic Industries Ltd.[22]
[21][2017] VSCA 145 [66]–[67], [74] (‘Karam’).
[22][1978] VR 431 (‘Niemann’).
Section 14C of the SCA provides that the Court may grant an application for leave to appeal only if it is satisfied that the appeal ‘has a real prospect of success’. The Niemann test applied to applications for leave to appeal from interlocutory orders and provided that the Court should not grant such leave unless the applicant showed first, that the decision was attended by sufficient doubt to justify the grant of leave and, secondly, that substantial injustice would be done if the decision were allowed to stand.[23]
[23]Niemann [1978] VR 431, 441–2; Karam [2017] VSCA 145 [51].
The respondent submitted that, as the application for leave to appeal sought to impugn the exercise of the judge’s discretion relating to costs issues, it was necessary, but not sufficient, for the applicants to satisfy the two elements of the Niemann test. In addition, so it was said, the applicants had to demonstrate that there were exceptional circumstances which warranted the granting of leave to appeal.[24]
[24]The respondent cited Darrel Lea (Vic) Pty Ltd v Union Assurance Society of Australia Ltd [1969] VR 401, 408; 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd [2015] VSCA 216 [53]; G E Dal Pont, Law of Costs (Lexis Nexis Butterworths Australia, 3rd ed, 2013) [28.62] (‘Dal Pont’); Programmed Solutions Pty Ltd v Dectar Pty Ltd [2007] QCA 385 [2]–[12] (‘Programmed Solutions’). See also Northern Health v Kuipers [2015] VSCA 172 [8]–[11].
The respondent contended that there were no exceptional circumstances in the present case and that the applicants would not suffer any substantial injustice if the judge’s orders were allowed to stand. This was said to be because the applicants are free to defend the County Court proceeding and to seek further security for the second and subsequent days of the trial.[25]
[25]The respondent relied on Programmed Solutions [2007] QCA 385 [2]–[12].
The respondent also contended that, having regard to the likelihood that the costs of the application for leave to appeal will be disproportionate to the monetary value of the orders made by the judge, the making of the application is contrary to the applicants’ overarching obligation in s 24 of the Civil Procedure Act 2010 (‘CPA’). That section imposes an obligation on parties to a civil proceeding to ensure that costs are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute.
The applicants submitted that they must satisfy both the test in s 14C of the SCA and the Niemann test. However, they contended that they did not have to meet any other requirement. They submitted that they satisfied the applicable tests.
Save to say that the applicants’ submission regarding the Niemann test is inconsistent with Karam, it is not necessary for us to consider the parties’ competing contentions. This is because, for the reasons set out under each of the grounds of appeal below, we are satisfied that leave to appeal is warranted in the present case. The applicants have established that the impugned decisions of the judge were vitiated by legal error of the type referred to in House v The King.[26] The decisions are manifestly wrong and it would be contrary to the administration of justice if they were permitted to stand. If special circumstances are required, they exist in this case. There are compelling grounds for appellate intervention.
[26](1936) 55 CLR 499, 504–5.
We will discuss the respondent’s submission in relation to s 24 of the CPA later in these reasons.
Form of security for costs ordered by the judge
At the hearing of the application for leave to appeal, counsel for the applicants submitted that the grounds of appeal include a challenge to the form of security ordered by the judge. After the Bench queried the correctness of this submission, counsel informed us that he did not press it.
Although the form of security ordered by the judge is not in issue before us, we will make some brief observations about the approach that was adopted by the judge.
Rule 62.03 of the Rules empowers the County Court to order that security for costs be given ‘in the manner and at the time the Court directs’.
The parties did not make submissions before us as to the principles that should guide the County Court in determining the form of security to be ordered pursuant to r 62.03 of the Rules. The principles in DIF set out at [35] above provide valuable assistance. According to the third edition of G E Dal Pont’s Law of Costs, ‘security for costs can take one of many forms in addition to payment into court, including an enforceable undertaking, bank guarantee, bond or charge, or even possibly lodgement of title to real or intangible property with solicitors.’[27]
[27]Dal Pont [28.45] (citations omitted).
In the present case, in deciding that an undertaking by Mr Maher was an appropriate form of security, the judge sought to balance the applicants’ entitlement to security against the desirability of minimising the financial inconvenience to Mr Maher who was not a party to the County Court proceeding. The judge was not swayed by the submission made by the applicants that security in the form of an undertaking involved a risk that the undertaking would not be honoured and that proceedings for contempt may be required in order to enforce the undertaking. As set out at [32] and [37] above, the judge said that Mr Maher had ready access to funds and that it was unlikely that he would refuse to pay $10,580 if it became due and thus risk contempt proceedings.
The authorities do not preclude an order that security for costs be in the form of a personal undertaking by a third party other than a financial institution. However, where the court has a choice between security in that form and security in a liquid form that enables funds to be accessed with minimum risk that litigation may be required to enforce the security, ordinarily the court should prefer the liquid form. The need to prefer the liquid form where a choice is available has become more acute since the commencement of the CPA because:
(a)section 8(1) requires a court to seek to give effect to the overarching purpose in the exercise of any of its powers;
(b)section 7(1) provides that the overarching purpose is ‘to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’;
(c)section 9(1) provides that in making an order in a civil proceeding, a court must further the overarching purpose by having regard to a number of objects, including: the efficient conduct of the business of the court (s 9(1)(c)); the efficient use of judicial resources (s 9(1)(d)); and the timely determination of the civil proceeding (s 9(1)(f)); and
(d)a form of security for costs which does not provide a fund which can be accessed without the cooperation of the opposing party or a person who is connected to that party — and may require the commencement of proceedings to enforce it — has the potential to undermine the overarching purpose. This is because that form of security can give rise to satellite proceedings and additional delay and costs. Such satellite proceedings are contrary to the principle of finality in litigation.
In the present case, the course adopted to establish Mr Maher’s capacity to meet a costs order for an amount up to $10,580 was unorthodox and undesirable. Mr Maher did not produce any documents to support his oral evidence regarding his assets and ability to pay an amount of $10,580. The bank balance that he displayed on his mobile phone reflected a line of credit which could be substantially reduced or even exhausted over time in the light of other financial commitments. There was no assurance that $35,837.20 or any other amount would be available at any future time. It follows that Mr Maher’s undertaking was susceptible to too many contingencies to be an appropriate form of security for costs.
In any event, as Mr Maher gave evidence that he had a line of credit which enabled him to draw down funds up to the amount of $35,837.20, he could have utilised the line of credit to make a payment into court or a controlled money account, or to procure a bank guarantee. In the circumstances of this case, an order that security be provided in these forms would have been more consistent with the overarching purpose in s 7(1) of the CPA than a personal undertaking by Mr Maher.
Ground 1: Miscarriage of discretion in relation to the quantum of security
Relevant legal principles
Section 1335(1) of the Corporations Act 2001 (Cth) provides as follows:
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.
In deciding what constitutes ‘sufficient security’ for the purposes of s 1335(1), the court does not seek to provide full protection for the estimated costs of the party seeking security.[28] Rather, having regard to the fact that the order for security is usually made at an early stage of a proceeding and there are many contingencies that will affect the actual costs incurred by that party, the court fixes an amount that it considers adequate in all the circumstances of the case. Those circumstances include the nature of the proceeding, the nature and complexity of the steps that need to be undertaken by the party seeking security, the likely costs in undertaking those steps, the length of the trial, any security already provided, and the possibility that the proceeding may settle.
[28]Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97 [37] (‘Pathway Investments’).
In determining a sufficient amount for security for costs, the court does not undertake precise mathematical calculations.[29] Rather, it adopts a ‘broad brush’[30] approach involving ‘guesstimates as much as estimates’.[31] However, the broad brush approach does not involve an abstract process. It must have an evidentiary basis. The court must have regard to the evidence adduced by the parties as to quantum — whether in the form of an affidavit by an experienced litigation lawyer or an expert report by a costs consultant — although it is not bound by the parties’ estimates. The court may scrutinise the individual items in the parties’ estimates, but not to the extent of minute examination akin to a taxation.[32]
[29]Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621, 628 (‘Interwest’); Pathway Investments [2012] VSC 97 [37].
[30]Pathway Investments [2012] VSC 97 [37].
[31]Quadrant Constructions Pty Ltd (in liq) v Morgan Smith Barney Australia Pty Ltd [2009] VSC 455 [56] (‘Quadrant Constructions’).
[32]Quadrant Constructions [2009] VSC 455 [56].
The amount ultimately fixed by the court must not be so low that it fails to provide any real protection to the party seeking security, or so high that it is oppressive to the party required to provide the security.[33] The amount must be ‘just and reasonable’ in all the circumstances of the particular case.[34]
[33]Dal Pont [28.33].
[34]Wollongong City Council v FPM Constructions Pty Ltd [2004] NSWSC 523 [50].
Parties’ submissions
In their written submissions, the applicants contended that, in fixing the security for costs in the amount of $10,580, the judge’s discretion miscarried because, in arriving at that amount, she took into account an irrelevant consideration and failed to take into account a relevant consideration, within the meaning of the principles in House v The King.[35] The irrelevant consideration was said to be the judge’s own calculations set out at [28] above and the relevant consideration was said to be the uncontradicted evidence as to quantum in Mr Tobin’s second affidavit. The applicants argued that the number of hours allowed by the judge in her calculations for conferring and proofing witnesses, dealing with the Court Book and general preparation was unreasonable.
[35](1936) 55 CLR 499, 505.
In their oral submissions, the applicants resiled from their written submissions with regard to the alleged relevant and irrelevant considerations and contended that the judge’s decision was ‘unreasonable or plainly unjust’ within the meaning of the principles in House v King.[36]
[36](1936) 55 CLR 499, 505.
In their oral submissions the applicants conceded that the amounts of $2,784 and $5,280 in the table to Mr Tobin’s second affidavit[37] were inappropriately claimed and that the amount of security for the Security Period should be $40,553.28 instead of $48,617.28.
[37]See [21] above.
The respondent submitted that the ‘robust and broad approach’ adopted by the judge in fixing security in the amount of $10,580 was consistent with established authority. According to the respondent, the judge took into account Mr Tobin’s second affidavit but formed the view, correctly, that some of the items claimed were either unnecessary or excessive. The respondent contended that the judge arrived at her calculations in an appropriate manner following detailed discussion with counsel for the applicants on each individual item. The respondent noted that the amount of $10,580 was broadly consistent with the estimate of $12,966.68 for the Security Period in Mr Tobin’s first affidavit.
Decision
In our opinion, Ground 1 is made out.
In accordance with the principles summarised at [62]–[65] above, the quantum of the security to be ordered was a matter to be assessed by the judge and she was not bound by any amounts suggested by the parties. However, in circumstances where the respondent conceded that an amount of $13,000 would be reasonable and the applicants adduced evidence seeking to justify the amount of $48,617.28 which they sought, the judge needed a sound reason to fix the amount of security outside the range established by the parties.
In the light of the discussion at the hearing about the inappropriateness of some of the costs set out in Mr Tobin’s second affidavit — including the concessions made by the applicants to which we have referred — the judge was justified in rejecting Mr Tobin’s evidence that the amount of $48,617.28 was reasonable. However, there was no justification for the judge’s implicit rejection of the concession by counsel for the respondent that an amount of $13,000 would be reasonable. The judge did not explain why she disregarded this concession.
Instead of assessing the quantum of security in the broad brush manner envisaged by the authorities at somewhere between $13,000 and $48,617.28, the judge calculated the quantum by embarking on a process that was akin to taxation. That process involved the judge assessing for herself how many hours counsel and a solicitor would need to spend performing various tasks and the hourly rates that should be charged. The authorities make clear that it is wrong for a judge to purport to fix the quantum of security for costs in a precise mathematical figure by a process akin to taxation. This is particularly so when the amount that is fixed is outside the evidentiary parameters established by the parties.
It may well be that the judge was motivated by a desire to be helpful to the parties, to avoid any further delay, and to bring about a practical and sensible result. Unfortunately, in seeking to go out of her way to assist the parties, the judge lost sight of the evidentiary parameters the parties had set and adopted an erroneous approach.
As the judge arrived at her decision by acting on a wrong principle, the applicants have established that she made an error of the type referred to in House v The King.
Ground 2: Miscarriage of discretion in relation to costs
Principles relating to costs
In Boz One Pty Ltd v McLellan (No 2),[38] this Court stated as follows in relation to the Court’s discretion in determining questions of costs:
Although s 24(1) of the Supreme Court Act 1986 confers on this Court a wide discretion in deciding questions of costs, that discretion must be exercised judicially and in accordance with established principles. A well-established principle is that costs usually follow the event, that is, that the unsuccessful party is usually ordered to pay the successful party’s costs. However, there can be departures from that principle where the justice of a particular case requires this. Where there are multiple parties, some of whom are successful and some of whom are unsuccessful, the Court is required to fashion a costs order that fairly reflects the measure of success achieved by each party and all the other circumstances that bear upon the justice of the case.[39]
[38][2015] VSCA 145 (‘Boz One’).
[39]Boz One [2015] VSCA 145 [41].
These principles apply equally to the County Court.
The County Court may make an order for costs in relation to a particular question in, or a particular part of, a proceeding.[40]
[40]Rules r 63A.04(1).
The respondent referred the Court to Interwest Ltd v Tricontinental Corporation Ltd.[41]In that case, the defendants sought an order for security for costs in the sum of $1,039,440. Ormiston J ordered security in the sum of $50,000. In the light of the defendants’ ‘limited success in the application’, Ormiston J awarded them only 25 per cent of their costs.[42]
[41](1991) 5 ACSR 621.
[42]Interwest (1991) 5 ACSR 621, 628.
Parties’ submissions
The applicants submitted that the judge’s exercise of her discretion to order them to pay the respondent’s costs miscarried because there was no factual basis for the three matters upon which the judge relied in making that order. In relation to the first matter, the applicants contended that they had not delayed in applying for security for the Security Period because they sought that security 14 days after the conclusion of the mediation. In relation to the second matter, the applicants argued that, having regard to their submissions under Ground 1, the judge erred in finding that the costs claimed by them were excessive. In relation to the third matter, the applicants said that the judge erred in finding that the respondent had offered security in the amount of $13,000.
According to the applicants, as they succeeded in obtaining security in the amount of $10,580, the judge should have applied the principle that costs follow the event and awarded them the costs of the application for security for costs. They submitted that the judge’s order that they pay the costs of the respondent had the effect of defeating the order that security be provided in the amount of $10,580.
The respondent submitted that the three matters upon which the judge relied in determining to order the applicants to pay its costs were an appropriate and justified basis for that order.
In relation to the first matter, the respondent referred to the chronology of events between the conclusion of the mediation on 7 April 2017 and the hearing of the application for further security on 27 July 2017, which was three weeks before the scheduled first day of trial on 16 August 2017. By reference to that chronology, the respondent submitted that there was significant and unexplained delay on the part of the applicants in relation to the prosecution of the application for further security.
In relation to the second matter, the respondent relied upon its submissions on Ground 1 in support of the contention that the judge was correct to conclude that the costs claimed by the applicants were excessive. The respondent also relied on the concessions made by the applicants before the judge and before this Court that certain items were either not claimable or were excessive.
In relation to the third matter, the respondent submitted that the judge’s reference to an offer of $13,000 by counsel for the respondent was a ‘shorthand’ reference to counsel’s concession that that amount was reasonable.
Decision
In our opinion, Ground 2 is made out.
As the applicants succeeded in obtaining the relief that they sought, namely an order for further security for costs, they were prima facie entitled to an order for costs pursuant to the principle that costs follow the event. Although that principle is not applied automatically, there must be sound reasons based on the justice of a particular case to justify departure from the principle. This is particularly so if the court proposes to go beyond refusing to make any order for costs and make an order that the successful party pay the costs of the unsuccessful party.
In the present case, the three reasons the judge gave for departing from the principle that costs follow the event did not justify an order that the applicants pay the respondent’s costs.
The judge’s first reason was that the applicants had delayed making the application for further security and in filing and serving Mr Tobin’s second affidavit. In our opinion, the applicants’ delay in making the application was not inordinate and, although Mr Tobin’s affidavit was filed and served on the afternoon before the hearing, there was no evidence that this delay caused any prejudice to the respondent. Accordingly, the delay was not a proper basis for the judge to order that the applicants pay the respondent’s costs.
The respondent was on notice from at least 21 April 2017 — 14 days after the mediation — that the applicants required security for costs for the Security Period. As for the quantum of costs for that period, the respondent knew from Mr Tobin’s first affidavit that the applicants estimated their costs for that period at $12,966.68[43] and that this estimate had increased to $75,000 in the applicants’ letter dated 21 April 2017. The respondent was legally represented throughout the course of the County Court proceeding and could have obtained advice on the work to be performed during the Security Period and on what would constitute a reasonable amount of security for the costs of that work. The respondent did not need to wait until it received Mr Tobin’s second affidavit to obtain such advice.
[43]See [11] above.
Although it is to be regretted that Mr Tobin’s second affidavit was served so close to the hearing of the security for costs application, there was sufficient time for the respondent’s legal representatives to assess the reasonableness of the amounts claimed in that affidavit and to prepare for the hearing accordingly.
The judge’s second reason was the excessive quantum of security sought by the applicants. While the quantum of security sought by the applicants was substantially above the amount that was warranted on the evidence, this differential did not provide a proper basis for the judge to order that the applicants pay the respondent’s costs. In this regard, the case of Interwest, upon which the respondent relied, does not assist it. In that case, even though the defendants obtained security in an amount that represented less than 5 per cent of the sum sought by them, they were awarded 25 per cent of their costs.
The judge’s third reason was that the applicants rejected an offer of $13,000 which the respondent’s counsel was said to have made during the hearing. We agree with the applicants’ submission that the judge mischaracterised counsel’s statement. It was not an offer but a concession. We reject the respondent’s submission that the judge used the word ‘offer’ as shorthand for ‘concession’ because it is not consistent with the judge’s statement that the applicants ‘rejected’ the offer.[44] It would be an unusual use of language for the judge to mean that the applicants had rejected a concession. Accordingly, the third reason given by the judge did not provide a proper basis for her to order that the applicants pay the respondent’s costs.
[44]See [40] above.
We agree with the applicants’ submission that the order for costs made by the judge defeated the purpose of the order that further security be provided. The applicants will suffer substantial injustice if this manifestly wrong order is allowed to stand.
Although the three reasons upon which the judge relied did not justify an order that the applicants pay the respondent’s costs, the judge would have been more than justified in refusing to make any order as to costs. This is because the conduct of both parties left much to be desired.
The applicants not only delayed in the filing and serving of Mr Tobin’s second affidavit — contrary to the overarching obligation in s 25 of the CPA to act promptly and minimise delay — but also failed to act responsibly in preparing that affidavit. The affidavit referred to items of work which the applicants later conceded were erroneously included. The preparation of an affidavit in support of an application for security for costs is a serious matter which requires that great care be taken by the deponent to ensure that the categories of work relied upon are appropriate and any estimates as to quantum have a proper basis. Mr Tobin’s second affidavit fell short of the standard required.
The respondent resisted the application for further security for costs notwithstanding that it had previously consented to an order for security for costs for the period up to and including the mediation and notwithstanding that there had been no change in its financial or other circumstances which would disentitle the applicants to further security. In relation to the quantum of the security, the respondent was in a position to obtain legal advice about what amount for security would be reasonable. The fact that its counsel conceded at the hearing that an amount of $13,000 would be reasonable indicates that the respondent had considered what might be an appropriate amount.
The parties had overarching obligations under the CPA: to cooperate with each other and the County Court (s 20); to use reasonable endeavours to resolve the security for costs dispute (s 22); and to use reasonable endeavours to ensure that legal costs were reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute (s 24). Despite these obligations and the concession of its counsel, the respondent adopted a negative strategy of questioning the accuracy and appropriateness of the amounts sought by the applicants without taking the positive step of offering to provide security for an amount it considered to be reasonable.
If follows that, while the conduct of the applicants warranted a departure from the principle that costs follow the event, the conduct of the parties as a whole necessitated that no party should be awarded costs.
Civil Procedure Act 2010
Before turning to the orders to be made to give effect to our conclusions under Grounds 1 and 2, we will make some observations about the course of events in the this proceeding in the context of the provisions of the CPA.
At [59], [96] and [98] above, we summarised ss 7(1), 8(1), 9(1)(c), (d) and (f), 20, 22, 24 and 25 of the CPA.
As stated by this Court in Setka v Abbott,[45] the overarching purpose contained in the CPA ‘is not simply a pious but toothless statement of the considerations which are to motivate participants, lay and professional, in civil litigation.’[46] Parties have ‘a strict, positive duty to ensure that they comply with each of the overarching obligations’ and the court is obliged to enforce those duties.[47]
[45][2013] VSCA 345 (‘Setka’).
[46]Setka [2013] VSCA 345 [31].
[47]YaraAustralia Pty Ltd v Oswal (2013) 41 VR 302, 311 [26] (‘Yara’).
In recent years, courts in Victoria have made clear their willingness to take steps to uphold the overarching purpose of the CPA.[48] As stated in Kuek v Devflan Pty Ltd:[49]
The [CPA] does not contain generalities and rhetoric. Nor does it deal with abstract concepts of justice. The [CPA] imposes specific statutory obligations on the Court, the parties to civil litigation, the lawyers acting in civil litigation and other persons involved in litigation such as expert witnesses. … [I]t gives the Court wide powers to make orders limiting the rights and remedies that are otherwise available to a party if that party breaches its obligations under the [CPA].
The [CPA] must be taken seriously by litigants and their lawyers. In an appropriate case, the Court is entitled to – and will – say to a party seeking to enforce its rights in a manner that is antithetical to the overarching purpose and to that party’s overarching obligations that ‘enough is enough’, and will act to curtail those rights in the interests of the administration of justice.[50]
[48]See, for example, Yara (2013) 41 VR 302, 310–11 [24], 318 [61]; Hudspeth v Scholastic Cleaning and Consultancy Services Pty Ltd (No 8) [2014] VSC 567; Kuek v Devflan Pty Ltd [2012] VSC 571 [76]–[78] (‘Kuek’).
[49][2012] VSC 571.
[50]Kuek [2012] VSC 571 [78]–[79] (citations omitted).
A breach of an overarching obligation by a party does not absolve the opposing party from its duty to comply with that or any other overarching obligation. The inappropriate conduct of the first party should not cause the second party to lose sight of its duty to act consistently with the CPA. The overarching obligations are personal rather than contingent upon the opposing party’s compliance.
With the benefit of hindsight, it appears that the parties in the present case adopted an unnecessarily adversarial approach and failed to act in a common sense manner consistent with their overarching obligations. It appears that, in dealing with security for costs for the Security Period, they lost sight of the need to cooperate in order to reduce costs and delays and proceed to trial as soon as possible.
As the respondent is impecunious, it may be assumed that it is relying upon the financial support of others to pursue this proceeding. Common sense would suggest that it was in the respondent’s interests to conduct the proceeding in a manner which kept the number of interlocutory disputes and the quantum of costs to a minimum. Common sense would also suggest that the respondent’s impecuniosity meant that it was in the applicants’ interests to conduct the proceeding in a similar manner in order to reduce the amount of costs that would ultimately not be recoverable from the respondent. These personal interests of the parties coincided with the interests of the administration of justice as reflected in the overarching purpose in s 7(1) of the CPA. Yet, despite the parties’ interests being aligned with the interests of the administration of justice, the parties acted in a manner that did not further those interests.
In circumstances where there was no real issue that the applicants were entitled to further security for costs, the parties should have negotiated with a view to agreeing on consent orders providing for the further security. Alternatively, if agreement could not be reached, they should have filed affidavits providing estimates as to costs which had a proper basis and which would have facilitated a determination of the quantum by the judge after a very short hearing.
Instead of adopting this approach, the applicants filed an inadequate affidavit as to quantum and the respondent filed no affidavit as to quantum. Instead of a short hearing to determine the quantum of costs, the hearing extended over two days. There was then an application to vacate the trial date, followed by this application for leave to appeal. These processes involved significant delays, the deferral of the trial date and the incurring of substantial costs. The processes will result in this Court making orders relating to security for costs which were capable of being made by the County Court on 27 July 2017.
It follows that we reject the respondent’s submission that suggested that only the applicants’ conduct was inconsistent with the overarching obligations under the CPA.[51]
[51]See [50] above.
It is important for the efficient conduct of civil proceedings that the progress of a proceeding towards trial is not interrupted by disputes over security for costs. An application for security for costs should be brought promptly and, if it is contested, the dispute should be resolved with minimum delay and cost. The present case demonstrates how a proceeding can be fragmented by prolonged disputes over security for costs, particularly where they involve the trial being vacated in order to accommodate an application for leave to appeal to this Court. Such applications are to be discouraged.
Conclusion
For the reasons set out above, the application for leave to appeal will be granted and the appeal will be allowed. In addition to security in the form of Mr Maher’s undertaking to pay the amount of $10,580, we will order that further security in the amount of $2,420 be provided by the respondent to the applicants in the form of a payment into a controlled money account. The effect of such an order will be that the total security for costs to be provided for the Security Period is $13,000. This is consistent with the concession made by the respondent’s counsel before the judge[52] and the amount attributable to the Security Period in Mr Tobin’s first affidavit.[53] Mr Tobin’s second affidavit does not provide a reliable basis for awarding security for the Security Period at a higher amount.
[52]See [26] above.
[53]See [11] above.
Our decision that the total security for costs for the Security Period should be $13,000 means that we need not consider the applicants’ application for leave to amend the quantum of costs specified in the Summons.
The judge’s costs order will be set aside and, in its place, there will be no order as to the costs of the application for security for costs for the Security Period. We will hear from the parties on the appropriate form of our order and on what order should be made in relation to the costs of the application for leave to appeal and of the appeal.
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