Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd & Anor [2018] VSCA 32

PRACTICE AND PROCEDURE - Security for costs - Trial division judge ordered security for costs against applicant on rehearing de novo of application determined by judicial registrar - Application for leave to appeal - Whether trial judge gave undue weight to reasons of judicial registrar - Whether trial judge erred in concluding proceedings not defensive in nature - Whether trial judge erred in assessment of quantum of order for security for costs - No error in trial judge's reasons shown - Leave to appeal refused - Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621 applied.

PRACTICE AND PROCEDURE - Application to rely on further evidence not before primary judge - Not reasonably clear evidence would have produced opposite result - Application refused.

1 This is an application for leave to appeal a decision of a judge in the trial division who dismissed an appeal from a judicial registrar on a security for costs application.

2 In May 2015 the respondents ('the solicitors') commenced a proceeding in the Magistrates' Court against the applicant ('Bodycorp'), and the applicant's sole director, Mr Antonio Murdaca, seeking recovery of legal fees plus interest on those fees in the sum of $81,688.29. Bodycorp and Mr Murdaca filed defences and a counterclaim seeking damages of $160,000 for alleged breach of the solicitors' retainer.

3 On 20 October 2016 Bodycorp commenced this proceeding in the Supreme Court alleging negligence and breach of retainer by the solicitors. The particulars of loss and damage include claimed losses which exceed $2 million.

4 The proceeding in the Magistrates' Court which had been issued by the solicitors was uplifted to this Court. Bodycorp and Mr Murdaca's defence in that proceeding was then amended to add the following paragraph:

Further and/or alternatively, the Defendants claim a set off in respect of any amounts found to be due and payable in respect of Supreme Court proceeding number S CI 2016 04259 between the Plaintiff and the First Defendant.

Supreme Court proceeding S CI 2016 04259 is this proceeding.

5 On 15 February 2017 the solicitors issued a summons seeking security for costs in this proceeding. The application was heard by a judicial registrar on 16 March 2017.

6 On 19 April 2017 the judicial registrar published her judgment on the application for security for costs.[1] The judicial registrar's reasons are detailed and comprehensive.

7 After referring to the application and the material filed in support and in opposition to it, the judicial registrar set out the background to the proceedings and the relevant legal principles which apply to applications of this kind. She addressed the issue of whether the jurisdiction to order security for costs was enlivened. She determined that it was. She then turned to the discretionary considerations governing the issue of whether security ought to be ordered. She separately addressed each of the considerations relied upon by Bodycorp, being:

• That its impecuniosity had been caused or contributed to by the solicitors.
• That ordering security would stultify Bodycorp's claim.
• That Bodycorp's claim was essentially defensive in nature.
• That the solicitors ought not to be granted security whilst being separately represented in relation to the two proceedings.

She concluded that it was appropriate to order security.

8 The judicial registrar then addressed the issue of the amount of security, considering in detail the various contested components of the security that was sought. After making a number of discounts, she determined to order security for costs in the amount of $90,800.

9 Finally, the judicial registrar addressed the form of the security and, in particular, addressed an undertaking proffered by Mr Murdaca to be personally liable to meet any adverse costs order. She concluded that she did not consider that the proffered undertaking was adequate security for the solicitors' costs.

10 By notice of appeal dated 1 May 2017 Bodycorp appealed to a judge in the trial division against the orders of the judicial registrar. Pursuant to r 84.05(1) and (4) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) the appeal was to be conducted by way of hearing de novo.

11 The appeal was duly heard in the trial division before J Forrest J. At the hearing before J Forrest J counsel for Bodycorp sought and obtained leave to cross-examine the solicitors' cost consultant.

12 J Forrest J published his judgment on the appeal on 25 October 2017.[2] He concluded that the appeal should be dismissed, and he upheld the orders made by the judicial registrar. J Forrest J expressed his agreement with the judicial registrar's reasons, but he also separately addressed the issue of whether the jurisdiction was enlivened, each of the discretionary factors relied upon by Bodycorp, and the issue of what amount of security should be ordered.

Proposed grounds of the application for leave to appeal

13 The proposed grounds in relation to the application for leave to appeal are the following:

1. The Trial Judge erred in adopting the decision of the Judicial Registrar.
2. The Trial Judge erred in placing excessive emphasis upon the decision of the Judicial Registrar.
3. The Trial Judge erred in relying upon the opinion of the respondent's costs consultant.
4. The Trial Judge erred in holding that it could not be determined whether the applicant had a bona fide claim.
5. The Trial Judge erred in holding that the proceeding was not defensive.
6. The Trial Judge erred in holding that the respondent's costs would not be significantly affected by having two sets of lawyers.
7. The Trial Judge erred in assessing the extent of the duplication between the proceedings without any evidence.
8. The Trial Judge failed to provide proper reasons for his decision.
9. The Trial Judge erred in taking into account the costs of discovery.
10. The respondent misled the Trial Judge by failing to disclose that any costs orders made in the proceeding would be secured by virtue of their costs agreement dated 13 September 2013.

14 Bodycorp's written case reveals that the first nine grounds amount, in substance, to an attempt to entirely re-argue the security for costs application.

15 The tenth proposed ground relies upon a separate application to rely on fresh evidence. This application is dated 5 December 2017 and is supported by an affidavit of Mr Murdaca sworn on the same date.

Principles applicable on applications for leave to appeal interlocutory decisions

16 In total, the two judgments delivered on the issue of the security for costs, resulting in an order that Bodycorp provide security in the sum of $90,800, extend to 153 paragraphs. The application has now been heard de novo with full argument twice, and a hearing re-canvassing most if not all of the issues dealt with in the earlier hearings has been held in this Court. There have been two, and now three, reserved judgments.

17 Section 14A of the Supreme Court Act 1986 (Vic) requires leave to appeal in relation to almost all civil matters, whether final or interlocutory. By virtue of s 14C, leave can only be granted where the appeal has 'a real prospect of success'. This is a necessary condition for the granting of leave to appeal, but it will not always be sufficient to warrant the granting of leave.[3] The Court retains a discretion whether to grant leave despite being satisfied that an appeal has a real prospect of success.[4]

18 The existence of that discretion is indicated by the use of the word 'may' in s 14C itself. Leave can be granted only where a real prospect of success has been established. But leave may be refused whether or not an appeal has a real prospect of success.[5] It follows that the leave question may sometimes be approached by considering first whether there are discretionary considerations justifying the refusal of leave, irrespective of the proposed appeal's prospect of success. For example, it is exceptional to grant leave to appeal from a costs order.[6] In other cases, the discretionary considerations may by themselves not be sufficient to lead to a refusal of leave, but if the prospect of success is low (albeit 'real'), this may in combination with the discretionary considerations warrant a refusal of leave.

19 While the old distinction between interlocutory and final orders no longer exists, the principles which underlay the former requirement for leave whenever a party sought to appeal an interlocutory order continue to be potentially relevant. In particular, it is most important for the proper administration of justice that this Court keep a 'tight rein' upon interference with interlocutory orders at first instance, given the potential consequences of a failure to do so in terms of delay and increased cost, and given the potential for applications in relation to interlocutory orders to become a means whereby discretionary judgments in the trial division are in effect transferred to the Court of Appeal.[7] That is especially so where, as here, there has already been a rehearing de novo of a decision made by a judicial registrar of this Court.

20 The respondent solicitors did not contend that leave to appeal should be refused on discretionary grounds such as those mentioned above. Nor was the question canvassed at the hearing in this Court. The application for leave to appeal should therefore be decided by reference to the 'real prospect of success' test alone.

Proposed grounds 1 to 9 - whether leave should be granted

21 For the reasons set out below, leave to appeal should be refused. It is sufficient to set out the reasons for that conclusion in relatively brief terms.

22 Proposed grounds 1 and 2 assert that the judge erred by either adopting the reasons of the judicial registrar or placing too much weight on them. There is no substance whatever in these claims. A fair reading of the judge's reasons shows that he approached the matter before him as a rehearing de novo and that he brought his own judgment to bear on the application. By way of example, the judge permitted cross-examination of the costs consultant, Ms Young, which had not occurred before the judicial registrar. The judge did express agreement with aspects of the judicial registrar's reasons, but there is no reason why that course was inappropriate. To the contrary, especially in the rehearing of an interlocutory application, it will often be efficient to embrace (rather than repeat) reasoning with which the judge conducting the rehearing agrees.

23 Proposed ground 8 alleges, for related reasons, that the judge failed to provide proper reasons for his decision. Again, this ground is entirely without merit. The judge provided detailed and ample reasons. To the extent that the judge's reasons are criticised for reaching the same figure as the judicial registrar, but based on different reasoning, the argument fails because it ignores the 'broad-brush' nature of the calculation of the amount of security for costs. It is necessary to make mention of this factor again below.

24 Proposed ground 3 challenges the judge's decision to accept the evidence of Ms Young. In particular, Bodycorp submitted that Ms Young's opinion as to the likely costs was based, not on proper evidence, but on instructions alone, and that she had not examined relevant documents. To the extent that Bodycorp sought to challenge the admissibility of Ms Young's evidence, leave should be refused because no such challenge was made before the judge. No error has been shown in the judge's decision to accept and rely upon Ms Young's evidence. There is no prescriptive rule about the kind of evidence as to costs which must be provided in a security for costs application. It is necessary only that 'an evidentiary basis'[8] or 'some substantiation'[9] appears for the amount sought. That is because the determination of the amount of security is a broad-brush exercise rather than a form of precise calculation or taxation.[10] There was no reason, consistent with this approach, why Ms Young's evidence ought to have been rejected. Moreover, since both the judicial registrar and the judge effectively discounted Ms Young's estimate by almost half,[11] it cannot be suggested that allowance was not made for weaknesses in her evidence.

25 Proposed ground 4 alleges that the judge erred in holding that it could not be determined whether Bodycorp had a bona fide claim. It is true, as the solicitors concede, that they had accepted before the judge that there was no occasion for him to evaluate the merits of Bodycorp's claim. However, that evaluation, if conducted, would have been directed to the possible argument that there was not a bona fide claim.[12] As such, the judge's conclusion that the matter could not be decided was not unfavourable to Bodycorp. The result was entirely neutral.

26 Proposed ground 5 concerns the judge's characterisation of Bodycorp's claim as a 'second front' rather than as being defensive in character. It is necessary to deal with it at somewhat greater length. Bodycorp contended that security for costs should be refused because its claims were defensive in nature. The claims of professional negligence made in the present proceeding were also advanced by way of defence and counterclaim in the uplifted proceeding. In particular, Bodycorp relied on the claims in the uplifted proceeding as a defence by way of set-off.

27 The judicial registrar held that Bodycorp's claims went well beyond resisting the solicitors' claim for legal fees and that they were substantially offensive in character.[13] She went on, however, to reduce the amount of security to reflect the defensive aspect of Bodycorp's claims (adopting overall a discount figure of 15 per cent).[14] The judge held, similarly, that the claim in the present proceeding was far more expansive than Bodycorp's counterclaim in the uplifted proceeding, which was confined to the question whether the fees in dispute were properly incurred. Instead, Bodycorp had raised a 'full-blown professional negligence claim' amounting to the 'opening up of a second front' and there was 'nothing defensive' about that case.[15] The judge adopted the judicial registrar's estimate of costs, including discounts made in the course of determining that figure.[16]

28 The proposed ground of appeal alleges that the judge erred in holding that the proceeding was not defensive. It was said to be irrelevant whether a 'second front' was being opened, because Bodycorp was agitating a defence (by way of set-off) and not merely a counterclaim. In response, the solicitors pointed to the difference between their own claim of approximately $80,000 and the damages of over $2 million claimed on account of professional negligence.

29 The governing principle is not in doubt and was applied by both the judicial registrar and the judge. It was usefully encapsulated by Ormiston J in Interwest Ltd v Tricontinental Corporation Ltd:

Principally it would appear necessary to characterise the proceedings in respect of which security is sought. If they are 'defensive' proceedings, either directly resisting proceedings already brought or seeking to 'halt self-help procedures', it would seem that to require security would be oppressive, or at least would provide serious grounds for refusing to make an order. At the least, it is a factor to be considered in the exercise of the discretion. In particular, it is a basis for reducing the amount of security ordered to a sum related to the costs of those claims which cannot be characterised as defensive. [17]

30 The argument that the judge erred in characterising Bodycorp's claims as other than defensive has no merit. The claims are of such a magnitude as to make the solicitors' claim insignificant in comparison. While technically relied upon as a defence in the uplifted proceeding, in substance the claims are overwhelmingly offensive. Arguably the judge put the matter too highly in saying that there was 'nothing defensive' about the proceeding, but nothing turns on that choice of words. To the limited extent that the claims have a defensive aspect, that was acknowledged in the discount allowed by the judicial registrar, which the judge himself adopted.

31 Proposed grounds 6, 7 and 9 all relate to the quantum of security. Issue is taken with the effect of the solicitors being represented by two sets of lawyers, the degree of overlap between the two proceedings and the amount allowed for discovery. But the fixing of quantum is a matter within the Court's discretion, acting in the broad-brush manner already mentioned. No attempt was made to establish any miscarriage of that discretion by reference to the principles in House v The King.[18] There is therefore no substance in these proposed grounds.[19]

Proposed ground 10 and the application to rely on further evidence

32 By an application dated 5 December 2017 Bodycorp seeks leave to adduce further evidence. In submissions which accompanied the application, Bodycorp indicated that the evidence upon which it sought to rely was 'the respondent's letters that were sent after the handing down of the judgment that the respondent's caveat secured any costs orders that were made in this proceeding.' An affidavit in support of the application sworn by Mr Murdaca on 5 December 2017 produces a costs agreement dated 25 September 2013; title searches of a property at Etzel Street, Airport West which Mr Murdaca owns as joint proprietor with his wife, and a property at Knighton Avenue, Airport West of which Mr Murdaca is sole proprietor; and a letter from the solicitors dated 10 November 2017.

33 The letter dated 10 November 2017 is addressed to a firm of solicitors, Maciel Pizzorno & Co, apparently acting for Mr Murdaca. The letter begins by referring to a letter from Maciel Pizzorno & Co dated 8 November 2017. The letter then refers to caveats over both the Etzel Street property and the Knighton Avenue property. As to the Knighton Avenue property, the letter states that the caveat has been withdrawn. As to the Etzel Street property, the letter refers to what is described as an 'equitable charge' included in a retainer agreement signed by 'your client' on 18 September 2013, and then states:

'Given the wording of the equitable charge, we do not agree with your assertion that caveat may not include orders for security for costs however it will include costs orders in proceeding S CI 2016 04259'.

34 Mr Murdaca's affidavit did not produce the letter dated 8 November 2017 in response to which the letter sought to be relied upon as further evidence was written. That letter was produced in an affidavit in opposition sworn by Christien Corns on 8 December 2017. Relevantly, the letter dated 8 November 2017 from Maciel Pizzorno & Co to the solicitors had referred to the caveat over the Etzel Street property and had asserted that that caveat 'does not extend to orders for security for costs and costs orders that are made in proceeding S CI 2016 04259, which are unsecured.'

35 Bodycorp submits that the further evidence should be admitted because: it could not have been relied upon at the earlier hearing as it did not exist at that time, it is credible, and it is reasonably clear that if the evidence had been available at the earlier hearing an opposite result would have been produced.

36 The existence of the costs agreement and the caveats was something known at the time of both the hearing before the judicial registrar and the hearing in the trial division. What emerged in the correspondence after those hearings was an assertion by solicitors for Mr Murdaca that the equitable charge upon which the caveat over the Etzel Street property relied would not extend to a costs order in this proceeding and a response by the solicitors that it would.

37 In our view leave to rely upon the further evidence should not be granted as we do not consider that Bodycorp has established that it is reasonably clear that if the evidence had been available an opposite result would have been produced.

38 Until the hearing before us, the contention that the equitable charge, which is the basis for the caveat over the Etzel Street property, extended to the costs of this proceeding, was disputed. In the course of the hearing before us, when asked to confirm that position, counsel for Bodycorp, apparently taking instructions from Mr Murdaca, asserted that Mr Murdaca accepted that the equitable charge would extend to the costs of this proceeding. Nevertheless, there must remain an element of uncertainty in relation to that matter. In any event, as the title search produced by Mr Murdaca reveals, the relevant property is jointly owned by him with his wife and it is mortgaged. On the material before the Court, it is impossible to say whether the equitable charge claimed in the relevant caveat gives the solicitors sufficient security to warrant the refusal of their application. The application to rely on further evidence should be refused.

39 For similar reasons, leave should be refused in respect of proposed ground 10. There is no basis for concluding that the existence of the equitable charge gives the solicitors sufficient security, such that an order for security for costs ought not to have been made.

Conclusion on application for leave to appeal

40 The application for leave to appeal should be refused.

[1] Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd [2017] VSC 200 ('Judicial Registrar's Reasons').

[2] Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd [2017] VSC 621 ('Reasons').

[3] Kennedy v Shire of Campaspe [2015] VSCA 47 [14].

[4] Ibid [5]. See also Northern Health v Kuipers [2015] VSCA 172 [11].

[5] Burgoyne Real Estate Pty Ltd v Dutt [2017] VSCA 372 [65]-[68].

[6] 24 Hour Fitness Pty Ltd v W&B Investment Group Pty Ltd [2015] VSCA 216 [53].

[7] RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd [2017] VSCA 50 [74]-[77].

[8] Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293 [64] ('Trailer Trash').

[9] Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97 [15] ('Pathway').

[10] See, eg, Pathway [2012] VSC 97 [37]-[38]; Trailer Trash [2017] VSCA 293 [64].

[12] Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; [1999] 2 VR 191, 199.

[13] Judicial Registrar's Reasons [56]-[57].

[16] Ibid [50]-[51], [20]-[21].

[17] Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621, 627 (citations omitted). See also: New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619, 625-6 (Vaughan Williams LJ); John Arnold's Surf Shop Pty Ltd (in liq) v Heller Factors Pty Ltd (1979) 22 SASR 20, 32-3, 35; Stanley-Hill v Kool [1982] 1 NSWLR 460, 464; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289, 299-300; KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189, 197-8; MLW Technology Pty Ltd v May [2003] VSC 24 [19]-[25] ('MLW Technology'); ADS Advertising Distribution Services (Aust) Pty Ltd v Central West Business Park Pty Ltd [2005] VSC 265 [11]-[13]; Oswal v Carson [2012] FCA 341; (2012) 201 FCR 338, 343 [31]; Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311 [20(c)]. See also the discussion in: Jim Delany, Security for Costs (The Law Book Company, 1989) 19-22. The analogy used by the judge in the present case of opening a 'second front' is drawn from Visco v Minter [1969] 2 All ER 714, 716 and was also adopted by Byrne J in MLW Technology [2003] VSC 24 [23], [25] and by Habersberger J in Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335 [40].

[18] [1936] HCA 40; (1936) 55 CLR 499, 504-5.

[19] Bodycorp's written case asserted that its counsel had conceded before the judge that no additional documents would be sought in discovery, and that the costs of discovery should therefore not have been allowed. This submission was not borne out by the transcript, in which counsel said only that discovery was not required of documents that had already been discovered. In any event, the costs of discovery were not confined to discovery by the solicitors.