Security for costs - Late application - Case flow management principles - Forensic prejudice to plaintiff

Corporations Act 2001 (Cth), s 1335(1)

Judgments (International Enforcement) Act 2002 (Botswana)

Rules of the Supreme Court 1971 (WA), O 25 r 2(a)

AON Risk Services Australia v Australian National University [2009] HCA 27; (2009) 258 ALR 14

Avner Pty Ltd v Dimopoulos (Unreported, NSWSC, No 2225 of 1986, 12 February 1987)

Black v Brockley Investments Ltd (Unreported, WASCA, Library No 930039, 16 December 1992)

Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497

James v Australia and New Zealand Banking Group Ltd (No 1) (1985) 9 FCR 442

(Reasons were delivered extemporaneously on 16 September 2009, but have been edited from the transcript.)

1 This is an application for security for costs and a stay of proceedings pursuant to the chamber summons of the defendant filed on 25 August 2009. The application is brought solely under O 25 of the Rules of the Supreme Court 1971 (WA) (Supreme Court Rules). One basis in the chamber summons raising, in the alternative, s 1335(1) of the Corporations Act 2001 (Cth), is inappropriate - since the plaintiff does not fall within the scope of being a corporation for the purposes of the Corporations Act. That concession is made in the most recent written materials filed and in the submission of counsel who appeared on behalf of the applicant (defendant), this morning.

2 The order for security for costs is now sought solely pursuant to O 25 r 2(a) of the Supreme Court Rules, which (relevantly) provides:

Without limiting the generality of the preceding Rule the Court may order security for costs to be furnished where the plaintiff -

(a) is ordinarily resident out of the jurisdiction, notwithstanding that he may be temporarily within the jurisdiction;

3 The basis upon which courts grant security for costs under their rules is discretionary. But there are well-established principles laid down in the cases going to the issue of how judicial discretion is to be exercised on such an application.

4 The plaintiff in this particular case is the Attorney General of Botswana, who sues in a representative capacity, on behalf of his Government, pursuant to the Judgments (International Enforcement) Act 2002 (Botswana) (Botswana Act) - identified in the written submissions of the defendant.

5 I am satisfied that the plaintiff falls within the basis of O 25 r 2(a), as a person ordinarily resident outside the jurisdiction of Western Australia.

6 A contractual cause of action relied upon by the plaintiff which is the subject of these proceedings, essentially relates to the sale of an item of specialised drilling equipment to be used for mining in Botswana. There is a minute of amended statement of claim, filed (pursuant to the orders of Murphy J) only today, that I have considered. The new pleading identifies, at par 3, a contract of sale said to have been entered into on about 9 October 2003 by the Government of Botswana by its instrumentality, the Department of Geological Survey (the Department). By the contract, it is said that the parties agreed terms on which the defendant was to supply and commission an Edson 6000WMk No 2 truck-mounted multipurpose drill rig (the Drill Rig) and various ancillary items of equipment to be used by the Department for mineral exploration and geotechnical water well drilling, for the price of $AUD1,072,788. The main grievance articulated by the minute of statement of claim, as I assess it, essentially seems to spring from the allegation that the Drill Rig and items of equipment, once they had found their way to Botswana and were assembled, failed to work to a standard expected of them, or at all. Indeed, the plaintiff puts the matter so highly, at par 10 of the further reamended statement of claim, as to contend that by reason of the defendant failing to commission the drill rig there was a 'total failure of consideration for the Payments', that is, payments of purchase price totalling just over $AUD1,000,000 (as referred to in par 5 of that pleading).

7 The defence which has been filed indicates that these matters are not accepted by the defendant. The defendant seeks to join issue upon whether the drill rig was properly commissioned or not in situ in Botswana. The matter has been entered into the Commercial and Managed Cases (CMC) list and has most recently been case managed by Murphy J. The matter would appear to have been managed in the CMC list of this court since 5 June 2008 and continues to be.

8 Various interlocutory applications have been made from time to time, including at one point, it seems, an unsuccessful application for summary judgment. Orders have also been made, from time to time, as is typical in the CMC list, for case flow directions applicable to a commercial dispute of this kind. Indeed, as recently as 11 September 2009, Murphy J made directions dealing with the issues of amendment to the pleadings, non-expert evidence, evidence via video-link, trial bundle, papers for the judge, chronologies and directions for the exchange by the parties of their submissions. These directions were made in good and orderly time for a trial which is set down for five days before his Honour, commencing Monday 12 October 2009.

9 The trial, in fact, was originally listed for a five day period to begin on Monday, 3 August 2009, but those dates were consensually vacated - on a basis that the dates were inconvenient to (then) counsel for the defendant. Subsequently, the matter has been relisted for trial on Monday 12 October 2009, for five days.

10 From the above, it is apparent that this application for security for costs is brought extremely late in the day and in fact, as I hear the application, there is less than a month until 12 October 2009, when the trial is due to commence. It is apparent from the court file that proceedings in preparation for trial are now in full swing. As is customary in commercial litigation of this kind, as one enters the last month before a trial is to commence, the levels of preparatory work by parties on both sides, in terms of dealing with the many tasks associated with having a commercial matter ready for trial, are peaking in intensity.

11 The security for costs that the plaintiff is being asked to provide by the defendant is for the amount of $150,000, and which is either to be paid into court or to be provided by unconditional bank guarantee. But the conceptually significant aspect of this and any order for security for costs is the sanction. If the amount sought of $150,000 is not paid either into court (or secured by a guarantee), the proceedings are sought to be stayed after a 14-day period (pending the giving of that security).

12 To inject today into a scenario of intensive trial preparation for the looming trial commencing on 12 October, any prospect at all of the trial even possibly being interrupted by a stay is, in my assessment, unacceptable - indeed wholly repugnant to modern principles of case-flow management - which are to be applied in terms of assessing this late application.

13 The defendant essentially accepts that its application is late. But it says that it foreshadowed the application since the new solicitors for the defendant were appointed in mid 2009, and that there has been conferral about security. It also says there has been a mediation which has been unsuccessful. All in all, it says that, albeit late, there is no real prejudice to the plaintiff by the making of the application, even at a point less than a month before trial. Furthermore, it says that the plaintiff is a representative of a sovereign state and therefore there should be no difficulty, as it were, in terms of providing security.

14 That analysis and the defendant's invocation of old authorities to which I have been referred, is not persuasive. Some of the cases cited go back many years, first to a decision of Young J (as he then was) in the Supreme Court of New South Wales Equity Division in Avner Pty Ltd v Dimopoulos (Unreported, NSWSC, No 2225 of 1986, 12 February 1987) and a decision, ex tempore, of the Full Court of this Supreme Court in Black v Brockley Investments Ltd (Unreported, WASCA, Library No 930039, 16 December 1992) which was published on 27 January 1993. Those decisions need to be viewed in a new environment, particularly in light of the greater importance of case-flow management principles, as was articulated by the High Court of Australia in its recent decision, AON Risk Services Australia v Australian National University [2009] HCA 27; (2009) 258 ALR 14.

15 The defendant's rationalisation of the notion of a plaintiff's prejudice, on a basis of ability to pay the amount of security requested - is too narrow. There can be real prejudice, forensically, in my assessment, to a party, such as this plaintiff, when confronted by a late application for security for costs, carrying with it a consequence of potential interruption by stay to the progression to trial, in a scenario where both parties are intensively in their last stages of preparations for a trial.

16 To be strategically deflected from trial preparation or even trial itself, by the prospect of a potential stay, to my mind, is real prejudice. Furthermore, there is no sufficient reason given here by the defendant, as to why this issue of security for costs has not been raised previously - in litigation commenced in the court going back to February of 2008, and entered in the CMC list in early June 2008. It remains inexplicable as to why only now there has emerged the defendant's eleventh-hour application for security for its costs of trial with the allied stay sanction accompanying the application.

17 The defendant's submissions state that it recently conducted some searches in Australia for (real) property holdings of the plaintiff, and that those searches revealed that the Attorney General of Botswana is not the owner of any property within Australia. It states that this newly acquired state of (negative) knowledge has recently focused its attention upon a need for security.

18 But that is a hollow and unacceptable explanation. The Attorney General for Botswana, as the named plaintiff of a foreign country, has been the plaintiff party, demonstrably a non-resident, from inception of these proceedings. It should have been abundantly clear to anybody, even cursorily glancing at the title of this action, that it involved a plaintiff resident outside Australia.

19 Moreover, absolutely nothing has been put before me to indicate that there is any risk of the sovereign nation of Botswana (in the event of various trial contingencies falling the way of the defendant and resulting in the defendant obtaining, successfully, an order for taxed costs) failing to honour its costs obligations at that time. But a costs award for the defendant in this litigation is a long way off, in terms of a looming outcome. What would need to happen for that outcome to eventuate is that first the matter needs to go to trial and the plaintiff would need to lose. In my assessment, based on reading the pleadings and the limited material that I have had access to, the plaintiff has an arguable case for relief. Not only then does the plaintiff need to lose, but that outcome has to be maintained across a possible appeal scenario. Then, in due course, the defendant must obtain an order for the taxed costs of trial; those costs would be taxed; and at the end of the day, there must remain an unsatisfied debt due to the defendant in respect of the taxed costs in its favour, thereby forcing the defendant to issue proceedings in Botswana to recover the costs debt.

21 These hypothetical cost contingencies outcomes all seem to me to be a long way off, if ever. As I have said, there is nothing before me to indicate that Botswana as sovereign nation would not honour its residual costs responsibilities.

3 But the overwhelmingly dominant factor here, as I assess matters, is the fact that this late application now carries with it the prospect of serious forensic prejudice to the plaintiff. An interruption by the potential intrusion of a stay during the pre-trial preparation for a hearing of the case, in the intensive phase of preparation as the trial looms close to commencement, is unacceptable. On that basis alone, I am satisfied that it is appropriate to dismiss the application for security.

22 I refuse the application, invoking the observations of Toohey J in James v Australia and New Zealand Banking Group Ltd (No 1) (1985) 9 FCR 442 at 446, as to the sanction of stay and the impracticability of divorcing the concept of an order for security from its correlative enforcement, by way of a stay of the proceedings. An intrusion, even potentially, of a stay of proceedings at this very late point in time with a looming trial is a repugnant outcome that cannot be countenanced, even potentially, as a potential diversion to the plaintiff away from its full-scale preparations for the looming trial.

23 I also mention the observations of French J (as he then was) 22 years ago, as to a need for applications for security to be made in a timely fashion, see Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497, 514, where his Honour observed:

The further a plaintiff has proceeded in an action and the greater the costs it has been allowed to incur without steps being taken to apply for an order for security for costs, the more difficult it will be to persuade the court that such an order is not, in the circumstances, unfair or oppressive.

24 In my observation, it is not so much a capacity in the plaintiff to find or secure that amount of funds at this point. Rather, it is the potential interruption by a stay to its preparations at an extremely late stage that is the consideration that is repugnant in the overall scheme. That is especially so in circumstances where the failure to make a security application since February 2008 is unsatisfactorily explained. The fact that there has been a recent change in the solicitors for the defendant is no justification and is overall, in my assessment, neither here nor there upon the issue.