Practice and procedure - Defendant's application for security for costs - Whether defendant has adequate explanation for delay in seeking security for costs - Whether delay prejudices the plaintiff - Turns on own facts

Covecorp Constructions Pty Ltd v Indigo Projects Pty Ltd [2007] QSC 262

Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105

1 The defendant applies for an order that the plaintiff give security for the defendant's future costs of the action in the sum of $50,000.

2 This action concerns three emails published by employees of the defendant. The plaintiff alleges that the emails are defamatory of him. He says that each of the emails give rise to imputations which relate to his attitude and work performance. The plaintiff further alleges that the defendant is responsible for the republication of the defamatory matters contained in the emails in The West Australian newspaper and in other emails. The defendant admits publishing each of the emails but not to all of the persons alleged by the plaintiff. The defendant denies that it is liable for the republications in the newspaper. The defendant denies that the publications give rise to the alleged imputations. The defendant pleads positive defences of truth and qualified privilege.

3 Order 25 r 1 of the Rules of the Supreme Court 1971 (WA) provide that the court may order security for costs to be given by a plaintiff, but no order shall be made merely on account of the poverty of the plaintiff or the likely inability of the plaintiff to pay any costs which may be awarded against him. Order 25 r 2 sets out a non-exhaustive list of grounds for ordering security for costs. One ground is that the plaintiff is ordinarily resident out of the jurisdiction. The granting of security is in the discretion of the court and in determining whether an order should be made the court shall take into account, amongst other things:

(b) what property within the jurisdiction may be available to satisfy any order for costs against the plaintiff;

(c) whether the normal processes of the court would be available within the jurisdiction for enforcement of any order for costs made against the plaintiff: O 25 r 3.

4 Counsel for the defendant submits that there are four grounds for ordering the plaintiff to give security for the defendant's costs:

1. the plaintiff is ordinarily resident out of the jurisdiction and has no connection with Australia;
2. the plaintiff has no assets within Australia and whilst the plaintiff has assets in the United Kingdom, the United States and Dubai the defendant will not be able to recover his costs by execution action in those jurisdictions without difficulty;
3. the plaintiff has no cash available to meet the defendant's costs if the plaintiff is unsuccessful at trial; and
4. the plaintiff has been unable to pay his own solicitor's fees to date.

6 The plaintiff accepts that he has no assets within Australia. In his affidavit sworn 9 November 2009 the plaintiff says that he owns property in the United Kingdom, Dubai and the United States. Each property is owned jointly by the plaintiff and his wife. The property in the United Kingdom is lived in from time to time by the plaintiff, his wife and his children. The property in Dubai is lived in by the plaintiff, his wife and one of his children. The property in the United States was purchased as a business investment and is run as a rental villa. The plaintiff says that the United Kingdom, Dubai and United States properties have a value of about GBP400,000, GBP250,000 and GBP115,000 respectively. Each property is encumbered by a mortgage. The total indebtedness secured by the mortgages is GBP250,000. Counsel for the plaintiff says that the plaintiff's half share of the equity in the properties is approximately $430,000 at current exchange rates.

7 The defendant's solicitor has sworn an affidavit which provides some material to the effect that it may be difficult to take any action in Dubai to enforce a costs order in favour of the defendant in this action. Furthermore, the whole of the mortgage may have to be discharged before the properties jointly owned by the plaintiff and his wife, or the plaintiff's interest in those properties, could be sold. There may be difficulties in selling the plaintiff's half interest in a property when his wife retains a half interest in the property. The value ascribed by the plaintiff to the properties are not supported by any expert valuation. The plaintiff does not state any basis for his estimate of the value of the properties. The schedule of assets and liabilities produced by the plaintiff is not a complete list of his liabilities. For example, in his affidavit he says that he is currently indebted to his solicitor for more than $140,000. The plaintiff's solicitor swore an affidavit on 29 May 2009 in which he swore that if the amended defence was not disallowed then he estimated that the plaintiff would incur further costs and disbursements from that time up to and including the hearing of more than $400,000. The defence was not disallowed. I draw the following conclusion. If the plaintiff is unsuccessful at trial and pays the outstanding fees of his solicitor and counsel he will have few, if any assets, to satisfy a costs order against him. The defendant would have some difficulty in enforcing a costs order against such assets as the plaintiff would then have available.

8 Counsel for the plaintiff submits that the evidence does not establish that the plaintiff cannot pay his solicitors in full. The defendant submits that the affidavit of the plaintiff's solicitor, Mr Goldsmith, sworn on 29 May 2009 in support of the plaintiff's application to disallow amendments to the defence deposes to the following:

1. If the amendments to the defence are not disallowed, the plaintiff would incur further costs and disbursements in pursuing the matter up to and including final hearing of more than $400,000 [45];
2. the plaintiff is not in a financial position to pay such further costs and disbursements [45]; and
3. the plaintiff owes his solicitor, Mr Goldsmith more than $100,000 in legal costs in respect of these proceedings [50B].

9 The plaintiff submits that the evidence in Mr Goldsmith's affidavit of 29 May 2009 does not establish that the plaintiff would not be able to satisfy any order for costs made against him. Counsel for the plaintiff submits that the fact that the plaintiff said that he would not be in a position to pay Mr Goldsmith's costs and disbursements as the litigation proceeded is reflective of his income and expenditure, not his asset position. I find that the evidence shows that the plaintiff has been unable to pay the fees of his solicitor as and when they have been incurred because his income and liquid assets are not sufficient to do so but the plaintiff has property in the United Kingdom, Dubai and the United States which, if it is realised, would be available to meet the whole or at least part of the fees of his solicitor and counsel.

10 The grounds put forward by the defendant are strong grounds for ordering security for costs. The principal reason advanced by the plaintiff for not ordering security for costs is that the defendant has delayed in applying for security for costs.

11 An application for security for costs may be made at any stage of the proceedings. However, delay may be a significant discretionary consideration militating against the making of an order particularly where it may have led the plaintiff to act to his detriment, or may cause him hardship in the future conduct of the action. In Covecorp Constructions Pty Ltd v Indigo Projects Pty Ltd [2007] QSC 262 Martin J listed a number of matters which may be taken into account when delay is a factor in making an application for security:

The principles to be applied in this respect seem to be:

• An application for security must be made promptly.
• It would be unfair to allow a defendant security if that defendant has stood by and allowed the plaintiff to work on its case and incur significant expense.
• Although delay is a significant factor, there is no rule requiring refusal of an application on that basis alone. It is a factor to be taken into account with other discretionary criteria. ...
• The issue of delay will weigh more significantly in some cases than others. Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at 71. In Crypta Fuels Lehane J noted that the cases in which orders for security were made despite delay have usually involved one or both of two factors, those being:
  1. '...that the hearing or resumed hearing was not immediately imminent...'; and
  2. '...that there has been some forewarning: usually correspondence concerning the financial standing of those who might benefit from the success of an applicant or plaintiff, and often detailed correspondence foreshadowing an application for security for costs.' (at 71).
• To similar effect was the statement by French J in Bryan E Fencott Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 514:

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

• In Buckley v Bennell (1974) 1 ACLR 301 at 309 Moffitt P put the matter as follows:

'The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or permits substantial sums of money towards litigating its claim.' [emphasis added].

When determining the weight to be afforded the effect of delay, the following issues need to be considered:

(a) is there an explanation for the delay and, if so, what is its weight?...

(b) the level of prejudice caused to the plaintiff if required to lodge security at a late stage ...

(c) the timing of the application for security [references to some authorities omitted] [27]- [28].

12 There are two important issues. The first is whether the defendant has an adequate explanation for its delay. The second is whether, and if so to what extent, the plaintiff is prejudiced by that delay.

13 The defendant has explained why it made an application for security for costs when it did. The defendant submits that it only became aware of the true state of the plaintiff's financial position through the plaintiff's solicitor's affidavit sworn on 29 May 2009 and an application was promptly made after the court handed down its decision permitting the amendment to the defence. The question is whether that is a satisfactory explanation for why the defendant did not make the application at an earlier time.

14 When the plaintiff commenced his action the defendant knew that the plaintiff was resident out of the jurisdiction and had no connection with Australia. The defendant had no reason to believe that the plaintiff had any property within Australia that may be available to satisfy any order for costs against the plaintiff. The defendant made no enquiry of the plaintiff, or otherwise, whether he had any assets to satisfy any order for costs against the plaintiff and what means of enforcement might be available to the defendant to enforce a costs order against such assets.

15 Furthermore, the plaintiff's solicitor made statements to the effect that the plaintiff may have difficulty paying for legal representation before the matter was listed for trial. On 3 November 2008 the court informed the parties that I intended to conduct a listing conference to list the matter for trial. There were differences between the parties concerning the estimated length of trial and when the trial should take place. In a letter of 20 November 2008 to the court, copied to the defendant's solicitors, the plaintiff's solicitors stated that:

At this time it is our client's hope to be represented by Mr B McClintock SC, Sydney based counsel. However, we are instructed that if the matter is listed for trial for 10 days, or a substantial part of that, then it is likely inevitable that our client will simply not be in a financial position to be so represented.

Indeed, if the trial is listed for such duration, despite our own estimate, it is possible that our client will not have the financial capacity to be represented by any lawyer.

16 Even disregarding the statements made by the plaintiff's solicitor in November 2008 concerning the plaintiff's difficulties in paying solicitors and counsel fees, the defendant had no reason to believe that the plaintiff had any assets within Australia and made no enquiry of what means might be available to the defendant for enforcement of any order for costs made against the plaintiff.

17 The plaintiff has not led evidence that he would not be able to put up security for costs in the sum of $50,000 by the date on which the trial is to commence. Nor has the plaintiff proved what he would have done if the application for security of costs had been made earlier. However, that does not mean that the plaintiff will not be prejudiced if an order for security for costs is made. Where the plaintiff has incurred substantial costs since the time when an application for security should have been brought it would be unreasonable to deny the existence of prejudice unless the plaintiff can prove what he would have done if the application had been brought earlier: Green (as liquidator of Arimco Mining Pty Ltd) v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105, (Hodgson JA) [57].

18 The plaintiff commenced his action in 2007. He has incurred substantial costs in pursuing the action to the stage where it is now listed for trial on 8 February 2010. The plaintiff is entitled to know his position in relation to security at the outset of the litigation, and before he embarks to any real extent and is allowed to commit substantial sums of money towards litigating his claim. The defendant has stood by and allowed the plaintiff to work on his case and incur substantial expense without any application for security for costs. The parties are now three months away from trial. The parties are engaged in preparing witness statements and otherwise getting the action ready for trial.

19 I do not accept that the defendant becoming aware of the details of the plaintiff's financial situation disclosed by the plaintiff's solicitor in his affidavit of 29 May 2009 should be regarded as an adequate explanation for delay in bringing the application for security for costs. The defendant should have brought its application within a reasonable time of the commencement of the action. It would be unfair to the plaintiff to require him to put up security for costs at this time when the trial is less than three months away. The application will be dismissed.