By Interlocutory Process filed on 1 August 2017 the Defendants, Norwest Group Pty Limited and others, sought an order that the First Plaintiff, Erectus Pty Limited ("Erectus") provide security for their costs of the proceedings. That application was ultimately resolved between the parties, on terms that the Second Plaintiff, Mr Botao Hong, undertook to be liable for any costs order made against Erectus in the proceedings, and the application for security for costs against Erectus was otherwise dismissed. The parties remained in dispute as to the costs of the security for costs application.
Before turning to the parties' claims and submissions, I should set out a broad chronology of events relating to the security for costs application, which was largely common ground between the parties.
By an affidavit of Mr Hong dated 10 May 2017, filed in earlier proceedings between the parties, he claimed to have assets in excess of $375,000. The evidence led in that affidavit was, in part, by way of assertion that was not in admissible form and was, at best, incomplete, since it stated that Mr Hong owned two properties which were owned in joint tenancy by Mr Hong and his wife. That affidavit was admitted in this application as an annexure to an affidavit of the Plaintiffs' solicitor, Mr Wang, with a limiting order under s 136 of the Evidence Act 1995 (NSW) to establish matters asserted by Mr Wang and known to the Defendants and not as proof of the asserted facts.
By letter dated 3 July 2017, the Defendants' solicitors requested evidence of Erectus' ability to meet an adverse costs order against it in the proceedings and foreshadowed an application for security for costs if that evidence was not provided. Mr Hong led further evidence in an affidavit dated 11 July 2017 in an injunction application between the parties (Wang [4]) to similar effect to his earlier affidavit dated 10 May 2017. That affidavit was again incomplete in failing to disclose that the residential properties that Mr Hong claimed to own were jointly owned with his wife. This affidavit was also admitted in this application as an annexure to Mr Wang's affidavit with a limiting order under s 136 of the Evidence Act to establish matters asserted by Mr Wang and known to the Defendants and not as proof of the asserted facts.
The Defendants filed their security for costs application in these proceedings on 1 August 2017. On 8 August 2017, the Plaintiffs made an offer, stated to be in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333, that Mr Hong would undertake to the Court to be liable for any costs order made against Erectus, that the application for security for costs should be dismissed and that each party should pay its own costs of the application. That offer was only open for acceptance until noon on 9 August 2017, less than two days after it was made, with the suggested justification for that short time being that the Defendants proposed to press for a hearing of the security for costs application on 10 August 2017.
In further correspondence between the parties after 8 August 2017, largely on a without prejudice except as to costs basis, the Defendants sought security for costs in an alternative form without success. By letter dated 10 August 2017, the Defendants' solicitors stated that the personal undertaking offered by Mr Hong was not sufficient because he had:
"not demonstrated an ability, with admissible evidence, that he can meet an adverse costs order either against himself personally, or Erectus".
The Defendants made a counter-offer, on a without prejudice except as to costs basis, contemplating a payment by Erectus into Court and an undertaking by Mr Hong to be liable for any amount exceeding the amount of that payment.
Also by letter dated 10 August 2017, two days after the initial Calderbank offer had been made, the Plaintiffs' solicitors extended it for a short further period to 14 August 2017 and rejected the Defendants' counter-offer (Wang [9]). The Plaintiffs also relied, in that letter, on the decision in Gentry Bros Pty Ltd v Wilson Brown & Assocs Pty Ltd (1992) 8 ACSR 405 to support a contention that Mr Hong's undertaking would be sufficient to avoid an order for security for costs against Erectus. I will return to that proposition below.
By letter dated 16 August 2017, the Defendants' solicitors again noted that the Defendants were not satisfied as to Mr Hong's capacity to discharge an undertaking to pay an adverse costs order made against him or Erectus, referred to Mr Hong's affidavit that "contains bare assertions of Mr Hong's financial position, with no substantiation or documentary evidence" and invited Mr Hong to provide further information evidencing his capacity to meet an adverse costs order against him or Erectus. Mr Hong subsequently provided a valuation of a residential property that he and his wife together owned to the Defendants' solicitors on 24 August 2017 (Wang [14]).
By a further letter dated 25 August 2017, the Plaintiffs' solicitors advised that:
"[Erectus] has not provided, and is not obliged to provide, financial information to your clients. Instead, the sole director and sole shareholder of Erectus [Mr Hong] has already offered to your clients, and will offer to the Court on any future hearing of your client's security for costs application, the standard undertaking of an individual standing behind a corporation to be personally liable for any costs order made against the corporation. As you are well aware, such undertakings are routinely accepted by the courts as sufficient security in themselves on an application under s 1335. In the presence of such an undertaking, the financial capacity of [Erectus] is irrelevant and will not be relied upon by our client. There is simply no need, and no reason, for [Erectus] to provide you with its financial information."
I express no view as to whether there is any "standard undertaking" of an individual standing behind a corporation, although an appropriate undertaking by such a person will be relevant in a security for costs application, and such an undertaking may or may not be accepted in substitution for security in form that is ordinarily provided, by a payment into Court or a bank guarantee.
The Defendants initially pressed for hearing of the security for costs application on 28 August 2017, but that application was deferred by consent and the Defendants then served further evidence. That further evidence largely comprised affidavits that had already been served in earlier proceedings between the parties.
The Plaintiffs ultimately served their evidence on the security for costs application on 11 September 2017, comprising a further affidavit of Mr Hong which was not read or tendered in this application (Wang [20]). Also by letter dated 11 September 2017, the Defendants' solicitors again emphasised the suggested deficiencies in Mr Hong's evidence of his capacity to meet an order for costs against Erectus, characterising that evidence as limited to bare assertions as to the ownership of assets and as to debts allegedly owed to him by other parties and as inadmissible opinion evidence. By a further letter dated 26 September 2017, which offered a somewhat limited explanation of the Defendants' change of position, the Defendants' solicitors advised that:
"Notwithstanding our clients' ongoing concerns about your clients' ability to meet an adverse costs order in these proceedings, our clients confirm that they are prepared to accept [Mr Hong's] undertaking in satisfaction of their concerns and not continue to press their claim for security for costs, without admission and on a commercial basis and to avoid the need for further resources to be spent on this issue."
That letter proposed that the costs of the application should be costs in the cause, but if that position was not accepted (as it was not) that the question of the costs be determined by the Court, as it now will be.
The parties appear throughout to have proceeded on the assumption that security for costs could be ordered against Erectus, although it and a natural person, Mr Hong, were co-plaintiffs in the proceedings. That assumption appears to have been well-founded, since Ms Beechey (who appeared for the Plaintiffs) accepted in oral submissions that Erectus' and Mr Hong's claims are true alternatives and cannot both succeed. In those circumstances, it is not inevitable, or indeed likely, that any order for costs against Erectus would also be made against Mr Hong, if Mr Hong succeeded and Erectus therefore failed in the proceedings. An order for security for costs may be made against a corporate plaintiff, even where a natural person is also a co-plaintiff, in that situation: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2002] NSWSC 609.
[3]
The Plaintiffs' position
The Plaintiffs, the Respondents on the security for costs application, seek an order that the Defendants pay their costs of the security for costs application up to and including 8 August 2017 on the usual basis. Ms Beechey submits that that order should be made, first, because the Defendants had commenced this application without filing the "vast majority" of their evidence in support of the application. I do not consider that matter supports such an order, where interlocutory applications including security for costs applications are often commenced before all evidence to be relied on has been served and, in this application, the evidence served by the Defendants after that date, although apparently voluminous, had previously been served in the other proceedings between the parties.
Ms Beechey also submits that the Defendants were "well aware" before they filed the application of Mr Hong's capacity to meet any costs order, but did not make any request or inquiry of Mr Hong's solicitor as to whether Mr Hong would be prepared to meet any adverse costs order made against Erectus before filing that application. I do not accept the Plaintiffs' submission that the Defendants were "well aware", either before 8 August 2017 or subsequently, that Mr Hong had the financial capacity to meet any costs order, although they would have been aware that he claimed to have that capacity. As I noted above, Mr Hong's affidavit evidence as to that matter, led in earlier proceedings between the parties and in this application, was partly put by way of assertion, and Mr Hong did not produce documents in response to a Notice to Produce that would have tested those assertions, albeit in circumstances that the application was resolved between the parties before the date for production by Mr Hong arose. I also do not accept the premise of Ms Beechey's submission that the Defendants were obliged to seek, and rely on, an undertaking from Mr Hong to meet any adverse costs order made against Erectus, as distinct from seeking the more common and substantial security that monies paid into Court or a bank guarantee obtained by Erectus would have provided.
It cannot be said that the Plaintiffs have succeeded in this application, so as to support an order for costs, where it has been compromised on terms that Mr Hong undertakes to the Court to be liable for any costs order made against Erectus, albeit the Plaintiffs first raised the possibility of that compromise. It is also common ground between the parties that the usual position is that, where the Court has not heard an application on its merits, it will not ordinarily determine the substance of that application in order to deal with a question of costs. Ms Beechey disavows any suggestion that the Court should undertake such an exercise or seek to forecast the outcome of the security for costs application in determining this application for costs. Ms Castle, who appears for the Defendants, submits that, although the Court can make an order for costs even where there has been no hearing on the merits, it will generally not do so where that would require "the trial of a hypothetical action between the parties and deprive them of the cost saving which they would have achieved by settlement", although it may do so where it concludes that "one of the parties has acted so unreasonably that the other party should obtain the costs of the action" or where the court can be confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully determined: Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-625; Bamburgh Holdings Pty Ltd v Kennedy [2011] NSWSC 792 at [16].
Even if such an assessment had been undertaken, had Ms Beechey not disavowed it, it seems to me that the Court could not have found that the Defendants had acted unreasonably in pursuing an order for security for costs against Erectus, where the ability of Mr Hong to meet the undertaking he offered and has now given was not established, and could have been compromised by any disposal of assets by him prior to a final hearing. It seems to me that that position does not change because the Defendants later determined to accept an undertaking from Mr Hong rather than pursue the security for costs application to a contested hearing, which may reflect no more than a sensible wish to avoid the further costs that would have been incurred in contesting the substantive application.
It also seems to me that the Court could not be confident that Erectus would have succeeded in resisting an order for security for costs, where the Plaintiffs accept that Erectus' claim would fail if Mr Hong's claim succeeded, so security was not excluded by the fact that Mr Hong was a natural person co-plaintiff, and the offer of an undertaking by Mr Hong was not determinative. As I noted above, the Plaintiffs had relied in correspondence on Gentry Bros Pty Ltd v Wilson Brown & Assocs Pty Ltd above, where Cooper J had treated an undertaking offered by the shareholders of an impecunious plaintiff company as sufficient to avoid an order for security for costs against it. However, that approach was not accepted by the Court of Appeal of the Supreme Court of Victoria in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; (1999) 2 VR 191 at 197-198, where Winneke P and Phillips JA observed that such an undertaking may be relevant to the question whether security for costs be granted, but was not decisive of that question, and its correctness was left open by the Court of Appeal in Jazabas Pty Ltd v Haddad [2007] NSWCA 291; (2007) 65 ACSR 276. Where there is an open question whether Mr Hong's offer of a personal undertaking would have avoided an order for security for costs being made against Erectus, at least unless he had also established the capacity to satisfy that undertaking, it cannot be assumed that the Plaintiffs would have succeeded in resisting that application.
The Plaintiffs also seek an order that the Defendants pay their costs of the security for costs application from 9 August 2017 to date on an indemnity basis. Ms Beechey submits, first, that the result obtained by the Defendants on this application will be no more favourable to them than the Calderbank offer that was made by the Plaintiffs on 8 August 2017; that indemnity costs may be awarded where a Calderbank offer contains a genuine offer of compromise which, in all the circumstances, it was unreasonable for the offeree not to accept; and that the Plaintiffs' offer was a genuine offer of compromise, which offered "valuable security" to the Defendants in the form of Mr Hong's (I interpolate, unsecured) undertaking for an obligation of Erectus. Ms Beechey submits that it was unreasonable for the Defendants not to accept the offer made on 8 August 2017 where they have recently decided to accept a corresponding offer; the Defendants have been aware of "uncontested evidence" of Mr Hong's financial capacity since 10 May 2017; and the Defendants have put the Plaintiffs to significant expense in preparing the matter for hearing. The Plaintiffs also complain that, as I noted above, the Defendants initially pressed for hearing of the security for costs application on 28 August 2017, and submits that put the Plaintiffs to additional costs.
Ms Castle responds that the Defendants had acted reasonably, so far as Erectus had not (and has not) provided any evidence of its financial position or ability to meet a costs order against it; Mr Hong had also not provided financial information that he was asked to provide to support his ability to meet an undertaking to meet Erectus' costs of the proceedings; and the Defendants' legal representatives could not, she submits, have reasonably recommended accepting Mr Hong's offer given the suggested difficulties with the form of his affidavit evidence as to his capacity to meet that undertaking and the value of the properties relied upon. The Defendants also submit that they were compelled to bring the application for security for costs and it was maintained because of the lack of information provided by the Plaintiffs.
In my view, the Plaintiffs also cannot succeed in obtaining an order that the Defendants pay their costs of the security for costs application from 9 August 2017 to date on an indemnity basis. The relevant principles are well-established, although this case involves a novel application of them in one respect. Broadly, a failure to accept a Calderbank offer can be relevant to whether the Court should exercise its discretion to order costs on an indemnity basis rather than on a party and party basis, if the offeree achieves a result less favourable than the offer: MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd (1996) 70 FCR 236. However, the making of a Calderbank offer does not automatically result in a favourable costs order, even if a judgment is more favourable to the party making the offer than the terms of the offer, and an entitlement to indemnity costs under a Calderbank offer requires that it was unreasonable for the offeree to reject the offer, when viewed in light of the circumstances existing at the time of its rejection: Commonwealth of Australia v Gretton [2008] NSWCA 117. In Commonwealth of Australia v Gretton above, Beazley JA (as her Honour then was) noted (at [41]) that the public policy considerations underpinning the making of favourable costs orders where a Calderbank offer has been made (and not accepted) are the encouragement of settlement of disputes as soon as possible and the discouragement of wasteful and unreasonable behaviour by litigants, and referred to matters relevant to whether costs should be ordered on that basis.
In Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15], Ward J (as her Honour then was) in turn referred to Commonwealth of Australia v Gretton above and also observed that:
"The onus is on the party seeking to rely on a Calderbank offer … to satisfy the court that it should exercise the costs discretion in its favour (Evans Shire Council v Richardson (No 2) [2006] NSWCA 61). An indemnity costs order will not automatically follow from the fact that a genuine offer of compromise more favourable than the final judgment was made nor is there any presumption to that effect (Cat Media Pty Ltd v Allianz Australia Insurance Ltd [2006] NSWSC 790; Rolls Royce Industrial Power (Pacific) Ltd v James Hardie & Co Pty Ltd [2001] NSWCA 461). What must be considered is the reasonableness of the offeree's rejection or non-acceptance of the offer, having regard to the relevant circumstances at the time that the offer fell to be considered (ie, here, as at September 2006) (citing MGICA (1992) Pty Ltd v Kenny & Good Pty Ltd [above] per Lindgren J). The question is whether, in all the circumstances, the failure to accept the offer "warrants departure from the ordinary rule as to costs" (SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 per Giles JA at [37]).
Counsel … submits that, insofar as the Court is to have regard to the particular circumstances of the case, this includes the evidence advanced, the conduct of the parties and the ultimate result (referring to Knight v Clifton [1971] Ch 700; Hally v Dennis (1955) 95 CLR 661 at 664) and that relevant conduct of the parties to be taken into account may include not only conduct in the course of the proceedings (Beoco Ltd v Alfa Laval Co Ltd [1995] QB 137) but also conduct leading up to commencement of the proceedings (Peters v Peters (1907) 7 SR (NSW) 398 at 399).
Save where there is a special costs order by reference to the procedure provided for under the Rules or in accordance with the principles in Calderbank v Calderbank [above], it has been said that a court should depart from the general rule (and award indemnity costs only where the conduct of the party against whom the order is sought is "plainly unreasonable" (Sydney City Council v Geftlick [2006] NSWCA 280; Dunstan v Rickwood (No 2) [2007] NSWCA 266). In Leichhardt Municipal Council v Green [2004] NSWCA 341, Santow JA (at [57]) said that indemnity costs orders should be reserved for the most unreasonable actions by unsuccessful plaintiffs."
In Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583 at [6], I summarised the principles applicable in determining the effect of a Calderbank offer as follows:
"… the making of a Calderbank offer does not give rise to a presumption in favour of indemnity costs: Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14]. Similarly, the fact that a plaintiff ultimately achieves a worse result than he or she would have achieved if he or she had accepted that offer, does not itself establish that the defendant should be awarded indemnity costs, unless it can be said that it was unreasonable for the plaintiff not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [above] at [9]-[11]; Jones v Bradley (No 2) [2003] NSWCA 258 at [8]-[9]; Perisher Blue Pty Ltd v Nair-Smith (No 2) above at [16]."
There is an open question, which it is not necessary to decide in this application given the conclusions that I reach on other grounds, whether a Calderbank offer made in respect of an interlocutory application can support an order for indemnity costs where that application is settled and there has been no determination on the merits. Neither Counsel was able to identify any case where such an offer had been applied in that situation and, in Lincoln v Pendonna Pty Ltd [2004] NSWSC 1138 at [13], Patten AJ doubted that a Calderbank offer could be relied on where a party had obtained a favourable verdict that that did not follow a trial on the merits, but the intervening resolution of other issues in the case. It also seems to me that there is at least a possible inconsistency between the assessment needed to determine whether it was unreasonable for a party not to accept a Calderbank offer and the approach to settlement referred to by McHugh J in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin above.
Even if a Calderbank offer could support an order for costs where an interlocutory application was settled rather than determined, I am not satisfied that the Plaintiffs' offer supports an order for indemnity costs in this case. I accept that, as Ms Beechey points out, the result obtained by the Defendants is no more favourable to them than the offer made to them on 8 August 2017. However, it has not been established that it was unreasonable for the Defendants not to accept the offer made by Mr Hong on 8 August 2017. I do not accept Ms Beechey's submission that the information then available to the Defendants provided convincing evidence of Mr Hong's financial capacity to meet such an undertaking, and aspects of the information then provided by Mr Hong were, in fact, an incomplete account of his financial position and assets, so far as his wife's interest in the relevant properties concerned; second, the Plaintiffs' offer was initially left open for less than two days, although subsequently extended for a slightly longer period, which was not a reasonable time for the Defendants to determine whether to accept it; and, third, it was made at a time that no evidence had been served by the Plaintiffs in respect of the security for costs application, to support a reasonable assessment of its merit. In these circumstances, that offer does not support an order for indemnity costs against the Defendants.
I accept that, as Ms Beechey also submits, the Plaintiffs have been put to some expense in preparing the security for costs application for a hearing, which could have been avoided or minimised if the Defendants had accepted the Plaintiffs' offer at an earlier point. However, it seems to me that any fault in that regard is by no means attributable only to one party, where the Plaintiffs could have been substantially more forthcoming as to the financial position of Erectus and Mr Hong at an earlier point. I have not neglected the possibility that, where one party litigates for some time and then effectively surrenders to the other, the Court may exercise its discretion in favour of an order for costs to the successful party: One.Tel Ltd v Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548. It does not seem to me that the Defendants' acceptance of Mr Hong's undertaking can properly be characterised as a "surrender" to the Plaintiffs, as distinct from being a settlement of the issues between the parties, albeit on terms initially proposed by the Plaintiffs.
For these reasons, I am not persuaded that the Plaintiffs should succeed in their application for the Defendants to pay the costs of the security for costs application up to and including 8 August 2017 on the usual basis.
[4]
The Defendants' position
The Defendants' primary position was that the costs of the security for costs application should be costs in the cause, consistent with the position put by the letter dated 26 September 2017 from their solicitors to the Plaintiffs' solicitors. That order assumes that it would be appropriate that the party that is successful in the substantive proceedings should have its costs of the security for costs application. I am not persuaded that that order is appropriate, where the outcome of the security for costs application was uncertain and will now not be determined by reason of the undertaking offered by Mr Hong and accepted by the Defendants, and it would not follow from the Plaintiffs' or Defendants' success in pursuing or defending the substantive proceedings that they respectively should have the costs of an application for security for costs in which they would have failed. In those circumstances, as Ms Castle accepted in oral submissions, it seems to me that there should be no order as to the costs of the security for costs application.
Ms Castle, in the alternative, pursued an order for costs in favour of the Defendants, although she placed little emphasis on that application in oral submissions and it appeared to have something of the character of a "tit for tat" application. Where the Court cannot and should not determine the likely outcome of a security for costs application that has been settled, on a hypothetical basis, then I cannot be satisfied that the Plaintiffs acted unreasonably in resisting the order for security for costs on the basis of the undertaking offered by Mr Hong. In those circumstances, I am not satisfied that the basis for an order for costs in favour of the Defendants is established.
[5]
Summary and orders
In the result, the Plaintiffs have not established their claim that there should be an order for costs of the security for costs application in their favour, whether on an ordinary basis up to 8 August 2017 or on an indemnity basis from 9 August 2017. The Defendants have also not established any entitlement to costs in respect of the security for costs application, and I have made no order for the costs of the security for costs application rather than an order for costs in the cause. Where each party unsuccessfully pressed orders that the other should pay their respective costs of the security for costs application, there should be no order for costs in respect of this application.
Accordingly, I order that there be no order for costs in respect of the Defendants' Interlocutory Process seeking security for costs filed on 1 August 2017 or of or incidental to the hearing as to costs before me on 3 September 2017.
[6]
Amendments
18 October 2017 - Catchwords correct misprint to "no more favourable".
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Decision last updated: 18 October 2017