consideration
45 In my opinion the Guarantees proffered by Mrs Dooley together with the Undertaking is an adequate form of security for the respondents' costs. My reasons for reaching this conclusion follow.
46 As set out above s 56 of the FCA Act empowers the Court to make an order that an applicant give security for costs that may be awarded against it. That section also provides that the security shall be given in such form as the Court or Judge directs. That is, the form of security is at the Court's or Judge's discretion. In DIF III at [40] Hargrave JA set out the principles which the Court would usually apply in exercising the broad discretion as to the form of security (see [37] above).
47 The respondents submitted that a guarantee will only be accepted as a form of security in exceptional circumstances. But that may be placing the bar too high. Rather the authorities to which I was taken demonstrate that each case will turn on its own facts.
48 In making that submission the respondents relied on the decision in Success Capital Pty Ltd v Hope Island Resort Holdings Pty Ltd [2007] FCA 1562 at [42]. That case concerned an application by the respondents for an order that the applicant pay security for their costs. When the application first came before the Court it was adjourned to allow the respondents an opportunity to consider the applicant's offer to settle the claim for security by provision of a form of guarantee. That offer was not accepted and the application proceeded to hearing. Justice Collier formed the view that it was appropriate to make an order that the applicant provide security for the respondents' costs. In coming to that view her Honour considered the deed of guarantee that had been proposed by the applicant. The proposed deed provided for assets of one unit trust to be committed as security for the applicant's costs as trustee of another unit trust. However, in the absence of supporting evidence, Collier J was not prepared to accept that the relevant clause of the unit trust deed of the Success Development & Property Group Unit Trust empowered the applicant to assume an obligation or give a guarantee of a "substantial sum as security for the costs of the applicant in its capacity as trustee for another Unit Trust in litigation in which, prima facie, the beneficiaries of the Success Development & Property Group Unit Trust have no interest".
49 At [42] her Honour then said:
In any event, in relation to this Deed of Guarantee, I am further disinclined to exercise my discretion in favour of the applicant where this Court has previously indicated that a personal guarantee given in satisfaction for security for costs is acceptable in only exceptional circumstances: Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2006] FCAFC 93, cf Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (formerly Turnbull Cooktown Pty Ltd) (No 3) [2007] FCA 1078 at [30]-[31]. The applicant has demonstrated no circumstances in this case justifying the acceptance of a personal guarantee as distinct from a cash payment or a bank guarantee.
50 In Sunstate Orchards Pty Ltd v Citrus Queensland Pty Ltd [2006] FCAFC 93 a Full Court of this Court (Gray ACJ, Spender and Dowsett JJ) heard an appeal from a proceeding in which the second applicant, a natural person, and two other natural persons offered undertakings to the Court in response to an application for security for costs by Sunstate Orchards Pty Ltd and Andrew Colin Strahey. The primary judge dismissed the application for security for costs upon the provision of the undertakings. As described at [2] of their Honour's reasons, the undertakings, which concerned a property of which the second applicant and one other of the persons offering an undertaking were the registered proprietors and the other natural person was a second mortgagee, involved:
…the making available of the sum of $100 000 from the proceeds of sale of that property, in priority to the second mortgage; undertakings not to further encumber or charge that property; and undertakings to execute a further security in relation to that property if a costs order were to be made.
51 Sunstate and Mr Strahey sought and were granted leave to appeal. On the hearing of the appeal, the respondents (who were the applicants before the primary judge) conceded that the appeal should be allowed. The Full Court determined that it was appropriate for it to exercise the discretion afresh. There was agreement that the amount of $150,000 would be appropriate security for the costs of Sunstate and Mr Strahey. The only question to be resolved was the manner in which the security should be provided. On that question the second applicant in the proceeding at first instance provided further evidence to the effect that he was prepared "to increase the strength of the undertakings" that he and the two other natural persons had offered. After describing the nature of that undertaking those persons were then prepared to give and noting that the second applicant also undertook to execute a personal guarantee in favour of the respondents, at [7]-[8] the Full Court said:
7 We have been informed by counsel for the respondents to the appeal that the undertaking would extend to $150 000 by way of personal guarantee. The Court has serious doubts whether, in the circumstances, a personal guarantee is an adequate form of security, even taking all of the other undertakings proffered into account. The difficulty is that there is no evidence as to the assets of the second applicant in the proceeding below. We can understand readily why there should be disquiet on the part of the appellants in relation to what has been offered.
8 It is our view that, if the offer is worth anything, then it ought not to be very difficult for the second applicant in the proceeding below to secure an unconditional bank guarantee, which would resolve the issue of the manner of provision of security easily.
52 In contrast, in Jianshe Southern Pty Ltd v Get Motor Cycles Pty Ltd (formerly Turnbull Cooktown Pty Ltd) (3) [2007] FCA 1078 Besanko J made an order for the provision of a personal guarantee by Nicholas Jules Stewart, one of the directors and a shareholder of the applicant, to the respondents guaranteeing "the payment of any costs the applicant is ordered to pay the respondents and incurred by the respondents on or after 5 July 2007 up to a sum of $200,000.00".
53 In that case the respondents sought an order that the applicant pay security for their costs. There was no dispute that there was reason to believe that the applicant would be unable to pay the respondents' costs if they were successful in their defence. His Honour considered whether in the exercise of his discretion he should make an order that the applicant provide security for the respondents' costs. In doing so his Honour noted the considerable delay by the respondents in making their application and was satisfied that the applicant would suffer prejudice if an order for security was made. In that regard at [30] his Honour said:
It is plain from its financial statements that it cannot provide security by way of a cash deposit or bank guarantee and it has expended what are presumably substantial costs in preparing its case for trial. It is clear from Mr Stewart's evidence that the applicant may not have proceeded this far had an application for security for costs been made earlier.
54 At [31] Besanko J continued:
In my opinion, it would cause prejudice to the applicant and be quite unfair to it to make an order for security for costs by way of a cash deposit or bank guarantee at this late stage. To my mind, that is a sufficient reason to refuse the application insofar as it seeks security of that nature. However, having regard to the matters outlined below, it does not stand in the way of an order that the party who will benefit from the proceeding if it is successful, Nicholas Jules Stewart, be required to provide a personal guarantee whereby he guarantees the payment of any costs the applicant is ordered to pay the respondents and incurred by the respondents on or after 5 July 2007. I realise that I have conducted no inquiry into Mr Stewart's financial position and his ability to meet a costs order, but I do not think that that means that such a guarantee cannot constitute a form of security: Clyde Industries Ltd v Ryad Engineering Pty Ltd (1993) 11 ACLC 325 at 328 per Rowland J (see also the discussion in Dal Pont at 964-965 [29.28]-[29.29]). In any event, if such a guarantee is worthless, that would be a reason to refuse an order for security for costs because the proceedings would otherwise be stifled.
55 In Hillbrick Bicycles Pty Ltd v F45 Training Pty Ltd [2017] FCA 1089 Reeves J considered an application by the respondents for security for their costs of the proceeding. At [7]-[8] his Honour set out the evidence before him of Mr Smith's and Mr Hillbrick's assets. Mr Smith was the second applicant and Mr Hillbrick was a shareholder in the first applicant, Hillbrick Bicycles Pty Ltd. Based on that evidence Mr Hillbrick had net assets of approximately $1.5 million. Justice Reeves identified two issues for resolution: first, whether an order for security for costs should be made against Mr Smith, a natural person; and secondly, whether an order ought to be made against Mr Hillbrick, the person who stood behind the first applicant, Hillbrick Bicycles.
56 In relation to the second issue his Honour noted (at [17]) that Mr Hillbrick did not dispute that, because of his interest in Hillbrick Bicycles, he would benefit personally from the proceeding should the applicants be successful. For that reason he had offered a personal guarantee for the payment of any of Hillbrick Bicycles' costs obligations. The respondent, F45 Training Pty Ltd, rejected that offer and sought security by way of a bank guarantee relying on the doubts it raised about Mr Hillbrick's asset position. Justice Reeves rejected F45 Training's contentions. At [17] his Honour said:
According to Mr Hillbrick's affidavits as summarised above, he has net personal assets in excess of approximately $1,500,000. F45 Training did not seek to cross-examine Mr Hillbrick on those estimates and, in those circumstances, I see no reason to doubt them. Since he has more than sufficient net personal assets to meet any costs order that may be made against Hillbrick Bicycles Pty Ltd, I consider a suitably framed personal guarantee by Mr Hillbrick will provide F45 Training with an adequate security for any costs order it may obtain.
57 In Construction Kings Pty Ltd v Cashflow Finance Australia Pty Ltd [2020] FCA 1297 Derrington J refused the provision of a personal guarantee from Mr Tocki, the director and shareholder of the applicant, up to the amount of the proposed security together with an undertaking that he would not encumber or deal with his assets in lieu of provision of a bank guarantee. In doing so his Honour accepted as "having much force" a submission that Mr Tocki appeared to be of limited financial means and observed (at [8]) that:
In his affidavit of 4 September 2020, Mr Tocki deposed to owning a unit (jointly with his wife), and a portfolio of shares. However, it appears that the unit is subject to a substantial mortgage, and the nature, number and value of his shares are not disclosed. Consequently, the precise value of Mr Tocki's assets is not clear.
58 After referring to a number of other factors, none of which were considered to be of significant weight, his Honour said (at [10]):
Although Mr Tocki has identified his willingness to offer an undertaking in relation to those costs to an amount of $72,000, from the material before the Court I apprehend it is not sufficient because its value is unknown. I accept the submission by Mr de Waard that, in the absence of any evidence of Mr Tocki's worth, the undertaking affords the respondent no protection at all.
59 It follows from the authorities set out above that there is no reason in principle why a guarantee cannot be accepted as a form of security for costs in an appropriate case in lieu of the payment of an amount into Court or the provision of an unconditional bank guarantee. While the latter might be the 'usual' form of security provided, each case must be determined on its own facts.
60 Here Mrs Dooley's evidence is that she has net assets of $4.377 million which include, on Mrs Dooley's estimates, chattels and vehicles valued at $540,000 and real property valued at $2.79 million. The appraisals of the real property provided by Explore Property in fact value the three properties, at the lower end, at $2.95 million. Those properties are unencumbered and Mrs Dooley was not cross-examined about her estimate of the value of the chattels and vehicles, a description of which was provided together with the VINs, or more generally, in relation to the evidence she provided. That being so there is evidence before me that Mrs Dooley has more than sufficient assets to meet an order for payment of the respondents' combined costs should they be successful in their defence of the proceeding.
61 In addition, by way of further comfort, Mrs Dooley is prepared to give an undertaking to the Court and the parties that she will not encumber or sell her most valuable assets, the Black River, North Ward and Taringa Properties, without first giving the respondents 28 days' notice of an intention to do so.
62 Much was made of the fact that Mrs Dooley is a stranger to the proceeding. That is she is not a party nor a director, secretary or shareholder of Firexpress. Her connection is that she is Mr Dooley's spouse. He is the director and secretary of Firexpress and the sole shareholder of Corporate Development which holds all of the shares in Firexpress. While ordinarily security either in the "usual" form or by way of a guarantee or undertaking will be provided by a party to the litigation or one that stands behind it, for example a director or shareholder of a corporate applicant or plaintiff, I can see no reason or principle precluding the provision thereof by a third party or stranger to the litigation. Indeed, in DIF III the deed of guarantee which was accepted by the court was provided by an insurer who was not a party to the proceeding and who had no apparent connection to the proceeding or the plaintiff.
63 In any event Mrs Dooley's preparedness to provide the Guarantee and Undertaking is no doubt explained by her marital relationship. Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 concerned an application by the successful respondents for a costs order against a third party, namely Mrs Tracy, the wife of the second applicant. Among other things, Mrs Tracy had assisted in providing security which the applicants were ordered to pay. In considering the application Collier J observed at [32] that the provision of the security by Mrs Tracy was explained by "the natural inclination of a wife to support her husband in litigation to which he is a party". The same could be said here.
64 Aligned to the contention that the Guarantee and Undertaking ought to be rejected because Mrs Dooley is a stranger to the proceeding was a suggestion that because of that fact there is less incentive for her to maintain a sufficient level of capital or, put another way, there is no guarantee that she will not deplete her assets. There is no basis on which I would infer that Mrs Dooley is likely to act in that way. All the steps she has taken to date point to the opposite conclusion: she is prepared to provide the Guarantee and the Undertaking; she has obtained legal advice on the effect of the Guarantee; and she has candidly provided details of the assets she holds.
65 Next I turn to the question of whether the Guarantee will put the respondents at a practical disadvantage or, to adopt the words of Hargrave JA in DIF III, impose an "unacceptable disadvantage" on the respondents. Firexpress bears a practical onus of establishing that the Guarantee will not do so which, in my opinion, it has discharged. The disadvantage which is said to flow to the respondents is that, in the event that Mrs Dooley gives notice of an intention to sell or encumber any of her real property, they will have to take steps to relist the proceeding to ventilate any issues that arise as a result or to seek alternate security. The respondents speculate that by that stage they may have already incurred significant costs and face the risk that the assets which underpin the Guarantee will be dissipated or reduced.
66 In my view, Firexpress has comfortably established the adequacy of the proposed security. The Guarantee, coupled with the Undertaking, provides a fund against which the respondents, if successful, can readily enforce a costs order. The fact that there may be some delay in accessing the security, because of the mechanics of the Guarantee, does not alter that view. Further that Mrs Dooley might notify an intention to deal with her real property assets does not impose an "unacceptable disadvantage" on the respondents. By the terms of the Undertaking Mrs Dooley must provide 28 days' notice of such an intention thus permitting sufficient time: for consideration by the respondents of the effect of what Mrs Dooley intends; consideration of the impact of the proposed dealings on her assets and the Guarantee; for any necessary discussion or negotiation; and, if required, to list the proceeding before the Court for a variation of orders or to make any necessary application.
67 While the need to take these steps might cause some inconvenience, I do not think they impose an unacceptable disadvantage or impose the hypothetical risk described by the respondents. Firexpress has taken sufficient steps to secure an adequate fund which satisfies the protective object of a security for costs order: it has proffered the Guarantees; they are to be provided by Mrs Dooley who has personal ties to the director, secretary and ultimate shareholder of Firexpress; they are underpinned by substantial assets and an undertaking not to deal with the most significant of those assets; and Mrs Dooley has obtained legal advice in relation to the entry into and effect of the Guarantees.
68 Finally, I address the submission that no explanation has been provided by Firexpress as to why Mrs Dooley cannot provide security by way of payment into Court or provision of a bank guarantee. A similar submission was made in DIF III. At [71(6)] Hargrave JA said that in his opinion this was not a strong discretionary factor and that, of itself, it was incapable of providing a good reason for rejecting the security proffered by the plaintiffs in that case, particularly as his Honour had found the security there to be objectively adequate and readily enforceable. That view applies equally here. For the same reasons identified by Hargrave JA, in my opinion the failure by Firexpress to provide that evidence is not a strong discretionary factor. Contrary to the respondents' submissions that the Guarantee is proffered by an individual as opposed to an insurer, as was the case in DIF III, this does not cause me to give this factor greater or decisive weight. The fact remains that the Guarantee is underpinned by assets which are more than adequate to meet the respondents' presently combined estimated costs and thus a costs order, should they ultimately be successful.