Anderson v Canaccord Genuity Financial Limited [2020] NSWSC 1852 | Case summary

Facts

Since the inception of these proceedings, the defendants have been keen to know whether the plaintiff has litigation funding. This interest initially arose by reason of the terms of the Deed of Option Agreement between the plaintiff and the liquidator of Ashington Management Pty Limited and Ashington Capital Pty Limited, in particular, clause 6.2(a), which provided: [the plaintiff] must, as a precondition to the service of any statement of claim…procure and provide to the Liquidator: (a) An indemnity in favour of the Liquidator in relation to any adverse costs orders arising from the Conspiracy Claim from any litigation funder engaged by or on behalf of [the plaintiff] in respect of the Conspiracy Claim ("Funder") …
In September 2015, these proceedings were commenced. I note from Anderson v Patersons at [33] that the originating process was not served until March 2016. Shortly thereafter, the defendants' solicitors enquired whether the plaintiff had litigation funding as contemplated by the Deed of Option. The plaintiff assured the defendants that she did not. The proceedings continued for three years.
In March 2019, the defendants became aware that the plaintiff was ordinarily resident outside Australia: Anderson v Patersons at [168]. In June 2019, the defendants brought motions for security for costs on the basis of that fact. The defendants only sought security for future costs, presumably by dint of the delicate matter that the litigation had been on foot for three years and security for costs - in a sizeable sum - was sought against a natural person. Delay in bringing the application would likely be an important consideration for the Court in deciding whether to order security at all. Seeking security for future costs only is the customary manner of ameliorating the prejudice which a plaintiff may otherwise suffer by having prosecuted legal proceedings for some time without needing to 'factor in' the additional costs and risks posed by the need to provide security for the defendants' costs. The plaintiff's senior counsel referred to the defendants' evidence and submissions before Ward CJ in Eq, where the fact that the defendants were only seeking security for future costs was given considerable emphasis.
In July 2019, Ward CJ in Eq considered that the defendants' delay in bringing the motion for security for costs was explicable, given the late notification of the plaintiff's whereabouts: at [189]. Her Honour was not persuaded that making an order for security for costs would stultify the proceedings, as her Honour was informed by the plaintiff's senior counsel during the hearing that litigation funding would be sought after a mediation: at [157]. Her Honour accepted that ordering security for costs may cause delay in the proceedings: at [215]. Presumably, Ward CJ in Eq anticipated that, if security was ordered, it may take some time for the plaintiff to raise funds to provide that security, in particular, to obtain litigation funding. Her Honour made orders that security be provided in tranches.
The plaintiff had difficulty providing the first tranche and advised the defendants of this fact in August 2019. The first tranche was not provided on the due date and the proceedings were automatically stayed. In September 2019, the plaintiff notified the defendants that she intended to seek litigation funding and sought for the matter to be adjourned. The defendants filed motions seeking to have the proceedings dismissed or permanently stayed for failure to provide security.
A series of affidavits was filed by the plaintiff's solicitor, Andrew Thorpe, setting out his progress in obtaining litigation funding. On 24 October 2019, Mr Thorpe deposed that four applications to litigation funders were then on foot. In response to this affidavit, the defendants' solicitors wrote advising that, if the plaintiff obtained litigation funding, this would represent a material change of circumstances enlivening the Court's jurisdiction to order that security provided for the defendants' past costs. In the event that the plaintiff obtained funding, the defendants' solicitors expected to receive instructions from their clients to seek security for such costs.
In November 2019, the plaintiff paid the first tranche of security into Court, being some $360,000 borrowed privately from friends and family. Enquiries were made by the defendants as to the source of these funds and the progress of the plaintiff in securing litigation funding. On 19 December 2019, Mr Thorpe deposed that the plaintiff now had six applications to litigation funders under consideration. On 20 December 2020, Ward CJ in Eq ordered that, if the plaintiff did obtain litigation funding for the second tranche of security then, by 28 February 2020, the plaintiff was to provide an unredacted copy of the litigation funding agreement to the defendants. Litigation funding was not raised in time for the second tranche, which was paid into Court on 28 February 2020, being some $570,000. The plaintiff again raised these funds privately.
On 28 April 2020, the plaintiff's solicitor advised that the plaintiff continued to actively seek litigation funding. On 29 April 2020, the plaintiff's solicitors advised that the plaintiff accepted an obligation to provide security for trial costs and sought to hear from the defendants' solicitors as to the amount of security required. On 8 May 2020, Ward CJ in Eq made orders for security to be provided in further tranches in the lead-up to trial. Her Honour noted that the defendants reserved their position to seek security for past costs and that the plaintiff reserved its position to oppose any such application. On 20 May 2020, this matter was listed for final hearing for six weeks, commencing on 15 February 2021. On 10 June 2020, a third tranche of security was paid into Court. This was not the product of litigation funding.
Mr Thorpe began looking to arrange security for the defendants' costs of the trial by purchasing After-the-Event (ATE) insurance cover for a defined sum in respect of the defendants' future costs, coupled with litigation funding for the plaintiff's own costs and to cover the ATE premium. Mr Thorpe says he did not include any estimate for the defendants' past costs in the estimates provided to the insurance broker as the defendants had not sought past costs in June 2019. Whilst the defendants derided Mr Thorpe for proceeding on this basis, Mr Thorpe was not cross-examined as to why he prepared the application for ATE insurance in the way that he did, or whether his approach was wrong. There is no reason for me to doubt that Mr Thorpe approached the task in the manner he described in his affidavit, and for the reasons he gave. Nor is it necessarily apparent why Mr Thorpe was obliged to seek litigation funding in respect of the defendants' past costs.
The plaintiff sought the issue of a Deed of Indemnity from an insurer, being a Lloyd's Syndicate, for the amount of the defendants' trial costs as agreed and ordered. In order to provide security in this manner, the orders of 8 May 2020 had to be varied and, importantly, the plaintiff needed to obtain litigation funding to pay for the ATE insurance policy and the Deed of Indemnity, being some $626,000. Mr Thorpe delivered a funding brief to litigation funders which, again, did not include an allowance for the defendants' past costs. Nor did the funding brief provide for the additional security for costs now sought by the fifth defendant.
In early 2020, Mr Thorpe made an application to a United Kingdom litigation funder, Darcy Jones Capital Limited. The plaintiff sought funding for incurred but unpaid costs, trial costs including preparation, and payment of the cost of the ATE insurance and Deed of Indemnity. Mr Thorpe says he did not seek litigation funding for the defendants' past costs given the position adopted by the defendants in June 2019. Mr Thorpe understood that the amount requested from the funder would be adequate to enable the plaintiff to bring her case to trial. This was the plaintiff's 15th application for litigation funding, albeit two other funders had offered funding but on terms which were not acceptable to the plaintiff.
On 21 August 2020, the plaintiff executed a litigation funding agreement with Darcy Jones. A redacted copy of the funding agreement was in evidence. The recitals to the funding agreement record that the purpose of the funding agreement is to provide for legal costs and disbursements "that will be incurred by the Claimant in the Proceedings to enable her to continue to obtain legal services." The plaintiff had requested funding for "the Claimant's own costs to include court fees to trial and other professional fees and a proportion of the legal fees throughout." In the event of success, the funder is to receive a Funder's Success Fee.
Clause 2.1 of the Funding Agreement provides: 2 Funding of the legal costs of the Proceedings 2.1 In consideration of the terms of this Agreement and the warranties and undertakings of [the plaintiff], and subject to the provisions of clauses 14 and 15 of this Agreement the Funder agrees, subject to the other terms hereof to pay [the plaintiff's] Legal Costs in accordance with this Agreement and the Engagement Letter and any variations thereto that have been agreed between [the plaintiff] and the Funder in writing; such agreement not to be unreasonably withheld: [remaining portions being redacted] Whilst clause 2.1 refers to clauses 14 and 15, those clauses have been redacted. The Funding Agreement contains defined terms "Adverse Costs Order" and "Adverse Costs." Those defined terms do not appear in the unredacted portions of the Funding Agreement, and thus the Court may infer that the redacted portions of the funding agreement, including potentially clauses 14 and 15, deal with that subject.
The defendants placed reliance upon a Code of Conduct for Litigation Funders (January 2018) which applies to members of the Association of Litigation Funders of England and Wales. In particular, paragraph 9.4 of the code provides that a funder is obliged to - 9.4 Maintain at all times access to adequate financial resources to meet the obligations of the Funder, its Funder Subsidiaries and Associated Entities to fund all the disputes that they have agreed to fund … 9.4.2 maintain access to a minimum of £5 m of capital or such other amount as stipulated by the Association; The Code appears to be directed to ensuring that the funder is able to meet their obligations across their portfolio of contractual arrangements. In any particular case, the funder's obligation must, of course, be divined from their precise contractual obligations undertaken in respect of a particular client.
Paragraph 10 of the code of conduct requires a funder to state, in the litigation funding agreement, whether, and the extent to which, the funder is liable to the funded party to provide security for costs. The Funding Agreement signed by the plaintiff does not oblige the funder to provide security for costs, accepting of course that I have not read the redacted portions.
In October 2020, having obtained an ATE insurance policy and the funds to pay the premium, the plaintiff filed a motion seeking to vary the orders for security so that further tranches of security could be provided by a Deed of Indemnity supported by the ATE policy. In the course of hearing that application, the plaintiff disclosed that they had a litigation funder, in answer to a question from her Honour. On 11 November 2020, her Honour made orders varying the regime for security for costs to permit the fourth tranche to be provided by the Deed of Indemnity executed by a Lloyd's syndicate in favour of the defendants, and directed the plaintiff to provide a copy of the litigation funding agreement containing redactions for legal professional privilege and confidentiality claims by 12 November 2020. That was done. The existence of litigation funding prompted the defendants to now seek security for past costs, as they earlier indicated they would, and the filing of the motions which are presently before the Court.
As to whether the plaintiff can provide the further security now sought by the defendants, Mr Thorpe says, and I accept, that it is difficult and time consuming to obtain litigation funding; applications take months, not weeks. Mr Thorpe says that, for each of the earlier applications for funding, funders took between one and more than eight months to consider the application. Mr Thorpe does not expect that any of the previous 14 litigation funders to whom an application was made would approve a further application. Mr Thorpe does not think it is feasible to seek additional litigation from a new funder, as it will be necessary to disclose the earlier failed applications and also for any new funder to accommodate the existing funder. Mr Thorpe says there is "virtually no prospect" of completing a funding application to a new funder before the trial. The only practical avenue is to seek more funding from Darcy Jones.
If security for past costs is ordered, then Mr Thorpe anticipates obtaining that security through the same mechanism as recently explored, that is obtaining another ATE policy and Deed of Indemnity, and funding from Darcy Jones to pay for it. As to another ATE policy, Mr Thorpe has made enquiries of Paul Lyons, the local representative of Thomas Miller Professions (TMP) as to the process involved. The plaintiff would approach TMP through insurance brokers, JMD Ross, through whom the existing Deed of Indemnity was arranged. TMP has authority under a binder agreement with the managing agent of the Lloyd's Syndicate to operate as the underwriting agent in relation to ATE cover. Under the binder agreement, TMP is expected to ensure that a broad mix of risks is underwritten on behalf of the Syndicate; the current risk represents a significant individual risk for the current binder year and this will be a material consideration any further application.
On receipt of an application by the broker, TMP will carry out a fresh underwriting assessment, which will be delivered to the chief executive officer of TMP in the UK, who has final authority to determine the application. The CEO is now absent from the office on leave, and will not return until 11 January 2021. In any event, final terms on the Syndicate binder for the 2021 year are yet to be concluded between TMP and the managing agent for the Syndicate, therefore no underwriting can commence until the beginning of January in any event. An application takes about four weeks in ordinary circumstances, although this may be shortened to accommodate urgency.
Working on the dates obtained by Mr Thorpe, if TMP's CEO begins considering a fresh application on 11 January 2021 when he returns from leave, then it seems to me that a decision might be expected by 11 February 2021, being days before the trial is to begin, possibly sooner.
If an application for another ATE policy is favourably considered, then the total cost to the plaintiff is likely to be greater than for the Deed of Indemnity already procured. Mr Thorpe understands there is considerable uncertainty as to whether further ATE cover would be granted for the amount needed. Mr Thorpe considers that it is "very uncertain" whether the Lloyd's Syndicate will issue an additional ATE cover and a Deed of Indemnity for past costs; he considers is it a high risk application which is more likely to fail than to succeed. If the Syndicate refuses the application, the plaintiff will have to start all over again with another insurer, which will take months, with no guarantee of success.
Assuming that the plaintiff is successful in obtaining a further ATE policy, then the next step will be to seek litigation funding for the cost of that policy from Darcy Jones. Mr Thorpe has made inquiries of Mike Dobson of Darcy Jones as to what this would involve, and was informed that a fresh assessment would be made on any such application. The application would be submitted to Darcy Jones' credit committee, which meets twice monthly. The committee should be able to make a decision at that meeting. It is likely that the commercial terms offered to the plaintiff for additional funding - if the application is accepted - would be more expensive than the terms applicable to the existing funding.
Mr Thorpe understands from his dealings with Darcy Jones and Mr Dobson that Darcy Jones will not issue cash security for past costs. It is possible that Darcy Jones may agree to fund the costs of additional ATE cover, depending on the cost and commercial circumstances at the time. If the Syndicate offers further ATE cover and a Deed of Indemnity for the amount required by the defendants, and if Darcy Jones agrees to fund the costs of such additional cover, then Mr Thorpe expects the commercial terms offered would be disadvantageous to the plaintiff.
Either way, Mr Thorpe considers, and I accept, that it is very unlikely that the new arrangements would be completed by the commencement of trial. In the meantime, the plaintiff will be placed in an impossible situation of having to incur the costs for preparing for trial without knowing whether the trial will proceed but aware of a high likelihood that the trial may not proceed. Mr Thorpe considered that this would cause hardship and prejudice, including because the plaintiff will need to divert resources to the process of seeking funding, rather than continuing to prepare for trial.
Mr Thorpe considers, and I agree, that ordering security for past costs will put the trial at risk. If the trial dates are lost, then the plaintiff will have thrown away hundreds of thousands of dollars spent preparing for trial. The plaintiff may be ordered to pay the defendants' costs thrown away and would be unlikely to obtain a new trial date for six to nine months. I agree that that is a reasonable estimate of a re-scheduled six week trial. Mr Thorpe says it is very likely the defendants will make dismissal applications if the proceedings are stayed, pointing to the fact that the defendants have done this in the past. That also seems likely.
Mr Thorpe says it is very unlikely, in his opinion, that the plaintiff will be able to obtain or fund security for a fifth tranche of security for past costs as well as potentially a sixth tranche of security for costs for the defendant's costs thrown away. In addition, if the trial date is lost then the plaintiff will also have to attempt to renegotiate her Funding Agreement with Darcy Jones as her costs position will have changed by reason of having costs thrown away and further costs involved in dealing with potential dismissal applications and the like. Mr Thorpe says that the obstacles to the case progressing to trial will likely become insurmountable to the plaintiff and result in wasted legal costs in the millions of dollars and lead to her financial ruin. Mr Thorpe outlined the plaintiff's expenditure on legal costs to date.
Mr Thorpe is informed by the plaintiff and believes that she and her husband do not have the financial capacity to meet any additional order for security nor to provide funds to obtain a fresh ATE policy and Deed of Indemnity from the Syndicate, nor to bear the substantial additional costs described by Mr Thorpe.

Consideration

In respect of the plaintiff's submission that the Court should not re-exercise its discretion, I agree that the defendants' counsel placed considerable emphasis, in the hearing before Ward CJ in Eq in June 2019, on the fact that they were not seeking security for past costs. Accepting that this reflected a forensic, and indeed sensible, approach by the defendants' counsel at the time, I consider that the fact than an impecunious plaintiff who is ordinarily resident outside of the jurisdiction obtains litigation funding amounts to a material change of circumstances warranting the defendants to approach the Court to re-exercise its discretion. At the time of the hearing before Ward CJ in Eq in June 2019, there was no litigation funder in the wings. It was simply proposed by the plaintiff's senior counsel that the plaintiff would seek litigation funding should the matter not resolve at mediation. Her Honour was therefore considering the application for security on the basis of factors which were relevant at the time. Litigation funding is an additional relevant factor which has only since emerged. It significantly changes the landscape in respect of past costs, entitling the defendants to ask the Court to re-exercise its discretion.
The relevance of litigation funding is that the Court will more readily order that security for costs be provided. Of the authorities relied upon by the parties, two are worthy of note. In Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148, Hodgson JA reviewed the competing lines of authority in respect of making security for costs orders against a liquidator. His Honour noted that a Court should be readier to order security for costs where litigation funding is in place. At [51]: 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. … 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. See also [61]. Campbell JA agreed, noting that much will depend on the facts of each case: at [86]. Basten JA dissented on grounds which is not presently necessary to explore.
The precise terms of the funding agreement in place are relevant in the exercise of discretion. At [53]: In all these circumstances, in my opinion, the existence of the funder and the funding agreement is a matter that favours an order for security which, according to the funding agreement, the funder would be obliged to comply with … In that case, the litigation funding agreement obliged the funder to indemnify the liquidator in relation to any order for security for costs: at [11]. The Funding Agreement here is not in such broad terms. The Court should have regard to the obligations undertaken by the funder in the funding agreement.
In Mallonland Pty Ltd & Anor v Advanta Seeds Pty Ltd (No 2) [2020] QSC 21, Jackson J observed at [33]: … although a ground to refuse a further order for security is that it might operate unfairly to a litigant who has assumed that no further security for past costs would be sought, in my view that is not a significant factor in the present case, because a commercial litigation funder has contracted with the plaintiffs, in any event, to pay the defendant's costs including provision of security for costs in return for a share of the anticipated proceeds of the litigation. … There, the litigation funder had contracted with the plaintiff to pay the plaintiff's costs, including provision of security for costs, in return for a share of the anticipated proceeds of the litigation. The Funding Agreement here is in respect of the plaintiff's costs and the premium for an ATE policy, which itself provides security for the defendants' future trial costs. No provision has been made for orders for security for costs.
The factors to take into account on a re-exercise of the Court's discretion include those set out in rule 42.21(1A): (1A) In determining whether it is appropriate to make an order that a plaintiff referred to in subrule (1) give security for costs, the court may have regard to the following matters and such other matters as it considers relevant - (a) the prospects of success or merits of the proceedings, (b) the genuineness of the proceedings, (c) the impecuniosity of the plaintiff, … (f) whether an order for security for costs would stifle the proceedings, … (j) the costs of the proceedings, … (l) the timing of the application for security for costs, (m) whether an order for costs made against the plaintiff would be enforceable within Australia, (n) the ease and convenience or otherwise of enforcing a New South Wales court judgment or order in the country of a non-resident plaintiff.
Considering these factors, and with the advantage of Ward CJ in Eq's findings in Anderson v Patersons, her Honour concluded that the plaintiff's prospects of success were a neutral factor in determining whether security should be ordered: Anderson v Patersons at [119]. Her Honour found - and no one disagrees - that the plaintiff is impecunious. This favours the making of an order for security in the terms sought.
However, the evidence as to stultification on this application is different to that before Ward CJ in Eq: the evidence of Mr Thorpe suggests that stultification is highly likely if a further order for security is made. As to whether, as the defendants suggest, the plaintiff can and should obtain litigation funding to secure past costs, I infer from the number of applications for litigation funding made to date, the time taken to progress these applications, the limited nature of funding ultimately obtained and the cost of that funding, that obtaining funding to secure the defendants' past costs may well not be achievable or, if approved, may be at a cost which is prohibitive. This points against making an order for security.
Turning to the timing of the application, whilst much of Mr Thorpe's evidence was criticised by the defendants, it was not challenged in cross-examination and much of it was inherently likely. Mr Thorpe's evidence overwhelmingly points to the fact that, if additional security is ordered for past costs, it will not be available in time for the trial date. If the trial date is lost, then wasted costs will ensue. The defendants might be entitled in those circumstances to have their costs thrown away; it seems likely that they would certainly seek those costs. The plaintiff will also waste costs. It will also lead to a loss of court time, in particular, six weeks of trial time in what appears from the court file to have been a case which has been carefully case managed and has been a difficult piece of litigation to progress. The Court is entitled to bear in mind section 56 of the Civil Procedure Act 2005 (NSW): Karl Suleman Enterprizes Pty Ltd (in liq) v Pham [2010] NSWSC 886 at [54] per Schmidt J. The fact that this application has been brought, with no criticism to any party, at the last practical moment before the end of court term points strongly against the making of such an order in circumstances where the consequences will likely be catastrophic for the trial listed in February next year. This points strongly against making an order for security.
I also take into account that substantial security has already been ordered in these proceedings, obviously not for past costs but certainly for the defendants' future costs. I have regard to the fact that the plaintiff has already provided substantial security, has made arrangements to provide further security, and has herself incurred significant costs in advancing her claim. I also take into account the terms of the Funding Agreement. The funding is not at large. The litigation funder has not agreed to provide funding for security for costs. For those reasons I refuse the defendants' applications for security for past costs.
In respect of the fifth defendant's application for additional security for costs, senior counsel briefed for trial is no longer available. The new senior counsel charges twice the fees of the former senior counsel. Without detracting from the obvious merit of both the outgoing and incoming senior counsel, the situation illustrates that there is a wide range of fees charged by senior counsel in this state. In multiparty litigation, where security for costs has been ordered over a series of hard-fought applications and an application for further security is brought late in the day, I am not prepared to increase the security for costs. If the fifth defendant is concerned to keep its costs within the bounds of the security ordered, the fifth defendant will need to 'cut its cloth' and brief accordingly. For the same reasons, promotion of the fifth defendant's solicitor does not warrant the plaintiff providing additional security for costs, shortly before trial, to meet his higher charge-out rate.
Obtaining litigation funding is no easy thing. The plaintiff cannot be expected to raise almost as much security for costs as she has painfully raised in the last 18 months within two months, that period being seriously truncated by the Christmas vacation. The plaintiff has so far progressed these proceedings against significant obstacles. All parties must turn their gaze towards the final hearing so that it can proceed without further ado. I dismiss the defendants' applications. I order the defendants to pay the plaintiff's costs of the motions.

Anderson v Canaccord Genuity Financial Limited

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Judgment (6 paragraphs)

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Cases Cited (12)

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