United Commercial Projects Pty Ltd v PHHH Investments No 2 Pty Ltd
[2019] VSCA 192
•30 August 2019
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2019 0046
| UNITED COMMERCIAL PROJECTS PTY LTD (ACN 110 860 369) | Applicant/Appellant |
| v | |
| PHHH INVESTMENTS NO 2 PTY LTD (ACN 602 191 506) | Respondent |
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| JUDGES: | WHELAN and KAYE JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 28 August 2019 |
| DATE OF JUDGMENT: | 30 August 2019 |
| MEDIUM NEUTRAL CITATION: | [2019] VSCA 192 |
| JUDGMENT APPEALED FROM: | [2019] VCC 333 (Judge A Ryan) |
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PRACTICE AND PROCEDURE – Security for costs – Delay – Significance of delay absent evidence of prejudice – PPK Willoughby Pty Ltd v Baird [2019] NSWCA 48 applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant/Appellant | Mr D J Williams QC with Mr N A Andreou | Macpherson Kelley |
| For the Respondent | Mr J F Richardson | Noble Lawyers |
WHELAN JA:
United Commercial Projects Pty Ltd (‘United Commercial’) is a commercial builder. PHHH Investments No 2 Pty Ltd (‘PHHH’) was the owner of a property in Victoria Street, Brunswick. It engaged United Commercial to carry out construction work at that property in 2016. In 2017 there was litigation in this Court between United Commercial and PHHH under the Building and Construction Industry Security of Payment Act 2002. In 2018 PHHH issued proceedings in the County Court and United Commercial defended those proceedings and brought a counterclaim. On 25 March 2019 a judge in the County Court dismissed an application by United Commercial for security for costs. The sole ground upon which the application was dismissed was what the judge characterised as ‘unjustifiable’ delay in making the application. United Commercial now seeks leave to appeal. The parties were advised that should leave be granted, the appeal would be heard and determined forthwith and the matter proceeded and was argued on that basis.[1]
[1]Pursuant to s 11(1A) of the Supreme Court Act 1986 the President of the Court of Appeal determined, by a determination dated 23 August 2019, that two judges of appeal constitute and may exercise all the jurisdiction and powers of the Court of Appeal in relation to this matter.
Relevant background
PHHH was the registered proprietor of the property in Victoria Street, Brunswick between 15 December 2015 and 22 June 2018. It entered into a building contract with United Commercial in March 2016. The contract required United Commercial to carry out construction works at the property. In the latter half of 2017 there was litigation in this Court between United Commercial and PHHH under the Building and Construction Industry Security of Payment Act. Those proceedings, in substance, were determined in favour of United Commercial.
On 12 April 2018 PHHH issued proceedings in the County Court seeking to recover liquidated damages for delay. Very shortly thereafter, on 17 April 2018, PHHH entered into a contract to sell the property to a company named Duongquynh Pty Ltd. In May 2018 United Commercial entered an appearance, but it neglected to file a defence within time and in June 2018 PHHH obtained judgment in default of defence. That judgment was set aside shortly thereafter.
On 1 August 2018 PHHH amended its claim so as to add a claim for damages for defective work, amongst other additional claims. On 31 August 2018 United Commercial filed a defence and counterclaim. The counterclaim sought to recover amounts allegedly still outstanding under the contract and a substantial sum for prolongation costs. PHHH filed a reply and defence to counterclaim on 24 September 2018. In October 2018 there was an exchange of requests for particulars.
On 2 November 2018 a judicial registrar in the County Court made orders, in accordance with consent minutes submitted by the parties, setting the proceeding down for trial on 8 July 2019 on an estimated duration of 7 to 10 sitting days. Directions were also made in relation to a further amended statement of claim proposed by PHHH; discovery; the filing of expert reports; mediation; the preparation and delivery of a court book; and the preparation of an agreed chronology, summary of key issues, and a ‘trial running sheet’.
PHHH filed its further amended statement of claim on 5 November 2018. It added a claim for unjust enrichment.
On the same day the solicitors for United Commercial wrote to the solicitors for PHHH requesting that PHHH provide security for costs. Correspondence was exchanged. PHHH refused to provide the security.
In December 2018, United Commercial filed a defence to the further amended statement of claim and an amended counterclaim, and PHHH responded to a request by United Commercial for further particulars.
On 21 December 2018 United Commercial filed a summons seeking security for costs. Prior to the hearing of the summons the parties agreed that the orders made with a view to trial should be stayed until the summons was heard and determined.
The application for security for costs was heard on 21 February 2019, and the judgment dismissing the application was delivered on 25 March 2019.[2]
[2][2019] VCC 333 (‘Reasons’).
Material before the judge
The solicitor for United Commercial swore an affidavit in support of the application for security for costs. The affidavit briefly referred to the nature and quantum of the claims, PHHH’s claim and United Commercial’s counterclaim each being in excess of $900,000. The affidavit set out the request which had been made for security for costs referring to the fact that PHHH apparently owned no real property, had no apparent assets, and was significantly indebted to related entities. Reference was made to the fact that PHHH’s legal costs were being paid by its director, one Patrick Honeyborne. The affidavit set out a detailed estimate of the costs incurred and to be incurred by United Commercial from the institution of the proceeding until the conclusion of the mediation, resulting in a total of $249,324.40.
The solicitor for PHHH swore an affidavit in response in which he deposed to relevant matters on the basis of information provided to him by Mr Honeyborne. Amongst other things, he deposed that he was informed by Mr Honeyborne that PHHH was ‘presently in the process of having third parties carry out rectification works’. The affidavit set out a detailed history of the proceedings. The solicitor deposed that PHHH had ‘commenced the process of making discovery’ and was ‘in the process of having its expert evidence prepared’.
It is necessary to observe at this point that PHHH’s solicitor did not depose that any particular step in the proceeding had been taken, or not taken, as a consequence of a belief that security for costs would not be sought.
The affidavit sworn by PHHH’s solicitor addressed in detail United Commercial’s costs estimate.
United Commercial’s solicitor then swore a further affidavit in which she exhibited an ASIC search of PHHH and a title search of the property, amongst other documents. The ASIC search reveals PHHH to be a limited liability proprietary company whose sole director and secretary is Patrick Honeyborne. It has a paid up capital of $12. Mr Honeyborne is also the sole shareholder. The title search reveals that PHHH transferred the property to Duongquynh Pty Ltd on 22 June 2018. Shortly prior to the transfer, a caveat lodged by Mr Honeyborne claiming an interest on the basis of a ‘charge’ was withdrawn.
The Reasons
The judge below set out the relevant background, including the steps taken in the proceeding in some detail.[3] The judge referred to the affidavit filed in support of the application for security for costs observing that PHHH is a limited liability company with $12 of paid up capital, that it acts as trustee of a trading trust, that it does not own any real property, and that there is no evidence that it owns any other assets.[4]
[3]Reasons [4]–[22].
[4]Reasons [23].
The judge referred to the applicable legal principles, and set out the relevant discretionary considerations, as described by Smart J in Sydmar Pty Ltd v Statewise Developments Pty Ltd.[5]
[5](1987) 73 ALR 289, addressed at Reasons [24]–[26].
The judge recorded the fact that counsel for PHHH had conceded during oral submissions that the ‘threshold requirement’, being that there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the defendant’s costs if ordered to do so, was met.[6]
[6]Reasons [27].
The judge said that, as matters had transpired, the debate before her ‘focused’ on two discretionary factors relied upon in opposition to the order sought, being delay and the existence of the counterclaim.[7]
[7]Reasons [27].
The issue concerning the counterclaim was addressed by United Commercial whose counsel gave an undertaking that if the claim was stayed the counterclaim would also be stayed.[8] No issue is now raised in relation to the counterclaim on this application.
[8]Reasons [35]–[44].
The sole factor upon which the judge relied in rejecting the application for security for costs was delay. As to the applicable principle, the judge said:
Generally speaking, an application for security should be made promptly once the defendant has knowledge of the facts that would justify the making of an order. A delay in bringing an application brings with it the inevitable consequence that an order for security may unfairly prejudice the plaintiff who may have incurred considerable liability for costs prior to the application being made.[9]
[9]Reasons [28].
The judge recorded United Commercial’s position in relation to delay as follows:
United argued there was no real delay on its part in bringing the application. Counsel on behalf of United noted that pleadings were only finalised in November 2018, and the request for security was made shortly after pleadings had closed. To the extent that the Court might consider there was a delay, this could be dealt with by awarding United security for future costs only and excluding previous costs. The parties were ad idem that in assessing the quantum of any security to be ordered, the Court could adopt a broad brush approach.[10]
[10]Reasons [31].
The judge’s relevant conclusion was expressed as follows:
An imminent trial date and the absence of any prior warning of an intention to seek security are factors which may militate against the making of an order for security. Security for costs is not a card a defendant can keep up its sleeve and play at its convenience. It is significant in my view that United consented to the matter being fixed for trial and various procedural orders without disclosing its hand at the time those orders were made.
The matters relating to PHHH’s financial circumstances were known to United before the letter of 5 November 2018 was sent. Additionally, the results of various searches exhibited to the second affidavit of Ms Nomikos [United Commercial’s solicitor] could have been obtained at an earlier time. No explanation has been given on behalf of United as to why the request was only made on 5 November 2018 and not beforehand. It is not a sufficient answer to say that United did not delay, because pleadings only closed in November 2018. In my view, the request for security could and should have been made earlier. In the meantime, PHHH has taken a number of steps to progress its claim which it otherwise may not have done had the request been made more promptly. This is the prejudice which the authorities say should be taken into account when exercising the discretion to order security. I am satisfied the application should be refused on the ground of delay alone.[11]
[11]Reasons [33]–[34].
Proposed grounds of appeal
The application for leave to appeal sets out the following proposed grounds of appeal:
1.The learned primary judge’s discretion miscarried when applying Rule 62.02 of the County Court Civil Procedure Rules 2018 (Vic).
2.The learned primary judge erred in identifying the relevant period constituting a delay by the Applicant in seeking security for its costs of the proceeding.
3.The learned primary judge erred in identifying the extent of any prejudice that the delay would cause to the Respondent if security was ordered.
4.The learned primary judge erred in attaching significance to the fact that, after first making a request for security, but before issuing its summons seeking that security, the Applicant consented to procedural orders which included fixing the proceeding for trial some 8 months later.
5.The learned primary judge erred in concluding that the delay warranted a dismissal of the application, rather than the less drastic consequence of reducing the amount of security ordered by disallowing security for costs already incurred.
Submissions
United Commercial submitted in its written case that the primary judge had approached the question of delay on the basis that the relevant period of delay was seven months, being the period from commencement of the proceeding until the request for security was made. It was submitted that that constituted an error on her part and that the relevant period of delay was much shorter, and ought not to have been regarded as commencing prior to the filing of amended pleadings in August 2018. In oral submissions senior counsel accepted that there had been some delay but submitted that there was no evidence that any significant costs had been incurred during that period of delay.
United Commercial submitted the judge was also in error in concluding that the respondent would suffer prejudice as a consequence of the delay. It was submitted that there was no evidence to support this conclusion. Senior counsel submitted that the judge below had proceeded on the erroneous basis that there had been prejudicial delay of such significance that it overwhelmed all other relevant considerations.
United Commercial submitted that the judge had been wrong to characterise the trial date as ‘imminent’ and had been wrong to characterise United Commercial’s conduct as keeping security ‘up its sleeve’. The trial date was still eight months away when the request for security was made.
United Commercial submitted that the judge had been wrong not to address the issue of delay by making an order referable to future costs only.
Senior counsel for United Commercial accepted that the application for leave to appeal faced a significant barrier by virtue of the fact that what was sought to be appealed was a discretionary judgment on a matter of practice and procedure. He submitted, however, that this was a matter where very significant injustice would occur if the errors made by the trial judge were not corrected because United Commercial would be left having to conduct complex and expensive litigation in circumstances where it would be liable for costs if it was unsuccessful but would not be able to recover costs if it succeeded.
PHHH placed significant emphasis upon the fact that the decision sought to be appealed was a discretionary judgment in relation to a matter of practice and procedure. It was submitted that an error of the requisite kind had not been established, and that an appellate court ought to exercise considerable restraint in reviewing the exercise of discretionary decisions on matters of practice and procedure.
Counsel for PHHH also emphasised that no explanation had been provided by United Commercial for the delay which had occurred. Initially he appeared to suggest that that, in itself, was a disentitling factor, but he then resiled from that and contended it was a very significant consideration. He accepted that there was no evidence of prejudice but submitted that the existence of prejudice could be inferred.
Applicable legal principles — discretionary judgments on matters of practice and procedure
PHHH’s submissions concerning the nature of the application and the approach of an appellate court to such applications are correct.
The relevant decision is a discretionary judgment. This Court will not intervene in such matters unless it is made to appear that the judge has acted on a wrong principle, allowed an irrelevant matter to affect the decision, mistaken the facts, failed to take into account some relevant matter, or has reached a decision so unreasonable and plainly unjust that it may be inferred that in some way there has been a failure to properly exercise the discretion.[12]
[12]House v The King (1936) 55 CLR 499, 505.
Further, the relevant decision concerns a matter of practice and procedure and appellate courts are very cautious about interfering on such matters.[13]
[13]Adam P Brown Male Fashions v Phillip Morris Inc (1981) 148 CLR 170, 177.
Finally, whilst leave to appeal cannot be granted unless there is a real prospect of success, the Court has a residual discretion to refuse leave even where there is a real prospect of success.[14] It may refuse leave to appeal where leave is sought in relation to an interlocutory order on a matter of practice and procedure and the appellant would not suffer substantial injustice if the orders sought on the proposed appeal were not made.[15]
[14]Kennedy v Shire of Campaspe [2015] VSCA 47 [3] and [14].
[15]Molonglo Group v Cahill [2018] VSCA 147 [96]–[97].
Applicable principles — delay
The position in relation to delay in bringing applications for security for costs has recently been addressed in the New South Wales Court of Appeal in PPK Willoughby Pty Ltd v Baird.[16] In that case a judge in the trial division had ordered security for costs in circumstances where it had been contended that there had been unjustifiable delay. Before the Court of Appeal it was submitted that the judge below had erroneously discounted the significance of the delay on the basis that there had been no significant consequence of that delay.
[16][2019] NSWCA 48.
In that context the Court of Appeal (Bell P and Simpson AJA) addressed the issue as follows:
What his Honour said in terms was that ‘the fact that [the] defendant [had] delayed the bringing of an application for security for costs will be less relevant, and possibly even irrelevant, unless it can be seen to have generated or produced some consequence of significance’. (Emphasis added). His Honour’s use of the word ‘possibly’ in the sentence quoted illustrates that he formed no final view in respect of that matter and cannot fairly be taken to have endorsed or embraced such a view. His Honour’s statement that delay will be ‘less relevant’ unless it can be seen to generate or produce some consequence of significance is not criticised in the Draft Notice of Appeal and rightly so in our opinion.
The relative significance of delay in the making of a security for costs application and as a factor in the exercise of judicial discretion to award security for costs will inevitably vary with the facts of each case, the nature, extent and cause for any delay and the overall justice of the case. Insofar as his Honour suggested that some authorities established that delay could ‘possibly even [be] irrelevant, unless it can be seen to have generated or produced some consequence of significance’, we would not agree. In our opinion, delay will invariably be a relevant discretionary factor in any application for security for costs, but the degree or extent of its relevance will vary according to the circumstances of any given case along a spectrum from the slight to the extreme.[17]
[17]Ibid [10]–[11].
Then, after referring to prior judicial pronouncements on the issue of delay, the Court went on:
In our opinion, there is no necessary tension between these passages and the observations by the primary judge in the present case in paras [28]-[30] of his reasons. When read in the context of the argument that had been put in Green, Hodgson JA was accepting the uncontroversial submission that prejudice may, in certain circumstances, be inferred with the corollary that it is not necessary, in order for prejudice to be demonstrated, that the plaintiff prove ‘exactly’ what it would have done had the application been made earlier. His Honour of course went on to observe that, if the plaintiff does in fact prove that it would not have gone ahead with the proceedings if an application for security for costs had been brought earlier, that would be a very powerful consideration against the grant of security. What the primary judge was saying in para [28] of his reasons for judgment in the present case was simply that the Plaintiff had not done that in resisting the application for security for costs. That was correct as a matter of fact and was not irrelevant. It might also be observed that the primary judge in Green had made a strikingly similar observation (as recorded in Hodgson JA’s judgment at [12]), and that Hodgson JA (at [58]) saw no error in the primary judge’s approach concerning delay.
In relation to the observation in Christou that ‘prejudice will generally be regarded as inherent in substantial delay’, it is plain from Newnes JA’s use of the word ‘generally’ that his Honour was not intending to suggest that substantial delay is presumptively prejudicial, in the same way that we do not read Hodgson JA’s observation in the final sentence of para [57] in Green as establishing any presumption of prejudice from the incurring of substantial legal costs.[18]
[18]Ibid [16]–[17].
In my view, the Court of Appeal in New South Wales has correctly articulated the principles which apply where an order for security for costs is resisted on the ground of delay. Delay is always a relevant matter. Its significance will depend on the facts of each case. Delay will be of greater significance where there is evidence of prejudice. Generally, it cannot be presumed that delay, even substantial delay, is prejudicial.
One further matter is relevant in this context. As was submitted by United Commercial, one way in which delay can be addressed is by limiting an order for security for costs to those costs incurred after the request for security was made, or after the application was brought.[19]
[19]There are many cases in which that has been the approach, see, for eg, Darelvale Holdings Australia Pty Ltd v Waterjet Designs Pty Ltd [2003] FCA 863 and very recently Pun v Poon [2019] NSWSC 918.
Analysis
In order to obtain leave to appeal, and to succeed on the consequent appeal, the Court must be persuaded that the judge below made an error of the requisite kind and, in the circumstances here, that this is a case where the Court should intervene on a matter of practice and procedure, and that substantial injustice would occur if the relevant error were not corrected.
As to the issue of substantial injustice, United Commercial is facing a complex and expensive trial. It has already incurred significant costs. Prior to trial it will incur substantial further costs in carrying out discovery, and in complying with the directions which have been made. There will then be a trial of between seven and ten days in the County Court. If United Commercial were to succeed it would normally obtain a costs order against PHHH. On the material before the Court, PHHH has no capacity to meet any such order.
The sole director and shareholder of PHHH is Mr Honeyborne. He has not offered to accept liability for any order made against PHHH. Nothing is known of his assets. His solicitor has sworn that PHHH is in the process of carrying out remedial works. No explanation has been provided as to why that is being done in circumstances where the property has been sold.
In these circumstances, if an error of the requisite kind has been made by the judge below, in my opinion this is a matter where this Court should intervene because United Commercial will suffer substantial injustice if that error is not corrected. It will be forced to undertake complex and expensive litigation in circumstances where it will be potentially liable for costs if it is unsuccessful, but it will be most unlikely to recover costs against PHHH if it is successful.
Turning then to the proposed grounds of appeal, proposed ground 1 does nothing more than assert that the judge’s discretion ‘miscarried’.
Proposed ground 2 asserts that the judge erred in identifying the relevant period of delay. It is contended that the judge had treated the delay as running from the institution of the proceeding until the request for security was made. The judge did not make that error. The judge set out the history of the proceeding and in her relevant conclusion simply stated that the request for security ‘could and should have been made earlier’. She made no error in that regard. The judge did not mischaracterise the period of the delay.
In proposed ground 4 it is contended that the judge erred in attaching significance to the fact that the applicant had consented to the orders made on 2 November 2018. That was a relevant matter for the judge to take into account, and no error of the requisite kind has been shown in relation to it.
Proposed ground 5 contends that the primary judge erred by not taking the ‘less drastic’ approach in relation to delay of limiting security to prospective costs. Standing alone, no such error is made out. If the judge correctly concluded that the relevant delay was unjustifiable, and that PHHH had suffered prejudice as a result, then it was open to her not to take that ‘less drastic’ course.
Proposed ground 3 contends the judge was in error in relation to the issue of prejudice.
In the light of the recent analysis of the New South Wales Court of Appeal, to which I have referred, I have concluded that leave to appeal should be granted, and that the appeal should be allowed, on proposed ground 3.
There was no evidence here of any actual prejudice. That is, evidence from the relevant decision maker or makers that PHHH would, or even may, have taken a different course in the litigation if the request for security had been made earlier. There was no evidence that PHHH had taken any step on the basis of a belief that a security for costs application would not be made, or had refrained from taking any step on that basis. No such suggestion is made in the correspondence between the solicitors when security was sought and refused. It is not contended that if security is ordered PHHH or someone else on its behalf will not be able to provide it and the claim will then be stultified.
The judge proceeded on the basis that relevant actual prejudice could properly be presumed. That was the basis upon which she exercised her discretion to refuse security for costs. In the critical concluding passage of the Reasons she said that PHHH had ‘taken a number of steps … which it otherwise may not have done’, and that ‘[t]his is the prejudice [which] should be taken into account’.
In my opinion the judge made an error in taking this approach. She presumed the existence of actual prejudice when there was no evidence of actual prejudice. She saw that factor as being critical. She failed to have regard to the fact that PHHH had not given evidence of actual prejudice. As senior counsel for United Commercial submitted, that factor incorrectly overwhelmed the other relevant considerations.
It is significant in this respect that the New South Wales Court of Appeal decision which addresses this issue was delivered after her Honour’s judgment. As the Court of Appeal in New South Wales has explained, the weight to be attached to delay will vary depending upon the facts of each individual case and, in particular, depending upon whether there is evidence that the plaintiff has in fact been prejudiced by the delay. There is no such evidence in this case, and, in my opinion, the judge made an error in presuming the existence of prejudice which she found to be sufficient to outweigh, on its own, the other relevant considerations.
I wish to emphasise that where there is delay, that is always a relevant matter in applications for security. Such applications should be made promptly. In this case, it was always clear that substantial costs would be incurred in the proceeding, and, at least from the time when the property was transferred in June 2018, that there was reason to believe that PHHH would not have assets available to meet any costs order. The order for security which ought to have been made could have addressed that position by confining the order to prospective costs.
The undertaking
As was the position before the judge below, counsel proffered an undertaking on behalf of United Commercial that if PHHH’s claim was stayed as a consequence of an order for security for costs United Commercial’s counterclaim would also be stayed.
Conclusion on whether security should have been ordered
In my opinion leave to appeal should be granted on proposed ground 3 and the appeal should be allowed. The order below should be set aside. In lieu of that order, I would make an order in favour of United Commercial for security for costs. The amount of the security should be confined to costs incurred after 5 November 2018 when the request for security was first made.
Quantum
Before the judge below it was agreed that the Court should assess the quantum of any security order in a ‘broad brush’ manner. The respective solicitors in their affidavits have itemised cost estimates. The estimates differ significantly.
United Commercial’s solicitor divided her costs estimate into 10 separate stages between the commencement of the proceeding and the conclusion of the mediation. The first four stages occurred before 5 November 2018. I would not make any allowance for those stages. Otherwise, I would broadly adopt the approach of PHHH’s solicitor, save that I would not reduce the costs by reference to the overlapping issues on the counterclaim. Adopting a broad brush approach, I
would order security of $85,000 up to the conclusion of the mediation.
Conclusion
In my view leave to appeal should be granted on proposed ground 3 and the appeal should be allowed. The order below should be set aside. An order should be made that PHHH provide security for the defendant’s costs until the completion of the mediation in the sum of $85,000 and that its claim be stayed until such time as that security is provided.
KAYE JA:
For the following reasons, I agree that leave to appeal should be granted, and the appeal allowed, on ground 3 of the application for leave to appeal.
As Whelan JA has noted, in order to succeed, the applicant must demonstrate a relevant error by the primary judge in the exercise of her discretion to decline to order security for costs in this case. The decision by the primary judge pertained to a matter of practice and procedure, and accordingly it is necessary for this Court to exercise particular caution in determining whether such error has been made out on this application.[20] In applying those principles, I have been mindful that the reasons for decision by the primary judge are detailed and considered. Nevertheless, I am persuaded that leave should be granted, and the appeal allowed, on ground 3.
[20]Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170, 177.
In the present case there was, as the primary judge has found, material delay by the applicant in foreshadowing, and then making, its application for security for costs. The applicant did not provide any reason for that delay. During that period, the respondent took a number of steps in progressing its case for trial. Those considerations are, ordinarily, relevant, if not important, factors, weighing against the grant of security for costs in a case such as this.[21]
[21]Smail v Burton [1975] VR 776, 777 (Gillard J, with whom Newton and Norris JJ agreed).
In many cases, it might be open to the Court to infer that, by reason of such delay, the respondent to the application for security has suffered relevant prejudice, and will suffer prejudice, if the application for security is granted. In particular, in such cases, it might be demonstrated by, or inferred from, evidence before the Court that the grant of an order for security for costs might stultify the ability of the respondent to continue to prosecute the proceeding, in circumstances in which the respondent has expended substantial costs so far in preparing and advancing the case towards trial.
However, in this case, there is no evidence that would support an inference that the respondent has incurred such prejudice. Rather, the evidence is to the contrary. Notwithstanding its financial circumstances, as demonstrated by the material in support of the application, the respondent has nevertheless been able to proceed with the interlocutory steps in the proceeding, to the point at which the case is set down for trial. The evidence demonstrates that the funds, which have enabled the respondent to proceed, have been provided, not by the respondent company, but by its director, Mr Honeyborne. There is no evidence whether the funds, so paid by Mr Honeyborne, constitute a debt owed by the respondent to him. Nor is there any evidence as to the terms upon which any such funds have been provided by Mr Honeyborne on behalf of the respondent.
Further, and importantly, no evidence has been put forward by the respondent that, if it were ordered to provide security for costs, that source of funding would no longer be available to it, either to provide the amount so ordered by the Court to be paid by way of security, or for the respondent’s own ongoing costs. Nor has the respondent deposed that the funds, that were provided to it by Mr Honeyborne for its costs to date, have been expended by it, or indeed were provided to it by Mr Honeyborne, with the understanding or expectation that the applicant would not be seeking security for costs in this proceeding.
In this case, the absence of evidence, to that effect, is of particular significance. According to the company search that was tendered in evidence, Mr Honeyborne is and was at the material time the sole director and sole shareholder of the respondent company. As mentioned, Mr Honeyborne himself has been paying the legal costs incurred by the respondent in the prosecution of its claim against the applicant. Thus, Mr Honeyborne was singularly in a position to depose, or instruct the respondent’s solicitor to depose, as to either of the matters referred to in the preceding paragraph. That is, Mr Honeyborne was in a position to depose, or instruct the respondent’s solicitor to depose, first, that if the applicant had made its application for security for costs earlier, the respondent would not have expended funds on prosecuting the proceeding up to 5 November 2018, or, secondly, if an order for security were made, the respondent would not be able to continue to prosecute the proceeding. Further, it is significant that, when the applicant’s solicitor wrote a letter to the respondent’s solicitor in November 2018 seeking the provision of security, the respondent’s solicitor, in its letter in reply, did not assert either kind of such prejudice. To the contrary, in the letter in reply, the respondent’s solicitor maintained that the respondent was in fact solvent and able to pay its debts as and when they fell due. That assertion, in that letter, was inconsistent with the proposition that an order for security would prevent the respondent from continuing to prosecute its claim in the proceeding.
The failure of the respondent to adduce evidence as to any prejudice to it that might have been sustained by reason of the delay of the applicant is particularly significant. In such a case as this, in which it might have been expected that the respondent would have been able to depose to such prejudice, its failure to do so is relevant to the question whether the primary judge was correct to draw an inference that, by reason of that delay, the respondent had suffered or would suffer relevant prejudice if ordered to provide security for costs. In particular, in the circumstances of this case, the absence of such evidence proffered on behalf of the respondent means that it is improbable that any evidence, adduced by the respondent on that matter, would support its case on that issue.[22] In that way, the absence of such evidence impels the conclusion that it was not open to the primary judge to infer, on the balance of probabilities, that by reason of the delay of the applicant in seeking security for costs, the respondent has suffered, or would suffer, material prejudice, if it were ordered to pay security.
[22]See Jones v Dunkel (1959) 101 CLR 298, 308 (Kitto J), 312 (Menzies J); Earle v Castlemaine District Community Hospital [1974] VR 722, 727–8 (Little J), 732 (Gillard J), 733–5 (Lush J); O’Donnell v Reichard [1975] VR 916, 929 (Newton and Norris JJ).
In those circumstances, the materials provided by the applicant sufficiently negate any inference, which might otherwise arise, as to prejudice that would redound to the respondent by reason of the delay of the applicant in seeking security for costs in this matter. In other words, it was not open to the primary judge to conclude that, as a consequence of the delay by the applicant in seeking security for costs, it might be presumed that the respondent thereby suffered prejudice. On the other hand, if the applicant were not provided with security for its ongoing costs, it would face expensive litigation, in which it would have no recourse to recover its costs if it succeeded, but in which it would be liable to pay the respondent’s costs if it were unsuccessful. In those circumstances, the balance of the competing potential prejudice weighs heavily in favour of the grant of an order for the provision of security to the applicant.
For those reasons, in the circumstances of this case, I am persuaded that the applicant has made out ground 3 of the application for leave to appeal. Accordingly, and subject to the applicant undertaking that, in the event that an order for security is granted, and the respondent’s claim is stayed, its counterclaim be stayed together with the claim by the respondent, I agree that the respondent should be required to provide security for the applicant’s costs, confined to costs incurred, or to be incurred, after 5 November 2018. I also agree that the amount of such security be the sum of $85,000 specified by Whelan JA.
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