Axent Holdings Pty Ltd v Compusign Australia Pty Ltd

Background 9 The hearing of Axent's claim for infringement (on liability only) and the cross-claim for revocation has been set down for 27 November 2017 for five days. Mediation is fixed for 3 November 2017. 10 Axent has alleged that the Compusign respondents' sale and manufacture of variable speed limit signs and lane use signs infringe the claims of the patent in suit. Each of the respondents has made relevant admissions in relation to the importation, manufacture or sale of their variable speed limit sign products and lane use sign products. As, however, its position statement on infringement discloses, Axent alleges different types of infringing conduct. Thus, Axent further alleges (at paragraphs 21-22) that the respondents have: a. instructed, further or alternatively, directed, procured or induced, others to use their systems so as to infringe each of the claims of the patent; b. authorized others to infringe each of the claims of the patent; c. joined in a common design with others to infringe each of the claims of the patent; and d. contravened section 117 of the Patents Act. Axent alleges that "[t]his is through [the respondents] providing detailed specifications for their sign systems, operating and maintenance manuals and other documentation to United Group Infrastructure (UGL)". 11 Further, Axent alleges, in paragraph 23 of its position statement, that: a. each individual supply, as well as being an act of primary infringement - and also to the extent that it is not: if, for example, a controller is not supplied (which Axent denies, as each sign contains a CPU) - is an infringement of the kind listed in paragraph 20; and b. subsequent acts of repair and replacement in whole or in part of a signage system are both a primary infringement and a separate act of infringement of the kind listed in paragraph 20, as they amount to authorization to the relevant third party for them or another to engage and/or continue to engage in use of the signage system, which is a separate act of primary infringement; and c. servicing and maintenance of a signage system or the giving instructions or assistance to a third party to do this is also a separate act of infringement of the kind listed in paragraph 20, as it amounts to authorization to the relevant third party for them or another to engage and/or continue to engage in use of the signage system, which is a separate act of primary infringement. 12 For completeness, I note that Axent further states that there are three other issues relevant to the respondents' liability for patent infringement: (1) whether any of the infringing acts are statute-barred; (2) the precise period for which the patent was in a state of lapse due to Axent's failure to pay a renewal fee; and (3) whether the amendment of the patent ought to affect Axent's ability to recover damages. 13 The respondents deny infringement. The respondents have asserted various defences. For example, the Compusign respondents rely on the following five defences: a) any alleged infringing conduct before 2 December 2010 is statute-barred, by operation of s 120(4) of the Patents Act 1990 (Cth) (the Act): at [8d]; b) that due to the Applicant's non-payment of renewal fees for the Patent and the ceasing of the Patent, the Applicant cannot bring infringement proceedings for any infringements during the ceased period of 7 October 2015 until 15 September 2016, by operation of ss 223(10) and 143(a) of the Act and regulation 13.6(1) of the Patents Regulations 1991: at [6a]; c) that by reason of the amendment of the complete specification of the Patent, by operation of s 115(1) of the Act, no pecuniary relief is available for any alleged infringements of the Patent before the amendments: at [8e]; d) Compusign Australia was making or had taken definite steps to make a product as claimed, by reason of its use of the Compusign Prototype before the priority date, so that by s 119 of the Act there would be no infringement of the Patent: at [8h]; and e) if any claims of the Patent are infringed and valid (which is denied), any exploitation of the Patent by the Compusign parties was authorized by an authority of the State for the services of that State, and by operation of s 163 of the Act such exploitation was not an infringement: at [22]. 14 The respondents also cross-claim for the revocation of the patent claim on the basis that the patent is invalid. Invalidity is asserted on various grounds, including lack of novelty, lack of inventive step or obviousness, lack of fair basis, lack of clarity, lack of entitlement and secret use. Axent denies invalidity.

legal framework 15 The respondents seek security for costs under s 56 of the Federal Court of Australia Act 1976 (Cth) (FCA Act), r 19.01 of the Federal Court Rules 2011 (Cth) (Federal Court Rules) and s 1335 of the Corporations Act 2001 (Cth) (Corporations Act). Section 56 of the FCA Act provides that: (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security. 16 Rule 19.01 of the Federal Court Rules further addresses the practice and procedure of the Court in considering a security for costs application, although it does not enlarge the power with respect to security for costs beyond the power conferred by s 56 of the FCA Act. Application for an order for security for costs (1) A respondent may apply to the Court for an order: (a) that an applicant give security for costs and for the manner, time and terms for the giving of the security; and (b) that the applicant's proceeding be stayed until security is given; and (c) that if the applicant fails to comply with the order to provide security within the time specified in the order, the proceeding be stayed or dismissed. (2) An application under subrule (1) must be accompanied by an affidavit stating the facts on which the order for security for costs is sought. (3) The respondent's affidavit should state the following: (a) whether there is reason to believe that the applicant will be unable to pay the respondent's costs if so ordered; (b) whether the applicant is ordinarily resident outside Australia; (c) whether the applicant is suing for someone else's benefit; (d) whether the applicant is impecunious; (e) any other relevant matter. Note: Section 56 of the Act deals with security for costs. (4) In this rule: applicant includes a cross-claimant. respondent includes a cross-respondent. 17 Section 1335(1) of the Corporations Act further provides: Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given. 18 The discretion conferred by s 56 of the FCA Act must be exercised judicially, and is broad and unfettered: see Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3 and Madgwick v Kelly [2013] FCAFC 61; 212 FCR 1 at [6]. The Court may order security for costs in the exercise of its discretion, after considering all the circumstances of the case. The substantive onus of proof rests throughout upon the party seeking security, although once the threshold issue (see below) is satisfied, an evidentiary burden lies on the party resisting the order for security for costs to show why security should not be granted: Concrete Mining Structures Pty Ltd v Cellcrete Australia Pty Ltd (No 2) [2016] FCA 360 (Concrete Mining) at [11]-[12]. 19 There is little, if any, dispute about the matters that may guide the exercise of discretion. In Concrete Mining at [13] Edelman J, drawing on earlier authorities including Hii v Federal Commissioner of Taxation (No 3) [2016] FCA 58; 238 FCR 304, helpfully set out the factors commonly falling for consideration. The factors to which his Honour referred were as follows: (1) the likelihood of the applicant being unable to pay the respondent's costs; (2) the characteristics of the applicant including whether it is a corporation or a natural person, the wealth of the applicant, whether the applicant is a foreign resident and, if so, the assets held by the applicant in Australia; (3) whether any impecuniosity of the applicant was caused by the respondent's conduct which is the subject of the claim, to the extent to which that can be assessed; (4) whether the application for security is oppressive; (5) whether the award of security would deny an impecunious applicant a right to litigate; (6) whether there are persons standing behind the applicant who are likely to benefit from the litigation; (7) whether the persons standing behind the applicant have offered any security or personal undertaking to be liable for the costs, and if so, the form of that security or undertaking; (8) whether the proceedings are in substance defensive in the sense of directly resisting proceedings already brought or seeking to halt the respondent's self-help procedures so that the applicant is, in substance, forced to litigate; (9) whether the application for security had been brought promptly; (10) whether the applicant has any rights which it can exercise against assets of the respondent to satisfy an order for costs in its favour; (11) the strength and bona fides of the applicant's case, although this will invariably only be determined in a provisional manner and in many cases will only be a broad brush impression of little weight; and (12) any factors relating to the public interest. 20 As Edelman J said, the threshold issue is the likelihood of the applicant being unable to pay a respondent's costs and, in the terms of s 1335(1) of the Corporations Act, there must be "credible testimony" demonstrating "reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence".

Is there credible testimony that Axent will be unable to pay the costs of Hi-Lux if Hi-Lux is successful? 21 Hi-Lux submitted that the evidence before the Court showed that there is reason to believe that Axent would be unable to pay the costs of Hi-Lux if Hi-Lux were successful in the proceedings. This evidence was, so it submitted, to be found in the affidavits of Mr Rankin. 22 In his first affidavit, Mr Rankin deposes that a search of the records maintained by the Australian Securities and Investments Commission (ASIC) extracted as at 19 January 2017 shows that Axent is a company registered on 30 March 2001 as an Australian proprietary company, with a total paid-up share capital of $1,000. Further, a Victorian real property search performed on 19 January 2017 showed that Axent was not listed as the owner of any real property in Victoria. 23 Hi-Lux also relied on the fact that, as disclosed in Mr Rankin's second affidavit, Axent was a defendant to a claim in the County Court of Victoria that had been set down for a 7-day hearing commencing on 18 October 2017, and that it had not explained. (Hi-Lux did not press a further matter to which reference was made in written submissions filed before the hearing.) 24 Lastly, in the circumstances set out below, Hi-Lux relied on annexure RRR-4 to Mr Rankin's first affidavit. 25 In considering whether Hi-Lux has shown by "credible testimony" that there is reason to believe that Axent will be unable to pay its costs if successful, it is necessary to say something more about Axent. 26 Axent is an electronic engineering company with corporate headquarters in the Melbourne suburb of Clayton. There was no dispute that Axent has been trading for over 17 years and employs a number of full-time and part-time staff. There was also no dispute about its general revenue figures. 27 In support of its opposing submission that Hi-Lux had not demonstrated there is reason to believe that, if Axent were unsuccessful, Axent would be unable to meet a costs order made against it, Axent referred to confidential annexure CL-9 to the affidavit sworn by Mr Leonidas directed to Hi-Lux's application for security for costs. 28 Axent submitted that, in confidential annexure CL-9, Axent had demonstrated a strong financial position. In this affidavit, Mr Leonidas deposed that he had been advised by Geoff Fontaine, who was the sole director of Axent, and believed that the matters set out in that annexure were true and correct. Confidential annexure CL-9 contained three bullet points, including general assertions about Axent's turnover and EBITDA, as well as its total and net assets. 29 I interpolate here that Hi-Lux objected to the admissibility of confidential annexure CL-9, on the basis that Mr Fontaine was not shown to have the appropriate expertise to express an admissible opinion about the valuation of assets under s 76 of the Evidence Act 1995 (Cth) (Evidence Act) and the evidence was vague and did not indicate the basis for the stated conclusions. In any event, so Hi-Lux submitted, Mr Fontaine should have given that evidence directly and be subject to cross-examination. 30 All parties took advantage of the exception to the hearsay rule in interlocutory proceedings set out in s 75 of the Evidence Act, as they were entitled to do. One might reasonably expect the sole director of Axent would have first-hand knowledge of some of the facts asserted in confidential annexure CL-9, although perhaps not all. One might also infer from the nature of some of the asserted facts that they constitute or depend on opinions about the value of assets and other matters, the basis of which is not disclosed. I am inclined to the view therefore that confidential annexure CL-9 is not admissible, as counsel for Hi-Lux submitted. Even if it were admissible I would attach little, if any, weight to it. This is because I accept, as Hi-Lux submitted, that confidential annexure CL-9 contains broadly-stated conclusions, the bases for which are not explained. The inclusion of a statement of this kind by the company's director as an annexure to an affidavit sworn by the company's solicitor (on information and belief) can scarcely be regarded as persuasive, even acknowledging that Hi-Lux bore the substantive onus with respect to its application, including that the threshold issue was satisfied. 31 It was in this context that counsel for Hi-Lux sought to tender annexure RRR-4 to Mr Rankin's first affidavit, the admissibility of which was the subject of initial objection by Ms Gatford, counsel for Axent. 32 The background to the provision of this information can be briefly stated. Hi-Lux's solicitors wrote to the solicitor for Axent on 7 February 2017 raising the concern that Axent would be unlikely to be able to satisfy an adverse costs order. Hi-Lux's solicitors requested the provision of any information that would establish that Axent had sufficient assets to meet an adverse costs order. Axent's solicitor replied on 13 February 2017 advising that Axent did not agree to provide any security for costs, and that it would disclose financial information on a confidential basis. On 27 February 2017 Hi-Lux was provided with a confidential Management Report dated 18 October 2016, for the financial year ended 30 June 2016 (management report). This document was produced in confidential annexure RRR-4 to Mr Rankin's first affidavit initially to explain Axent's response to Hi-Lux's concerns. 33 This much appears in email correspondence in annexure F to the affidavit of Mr Leonidas sworn in response to the Compusign respondents' application). Amongst other things, in an email to Mr Leonidas dated 15 August 2017, the respondents' solicitor relevantly stated: The second respondent relies upon both affidavits of Mr Rankin. The first and third respondents also rely upon both affidavits of Mr Rankin - the practical reality being that the material in both affidavits will be before the Court on the second respondent's application. The financial statement is, however, put before the Court solely in order to disclose the response that Axent advanced as to why it should not be liable to provide security for costs. It does not form part of the respondents' positive case. Should your client notify us either in their answering materials, or at the hearing, or otherwise, that it does not seek to rely upon its 2015/2016 financial statement in answer to the respondents' application, then the respondents would not tender that statement (contained in Confidential Annexure RRR-4). If Axent seeks to rely on that financial statement, then the issue is moot in any event. If it seeks to rely on a financial statement that is inconsistent with the 2015/1016 financial statement, then that is something that it may need to justify during the hearing. 34 At the hearing, Mr Smith in fact sought to rely on the management report in support of the application made by Hi-Lux for security for costs, because, in his submission, Axent had by then sought to rely on general and vague assertions, which were inconsistent with the more detailed information in the management report. Mr Smith submitted that it was "quite unusual" that the applicant would seek not to disclose the full details to the Court. 35 After further argument, Axent withdrew its objection to the admissibility of the management report as regards the Hi-Lux application. The upshot was that, as indicated earlier, the application for security for costs made by the Compusign respondents was adjourned to a date to be fixed; and that the management report, along with confidential annexures RRR-5 and RRR-7 to Mr Rankin's first affidavit in respect of the application made by Hi-Lux for security for costs, were admitted into evidence. 36 A final point to note is that, with respect to the threshold issue, Axent relied on the decision of Vickery J in Amcor Limited v Barnes [2015] VSC 90 (Amcor v Barnes) at [20]-[44]. Hi-Lux, on the other hand, relied on the decision of Beazley ACJ in Treloar Constructions Pty Limited v McMillan [2016] NSWCA 302 (Treloar v McMillan). 37 In Amcor v Barnes Vickery J accepted (at [24]) that Achilla (against whom security for costs was sought) "no longer has any capacity to generate any cash flow from trading". Achilla had no real estate and provided no information as to its financial position. His Honour said (at [26]): I have no evidence about income which may be derived from any other source, for example investments, and no evidence about its expenses (if any). Apart from some evidence as to not owning any real estate and the claimed asset of a positive costs order in its favour (in both cases as to which, see below), I have no evidence as to what assets Achilla may have (other than not having any real estate) and what are its liabilities. 38 Nonetheless, after referring to some other matters, Vickery J concluded that he was not persuaded that the evidence permitted a rational belief that, if ordered to do so, Achilla would be unable to pay the costs of the Amcor parties, if it were unsuccessful in its counter-claim. His Honour stated (at [56]) that: The absence of real estate assets, combined with a low share capital, and the fact that it has ceased to trade, are all based upon credible testimony, however, together they do not provide reason to believe that Achilla will be unable to meet an adverse costs order if made against it in its counterclaim proceeding. This led his Honour to hold that the threshold question was not satisfied. 39 To evaluate the relevance of this decision, however, two further factors should be borne in mind. In this case, his Honour also indicated (at [59]) that even if Amcor was able to make out the threshold question, he would not have exercised the discretion in Amcor's favour, delay being a significant factor against the exercise of discretion: see Amcor v Barnes at [63]. Further, Achilla did not adduce any evidence as to its financial position and his Honour accepted that Achilla was under no obligation to do so (at [44]) and that the rule in Jones v Dunkel (1959) 101 CLR 298 "cannot be used to fill gaps in the evidence or to convert conjecture or suspicion into evidence in the nature of inference": see Amcor v Barnes at [39]. His Honour remarked (at [40]): [A] failure to provide financial information in the face of a valid Court process, either in answer to a subpoena or a notice to produce, or in response to a reasonable request on the part of a defendant, may assist or fortify a conclusion based on direct evidence or upon inferences to be drawn from the other evidence as to the inability of the plaintiff to pay the defendant's costs should the defendant be successful. But it cannot of itself provide such evidence or give rise to that conclusion. 40 In Treloar v McMillan, on the other hand, Beazley ACJ made an order for security for costs of an appeal against a corporation, accepting that there was sufficient evidence to satisfy the threshold question. Referring to this threshold question, Beazley ACJ stated (at [11]-[12]): The test to be applied in determining whether an applicant has satisfied the jurisdictional requirements of s 1335 has been described as "undemanding": HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 87 at [17]. In Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377; [2008] VSCA 93, Maxwell P and Buchanan JA stated, at [15], that the phrase "reason to believe" in s 1335 "is the touchstone of jurisdiction. It requires a rational basis for the belief - and no more". See also HP Mercantile v Dierickx at [6]-[10]; Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [29]-[30]; Cornelius v Global Medical Solutions Australia Pty Ltd [2014] NSWCA 65 at [16]. In Livingspring v Kliger Partners their Honours further observed, at [15], that the section required the making of a risk assessment as to whether the corporation would be unable to pay, and that: The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs. 41 Her Honour said (at [25]-[27]) that the parties' submissions focussed the outcome of the application on whether, in this case, in the absence of a notice to produce financial information, Mr McMillan had satisfied the terms of s 1335. In dealing with that question, both parties referred to the decision of the Western Australian Court of Appeal in FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd (2000) 22 WAR 241; [2000] WASCA 69. In that case, the court examined the difference in the language of s 1335 from its predecessor provisions. In doing so, Pidgeon and Owen JJ observed, at [11], that there had been a lessening of the threshold requirements for the engagement of the court's jurisdiction and that it was no longer necessary to prove that a party would be unable to pay costs if an order was made against it. … The applicant in FFE Minerals had adduced evidence that the respondent to the application had a limited share capital and no land on the relevant land register. Their Honours observed, at [25], that there was no evidence of an apparent lack of other assets, although the financial returns produced suggested that was the position. Their Honours considered that the absence of land combined with low share capital gave rise to appearance that there was reason to believe that there were no assets to meet the costs. Their Honours noted that the respondent company could have adduced evidence but did not. They concluded that the evidence led, combined with the absence of evidence from the respondent, objectively gave rise to the necessary belief that the company was not in the position to pay costs if an order was made against it. 42 Beazley ACJ concluded (at [29]) that the threshold question was satisfied in the matter before her because the party against whom security was sought was a company with no real estate and a limited share capital. It is a project management and building services company and as such would not be expected to have any stock. Prior to the bringing of the application, it was asked to provide proof that it could meet an order for costs but chose not to do so. Although Mr McMillan would have been in a stronger forensic position had a notice to produce been issued, I am, as I have said, nonetheless satisfied that Mr McMillan has established by credible evidence that there is reason to believe that Treloar Constructions would be unable to pay an order for costs if unsuccessful on the appeal. My conclusion in this regard is reinforced by the fact that Treloar Constructions, on its stay application, did not adduce any evidence that it would be in a position to pay the costs it had been ordered to pay in respect of the first instance proceedings should it not be successful on its appeal. I refer to this below. 43 Consideration of these two cases demonstrates that in determining whether the threshold question can be answered affirmatively, the focus must be on the circumstances of the particular case. Decisions in other cases such as these may inform but cannot dictate the result. Both the cases to which the parties referred were helpful but there were significant differences between the circumstances in each of those cases and in this case. 44 Axent provided Hi-Lux with some information about its financial position in February 2017, when the issue of its ability to pay costs if it was unsuccessful was first raised. In the end, the management report was admitted into evidence with its consent, in the circumstances outlined above. In contrast to the company against which security was sought in Treloar v McMillan Axent has apparently some plant and equipment of value. 45 It may be accepted that the threshold issue is "undemanding"; and Hi-Lux need only establish that there is a rational basis for the belief that Axent will be unable to pay its costs if Hi-Lux is successful. A practical approach is called for in deciding whether Hi-Lux has met this threshold. As already stated, Axent is an electronic engineering company that has been trading for some time. I accept that there is credible testimony about Axent's lack of real estate and low paid-up share capital, but these considerations do not of themselves satisfy me that there is a rational basis for belief that, if ordered to do so, Axent will be unable to pay Hi-Lux's costs. I have borne in mind that Axent has not sought to explain the proceedings in the County Court, but as there is no evidence about the proceeding I would not give this circumstance much weight. The management report does not persuade me that there is a rational basis for the requisite belief. 46 Both counsel for Hi-Lux and Axent made submissions about the management report. Hi-Lux did not, however, support its application with any expert evidence that might have cast more knowledgeable light on the management report. To some extent this may be explained by the circumstances concerning this report, to which I earlier referred. The fact remains, however, that the management report is of uncertain significance. Even the purpose for which the management report was produced is not disclosed. Consideration of it might raise reasonable questions but it appears that Hi-Lux has not sought to raise any question or query arising from that report with Axent. The management report is, therefore, of uncertain significance and does not satisfy me that Hi-Lux has established that there is a rational basis for the belief that Axent will be unable to pay its costs if Hi-Lux is successful. 47 I would not therefore make the order for security for costs that Hi-Lux seeks. However, even if Hi-Lux had satisfied the threshold issue, I would not have exercised the discretion in its favour in this case.

The discretionary factors 48 Hi-Lux relied on the following factors to support an exercise of discretion in favour of granting security. (1) No guarantee has been proffered by Mr Fontaine, or by the holding company, GFF Holdings Pty Ltd, which has the same address as Mr Fontaine. (2) The cross-claim seeking revocation of the patent is defensive, and its costs are in substance defensive. (3) Hi-Lux had not delayed in seeking security for costs. 49 It may be accepted that Mr Fontaine has not proffered a guarantee. Nor has the holding company. Ms Gatford submitted that they were not asked to do so. Mr Smith did not submit to the contrary. In any case, in the circumstances of the case, this factor is not especially significant. 50 For present purposes, it may be accepted that the counter-claim for revocation of the patent on the ground of invalidity is defensive to Axent's infringement claim, and that this characterisation may be relevant to the question of whether or not an order for security for costs should be made: see Probiotec Limited v The University of Melbourne [2008] FCAFC 5; 166 FCR 30 at [63] (Rares J, with whom Finn and Besanko JJ agreed), citing Baygol Pty Limited v Huntsman Chemical Co Australia Pty Limited t/a RMAX [2004] FCA 1248 at [31] (Tamberlin J) and Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336 at 339-341 (Heerey J). 51 Also relevant in this context is the fact that Hi-Lux (properly it seems to me) did not call into question the strength and bona fides of Axent's case, as a factor militating in favour of an order for security for costs. The best that can be said, so it seems to me at this stage of the proceeding, is that Axent's claim is regular on its face and discloses a proper cause of action. Much the same can be said of the counter-claim. In this circumstance, however, the Court can do no more than assume that Axent has reasonable prospects of success, subject to the counter-claim: see, for example, Angas Securities Limited v Savills (SA) Pty Ltd [2017] FCA 868 at [10] (White J), citing Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103; 327 ALR 523 at [41] (Murphy J). 52 In the circumstances of this case, the second of Hi-Lux's factors is relevant but would not of itself lead me to exercise the discretion in favour of Hi-Lux. 53 This leaves the issue of delay. As indicated above, Hi-Lux gave early notice that it was concerned that Axent might be unable to satisfy an adverse costs order and this led to the provision by Axent of the management report on 27 February 2017. In a letter dated 28 February 2017, Hi-Lux, by its solicitors, advised Axent that it had considered the management report and formed the view that "there is not an urgent need" for Hi-Lux to apply for security for costs, "however we consider that there will clearly be a need for security ... in respect of subsequent stages". The letter stated that Hi-Lux would seek the provision of security for costs "in due course", adding: If your client will seek to raise the issue of delay as a discretionary consideration in respect of any later application for provision of security for costs of subsequent stages of the proceeding, then please advise us of that position by return, in which case [Hi-Lux] will make its application for security for costs now". 54 Axent's solicitor responded that "[a]s long as the delay by your client is not an inordinate delay then we do not see a basis for objection". 55 Hi-Lux submitted that there had been no delay on its part in seeking security and there was no prejudice to Axent, which determined to proceed with its case although on notice that Hi-Lux proposed an application for security for costs. 56 By way of explanation for not proceeding in February this year, it was submitted by Hi-Lux that as at the end of that month, Hi-Lux was optimistic that the proceeding might be resolved early, although this became more doubtful during the course of exchange of the position statements. This is as may be. After writing to Axent's solicitor on 18 July 2017 seeking the provision of security for costs, and receiving a refusal to provide such security on 26 July 2017, Hi-Lux applied for security for costs on 28 July 2017. In a letter of 10 August 2017, the solicitor for Axent indicated that it considered that Hi-Lux had improperly delayed its application. By 28 July 2017 well over five months had passed since Hi-Lux had first raised the issue of security for costs. 57 Ms Gatford, counsel for Axent, drew attention to the fact that, on 24 May 2017, orders were made listing the matter for trial on 27 November 2017 and fixing a timetable in order that the matter could proceed on that date. The parties had exchanged detailed position statements by the end of July and were currently preparing affidavit evidence to be filed in accordance with orders made on 21 July 2017. As Ms Gatford said, the pre-trial timetable required the parties to prepare the material with relative speed and efficiency. 58 I reject the submission for Hi-Lux that there had been no delay. It was open to Hi-Lux to apply for security at an earlier date, including on receiving the management report from Axent's solicitors in February 2017. It may be accepted that delay on the part of the party seeking security may not be fatal to the application if the delay does not prejudice the party against whom the order is sought. Delay is, however, commonly an important consideration in determining an application for security for costs because it is capable of causing prejudice or unfairness to the party against whom the order is sought. 59 Generally speaking, an applicant is entitled to know at the earliest opportunity, before it has committed substantial resources to the litigation, whether it will be required to provide security: see Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 (Christou) at [20] (Newnes JA, with whom Murphy JA agreed). A court may take into account a probable tactical explanation for delaying the application, which may militate against the making of the order for security for costs. In this way, prejudice, of a forensic kind, arising from delay may also be relevant to an exercise of the relevant discretion: see Attorney-General (Botswana) v Aussie Diamond Products Pty Ltd [2009] WASC 299 (Aussie Diamond) at [15]-[16] (Kenneth Martin J). 60 Axent submitted that, in the circumstances of the case, I should infer that Hi-Lux's timing of its security for costs application was "quite tactical". Axent submitted that Hi-Lux made this application at this time to frustrate Axent's timely preparation of its evidence, to avoid providing discovery and to interrupt Axent's other preparation for trial. It is, however, unnecessary to decide the issues raised by these submissions. It is enough that I am satisfied that the timing of this application means that Axent will suffer some relevant prejudice as a consequence of the delay if the orders sought by Hi-Lux were now made. 61 The trial date was set on 24 May 2017, and since then the parties have been required actively to ready themselves for that trial. In his affidavit directed to Hi-Lux's application, Mr Leonidas deposed that "significant and substantial costs and expenses have been incurred by Axent" in respect of the claim and the counter-claim, "which Axent would have reconsidered not incurring had the application been made more promptly". Even if Hi-Lux's criticism of this evidence were accepted, I accept that since 24 May 2017 the parties, including Axent, have incurred not insignificant costs and spent time preparing for the trial in November 2017. They would also, of course, have incurred costs prior to this May date. 62 To adopt and adapt a statement made by Newnes JA in Christou at [20], it can readily be accepted that the later an application for security for costs is made the greater the likelihood that it will cause substantial disruption or distraction in the conduct of the applicant's case, and if the applicant is unable to provide security, the greater the costs that will have been wasted. 63 It must, of course, be accepted that there are "degrees of delay and the effect of delay will vary according to the circumstances": see Christou at [22] (Newnes JA). I accept that, although there was delay in this case, the application was nonetheless made some four months before the trial was to begin. 64 The reason for the delay is also an important consideration. Hi-Lux did not provide any evidence to support its submission that it was optimistic in February 2017 that the proceeding might be resolved and therefore it did not apply for security for costs until late July. Nor did it provide any other evidence that might explain its delay. 65 In the present case, Hi-Lux's delay in making the security for costs application, though not great, is a factor that militates to a limited degree against an exercise of discretion in favour of making an order for security for costs. 66 On balance, even if Hi-Lux met the threshold condition, in the circumstances of this case, bearing in mind the evidence concerning Axent's financial position (discussed above) as well as the other factors to which I have just referred, I would not on this application exercise the discretion to order the provision of security by Axent in favour of Hi-Lux. 67 Having regard to the foregoing, it is unnecessary to discuss the issues raised with respect to the amount of security that Hi-Lux sought.

disposition 68 For the reasons stated, I would dismiss the amended application for security for costs in so far as it is made by Hi-Lux. I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

SCHEDULE OF PARTIES VID 1408 of 2016 Cross-Claimants Second Cross-Claimant: HI-LUX TECHNICAL SERVICES PTY LTD (ACN 006 654 691)