Navman Wireless' application
36 By interlocutory application dated 7 February 2017, Navman Wireless applied for an order that Precision Tracking provide security for Navman Wireless' costs in the amount of $329,000 or such amount as the Court deemed fit. The application was supported by an affidavit sworn by Melissa Anne McGrath, the solicitor with conduct of the proceedings on behalf of Navman Wireless.
37 Navman Wireless also relied on two earlier affidavits of Ms McGrath, being affidavits sworn on 18 July 2016 (her second affidavit in the proceedings) and 5 August 2016 (her fourth affidavit in the proceedings).
38 In her 18 July 2016 affidavit, Ms McGrath first summarised her relevant commercial litigation experience. She then referred to the allegations against Navman Wireless in the statement of cross-claim filed by Precision Tracking on 17 June 2016, the claims being unauthorised use and disclosure of confidential information; patent infringement; and copyright infringement with claims for damages and additional damages. She then referred to the financial position of Precision Tracking and said that on the basis of the financial information available to her, and correspondence between her firm DibbsBarker and Corrs Chambers Westgarth, the solicitors for Precision Tracking, it did not appear to her that Precision Tracking had the financial resources available to meet an adverse costs order, in the event that such order was made.
39 An application for security for costs on the part of Navman Wireless was foreshadowed in correspondence on 24 June 2016. It was filed on 18 July 2016.
40 In her 5 August 2016 affidavit, amongst other things, Ms McGrath updated the solicitors' costs and counsel's fees incurred by Navman Wireless.
41 In her affidavit sworn 7 February 2017, Ms McGrath referred to the agreement reached between Navman Wireless and Precision Tracking as to the orders to be made regarding Navman Wireless' 18 July 2016 application for security for costs. On 12 August 2016, the Court made orders by consent requiring Precision Tracking to pay $75,000 in security for Navman Wireless' costs up to the close of pleadings, with Navman Wireless having liberty to make a further application for additional security following the close of pleadings.
42 Ms McGrath annexed to her most recent affidavit a bundle of correspondence between the solicitors for Navman Wireless and Precision Tracking on the issue of security for costs. The correspondence was up to mid-January 2017.
43 She referred to DibbsBarker being informed by Corrs in December 2016 that Precision Tracking had secured litigation funding from LCM and to correspondence requesting information regarding the involvement of LCM.
44 Ms McGrath deposed that:
(a) Navman Wireless continued to hold a genuine and reasonable concern that Precision Tracking would be unable to satisfy any costs order that may be made against it in these proceedings.
(b) In the absence of any information regarding LCM's obligation (if any) to pay any adverse costs order in the proceedings, or any information regarding the terms of the funding agreement between Precision Tracking and LCM, (including the circumstances in which it may be terminated) the fact that Precision Tracking has some funding (of entirely unknown scope) from LCM did not alleviate Navman Wireless' concern that it may not be able to recover costs ordered in its favour in the proceeding.
(c) In the absence of any information regarding the costs insurance held in relation to Precision Tracking's costs (other than that it is held with an "A rated insurer"), the mere fact that some costs insurance (entirely unknown in scope) had been obtained did not alleviate Navman Wireless' concern that it may not be able to recover any costs ordered in its favour in the proceeding.
(d) In the absence of relevant undertakings to call upon any costs insurance policy for the benefit of Navman Wireless, the mere fact that a policy existed was of little comfort. At present, Navman Wireless did not even know which entity held the costs insurance, and thus which entity would need to give the relevant undertaking.
(e) Similarly, without knowing whether Precision Tracking's funding agreement with LCM contained any costs indemnity, Navman Wireless could not know whether it would be appropriate for undertakings with respect to costs to be given by LCM.
(f) In light of the above matters, Navman Wireless remained concerned that it would face difficulty enforcing any costs order made against Precision Tracking in the proceedings in the absence of security, and that additional expensive proceedings might be necessary to do so. In particular, Precision Tracking's refusal to provide basic information regarding its funding and insurance arrangements had only served to increase Navman Wireless' concern in that regard.
45 Ms McGrath provided an overview and estimate of Navman Wireless' legal costs. She deposed, contentiously, that Navman Wireless had been and continued to be solely responsible for the payment of those costs as between Navman Wireless and DibbsBarker. I admitted that statement on the interlocutory application, leaving to submission whether or not its form led to less weight being given to it.
46 Ms McGrath deposed that Navman Wireless was content for the application to be decided on the assumption that it had been, and would continue to be, reimbursed by Domino's for the costs it paid to DibbsBarker in relation to the proceedings, subject to an obligation to reimburse Domino's in due course from any costs paid pursuant to costs orders made in its favour.
47 Ms McGrath deposed that Navman Wireless sought security for costs for work completed from the close of pleadings on 18 November 2016 up to the first day of trial. She referred to solicitors' costs incurred to date and said that approximately $73,948 in solicitors' costs and $21,000 in counsel's fees had been incurred since the close of pleadings. A substantial portion of that work had been directed to agreeing the scope of discovery to be given by each of the parties, and related issues.
48 Ms McGrath then estimated the future work required up to the first day of the trial. She annexed a schedule setting out her estimate of the time required and associated costs to complete those tasks. She estimated the total amount of future costs, up to the first day of the trial, to be $352,455 (including solicitors' and counsel's costs). In addition, she estimated that expert witness fees would be in the vicinity of $60,000.
49 The total legal costs and disbursements incurred to date and estimated future costs and disbursements totalled $507,403. Ms McGrath then referred to a typical percentage of costs recovered in proceedings of this kind being approximately 65% of actual legal costs when assessed on a party/party basis. This yielded a figure of approximately $329,000.
50 In the affidavit of Ms Gourley sworn 16 February 2017 there is reference to correspondence throughout January 2017. There had also been further correspondence following the filing on behalf of Navman Wireless of its application for security for costs. A letter dated 13 February 2017 by Ms Gourley stated that on the basis of Ms McGrath's affidavit of 7 February 2017, Navman Wireless was not in any risk of being out of pocket in relation to costs, even if Precision Tracking would be unable to meet a costs order made against it in Navman Wireless's favour. In a letter dated 14 February 2017 in response, Ms McGrath stated that the fact that a respondent would otherwise not be "out of pocket" had been held not to deprive it of its right to security for costs in an appropriate case. In further correspondence, dated 14 February 2017, Ms Gourley wrote that there ought to be no or very little additional cost that arose for Navman Wireless by reason of Precision Tracking's cross-claim. In the letter it was contended that Precision Tracking's cross-claim was wholly responsive to Navman Wireless' claim which, in addition to assertions of inventorship, entitlement and/or invalidity of the patents in suit, made a highly detailed claim of misleading and deceptive conduct and wrongful threats against Precision Tracking. A schedule was attached said to demonstrate the correlation between the material allegations in Precision Tracking's cross-claim with those arising on Navman Wireless' amended statement of claim.
51 Navman Wireless, in its written submissions dated 17 February 2017, submitted that the evidence as a whole established there was reason to believe that Precision Tracking would be unable to pay Navman Wireless' costs if ordered to do so. The submissions referred to Ms McGrath's affidavit sworn 18 July 2016 at [10]-[24] and to Mr Prescott's affidavit affirmed 1 February 2017 at [35]-[36]. Navman Wireless submitted that the fact that Precision Tracking had obtained litigation funding was a matter supporting an inference that it did not itself have assets sufficient to satisfy any order for costs that may be made against it in the present proceeding.
52 Navman Wireless submitted that litigation funding was a factor strongly favouring an order for security for costs. The submissions referred to correspondence in January 2017 and to further correspondence in mid-February 2017 concerning redacted copies of the litigation funding agreement and adverse costs insurance policy. It was submitted that Precision Tracking's cross-claim was now brought, in part, for LCM's commercial benefit.
53 Navman Wireless submitted that litigation funders often indemnify the funded party in respect of any order for costs that may be made against them in the funded proceeding. If the indemnity is unlimited and there is evidence of the funder's ability to satisfy the indemnity, it may be appropriate for the Court to deal with an application for security for costs by requiring appropriate undertakings from the funded party. Navman Wireless referred to the decision of Barrett J in The Australian Derivatives Exchange Ltd v Doubell [2008] NSWSC 1174 at [23]-[27]:
[23] Counsel for the liquidator has indicated the liquidator's willingness to give to the court an undertaking to inform the defendants immediately if the funder terminates the agreement (which probably should be extended also to any communicated intention or threat of the funder so to do.) The defendants could then renew their application for security.
[24] The defendants say that the funder's cl 6 undertakings are of little comfort to it even if an undertaking as just outlined is given. They point to difficulties described by Young CJ in Eq in Chartspipe Pty Ltd v Chahoud [2001] NSWSC 585 and referred to at para [52] of the judgment of Hodgson JA in the Arimco Mining case (above):
In this case, the funder could perhaps be liable for costs, at the instance of the defendant; although Young CJ in Eq in Chartspike Pty Limited v Chahoud [2001] NSWSC 585 said there would be difficulty in enforcing this kind of indemnity, because the funder is not an insurer who could be sued pursuant to the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 6. If in such a case the funder did not willingly pay a costs order against the plaintiff, there is a question whether the defendant could bring proceedings in which the plaintiff and the funder were joined as defendants in order to enforce the indemnity against the funder; and even if this were possible, the proceedings would be cumbersome and could well be highly contentious.
[25] Again, however, the matter could be dealt with by an undertaking given by the liquidator to the court to the effect that he would pursue the indemnity for the benefit of the defendants if he suffered an adverse costs order; also, perhaps, an undertaking to assign or hold on trust for the defendants the benefit of the indemnity and the proceeds of it.
[26] In summary, I accept the liquidator's submission that cl 6 of the agreement, if bolstered and supplemented by appropriate undertakings given by the liquidator to the court, will allow the security for costs application to be disposed of on the footing that security should not at this point be ordered, this being without prejudice to any future application that the defendants may see fit to make.
54 Navman Wireless submitted that where the precise terms of the funding agreement and the funder's financial position were not disclosed, the mere fact that an indemnity had been given was of little weight in the Court's consideration of whether to order security for costs.
55 The submissions made reference to the letter dated 17 February 2017 proposing certain orders to resolve its application for security for costs. What was proposed was that LCM provide an undertaking to pay Navman Wireless the full amount of any costs order made against Precision Tracking in Navman Wireless' favour for the relevant period, subject to evidence of LCM's ability to satisfy the undertaking being provided. Absent such an undertaking, Navman Wireless submitted the Court should order security for costs.
56 As to the cost position as between Navman Wireless and Domino's, Navman Wireless submitted that the fact that a respondent's costs would be borne by another party that will ultimately have the benefit of an order for security for costs was not a factor weighing against the making of such an order. It was submitted that there was no relevant distinction between Navman Wireless' present position and the position of the insured respondents who successfully sought security for their costs in Instyle Contract Textiles Pty Ltd v Good Environmental Choice Services Pty Ltd [2009] FCA 1422; 181 FCR 360; Manhattan (Asia) Ltd v Dymocks Franchise Systems (China) Ltd [2014] FCA 1143; 225 FCR 508 and Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; 20 VR 377.
57 Navman Wireless submitted that its application was brought promptly, following the close of pleadings on 18 November 2016. The application was brought after the exchange of several letters in January 2017. The cross-claim was brought ultimately for the benefit of the shareholders of Precision Tracking's parent company. None of Precision Tracking's, nor its parent company's, directors or shareholders had offered undertakings to pay any order for costs made against Precision Tracking.
58 Precision Tracking submitted that there was no risk that any costs order obtained would turn out to be of no value. The combined effect of the litigation funding agreement and the adverse cost insurance, together with undertakings offered by Precision Tracking to notify Domino's and Navman Wireless of any relevant change of circumstances meant that Navman Wireless faced no risk of any costs order going unsatisfied. That matter alone, it was submitted, was sufficient to answer the application for security for costs and it should be dismissed with costs.
59 Precision Tracking made the following further submissions in relation to the application by Navman Wireless.
60 First, Navman Wireless was under no financial risk due to any non-recoverability pursuant to a costs order against Precision Tracking because Navman Wireless asked the Court to assume that it will be reimbursed by Domino's for the costs it pays to its solicitors in relation to the proceedings, subject to an obligation to reimburse Domino's in due course from any costs paid pursuant to a costs order made in its favour. It followed that at the time any costs order was made, Navman Wireless' costs would already have been paid by Domino's. The purpose of an order for security for costs was, therefore, not enlivened. Precision Tracking referred to Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [47] and [52]. In that case, Einstein J said:
[47] It is clear that the discretion to award security for costs requires to take into account all of the relevant facts matters and circumstances and is a judicial discretion to be exercised following the adducing of all evidence by each party to an application seeking to have such an award made. As Giles J (as His Honour then was) made plain in Rosenfield Nominees Pty Ltd v Bain and Co (1988) 14 ACLR 467 at 470, in exercising the discretion as to whether or not to make an order for costs, the Court must have a concern to achieve a balance between ensuring that adequate and fair protection is provided to the defendant, and avoiding injustice to an impecunious plaintiff by unnecessarily shutting it out or prejudicing it in the conduct of the proceedings [cf Street CJ in Buckley v Bennell (1974) 1 ACLR 301 at 304]. Giles J referred to the debate over whether the discretion should be exercised with some predisposition in favour of the defendant and expressed the view with which I agree, that the debate is largely semantic. The principle which his Honour identified at 470 was that:
"the discretion must be exercised having regard to all the circumstances of the case, but the inability of the plaintiff to meet the costs of the successful defendant, being the occasion for invoking the exercise of the discretion, is likely to play an important if not decisive role".
…
[52] The purpose of a security for costs order is therefore a protective jurisdiction to ensure that the primary purposes for having costs orders themselves, can be achieved. A defendant is protected against the risk that a costs order obtained at the end of the day may turn out to be of no value by reason of the impecuniosity of the plaintiff. The jurisdiction therefore assists both the compensation purpose as well as the public interest objective.
61 Precision Tracking also submitted that Navman Wireless was a necessary and proper party to Precision Tracking's claim for relief against Domino's. Navman Wireless was a third party involved in a dispute which was primarily a dispute between Domino's and Precision Tracking, which dispute was initiated by Domino's. This militated against an order for security.
62 Precision Tracking repeated the submissions made in relation to Domino's application so far as concerned quantum and the form of security, if the Court were minded to order that Precision Tracking provide any security.