Appellant v Respondents

Supreme Court of Victoria|2017-09-20|Before: Derham AsJ

PRACTICE AND PROCEDURE - Security for costs - Application for security for costs by respondent to appeal - Appellant a corporation - Inherent jurisdiction of the Court - Reason to believe appellant will not be able to pay costs of respondent if unsuccessful in the appeal - Security for costs ordered - Lines v Tana Pty Ltd [1987] VicRp 53; [1987] VR 641; Ritter v North Side Enterprises Pty Ltd (1975) 132 CLR 301; Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443; Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; ;

PRACTICE AND PROCEDURE - Notice to produce - Documents called for relating to the retainer of the solicitor and counsel for the respondent to the appeal - Whether any legitimate forensic purpose - Application of indemnity principle - No legitimate forensic purpose - notice to produce set aside - Environment Protection Authority v Caltex Refining Co Pty Ltd [1993] HCA 74; (1993) 178 CLR 477; Jefferson Ford Pty Ltd v Ford Motor Co of Aust Pty Ltd [2007] VSC 450; Crown Joinery Pty Ltd v Lyleho Pty Ltd [2007] VSC 214, Shaw v Yarranova Pty Ltd [2011] VSCA 655; Woolworths Ltd v Svajcer [2013] VSCA 270; Webb v Wheatley [2015] VSC 153.

1 Mathieson Nominees Pty Ltd and Ian Mathieson ('the Mathiesons') are the respondents to an appeal brought by ACN 096 450 770 (formerly AJH Lawyers Pty Ltd ('AJH'). The Mathiesons apply pursuant to r 62.02(1)(b) of the Supreme Court (General Civil Procedure) Rules 2015 ('the Rules'), and pursuant to the inherent jurisdiction of the Court, for AJH to give security for the Mathiesons' costs of the appeal.[1]

2 The application is supported by two affidavits of Mr Sergey Sizenko.[2] In addition, Mr Sizenko refers back to an affidavit sworn by him on 29 November 2016. No material has been served in opposition to the application.

3 In the course of the hearing, Counsel for AJH called upon a Notice to Produce dated 12 September 2017 ('the Notice'), the day before the hearing. Counsel for the Mathiesons applied orally to set the Notice aside or that the Mathiesons be excused from producing the documents referred to in it. I heard argument and reserved my decision. I have concluded for the reasons that appear below that the Notice should be set aside.

4 I have concluded for the reasons set out below that AJH should provide security for the Mathiesons' costs of the appeal in the sum of $47,570.00.

5 The decision in respect of which AJH appeals is an order of Efthim AsJ made on 30 June 2017 (amended on 25 July and 2 August 2017) dismissing an application for review pursuant to s 17HA of the Supreme Court Act 1986 from orders of Gourlay JR made on 31 August 2016.[3] The Notice of Appeal was filed on 17 July 2017. The proceeding has an unfortunate history and concerns the taxation of multiple costs orders obtained by the Mathiesons against AJH in litigation which has been on foot since 2012. The various costs orders arise from a dispute between AJH and the Mathiesons regarding bills of costs in respect of legal services provided by AJH for a short period in connection with a liquidator's examination. The Mathiesons were third party payers liable for bills of costs totalling $35,709.10.[4] They were paid in full, but the Mathiesons subsequently sought to tax the costs, as they was entitled to do.

6 After extensive hearings, including the hearing and determination of a matter referred to a judge in the Trial Division pursuant to r 63.51 of the Rules, on 17 February 2014, Gourlay JR ordered that AJH pay the Mathiesons the sum of $1,000.00 in respect of the bills of costs. Gourlay JR then heard submissions as to costs and ordered that AJH pay the Mathiesons 50% of their costs of the proceeding, save for the costs of the referral to the Trial Division and the costs of 17 February 2014. No order was made as to AJH's costs.

7 AJH purported to seek reconsideration of the decision of Gourlay JR by filing a notice of application for reconsideration pursuant to r 63.56.2 of the Rules. The only aspect of the decision which was the subject of challenge was the orders in respect of costs. AJH sought an order wholly 'disallowing' the Mathiesons' costs and 'allowing' its own costs in full. The notice was ineffective as a notice under r 63.56.2 of the Rules but it was treated in the Costs Court as an application for review by a Costs Judge pursuant to s 17HA of the Supreme Court Act 1986.

8 Wood AsJ, the Costs Judge constituting the Costs Court, dismissed the application on 26 June 2014. In doing so, he held that the costs order of Gourlay JR could only be overturned if 'clear error' was demonstrated. AJH then appealed pursuant to s 17I of the Supreme Court Act 1986 to a Trial Division judge. That appeal raised 14 grounds, all of which were dismissed with costs by McDonald J. AJH sought leave to appeal to the Court of Appeal. Leave was granted and the appeal was dismissed, with costs.

9 There were four costs orders the subject of the summons for taxation of costs which commenced this proceeding.[5] These were the costs orders made by Gourlay JR on 17 February 2014, Wood AsJ on 26 June 2014, McDonald J on 16 February 2015 and the Court of Appeal on 26 August 2015. The bill of costs submitted with the summons for taxation claimed $421,109.43 for legal costs and disbursements in respect of the four costs orders. That Bill is yet to be taxed. There is a further costs order that has not been quantified in respect of an unsuccessful application by AJH for special leave to appeal to the High Court from the Court of Appeal.

10 The total amount of the legal costs sought by the Mathiesons from AJH pursuant to the several orders totals about $578,000.00.[6] The Mathiesons have incurred further costs during the course of this proceeding which are yet to be quantified.

11 The Mathieson's lawyer, Mr Sizenko, gives evidence that at no stage in the various processes leading to the several costs orders against AJH have the Mathiesons sought security for costs because it appeared that AJH owned a substantial legal practice making it unlikely that such an application would be successful.[7]

12 Before turning to consider the evidence and submissions relevant to the application for security for costs, it is necessary to deal with a call made by counsel for AJH for production of documents the subject of the Notice. He submitted that these documents were relevant to the application of the indemnity principle. That is, whether the Mathiesons have any liability to their solicitor on the record for the costs of the appeal.

13 Counsel for the Mathiesons applied to set aside the Notice, contending that it need not be answered in the circumstances and, in any event, produced no documents in response.[8] I reserved my decision on whether the call for production of any of the documents referred to in the Notice required to be answered, or whether the Notice should be set aside, and informed the parties that if I determined that it should be answered and not be set aside, I would call the parties back so that the documents could be produced before determining the application for security for costs. If I did not decide the documents should be produced, I indicated I would go on to determine the application for security for costs.

14 The Notice required the production to the Court, at the hearing of the application for security for costs, of the following documents:

(a) any costs agreement, costs disclosure statement or bill of Mr Sergey Sizenko or Mr Daryl Williams QC for the appeal in this proceeding;[9]

(b) any contemporaneous documents relating to any negotiation, provision, receipt and acceptance of any costs agreement, any costs disclosure statement or any bill of Mr Sergey Sizenko or Mr Daryl Williams QC for the appeal in this proceeding; and

(c) any contemporaneous documents relating to any payments of any costs and disbursements by Mathieson Nominees Pty Ltd or Ian Mathieson to Mr Sergey Sizenko or Mr Daryl Williams QC for the appeal in this proceeding.

15 Mr Sandbach submitted that whether or not there will be any liability for costs incurred by the Mathiesons depends upon whether or not the indemnity principle applies. That is, if there is no present obligation on the Mathiesons to pay the lawyers engaged to undertake the appeal on their behalf then there is no occasion to award security for the costs of that appeal. He referred me to the only costs agreement and disclosure statement in evidence, which was sent by Mr Sizenko to the Mathiesons in June 2012.[10]

16 Mr Williams QC, counsel for the Mathiesons, made application to set aside the Notice to Produce as an abuse of process, or as vexatious or oppressive. He contended that the documents were irrelevant because the entitlement to security for costs, if established, relates to costs yet to be incurred in relation to the appeal. The object of an order for security for costs is to protect against the risk of non-payment of costs yet to be incurred and to whom they are owed depends upon who may be engaged, both as solicitor and as counsel, to undertake the appeal. Mr Williams QC also referred to the history of the proceedings where AJH had taken every technical point and sought to advance the 'indemnity principle' in earlier applications. The clients, he submitted, are the parties seeking the security for their costs and it is not the solicitor. Whether any particular solicitor might be engaged to undertake the appeal is not presently known. He submitted that there was no legitimate forensic purpose for the use of the documents in evidence before the Court on the application for security.

17 Counsel for the Mathiesons also submitted that it is particularly relevant in considering whether or not the documents have any legitimate forensic purpose to observe that the company Mathieson Nominees Pty Ltd can only appear by a lawyer in this proceeding, including in the appeal. Whether there is any present costs disclosure statement[11] or costs agreement[12] is irrelevant to whether or not the risk of non-payment of future costs to be incurred should be the subject of security.

18 Rule 35.08 of the Rules permits a party to a proceeding to serve on another party a notice requiring that the other party produce documents mentioned in the notice 'on any application in or at the trial of the proceeding'.[13] Unless the Court otherwise orders, the party on whom the notice is served must produce on the application or at the trial such of the documents mentioned in the notice as are in the party's possession, custody or power and which that party does not object to produce on the ground of privilege.[14] If the party on whom the notice is served fails to comply with it, the Court may order that the party produce the document or give such directions for the proof of any matter in relation to the document, including the contents of the document and its making, delivery or receipt, as it thinks fit.[15]

19 A Notice to Produce served under r 35.08 is of the same effect as a subpoena for production of documents.[16] Considerations applicable to the setting aside of a subpoena are applicable to the setting aside of a Notice to Produce.[17]

20 The following broadly stated principles govern the application to set aside a subpoena:[18]

(a) it is necessary for the party at whose request the subpoena was issued to identify expressly and precisely the legitimate forensic purpose for which access to the documents is sought;[19]

(b) except in cases where the subpoena is plainly too broad or merits the description of a fishing expedition, the judge should normally inspect the documents for the purpose of making a final decision as to whether a legitimate forensic purpose exists;[20]

(c) however, the Court will not require production of subpoenaed documents, and will not permit access to subpoenaed documents, if the subpoena is expressed so broadly that the applicant cannot demonstrate, having identified a forensic purpose, that it is 'on the cards'[21] or that there is a 'reasonable possibility'[22] that the documents will materially assist the case of the party;[23]

(d) a 'fishing expedition' is not a legitimate forensic purpose and will not be permitted;[24]

(e) the relevance of a document to the proceeding alone will not substantiate an assertion of legitimate forensic purpose.[25] There is no legitimate forensic purpose if the party is seeking to obtain documents to see whether they may be of relevance or of assistance in his or her case;[26]

(f) a mere assertion of bad faith by an applicant or that something might be found demonstrating bad faith is not enough - the criteria set out in (c) must be satisfied; and

(g) where a party fails to demonstrate a legitimate forensic purpose, the Court should refuse access to the documents and set aside the subpoena.[27]

21 Further to the principle identified in paragraph 20(a), it has been held in several cases that it is the duty of the court, where the issue is raised, to require the party calling on a subpoena to produce documents to identify expressly and precisely the legitimate forensic purpose for which access to the documents is sought and to refuse access unless such an identificat[28]n is made.28

22 A Notice to Produce which is fishing will be set aside.[29] There are circumstances where the timing of a Notice to Produce shortly before the hearing or trial imposes a considerable obligation and disruption on the parties which may be unreasonable and vexatious.[30]

23 It is undisputed that an order for costs indemnifies the successful party in litigation in respect of liability for professional fees necessarily and reasonably incurred in connection with the litigation.[31] Thus, costs are awarded by way of indemnity (or more accurately a partial indemnity) for professional legal costs actually incurred in the conduct of the litigation. They are not intended to be compensation for any other loss suffered by a litigant.[32] In Shaw v Yarranova Pty Ltd, the Court of appeal described the principle in this way_:_[33]

An order for costs against the unsuccessful litigant aims to provide the successful party with some level of indemnity for the legal costs the successful party would not have incurred had it not been necessary to uphold his or her rights in court.[34] Such an order does not entitle the successful litigant to recover more than he or she has paid or is liable to pay to his or her own lawyer.[35] The rule limits the successful party's right to indemnification to the 'necessary or proper' costs incurred to obtain justice in the case.[36] The costs are usually confined to those that the successful party 'was primarily and potentially legally obliged to pay to his solicitor'.[37] Hence the existence and scope of the successful litigant's duty to pay his or her own solicitors is central to the ability to recover costs.

24 The indemnity principle will permit recovery of costs by a successful party who is under a legal liability to solicitors acting for the party even though the likelihood of being required to pay the costs is remote.[38] On the other hand, where a lawyer cannot recover costs from his or her client, that client cannot recover costs from his or her opponent.[39] Costs may not be recoverable if the successful party and its solicitor have agreed that the solicitor will not charge costs in any event.[40]

25 The retainer by a client of a lawyer is a contract between the lawyer and the client for the provision of legal services by the lawyer for a fee. Proof of its existence may, like any other contract, be implied from conduct.[41] As to such proof, in Shaw v Yarranova, the Court observed:

Courts generally accept the existence of a contract of retainer when a solicitor has performed work on behalf of a person with his or her knowledge and assent, in circumstances which are consistent with that person being the solicitor's client.[42] The existence of a contract of retainer and the liability of the client for the solicitor's costs will be presumed, and the party who challenges the existence of the retainer in such circumstances bears the onus of establishing the absence of it.[43]

26 In the situation where there has been an order for costs against a party, and that party seeks to displace the presumption, it is necessary to prove that under no circumstances does the client have any liability to pay costs to his or her solicitors.[44]

Circumstances in which production should be ordered or the Notice be set aside?

27 I agree with the submission by Counsel for the Mathiesons that the object of an order for security for costs is to protect against the risk of non-payment of costs yet to be incurred, and to whom they are owed depends upon who may be engaged, both as solicitor and as counsel, to undertake the appeal. This means that the documents described in the Notice are largely irrelevant to the application for security because the entitlement to security for costs, if established, relates predominantly to costs yet to be incurred in relation to the appeal. There are, however, some costs of the appeal that have already been incurred. If they are the subject of security, then the documents sought to be produced may have some relevance, but, as I have said, the relevance of a document to the proceeding alone will not substantiate an assertion of legitimate forensic purpose. There is no legitimate forensic purpose if the party is seeking to obtain documents to see whether they may be of relevance or of assistance in his or her case. For the reasons that follow I consider that, even if the documents are relevant, there is no legitimate forensic purpose for which access to the documents is sought, nor is it 'on the cards' that the documents will materially assist AJH's defence to the application for security for costs.

28 The only evidence to which the parties referred in the course of the hearing shows that there was a costs agreement and disclosure statement between the legal practice 'Victorian Legal Costs Assessors' (which is the solicitor on the Court record for the Mathiesons) and the Mathiesons dated June 2012 ('Costs Agreement').[45] The Costs Agreement names the Mathiesons and the legal practice and describes the matter the subject of the agreement as 'To act on your behalf in relation to review of the legal costs charged by AJH Lawyers at the Costs Court of Victoria'. This is clearly a reference to the original costs review of the Bill of Costs $35,709.10 that was the subject of the final orders made by Gourlay JR on 17 February 2014 in proceeding S CI 2012 3047, one of the orders the subject of the summons for taxation issued on 17 November 2015, which commenced this proceeding. The Costs Disclosure Statement that accompanies the Costs Agreement sets out the basis for charging by reference to the Supreme Court of Victoria Scale of Costs and states that it is not reasonably practicable to estimate the total legal costs but, as required by the then Legal Profession Act 2004,[46] gives a range of estimates which are modest (between $3,000.00 and $5,000.00).

29 Whether that Costs Agreement is at an end is not known for sure. The affidavit of Alan Ross Mathieson refers to it being ongoing as at 15 July 2016.[47] If that Costs Agreement is at an end, there is nevertheless a presumption, as I have referred, that a contract of retainer exists and that the client is liable for the lawyer's costs. Whichever is the case, the liability of the Mathiesons for their lawyers costs and disbursements is clear. If the Costs Agreement applies, the liability to pay the solicitor continues on the Supreme Court scale.[48] If that Costs Agreement does not apply, a retainer is presumed and the solicitor is entitled to costs either under an applicable practitioners remuneration order, the Supreme Court scale of costs or according to the fair and reasonable value of the legal services provided.[49]

30 There is no evidence before the Court that makes it likely that any of the material sought by the applicant would advance the contention that the indemnity principle has been displaced. There is either an actual retainer or a 'strong presumption' of a retainer.[50] It is for AJH to prove either that there was no retainer or establish that there was an express or implied agreement between the Mathiesons and their solicitor that under no circumstances whatsoever were they to be liable for their solicitors' fees.[51]

31 Where a party liable (or prospectively liable as in this case) for the costs of another party calls for the production of documents asserted to be relevant to the application of the indemnity principle, the applicant must identify a legitimate forensic purpose for which access is sought, and establish that it is 'on the cards' that the documents will materially assist his case. There will be no legitimate forensic purpose if, 'all the party is doing is trying to get hold of the documents to see whether they may assist him in his case.'[52] For the Notice to be valid to require production of the documents sought, the Court must be satisfied that the documents are relevant to an issue and that there is something in the material before the court that makes it appear likely that the documents will materially assist the applicant.[53]

32 There is nothing before the Court in this case that makes it appear that the documents described in the Notice will materially assist AJH. That is, there is no present basis disclosed in the evidence to suggest that the Mathiesons are not presently, and will not in the future be, liable for the legal costs and disbursements of their solicitor on the record in this proceeding now, or any solicitor who may replace that solicitor in the future. In short, there is no evidence that the indemnity principle has been displaced.

33 It was not expressly contended by Counsel for AJH that the production of the documents identified in the Notice might be relevant to any other issue than the application of the indemnity principle. In so far as it might have been suggested that the documents are relevant to establish that there may have been non-compliance by the Mathiesons' solicitors with the disclosure obligations under the Legal Profession Act 2004, there is also no evidence to 'open the door' to such a contention and even if there were such evidence, it is not relevant to an application for security for costs to embark on such an inquiry_._[54]

34 These matters confirm that the Notice is a fishing expedition. By the Notice, AJH is endeavouring to discover whether it has any grounds to challenge an order for security for costs on the basis that there is no liability of the Mathiesons to their solicitor. AJH is not endeavouring to obtain evidence to support a case that it presently has. The most descriptive metaphor for what AJH is attempting to do is the one used by Owen J in Associated Dominion Assurance Society Pty Ltd v Sir John Fairfax & Sons:

A 'fishing expedition', in the sense in which the phrase has been used in the law, means, as I understand it, that a person who has no evidence that fish of a particular kind are in a pool desires to be at liberty to drag it for the purposes of finding out whether there are any there or not.[55]

35 Because the Notice is fishing, it is not necessary or appropriate for the documents to be produced and inspected by the Court. It is appropriate to set it aside.

36 Counsel for AJH properly conceded that the Court has an inherent jurisdiction to order security for costs in the present case. That jurisdiction exists to prevent abuse of its process. The specific provisions in the Rules and the Corporations Act 2001 (Cth) supplement the inherent jurisdiction, but do not codify, replace or limit that jurisdiction.

37 Thus, even if r 62.02(1)(b) of the Rules is not applicable because the appellant is not a plaintiff or 'any person who makes a claim in a proceeding'[56] and the Mathieson parties are not a defendant or 'any person against whom a claim is made in a proceeding',[57] it is without question that the power to order security for costs exists and derives from the Court's inherent power to regulate its own procedure.[58]

38 In Lines v Tana the Full Court of the Supreme Court of Victoria had before it an appeal from an order made by a single judge requiring a plaintiff, who was not a corporation, to provide security for costs. The basis of the order was the possibility that, in the event of the defendant being successful in the action, the plaintiff would deliberately refuse or neglect to satisfy any order for costs made against him or take steps to render any such order nugatory. This alleged possibility was based upon the failure of the plaintiff to pay costs that had been ordered against him at the interlocutory stages of the proceeding. In the course of considering the appeal,[59] the Court noted that one of the categories which attract the exercise of the discretion against a non-corporate plaintiff who is impecunious is that the plaintiff has behaved in such a way as improperly to seek to free himself from the consequences of unsuccessful litigation.[60]

39 In Rajski v Computer Manufacture & Design Pty Ltd,[61] Holland J said that the requiring of security is a condition of being permitted to carry on proceedings in a court is of its very nature a part of the Court's inherent jurisdiction and that the inherent jurisdiction could not be restricted to the examples in the decided cases in the sense of denying the existence of the power for any other cases. The fact that the power has been regularly exercised in a limited number of cases and refused in others proved the existence of, but did not restrict, the jurisdiction.[62] It is relevant to note that the inherent jurisdiction is not limited to granting security for costs against a party which is, or is in the position of, a plaintiff.[63]

40 The applicable principles are not in dispute. They have been summarised in many recent cases.[64] The burden rests on the Mathiesons to persuade the Court that an order for security should be made.[65] It has been held that in determining whether an order for security should be made under the Corporations Act 2001 or under s 62.02(1)(b) of the Rules (where a 'reason to believe' the corporation will be unable to pay the other parties costs is the threshold test), requires the making of a risk assessment: is there a risk that the corporation will be unable to pay? A risk assessment is, of necessity, imprecise. What is called for is a practical, commonsense approach to the examination of the corporation's financial affairs. It may be said, with justification, that this is a low threshold. But the test simply reflects the policy of the provision, which is to protect a defendant against the risk of the plaintiff corporation's impecuniosity. The provision equips the Court with the means to require that the defendant be secured against that risk.[66]

41 The principal issue raised by AJH was whether the threshold test had been satisfied.

42 AJH was incorporated as a company limited by shares in 2001 under the name 'A & A Lawyers Pty Ltd'. It changed its name to AJH Lawyers Pty Ltd in 2002. As at December 2016, its sole shareholder was Andre Ho, to whom one $1 ordinary share had been issued.[67] Its principal place of business was level 4, 170 Queen Street, Melbourne, the same address given as its address for service in this proceeding. On 4 September 2017, AJH filed a notice of change of company name pursuant to r 1.17(2)(a) of the Rules. The name change occurred on 11 August 2017 from AJH Lawyers Pty Ltd to ACN 096 450 770. There was no dispute from AJH as to the evidence of its issued capital as at December 2016, nor any suggestion that the issued capital had changed in any way since then.

43 In 2016, Mr Sizenko swore an affidavit for the purposes of the application before Efthim AsJ in which he gave evidence of AJH's business structure and of other associated entities trading under that name, and the risk which that structure appeared to present to the Mathiesons' prospect of achieving recovery of the costs owed.[68]

44 That evidence shows that there are two companies practising from the same premises from Queen Street, Melbourne. The first is AJH and the second AJH Legal Group Pty Ltd. In July 2016, Mr Sizenko obtained a business name search of 'AJH Lawyers' which shows that the holder of the business name was AJH until 16 November 2015 and thereafter the holder of the business name was AJH Legal Group Pty Ltd. That is the same day that the Mathiesons filed and served the summons for taxation of their bill of costs, the process that initiated this proceeding. Mr Sizenko also exhibits a copy of a search of the Law Institute of Victoria database showing that the lawyers in the law practice were all participants of the office of AJH Legal Group Pty Ltd.

45 In the course of the application the subject of the appeal, Mr Cormie, solicitor, was cross-examined on his affidavit sworn on behalf of AJH,[69] and in the course of that cross-examination agreed that AJH no longer has an interest in the business name 'AJH Lawyers' and that AJH Legal Group Pty Ltd conducts the law practice carried on under the name AJH Lawyers and has done so since August 2015, prior to which the law practice was conducted by AJH.[70]

46 The evidence given by Mr Sizenko also shows that AJH Lawyers firm's website does not identify AJH as the entity carrying on the firm's practice, rather it identifies that AJH Legal Group Pty Ltd does so.[71]

47 By email dated 19 July 2017, Mr Sizenko on behalf of the Mathiesons sought security for the costs of the appeal from AJH in the sum of $30,000.00. In the course of justifying that demand for security, Mr Sizenko referred to the fact that during Mr Cormie's cross-examination before Efthim AsJ it was admitted that AJH does not have any known assets, does not own the trading name AJH and the business of the firm carrying on the law practice under that name will not be affected should AJH cease to trade.

48 The Mathieson parties submitted that the case for making an order for security for their costs in this case were overwhelming. They pointed to the procedural history of the proceeding, and of the prior proceedings which gave rise to the costs orders which are the subject matter of this proceeding. They submitted that it is an outrageous history in that AJH has taken every imaginable point in response to a challenge to what was originally a modest bill of costs which the Mathiesons paid in full before seeking to reduce it on taxation as the law allows. Virtually all of the points so taken have been found on examination by the Court to be bad.

49 AJH has suffered defeat at every stage of the proceedings up to and including a failed application for special leave to appeal to the High Court. It was ordered to pay the Mathiesons' costs at every stage, but is yet to pay any part of those costs because the Mathiesons have been unable to have those costs taxed and allowed because of the steps taken at every turn by AJH to challenge decisions made on appeal. In the result, none of the costs which have been the subject of the orders referred to above have been taxed.

50 The Mathiesons point to the fact that Efthim AsJ in his reasons for judgment the subject of the appeal was highly critical of the conduct of the proceedings by AJH to date, in a number of respects. They led his Honour to find that AJH had committed multiple breaches of provisions of the Civil Procedure Act 2010 (Vic) ('CPA').

51 It is indisputable, the Mathiesons submitted, that the effect of the approach of AJH to the attempts to tax the costs ordered against them has been to massively increase the length and the costs of the parties in this proceeding and in the prior proceedings. Ordinarily speaking, such matters should be adequately dealt with by means of appropriate orders for costs, and indeed numerous costs orders have been made against AJH. But the Mathieson parties submit in this case such orders have proved to be ineffective as a remedy against conduct of the kind that AJH has engaged in. That is because, over the period since 2012, AJH has been putting the Mathiesons to inordinate trouble and expense in responding to its innumerable unsuccessful applications, reviews and appeals notwithstanding the incurring of adverse costs orders all along the way. In particular, steps have been taken by AJH to render itself judgment proof. A restructure was implemented on the day that the bill of costs the subject of this proceeding was served, 15 August 2015. AJH no longer conducts a substantial legal practice. Its former practice has apparently been substantially if not entirely 'migrated' to a new entity, AJH Legal Group Pty Ltd.

52 The Mathiesons submitted that those who stand behind AJH no longer need that entity to remain solvent in order to maintain their business or earn their livelihood. It has no known assets of substance. Its capital is $1 and the evidence referred to above shows that the corporate restructure, on the balance of probabilities, has been effected in order to defeat any recovery of costs by the Mathiesons against AJH.

53 In the result, the Mathiesons contend that they should not be exposed in the future to the conduct of AJH which has in the past caused them to incur substantial legal costs and in respect of which it is very likely they will be without remedy. Such conduct is an abuse of process. The Court's inherent jurisdiction to prevent an abuse of process should accordingly be invoked.

54 Counsel for AJH submitted that there was insufficient evidence for the Court to conclude that there was reason to believe that AJH has insufficient assets in Victoria to pay the costs of the Mathiesons if ordered to do so in consequence of the appeal. There was no evidence as to its assets or absence of assets nor any blot on its solvency.

55 In my view, the Sizenko affidavits establish reason to believe that AJH has insufficient assets to pay the Mathiesons' costs of the appeal if ordered to do so, for the following brief reasons:

(b) on the balance of probabilities, I am satisfied that the law practice previously carried on by AJH is now undertaken by AJH Legal Group Pty Ltd and that this has been effected for the purpose of protecting the assets of the law practice from liability for the costs ordered to be paid to the Mathiesons. The evidence on which I rely for this conclusion is:

(i) the change of the holder of the business name 'AJH Lawyers' from AJH to AJH Legal Group Pty Ltd;

(ii) the timing of that change coinciding with the commencement of the taxation of the costs orders;

(iii) the evidence of Mr Cormie in cross-examination that AJH no longer has an interest in the business name 'AJH Lawyers' and that AJH Legal Group Pty Ltd conducts the law practice carried on under the name AJH Lawyers and has done so since August 2015, prior to which the law practice was conducted by AJH;

(c) the fact that AJH Lawyers firm's website identifies that AJH Legal Group Pty Ltd is carrying on the firm's practice rather than AJH;

56 For these reasons, this is a case where the evidence points in favour of the Court concluding that there is reason to believe that AJH has insufficient assets to pay the Mathiesons' costs if ordered to do so. Thus, the Court discretion to order security for the Mathiesons costs against AJH is enlivened.

The exercise of the discretion to order security

57 In exercising the discretion whether to order security for costs, the court must weigh the injustice to AJH if it is prevented from pursuing its appeal by an order for security, against the injustice to the Mathiesons if no security is ordered, AJH's appeal fails and the Mathiesons are unable to recover their costs.[72] The very fact that the jurisdiction has been enlivened in the first place may itself be a factor, even a most significant factor, in the exercise of the discretion.[73] In this case the circumstances relating to the apparently parlous financial positon of AJH, and the change in the company operating the law practice, is a significant factor. The following further factors are relevant:

(a) there has been no delay in the making of the application;

(b) there is no suggestion that the application for security is being used as an instrument of oppression;

(d) there is no suggestion that an order for security would stultify the appeal nor that those who stand behind AJH are also without means.

58 As a general rule, where a claim (or appeal) discloses a cause of action, in the absence of evidence to the contrary, the Court should proceed on the basis that the claim is bona fide with reasonable prospects of success.[74] The parties agreed that I should proceed on this basis.

59 Although the burden is on the Mathiesons from first to last, the absence of any evidence from AJH as to its financial position (where it is they who are in the position to establish it has sufficient assets to meet the Mathiesons' costs), is a matter I can take into account in the exercise of my discretion where, as here, the Mathiesons have established reason to believe that AJH has insufficient assets to pay the costs of the Mathiesons, if ordered to do so.

60 All these factors lead me to the conclusion that I should exercise my discretion to order security for costs against AJH.

61 The Mathiesons contend that security should be ordered in the sum of $50,000. The amount the subject of the evidence of Mr Sizenko is that the costs from before the issue of the summons for security through to the giving of judgment on an appeal will be not less than $89,000.[75] The calculation of the costs has been undertaken in the form of a draft Bill of Costs. AJH has filed no material taking issue with that quantum.

62 Counsel for AJH submitted that the quantum sought on the application for security was excessive and included matters that have no relevance to the appeal (for example the estimate of legal costs advanced for the Mathiesons included correspondence with the Court relating to the amendment of the order made by Efthim AsJ).[76]

63 I have examined the costs the Mathiesons' solicitor claims will be incurred in the appeal of $89,051.97. I consider those costs to be somewhat excessive. They include sums that are not directly related to the appeal and costs that extend to the period after the hearing of the appeal. It also takes into account anticipated work that would not usually be undertaken, but is included in this case because of the history of dealing with AJH, which has involved more work than is usual. Without identifying the items specified in the draft bill of costs that I have considered and think excessive or not properly the subject of an order for security at this time, I estimate a reduction of 20% to be appropriate for those items, resulting in a starting figure of about $71,000. I will then reduce that by the conventional reduction of about 33%, giving a figure of $47,570.00.[77]

64 I have concluded for the reasons that appear above that the Notice to Produce of the appellant filed on 12 September 2017 should be set aside. I have also concluded for the reasons set out above that AJH should provide security for the Mathiesons' costs of the appeal in the sum of $47,570.00.

(a) the appellant's Notice to Produce filed on 12 September 2017 is set aside.

(b) by 4pm, 3 October 2017, the appellant shall provide to the Senior Master, by a payment into Court or in another form acceptable to the Senior Master, security for the respondents' costs of the appeal, in the sum of $47,570.00.

(c) the appeal is stayed pending the provision of security.

(d) if the security for the respondents' costs is not provided by 4pm, 3 October 2015, the appeal is permanently stayed.

(e) the respondents costs of the application for security for their costs of the appeal made by summons filed on 29 August 2017 shall be paid by the appellant.

(f) reserve liberty to the parties to apply, including the respondent to apply for further security for costs.

[2] Affidavits made 29 August 2017 and 12 September 2017.

[3] The reasons for the order of Efthim AsJ are published as Mathieson Nominees Pty Ltd & Anor v AJH Lawyers Pty Ltd, [2017] VSC 377.

[4] See the reasons of the court of Appeal in AJH Lawyers v Mathieson Nominees Pty Ltd, [2015] VSCA 227 [2]-[4].

[6] Affidavit of Sergey Sizenko sworn 29 August 2017, [5].

[8] Counsel might have relied on the fact that there had been at least two earlier Notices to Produce, an order for production, production of documents pursuant to the order, an affidavit as to the liability of the Mathiesons to their lawyers (affidavit of Alan Ross Mathieson sworn 15 July 2016) and an extensive consideration of the issue of the application of the indemnity principle to the costs claimed by the Mathiesons from AJH by Gourlay JR in her reasons for judgment dated 31 August 2016.

[9] Reference was also made to the production of those documents so far as they related to Armitage Legal Pty Ltd and Mr Samuel Armitage, but counsel agreed that these were not relevant.

[10] Exhibit EC-20 to the affidavit of Edward Charles Foxall Cormie sworn 13 December 2016 ('Cormie affidavit'). That is also an exhibit to the affidavit of Alan Ross Mathieson sworn 15 July 2016, see exhibit ARM-1.

[11] Pursuant to s 3.4.9 of the Legal Profession Act 2004 ('LPA') or s 174 of the Legal Profession Uniform Law Application Act 2014 ('LPULAA'). Schedule 4 to the LPULAA contains the transitional provisions. Under s 18 in that Schedule, the provisions of the LPA relating to legal costs continue to apply to a matter if the client first instructed the law practice in the matter before the commencement day, being 1 July 2015.

[12] Pursuant to Division 5 of Part 3.4 of the LPA (e.g. s 3.4.26) or Division 4 of Part 4.3 of the LPULAA (e.g. s 180).

[16] Environment Protection Authority v Caltex Refining Co Pty Ltd [1993] HCA 74; (1993) 178 CLR 477; Jefferson Ford Pty Ltd v Ford Motor Co of Aust Pty Ltd [2007] VSC 450 ('Jefferson Ford').

[17] Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 1115; Crown Joinery Pty Ltd v Lyleho Pty Ltd [2007] VSC 214, [31] ('Crown Joinery'); Jefferson Ford; Matthews v SPI Electricity Pty Ltd (Ruling No 27) [2013] VSC 483.

[18] This statement of the general principles is adapted from my decision in Webb v Wheatley [2015] VSC 153, [55]-[56].

[19] R v Saleam (1989) 16 NSWLR 14, 18; R v Mokbel (Ruling No 1) [2005] VSC 410, [45]; Principal Registrar of the Supreme Court of New South Wales v Tastan (1994) 75 A Crim R 498, 504; R v Sergi [1998] 1 Qd R 536; NSW Commissioner of Police v Tuxford [2002] NSWCA 139, [22]; Re Don [2006] NSWSC 1125, [26].

[20] Woolworths Ltd v Svajcer, [2013] VSCA 270, [40]-[47] (Nettle, Ashley and Neave JJA).

[21] Alister v The Queen [1984] HCA 85; (1984) 154 CLR 404, 414.

[22] DPP v Selway (Ruling No 2) [2007] VSC 244; (2007) 16 VR 508, [10]; Ragg v Magistrates' Court of Victoria [2008] VSC 1; (2008) 18 VR 300, [96].

[23] Attorney-General (NSW) v Chidgey [2008] NSWCCA 65, [62], [64]; R v Mokbel (Ruling No 1) [2005] VSC 410, [45]; R v Saleam [1999] NSWCCA 86, [11]; Alister v The Queen [1984] HCA 85; (1984) 154 CLR 404, 414; R v Saleam (1989) 16 NSWLR 14, 18; Woolworths Ltd v Svajcer, [2013] VSCA 270, [40]-[47] (Nettle, Ashley and Neave JJA).

[24] Alister v The Queen [1984] HCA 85; (1984) 154 CLR 404; R v Saleam (1989) 16 NSWLR 14, 17, 414; Commissioner for Railways v Small [1938] NSWStRp 29; (1938) 38 SR (NSW) 564, 575; Re Don [2006] NSWSC 1125, [26].

[25] Attorney-General (New South Wales) v Chidgey 2008] NSWCCA 65, [59].

[26] Carroll v Attorney-General (NSW) (1993) 70 A Crim R 162, 181.

[27] R v Saleam (1989) 16 NSWLR 14, 18; See also R v Sergi [1998] 1 Qd R 536; R v Saleam [1999] NSWCCA 86, [11].

[28] Ali Tastan (1994) 75 A Crim R 498, 504; R v Saleam (1989) 16 NSWLR 14, 18 (Hunt J).

[29] Crown Joinery, [31]; Bailey v Beagle Management Pty Ltd [2001] FCA 60; (2001) 105 FCR 136.

[30] See Tony Azzi Automobiles Pty Ltd v Volvo Car Australia Pty Ltd [2006] NSWSC 283; Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (No 3) [2012] FCA 61 at [7].

[31] Latoudis v Casey [1990] HCA 59; (1990) 170 CLR 534 at 566-7.

[32] Russo v Russo [1953] VicLawRp 12; [1953] VLR 57 at 67.

[33] [2011] VSCA 655, [9] (Redlich and Mandie JJA) ('Shaw v Yarranova').

[34] Cachia v Haines [1994] HCA 14; (1994) 179 CLR 403, 410 (Mason CJ, Brennan, Deane, Dawson and McHugh); Harold v Smith [1860] EngR 516; (1860) 157 ER 1229, 1231 (Branwell B); G E Dal Pont, Law of Costs (2nd ed, 2009) [7.5].

[35] General of Berne Insurance Co v Jardine Reinsurance Management Ltd [1998] EWCA Civ 220; [1998] 2 All ER 301, 308 (May LJ), 312 (Sir Brian Neill); Stobbart v Mocnaj [1999] WASC 252, [8]-[9] (Parker J).

[36] Pecheries Ostendaises (Soc Anon) v Merchants' Marine Insurance Co [1928] 1 KB 750, 762 (Atkin LJ); Mia v Mia [1932] ArgusLawRp 27; [1932] VLR 322, 333 (Cussen ACJ); Prudential Finance Ltd v Davander Nominees Pty Ltd [1992] VicRp 32; [1992] 1 VR 468, 474 (Ashley J); Shaw v Yarranova, [16].

[37] Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474, 45-6 (Santow JA).

[38] Angor Pty Ltd v Ilich Motor Co Pty Ltd [1992] FCA 348; (1992) 37 FCR 65.

[39] See Re Sweeting [1898] 1 Ch 268, 272-3.

[40] Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495.

[41] Beach Petroleum NL v Abbott Tout Russell Kennedy & Ors [1999] NSWCA 408; (1999) 48 NSWLR 1, 48; Shaw v Yarranova, [17].

[42] Groom v Crocker [1939] 1 KB 194, 222; Pegrum v Fatharly (1996) 14 WAR 92, 95, 102; Simmons v Story [2001] VSCA 187, [23] (Winneke P).

[43] Inglis v Moore & Others (No 2) (1979) 25 ALR 453, 464-5 (Davies J); Ernst & Young (Reg) v Tynski Pty Ltd [2003] FCAFC 233; (2003) 47 ACSR 433, 441 (Branson, Marshall and Stone JJ); McKenzie v Director General of Conservation and Natural Resources & Ors [2001] VSC 220, [53]-[55] (Gillard J); Hawksford v Hawksford [2005] NSWSC 463; (2005) 191 FLR 173; Tasmanian Sandstone Quarries Pty Ltd v Tasmanian Sandstone Pty Ltd (2009) 263 LSJS 87 (White J).

[44] Adams v London Improved Motor Coach Builders Ltd, [1921] 1 KB 495 ('Adams'); Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474, 45-6 (Santow JA). See the further authority referred to by Beach J in Shaw v Yarranova Pty Ltd & Anor [2010] VSC 567, [5] and n 7; Shaw v Yarranova, [20].

[45] Exhibit EC-20 to the Cormie affidavit; see also exhibit ARM-1 to the affidavit of Alan Ross Mathieson sworn 15 July 2016.

[47] Affidavit sworn 15 July 2016, [13]. Neither party referred the Court to this affidavit.

[48] See s 3.4.19 of the Legal Profession Act 2004 and s 18 of the transitional provisions in Schedule 1 of the LPULAA.

[49] See s 3.4.19 of the Legal Profession Act 2004 and s 18 of the transitional provisions in Schedule 1 of the LPULAA; or s 172 of LPULAA.

[50] Halliday v High Performance Pty Ltd (In Liq) (1993) 113 ALR 637 (Mason CJ); Shaw v Yarranova, [24].

[51] McKenzie v Director-General of Conservation and Natural Resources [2001] VSC 220, [54]-[56], [60] and [64] (Gillard J); Davies v Taylor (No 2) [1974] AC 225 (Viscount Dilhorne); Shaw v Yarranova, [24].

[52] Principal Registrar of the Supreme Court v Tastan (Barr AJ); R v Saleam [1999] NSWCCA 86, [11] (Spigelman CJ, Studdert and Simpson JJ agreeing); Attorney-General (NSW) v Chidgey [2008] NSWCCA 65; (2008) 182 A Crim R 536; Shaw v Yarranova, [26].

[53] Carroll v Attorney-General for New South Wales (1993) 70 A Crim R 162 (Mahoney AP); Propend Finance Pty Ltd v Commissioner of the Australian Federal Police (1994) 72 A Crim R 278, 282-283; Bruce Harvey v State of New South Wales [2005] NSWSC 1389; R v Robinson (1996) 89 A Crim R 42, 61; Gardiner v R [2006] NSWCCA 190; (2006) 162 A Crim R 233, 252 and Re Don [2006] NSWSC 1125, [6].

[54] Cf. Shaw v Yarranova [30]-[31].

[55] (1952) 72 WN (NSW) 250, 254; see also Lyons v Kern Constructions (Townsville) Pty Ltd [1983] FCA 33; (1983) 47 ALR 114, 130; Webb v Wheatley, [53].

[56] Rule 62.01, definition of plaintiff.

[58] Lines v Tana Pty Ltd [1987] VicRp 53; [1987] VR 641 at 642 (Crockett, O'Bryan and Tadgell JJ) ('Lines v Tana').

[59] The order for security was overturned.

[62] Affirmed on appeal [1983] 2 NSWLR 122 and subsequently applied in Bhagat v Murphy [2000] NSWSC 892.

[63] Stanley-Hill v Kool (1982) 1 NSWLR 460 at 464; Ritter v North Side Enterprises Pty Ltd (1975) 132 CLR 301.

[64] See for example, Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311 and in ACN006577162 Pty Ltd v Beauville Pty Ltd [2014] VSC 298.

[65] Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 [21] ('Livingspring').

[66] Livingspring, [15]-[16]; Harmonious Blend Building Corporation Pty Ltd v Keene [2014] VSC 649 [38].

[70] Transcript 1 March 2017, 73-74, Appeal book p 430-431.

[71] Affidavit of Sizenko of 29 November 2016.

[72] Tradestock Pty Ltd v TNT (Management) Pty Ltd [1977] FCA 1; (1977) 14 ALR 52 at 56.

[73] Ariss v Express Interiors Pty Ltd [1996] 2 VR 507, 514.8 (Phillips JA, with whom Ormiston and Charles JJA agreed) ('Ariss'). See also Livingspring [18].

[74] Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497; Harmonious Blend Building Corporation Pty Ltd v Keene [2014] VSC 649 [52].

[75] Affidavit of Sizenko of 29 August 2017, exhibit SS-1.

[76] Affidavit of Sergey Sizenko of 29 August 2017, exhibit SS-1 Item 36.

[77] This is the conventional reduction; See Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336 at 344; Mark Sensing Shanghai Paper Products Co Ltd v Baldock, [2010] VSC 124; Colmax, [54].

Court (General Civil Procedure) Rules 2015

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