Troiano v Voci
[2019] VSC 859
•24 December 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 00118
| RITA TROIANO (formerly RITA MOORE) | Plaintiff |
| v | |
| ROSARIO (‘ROSS’) VOCI and OTHERS | Defendants |
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JUDGE: | RIORDAN J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 December 2019 |
DATE OF ORDERS: | 24 December 2019 |
CASE MAY BE CITED AS: | Troiano v Voci (Security for costs) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 859 |
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PRACTICE and PROCEDURE – Application for security for costs – Plaintiff a natural person supported by a commercial litigation funder – Principles to be applied considered – Application under r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) on ground of misstatement of plaintiff’s address in originating process refused – Application under inherent jurisdiction granted – Principles to be applied in assessing quantum of security.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | J D S Barber | De Wet Partnership Solicitors |
| For the Defendants | M A Robins QC with L J S Molesworth | KCL Law |
HIS HONOUR:
By summons filed 10 December 2019, the defendants applied for the following orders:
1.Pursuant to r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the rules’) and/or the inherent jurisdiction of the Court, the plaintiff provide security for the defendants’ costs in the amount of $819,921.79, or such other amount as the Court deems appropriate.
2.The plaintiff provide security in accordance with paragraph 1 within 14 days of making these orders.
3.The proceedings be stayed in the event that the plaintiff fails to provide security in accordance with paragraphs 1 and 2 above.
Background
By writ filed 14 January 2019, the plaintiff claims (inter alia):
(a) an entitlement to 25 per cent of the profits of Major Projects (as defined) undertaken or managed by the Major Projects Division of the second defendant for the period from 15 November 2015 to 16 September 2016 (Bindts Road, Donnybrook and Other Major Projects (as defined)); and/or
(b) a declaration that the first defendant holds three of 12 issued shares in the third and fourth defendants on trust for the plaintiff.
These claims are alleged to arise from a joint venture agreement entered into between the plaintiff and the first defendant on or about 14 November 2014.
Claim for security for costs
The defendants apply for the security for costs pursuant to r 62.02 of the rules and the Court’s inherent jurisdiction.
With respect to the claim under both heads, the defendant submitted that there is reason to believe that the plaintiff has insufficient assets to pay the costs of the defendants if ordered to do so.
The defendants have established that the only assets of the plaintiff that had been disclosed by their inquiries are as follows:
(a)The plaintiff is the joint proprietor of a residential property described in Certificate of Title volume 10766 folio 796. The value of the property is approximately in the range of $880,00 to $965,000. The property is subject to two mortgages to the Westpac Banking Corporation in respect of which the total amount outstanding as at 20 September 2019 was $411,213. Accordingly, the plaintiff’s equity is approximately $235,000 to $275,000.
(b)The plaintiff is the sole director, secretary and shareholder of C2CPDMC Pty Ltd (ACN 614 502 877). An ASIC search discloses that the company has paid up capital of $100.
The plaintiff did not lead any evidence as to her capacity to pay the costs of the defendants if ordered to do so.
In the circumstances, I am satisfied that there is reason to believe that the plaintiff has insufficient assets to pay the costs of the defendants if ordered to do so.
The claim under the rules
Rule 62.02 provides as follows:
(1) Where—
(a) the plaintiff is ordinarily resident out of Victoria;
(b)the plaintiff is a corporation or (not being a plaintiff who sues in a representative capacity) sues, not for the plaintiff's own benefit, but for the benefit of some other person, and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so;
(c)a proceeding by the plaintiff in another court for the same claim is pending;
(d)subject to paragraph (2), the address of the plaintiff is not stated or is not stated correctly in the plaintiff's originating process;
(e)the plaintiff has changed the plaintiff's address after the commencement of the proceeding in order to avoid the consequences of the proceeding;
(f) under any Act the Court may require security for costs—
the Court may, on the application of a defendant, order that the plaintiff give security for the costs of the defendant of the proceeding and that the proceeding as against that defendant be stayed until the security is given.
(2)The Court shall not require a plaintiff to give security by reason only of paragraph (1)(d) if in failing to state the plaintiff's address or to state the plaintiff's correct address the plaintiff acted innocently and without intention to deceive.
The plaintiff is required by r 5.07(1)(a) to endorse the originating process with her address. For the purposes of this rule, this address is her residential address.[1] The defendants relied on the undisputed fact that the residential address of the plaintiff was not stated correctly in the plaintiff’s originating process.
[1]Sheen v Burke [1993] 1 VR 584, 586-7 (Beach J).
The relevant facts with respect to the misstatement of the plaintiff’s address are as follows:
(a) In the writ filed 14 January 2019, the plaintiff gave her address and her address for service as follows:
The address of the plaintiff is c/- De Wet Partnership Solicitors of 530 Little Collins Street, Melbourne VIC 3000. … Email address [email protected]
The address for service of the plaintiff is C/- De Wet Partnership Solicitors of 530 Little Collins Street, Melbourne VIC 3000. … Email address [email protected]
(b) The same addresses were included in the amended writ filed 13 September 2019.
(c) In her affidavit sworn 29 August 2019 in support of an application to amend the writ and statement of claim, the plaintiff gave her address as C/- De Wet Partnership Solicitors, of Level 1, 530 Collins Street, Melbourne.
(d) In her witness statement filed 4 July 2019, the plaintiff gave her actual residential address. It was conceded that the insertion of her actual residential address in the witness statement was an error.
(e) By email of 13 September 2019 to the defendants’ solicitors, the plaintiff’s solicitors offered to disclose the plaintiff’s residential address on receiving a written undertaking not to disclose that address to the defendants or any other persons.
(f) By a letter dated 30 September 2019 to the plaintiff’s solicitors, the defendants’ solicitors:
(i) noted that the plaintiff had failed to disclose her place of residence in both the originating process and the recent affidavit; and
(ii) gave the undertaking sought to the defendants’ solicitors.
(g) By email of 7 October 2019 to the defendants’ solicitors, the plaintiff’s solicitors provided the plaintiff’s residential address in response to the undertaking of the defendants’ solicitors.
(h) By her affidavit sworn 6 December 2019, the plaintiff deposed that she did not disclose her residential address in the writ originally filed in the proceeding ‘for the sole reason that I had concerns for my safety and security and that of my husband and child’.
(i) On 11 December 2019, I granted the plaintiff’s application for leave to amend the writ to insert the plaintiff’s residential address.
I am satisfied that in failing to state the plaintiff’s correct address in the writ, the plaintiff acted innocently and without intention to deceive within the meaning of r 62.02(2), for the following reasons:
(a) The plaintiff did not purport to do anything other than to insert her solicitors’ address, and it was not suggested that anyone would have been deceived into thinking it was her residential address.
(b) The plaintiff’s evidence as to the innocent reason for giving her solicitors’ address was not challenged or contradicted. As I indicated in the course of the hearing, for the purposes of this application, I accept the plaintiff’s evidence as to her state of mind. Of course, it is not necessary and I make no findings as to whether there is a sound basis for her state of mind.
Accordingly, I do not consider that the defendants have satisfied the threshold requirement for a security for costs order under r 62.02.
The claim under the Court’s inherent jurisdiction
The defendants submitted that, despite the usual rule that security should not be ordered against a natural person on the ground of impecuniosity,[2] the Court should order security for costs on the basis that the plaintiff was being supported by a litigation funder.
[2]Cowell v Taylor (1885) 31 Ch D 34, 38 (Bowen LJ).
In support of its contention that the plaintiff was being supported by a litigation funder, the defendants relied on the following:
(a)On 17 July 2019, in a related proceeding, the plaintiff was ordered to pay the defendants the sum of $20,000 on account of the defendants’ costs.
(b)On 28 August 2019, $20,000 was deposited into the trust account of the defendants’ solicitors. The deposit slip disclosed that it was paid by Douglas Whelan and listed his mobile phone number.
(c)A Douglas Whelan with the same mobile phone number is the executive director of Litigation Funding Solutions, which is a broker of litigation funding.
The plaintiff did not lead any evidence to rebut the defendants’ contention and her counsel conceded that the inference was available to be drawn on the evidence.
I conclude that the plaintiff has entered into an agreement with a litigation funder for the purposes of funding this litigation. In the absence of the disclosure of the terms of the arrangement or production of the agreement, I infer that:
(a)the litigation funder is entitled to profit from the proceeds recovered by the plaintiff in the proceeding (if any); and
(b)the litigation funder has a measure of control over the conduct of the proceeding.[3]
[3]Green (in his capacity as liquidator of Arimco Mining Pty Ltd (in liq)) v CGU Insurance Ltd (2008) 26 ACLC 323, 330 [27] (Einstein J); Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd [2014] VSC 154, [52] (Elliott J); Strazdins v ANZ Banking Group Ltd [2017] SASC 3, [63] (Hinton J).
It was not contended that an order for security for costs would stultify the plaintiff’s proceeding.
Defendants’ submissions
The defendants relied on the authorities referred to below in support of the proposition that the addition of the litigation funding arrangements to the plaintiff’s inability to satisfy an order for costs should lead the Court to order security for costs.
It was conceded that the authorities relied on by the defendants deal with claims by liquidators and lead plaintiffs in class actions, but it was contended that this was a distinction without a difference. In particular, the defendants submitted that the plaintiff’s claim was a ‘classic commercial case’ involving a claim for more than $30 million. It was in no sense a defensive action.
Plaintiff’s submissions
On behalf of the plaintiff it was submitted that I should accept the analysis in dissent of Basten JA of the New South Wales Court of Appeal in Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd.[4] It was submitted that the plaintiff, as an individual, was in a different position to a liquidator and a lead plaintiff in a class action, both of which brought claims effectively on behalf of others. In particular, it was submitted as follows:
(a)No normal citizen could afford to bring litigation of this type without the support of a litigation funder.
(b)An order for security for costs on the basis that the plaintiff was supported by a litigation funder would have a ‘chilling effect’ on future funding of litigation.
(c)The plaintiff was putting all of her assets at risk. The relevance of this consideration was demonstrated by the fact that a corporation that brings a claim jointly with a natural person may not be required to pay for security for costs even if the corporation funds the proceeding.
[4](2008) 67 ACSR 105 (‘Green’).
Principles
The Court has inherent power to regulate its own practice and procedures to procure proper and effective administration of justice and prevent abuse of process.[5] The inherent jurisdiction extends to the Court protecting the efficacy of the exercise of the jurisdiction to award costs by ordering security for costs where, although the circumstances fall outside the categories in r 62.02 of the rules, it is necessary in the interests of justice to do so.[6]
[5]Lines v Tana Pty Ltd [1987] VR 641, 642 (Crockett, O’Bryan and Tadgell JJ); Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443, 447 (Holland J).
[6]Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443, 447; Guss v Sullivan [1998] VSC 64 (Byrne J); Houlahan v Trentham Investment Management Pty Ltd (No 2) [2016] VSC 445 (McMillan J); Trkulja v Dobrijevic (No 2) [2016] VSC 596, [20] (Garde J); Green (2008) 67 ACSR 105, [33] (Hodgson JA with whom, on this point, both Basten and Campbell JJA agreed).
The exercise of this power is discretionary and is not limited to analogous decided cases.[7] The purpose of the exercise of the inherent power is to prevent the defendant, if successful, being left with an unenforceable costs order. However, because such an order may stultify the impecunious plaintiff from filing or continuing a proceeding, impecuniosity of a natural person plaintiff, of itself, is not usually enough.[8] In cases where natural persons have been ordered to provide security for costs, the factors, in addition to impecuniosity, have included:
(a) residence outside Australia;
(b) the claim is brought to a significant extent for the benefit of others;
(c) lack of prospects for success;[9] and
(d) evidence of the plaintiff avoiding his creditors and financial responsibilities.[10]
[7]Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443, 448-9 (Holland J); Marburg v Aldred (No 3) [2017] VSC 146, [39] (Derham AsJ).
[8]Pearson v Naydler [1977] 3 All ER 531, 533 (Megarry VC).
[9]See the cases referred to in Knight v Beyond Properties Pty Ltd [2005] FCA 764, [33] (Lindgren J).
[10] Trkulja v Dobrijevic (No 2) [2016] VSC 596, [23] (Garde J).
The burden of satisfying the Court that the threshold condition has been met and that the Court should exercise its discretion to order security for costs rests on the defendant ‘from first to last’.[11] However, matters that are peculiarly within the knowledge of the plaintiff, such as:
(a)whether an order for security would stultify its capacity to conduct the litigation; and
(b)whether the plaintiff’s impecuniosity was caused by the defendant;
must be established by the plaintiff.[12]
[11]Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377, 383 [21] (Maxwell P and Buchanan JA).
[12]Ibid 383-4 [22].
The defendant in this case submits that the additional factor is that the plaintiff has a litigation funder. The relevance of a litigation funder on an application for security for costs has been considered by courts on a number of occasions. At the outset it should be noted that the fact that a proceeding is supported by litigation funding does not constitute the proceeding an abuse of process.[13]
[13]Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 (Gleeson CJ, Gummow, Kirby, Hayne and Crennan JJ; Callinan and Heydon JJ dissenting).
Considered in their respective relevant circumstances, the Courts have held that litigation funding agreements do not constitute an abuse of process even where:
(a)the funder provides no indemnity for the plaintiff’s liability for costs;[14] or
(b) the funder is entitled to the entire benefit of and controls the litigation.[15]
[14]Jeffery & Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 (French CJ, Gummow, Hayne and Crennan JJ; Heydon J dissenting).
[15]Deloitte Touche Tohmatsu v JP Morgan Portfolio Services Ltd (2007) 158 FCR 417.
In Green,[16] the New South Wales Court of Appeal considered a claim for security for costs by CGU against the liquidator. The liquidator had settled claims against the directors and officers of Arimco for insolvent trading and sought to proceed against CGU as the insurer under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). Hodgson JA, with whom Campbell JA agreed, upheld the trial Judge’s decision to order security for costs. After considering the special position of liquidators, he considered the relevance of the fact that the liquidator had a litigation funder, and said as follows:
However, in my opinion a court should be readier to order security for costs where the non-party who stands to benefit from the proceedings is not a person interested in having rights vindicated, as would be a shareholder or creditor of a plaintiff corporation, but rather is a person whose interest is solely to make a commercial profit from funding the litigation. Although litigation funding is not against public policy … the court system is primarily there to enable rights to be vindicated rather than commercial profits to be made; and in my opinion, courts should be particularly concerned that persons whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails.[17]
[16](2008) 67 ACSR 105 (Hodgson, Basten and Campbell JJA).
[17]Ibid 120-1 [51] (Hodgson JA with whom Campbell JA agreed).
In dissent, Basten JA was not persuaded that the position of the litigation funder differed from other persons who support litigation such as:
(a) creditors who acquire their interests from assignments;
(b) lawyers acting under a conditional costs agreement;
(c)a funder acquiring an interest in a corporate plaintiff through the acquisition of shares;
(d)legal costs insurers;
(e)legal aid;
(f)creditors and shareholders of a corporate litigant;
(g)co-operative ventures such as trade unions; or
(h)assignees of factored debts.[18]
His Honour stated:
The reason why it may be said that the involvement of a “litigation funder” militates in favour of an order for security for costs in the case where the plaintiff is an individual and, as in this case, the liquidator of a corporation requires some further consideration. Unless the rationale for the approach to be adopted is properly understood, there is a danger that a practice will develop whereby the presence of a litigation funder will be relied upon to justify the making of such order simply because the existence of the funder is understood to be a “relevant consideration”. That in turn may tend to limit the availability of litigation funding, if the funder must have the resources not merely to meet the plaintiff’s costs, but also an order for security for the costs of other parties, at the beginning of the litigation.
To avoid an overly broad principle being derived from particular precedents and, indeed, to justify a differential approach, it is also necessary to identify the relevant features of a “litigation funder”. Thus, there are a variety of situations in which a plaintiff or applicant obtains financial assistance from a third party in order to pursue litigation.[19]
[18]Ibid 123 [67].
[19]Ibid 123 [66]-[67].
In Bufalo Corporation Pty Ltd (rec and mgr apptd) (in liq) v Lendlease Primelife Ltd (No 3),[20] Judd J considered an application for further security after he had previously made a limited order for security until the completion of discovery. His Honour identified the most important issue as being the significance of the existence of the litigation funder. The plaintiff argued that the litigation funder should not be penalised for providing the plaintiff with access to justice by funding its claim,[21] but his Honour followed the approach of Hodgson JA in Green and concluded that:
The existence of a litigation funder, of course, militates against the proposition, if advanced, that an award of security might stultify the litigation.[22]
[20][2010] VSC 263.
[21]Ibid [54].
[22]Ibid [58].
In Saunders v Houghton,[23] the New Zealand Court of Appeal considered an application for security for costs against a natural plaintiff, who brought a representative action alleging misleading conduct with respect to a public offering of shares. The Court noted that most of the persons represented were natural persons resident in New Zealand in respect of whom an order for security could not be made under the applicable rules. However, the Court of Appeal considered that a security for costs order may be made,[24] and opined:
The making of orders for both representation and admission of a funder substantially alters the balance between plaintiffs and defendants. We consider that the change is so radical as to justify the High Court, in exercise of its inherent jurisdiction under s 16 of the Judicature Act, to consider ordering security as a term of such orders, even where numerous natural persons are among the plaintiffs, as the price of the privilege to employ such a procedure.
That is in order to protect a defendant against the effect of a procedure which could otherwise be oppressive.[25]
[23][2010] 3 NZLR 331 (Glazebrook, O’Regan and Baragwanath JJ).
[24]Ibid 358-9 [111].
[25]Ibid 343 [36].
In Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd,[26] Elliott J considered that the existence of a litigation funder was a relevant factor in determining whether or not to make a further order for security.[27] His Honour said:
Even with the paucity of evidence available, the only proper inference open is that the litigation funder stands to gain from the litigation if the plaintiff is successful. The funder is able to place itself in this position without being a party to the proceeding and, therefore, without the usual risk in relation to costs (subject, of course, to the possibility of an order under s 24 of the Supreme Court Act 1986 (Vic)). In such circumstances, as the litigation funder seeks to benefit financially from the litigation, it is also appropriate that the funder be exposed to providing a level of security for costs. Given the absence of any evidence of a contractual obligation to do so, the court ought to order such arrangements are put in place.[28]
[26][2014] VSC 154.
[27]Ibid [51].
[28]Ibid [52].
In Strazdins v ANZ Banking Group Ltd,[29] Hinton J dismissed an appeal from the decision of a Master ordering a liquidator to provide security for costs. His Honour accepted the approach of the majority in Green,[30] and concluded that ‘once a litigation funder becomes involved the principle that impecuniosity generally presents no reason to award security for costs evaporates’.[31]
[29][2017] SASC 3 (Hinton J).
[30]Ibid [65].
[31]Ibid [67].
His Honour considered that the failure of the litigation funder to disclose the funding arrangements made the case before him a stronger candidate for an order for security for costs than that in Green. He explained:
At a high level of abstraction, the mere fact that the litigation funder supporting Mr Strazdins stands to benefit from the litigation does not warrant an order for security for costs. Here, however, the nature of any return and how it is to be determined is not known. The name of the litigation funder is not known. The basis upon which it has provided funding is not known. The degree of input into the conduct of the litigation is not known. Whether and in what circumstances the funder can walk away from the agreement to maintain the litigation is not known. There appears no doubt that the funder is not moved by altruism.[32]
[32]Ibid [63].
In Turner v Tesa Mining (NSW) Pty Ltd,[33] Lee J considered an application for security for costs against an applicant in two class actions, based on alleged breaches of the Fair Work Act 2008 (Cth). His Honour opined that, if the class actions had been funded by the group members, or the solicitors were working on a speculative basis, or if an industrial organisation was providing assistance to its members in maintaining the litigation, he would not have ordered security for costs.[34] However, he concluded that ‘the present funded class actions for financial reward tied to the fruits of the litigation are different’.[35]
[33][2019] FCA 1644.
[34]Ibid [71].
[35]Ibid [72].
In Bond v Trustee of the Property of Alan Bond, A Bankrupt,[36] French J granted an application for security for costs in the sum of $7,500 on an appeal from the Administrative Appeals Tribunal. Under the Federal Court Rules, special circumstances were required for such an order. French J found there were special circumstances because, although the applicant did not have the resources to pay the security, he was satisfied that the substantial record of considerable financial support from members of his family in relation to legal proceedings and other expenses entitled him to conclude that such financial support would continue to provide the ‘modest quantum of the security which is sought, that is $7,500’ and that it was ‘unlikely in the extreme that support to enable Bond to comply with an order would not be forthcoming’.[37]
[36](1994) 20 AAR 1 (French J) (‘Bond’).
[37]Ibid 8.
Conclusion on exercise of inherent jurisdiction
In my opinion, it is prima facie unjust for the persons who will benefit from the proceeds of a claim to be able to conduct the claim on the basis that:
(a) if successful, they will recover the claim plus their legal cost; but
(b) if unsuccessful, they will not pay the defendant’s legal costs;
in circumstances where:
(c) there is reason to believe that the defendant will be unable to recover any order for costs in its favour; and
(d) the order for security will not stultify the plaintiff’s claim.
With respect to the observations of Basten JA in Green, the above principle does not require a bright line to be drawn between litigation funders and other financial supporters of plaintiffs. Whether or not an order for security is in the interests of justice will depend on consideration of all the circumstances, including the following:
(a) As the authorities suggest, the fact that a litigation funder has an interest in the proceeds of the litigation may support the exercise of the inherent jurisdiction. However, even without a litigation funder, a Court may find that a plaintiff who has access to financial support that would not be subject to the Court’s enforcement procedures, through a trust or otherwise, should provide security for costs.[38]
[38]Bond (1994) 20 AAR 1.
(b) Lawyers acting on a contingency fee arrangement in a class action may become liable to pay security for costs.[39]
[39]See Justice Legislation Miscellaneous Amendments Bill 2019 (Vic) s 5, inserting Supreme Court Act 1986 (Vic) s 33ZDA.
(c) On the other hand, the Court may be sensitive to the position of a family member or other financial supporter of a plaintiff in circumstances if satisfied that:
(iii) the supporter has not acquired an interest in the proceeds of the claim;
(iv) the order for provision of security for costs may cause financial inconvenience to the supporter; and/or
(v) a supporter, such as a trade union, may not be prepared to continue to provide litigation support in the future, if it was to lead to orders for security for costs.
(d) Other considerations may militate against orders for security for costs based on financial support of plaintiffs by others, such as the Legal Aid Commission, creditors funding liquidators,[40] and lawyers acting under conditional fee agreements.[41]
[40]Re Ken Godfrey Pty Ltd(in liq) (1994) 14 ACSR 610, 612 (Hayne J); Green (2008) 67 ACSR 105, 127-8 [83] (Campbell JJA with whom Hodgson JA and, on this point, Basten JA agreed).
[41]Madjwicks v Kelly (2013) 212 FCR 1, 13-14 [47] (Allsop CJ and Middleton J), 38-9 [148]-[149] (Jessup J).
In the absence of evidence, I would not conclude that the adoption of the above approach would have a ‘chilling’ or other substantial effect on the preparedness of litigation funders to fund (what they assess as) meritorious claims. In appears more common for litigation funders to factor in the risk of adverse costs orders,[42] and the provision of an enforceable indemnity for costs by a funder would be a relevant consideration militating against a security for costs order.[43]
[42]See, eg, Clairs Keeley (a firm) v Treacy (2004) 29 WAR 479, 489 [54] (Steytler, Templeman and McKechnie JJ); Spatialinfo Pty Ltd v Telstra Corporation Ltd [2005] FCA 455, [33] (Sundberg J); Re Australian Institute of Professional Education Pty Ltd (in liq) [2018] FCA 642, [26](7) (Gleeson J); Ascot Vale Self Storage Pty Ltd (in liq) v Nom de Plume Pty Ltd [2019] VSC 794 [23](b) (Riordan J).
[43]Bufalo Corporation Pty Ltd (rec and mgr app) (in liq) v Lendlease Primelife Ltd (No 3) [2010] VSC 263, [53] (Judd J); quoted with approval in Bakers Investment Group (Australia) Pty Ltd v Caason Investments Pty Ltd [2014] VSC 154, [53] (Elliott J).
In this case, I am satisfied of the factors set out in paragraph 36 above. Accordingly, as the litigation funder has not offered to indemnify the defendant for its costs of the action, and there are no other factors militating against the ordering of security, I will order that the plaintiff provide security for costs.
Quantum of security for costs
The defendants relied on the affidavit of Mr De La Rue, a very experienced legal costs consultant. In response to the request of the defendants’ solicitors, Mr De La Rue estimated the costs of three phases of the litigation on a standard basis in accordance with the Supreme Court scale of costs to be:
Period Disbursements Costs Total Costs incurred to 6 September 2019 (‘Past Costs’) $85,751.37 $224,656.22 $310,407.59 Costs from 6 September 2019 up to and including mediation (‘Up to Mediation Costs’) $94,000 $168,908.40 $262,908.40 Costs of and incidental to hearing (‘Hearing Costs’) $163,500 $83,105.80 $246,605.80 Total $343,251.37 $476,670.42 $819,921.79
The plaintiff did not tender evidence as to the quantum of the plaintiff’s costs but submitted that the costs estimates of Mr De La Rue were plainly excessive in at least the following five respects:
(a)Item 80 of the Past Costs allowed for perusal of the plaintiff’s tender bundle at $81,600 being 4,000 folios at $20.40 per folio. It was submitted that, at most, the allowance should be $10,964 being 1,321 pages at $8.30 per page for scanning the tender bundle. In particular, the tender bundle includes contracts of sale, the precinct structure plan and other documents that would not need to be inspected.
(b)Similarly, item 108 of the Past Costs allowed for perusal of the supplementary tender bundle at $6,120 being 300 folios at $20.40 per folio. It was submitted that it should be allowed at $920 being 111 pages at the scanning rate of $8.30 per page.
(c)Item 128 of the Past Costs allowed a charge for perusal of company documents at $70,550 being 8,500 emails at $8.30 per email. These documents consist of Ms Troiano’s entire email account for the time she worked at the second defendant. Most of these documents are not relevant and were provided pursuant to the defendants’ application for delivery up of all documents.
(d)Item 19 of the Up to Mediation Costs allowed $73,400 for perusal of the balance of 8,800 emails (referred to in Item 128 of the Past Costs) produced at the defendants’ request, and should not be allowed for the same reason.
(e)Item 132 of the Past Costs allowed $5,000 for sundry photocopying fees and incidental expenses. There is no evidence these costs have been incurred.
Further, it was submitted that allowance should be made generally for the prospect that matters may be disallowed on taxation.
Consideration
The relevant legal principles to be applied in assessing the quantum of security were summarised by the Court of Appeal in Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd as follows:
In deciding what constitutes ‘sufficient security’ … the court does not seek to provide full protection for the estimated costs of the party seeking security. 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.
In determining a sufficient amount for security for costs, the court does not undertake precise mathematical calculations. Rather, it adopts a ‘broad brush’ approach involving ‘guesstimates as much as estimates’. 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.
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. The amount must be ‘just and reasonable’ in all the circumstances of the particular case.[44]
[44] [2017] VSCA 293, [63]-[65] (Tate and Kyrou JJA) (citations omitted).
In my opinion, the Court’s approach in assessing the amount to be ordered by way of security may be summarised as follows:
(a)The amount should not be so low that it fails to provide real protection to the defendant, but should not be so high as to be oppressive to the plaintiff.
(b)The determination of the sum must have an evidentiary base but it is not bound by the evidence put forward by experienced litigation lawyers or costs consultants. Allowance may be made generally for the prospects that items may be reduced or disallowed on taxation.
(c)It may scrutinise individual items in the parties’ estimates, but overall the Court adopts a ‘broad brush’ approach involving ‘guesstimates as much as estimates’.[45]
[45]Ibid.
In my opinion, there is substance in the submissions of the plaintiff’s counsel particularly as to the allowance of $143,950 for a solicitor examining 17,300 emails (in addition to $103,720 for perusal or scanning the plaintiffs’ witness statements, tender bundle and discoverable documents),[46] which the defendants requested on the basis that they pertained to the defendants’ business affairs, not that they were necessarily relevant to this proceeding.
[46]Items 80, 108 and 129 of the Past Costs.
I consider an allowance should be made for the fact that it is likely that the amounts claimed by the defendants on a taxation would be reduced by the Costs Court.[47] As was observed by the English Court of Appeal in Procon (Great Britain) Ltd v Provincial Building Co Ltd:
[I]n very substantial taxations, such as this one … inevitably [the taxable bill] will be taxed down and I have no doubt that the [solicitors taxing the bill] would be astounded if their bill survived without any reduction. [48]
[47]Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336, 345-6 (Heerey J).
[48] [1984] 2 All ER 368, 372.
For example, items 31 to 33 of the Up to Mediation Costs provide for the sum of $51,500 for three days preparation for the mediation by senior counsel, junior counsel and solicitor. In my opinion, it would be arguable that this amount should be reduced to one day preparation for senior or junior counsel plus an allowance for the solicitor, noting that senior or junior counsel have been involved in the proceeding throughout, and the estimate also allows three days for senior and junior counsel settling witness statements.
Further, I consider it appropriate that security for costs should only be provided up to the completion of the mediation (claimed at $573,315.99) with liberty to the defendants to apply for further security at that time. In my opinion, after taking into account the various factors referred to above, I consider that the just and reasonable sum in all of the circumstances of this case is $400,000.
Accordingly, I will order that the plaintiff provide security for costs up to and including the completion of the mediation in the sum of $400,000.
I will hear from the parties as to the form and timing of the provision of the security.
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