First Plaintiff Second Plaintiff v First Defendant Second Defendant

2 Rikys, the applicant in the proceeding at VCAT, is a company which has been engaged in the business of residential construction in the Goulburn Valley area for approximately 20 years. On 27 December 2012 Rikys commenced a proceeding at VCAT claiming that Hapisun owed it $179,532.61 in respect of unpaid invoices for construction works carried out by it for Hapisun on a domestic building project in the period between January 2010 and May 2011. The claim in respect of unpaid invoices was said to arise pursuant to an agreement made between Rikys and Hapisun or, in the alternative, on a quantum meruit basis. Hapisun has defended the claims on the basis that the alleged contracts are unenforceable, and that Rikys is not entitled to payment of any monies, or, in the alternative, the amounts claimed are inflated.

3 Hapisun's application that Rikys provide security for costs in the sum of $129,430 was made pursuant to s 79 of the VCAT Act, which provides, relevantly, as follows:

(1) On the application of a party to the proceeding, the Tribunal may order at any time -

(a) that another party give security for that party's costs within the time specified in the order; and

(b) that the proceeding as against that party be stayed until the security is given.

(2) If security for costs is not given within the time specified in the order, the Tribunal may make an order dismissing the proceeding as against the party that applied for the security.

4 In the application before the Tribunal, Hapisun relied upon affidavits sworn by two solicitors, Mr Noble and Mr Landy, in relation to the merits of Rikys' claim and Hapisun's concerns about Rikys' ability to meet an adverse order for costs, an affidavit sworn by the second plaintiff in this proceeding, Mr Munro, who is also a qualified accountant, and two affidavits sworn by Ms Cloonen, a costs consultant. It is not apparent from the Tribunal's reasons whether the question of the quantum of security sought was a live issue before the Tribunal during the course of the hearing of the application: it may well have been, but nothing turns upon that for the purpose of this proceeding. Rikys relied upon an affidavit of its solicitor, Mr Crow, which responded to the matters raised in Mr Noble's and Mr Landy's affidavit.

5 Mr Noble, in his affidavit sworn on 23 May 2013, deposed to searches in relation to Rikys, conducted upon his instructions, at the Land Titles Office, ASIC, and on the Personal Property Securities Register, which showed it is not the registered proprietor of any land in the State of Victoria, that Rikys has a paid up share capital of $1500, and that ten security interests are registered against Rikys. At paragraph 5 of his affidavit, Mr Noble deposes as follows:

The Respondents contend that they will incur significant costs defending the claims brought against them by the Claimant and that there is a real risk that in the event that the Applicant is unsuccessful, it may not be able to meet any order for costs made in favour of the Respondents.

6 Mr Landy's affidavit dealt with the merits of Rikys' claims in the proceeding. In relation to the former, Mr Landy deposed, in summary, as follows:

(a) the contract alleged by Rikys is unenforceable, because Rikys commenced works without entering into a major domestic building contract as required by s 31 of the Domestic Building Contract Act 1995 (Vic) ("DBCA"), without obtaining the required building permit, and without obtaining the required domestic building warranty insurance as required by s 136(2) of the Building Act 1993 (Vic);

(b) Rikys has invoiced Hapisun $373,483.31 in excess of the value of the building works declared by Rikys;

(c) he was instructed by a project manager retained by Hapisun that on several occasions he queried amounts claimed by Rikys in its invoices and was able to demonstrate that the amounts claimed by Rikys were inflated and not validly claimed, and deposed to two specific allegations of excessive amounts claimed by Rikys; and

(d) he exhibited various land title searches showing three properties in the name of the directors and shareholders of Rikys which he suggested demonstrated that the directors and shareholders standing by the company appear to have sufficient assets to provide security for Hapisun's costs and ought reasonably be expected to do so.

7 Mr Crow, in his affidavit sworn on behalf of Rikys on 10 July 2013, responded, in summary, as follows:

(a) he explained that a number of the registered security interests referred to in Mr Noble's affidavit include security interests upon which the amounts owing under those interests have been repaid, no amount is owing, or secure amounts which are being regularly serviced, and there are no arrears;

(b) in response to the statement in Mr Noble's affidavit referred to at paragraph 5 above, while Rikys' position is that it is highly unlikely that an adverse order for costs would be made, Rikys would be in a position to meet that costs order, because:

(i) Rikys has traded successfully for 20 years as a commercial and domestic building company in the Goulburn Valley;

(ii) Rikys is profitable. He exhibited a profit and loss statement produced by Rikys for the 2012/2013 financial year, which shows that Rikys made a net profit of $361,328.87, and a "summary of estimated assets and liabilities as at 30 April 2013" prepared by Rikys' accountants, which showed that, excluding the amount which was the subject of the claim against Hapisun, net assets of $336,856;

(iii) Rikys is currently completing five building contracts, with a total value of approximately $2.8 million, from which Rikys expects to make a profit of approximately $250,000 within the next six months;

(iv) an analysis of the invoices which are the subject of Rikys' claim shows that of the $179,532.61 claimed (which includes GST), $117,475.23 is in respect of materials, a further $5,607.84 represents the management fees on those materials, and the balance of $56,449.54 is in respect of labour charges;

(v) at the time of swearing the affidavit, 27 months had elapsed since Rikys ceased work on the project, and there has been no complaints about the quality of materials or workmanship, and no such allegations are raised in Hapisun's defence;

(vi) Hapisun's allegations that the contract is unenforceable is denied, but in any event, Rikys is entitled to recover the fair and reasonable amount of the works, or the cost to it of carrying out the works plus a reasonable profit pursuant to s 13(3) of the DBCA;

(vii) there is unlikely to be any loss occasioned to Hapisun as a result of any inadequacies in insurance coverage, as Rikys is solvent, and likely to be able to meet the cost of any rectification works required, noting that no defects have been identified to date.

(c) in the final paragraph of his affidavit, Mr Crow deposed as follows:

The Applicant is a relatively small building company which has traded successfully for many years. The Respondents refusal to pay almost $180,000, in circumstances where a very substantial part of that sum represents costs already incurred by the applicant, now more than 2 years ago, is a material financial strain on the respondent Applicant. Requiring the Applicant to now find further funds to make a payment by way of security for the highly unlikely possibility that an adverse costs order might be made against it in this proceeding, will impose further financial strain on the Applicant, and cannot be justified on the material relied upon by the Respondent.

8 In his affidavit sworn on 15 July 2013, Mr Munro, the second plaintiff in this proceeding, and a qualified chartered accountant, made the following comments in relation to the profit and loss statement produced on behalf of Rikys:

(a) the profit and loss statement does not appear to include an allowance for subcontractor labour;

(b) wages and salaries represented only 4.7% of the reported construction income, compared with the Australian Taxation Office industry benchmark of 23% to 38%;

(c) based upon the amounts paid in superannuation, the average wage paid to employees appears to be $20,000 per annum;

(d) there is no reference to owners' drawings or tax expenses (which he estimated to be $108,000); and

(e) based upon the matters referred to above, he is concerned that Rikys is understating its wages and labour cost.

9 Mr Munro also commented upon the statement of assets and liabilities produced by Rikys' accountant. He estimated that the surplus of assets over liabilities should be $49,256, not $336,856, on the basis that the assets should be reduced to take into account:

(a) the income tax expense referred to in paragraph 8(d) above;

(c) the related party loan unless it could be demonstrated that it is truly recoverable;

(d) the likelihood that the net realisable value of the plant and equipment is likely to be significantly lower than the written down value; and

(e) the liabilities referred to in Mr Crow's affidavit identified in the Personal Property Securities Register.

10 The Deputy President handed down her decision refusing Hapisun's application that Rikys provide security for costs on 31 July 2013, and published written reasons ("reasons"). Paragraphs 1 to 17 of the reasons summarise the background and the parties to the proceeding, the procedural steps undertaken to date, and the evidence before the Tribunal in the application.

11 Under the heading "Legislative Framework", the Deputy President set out the text of s 79 of the VCAT Act, and observed that:

The power to order security for costs is entirely within the tribunal's discretion.

12 She quoted the statement of Judge O'Neill VP in Ian West Indoor and Outdoor Services Pty Ltd v Australian Posters Pty Ltd[1] that:

the Tribunal should generally be slow to make an order for security for costs as to do so would have the capacity to stifle the abilities of companies of modest means to bring proceedings in the Tribunal in the reasonable expectation that those proceedings would be determined promptly, efficiently, at a more modest cost than may be the case in the County or Supreme Courts.

13 Under the heading "Relevant Considerations", the Deputy President observed again that the discretion set out in s 79 is very broad, and that there is no prescribed test, or even any indication as to the factors which might be taken into account by the tribunal. She agreed with the remarks of Walker SM in Done Right Maintenance and Building Group Pty Ltd v Chutry Kuan[2] that:

In applying the section to an application such as this it is the practice of the Tribunal to have regard to the principles developed in the authorities relating to s 1335 of the Corporations Law ... However it must not be overlooked that this is a Tribunal set up by the Parliament to provide an efficient and timely remedy in those areas of jurisdiction that have been conferred upon it. It cannot be assumed that in every case where a court would order security this Tribunal will necessarily order security also.

14 The Deputy President accepted the submissions made on behalf of Rikys that the threshold question is whether there is a reason to believe that the applicant will be unable to pay the respondent's costs if the respondent succeeds in its defence of the applicant's claim and obtains a costs order in its favour, and that the onus is on the applicant for an order for security for costs to satisfy the tribunal as to the threshold question. At paragraph 22 of the reasons, she stated as follows:

It is not enough to simply state, as Mr Noble has done in his affidavit that there is a real risk that the Applicant may not be able to meet any order for costs made in favour of the Respondent.

15 The Deputy President commented critically upon the evidence of Mr Munro, upon which Hapisun sought to rely to discredit the evidence relied upon by Rikys in support of Rikys' contention that it had the financial capacity to meet an order that it pay Hapisun's costs if called upon to do so. She noted that while Mr Munro holds a number of accounting qualifications, he was not an independent expert, and indeed was one of the applicants for security for costs. She was not persuaded that Mr Munro's affidavit assisted Hapisun to discharge its onus to show there was a rational basis for the belief that Rikys would be unable to pay Hapisun's costs if ordered to do so.

16 At paragraphs 27 and 28 of the Reasons, the Deputy President stated as follows:

However, I note that even if I were to accept Mr Munro's analysis in its entirety his calculations indicate adjusted net assets of tens of thousands of dollars, and in any event do not take into account the applicant's projected profits from its five current projects (nor profits from any future contracts the applicant might procure and completely prior to the final determination of this proceeding) which together exceed the amount Ms Cloonen has estimated as the party/party costs likely to be incurred by the respondents in this proceeding.

The respondents have failed to discharge their onus to satisfy me as to the threshold question. There is simply inadequate evidence before me to demonstrate that there is a real risk that the applicant will be unable to pay the respondent's costs in the event the respondents succeed in their defence and obtain an order for costs in their favour.

17 The Deputy President also referred, for the sake of completeness, to the other factors which are commonly taken into account when determining whether to make an order for security for costs, being:

(a) whether the claim brought by the applicant in the proceeding can be said to be bona fide and not a claim that has little merit or prospect of success;

(b) whether the applicant's lack of funds has been caused or contributed to by the conduct of the respondent;

(c) whether an order for security for costs would stultify the applicant's pursuit of legitimate claims;

(d) whether there has been any unreasonable delay in bringing the application for security for costs; and

(e) the extent to which it is reasonable to expect creditors or shareholders of the applicant to make funds available to satisfy any order for security which may be made.[3]

18 The Deputy President noted that, of the five factors referred to above, only two appeared to be relied upon by Hapisun, being the question of whether Rikys' claim has any merit, and the extent to which the creditors and shareholders of Rikys should make funds available to satisfy any order for security.

19 In relation to the question of the merits of Rikys' claim, the Deputy President referred to Mr Landy's affidavit, which set out Hapisun's position in relation to each of the claims made by Rikys in the proceeding. The length, detail and contents of Mr Landy's affidavit confirmed her view that it was premature to make any findings regarding the merits of Rikys' claims until all of the evidence was before the tribunal and had been tested under crossexamination.

20 In relation to the question of whether the creditors and/or shareholders of Rikys ought to be required to provide security for costs, the Deputy President stated as follows:

The financial capacity of directors and shareholders which commence legal proceedings is irrelevant unless the threshold question is satisfied. Where a person knowingly enters into a contract with a company, and does not obtain personal guarantees from the directors of the company, they cannot expect courts and tribunals to interfere in those contractual arrangements.

21 Finally, the reasons disclose that the Deputy President considered evidence relied upon by Hapisun that the director of Rikys had been a director of two companies which have been deregistered following the appointment of receivers and managers to those companies. One of the companies was deregistered some six years after Mr Rikys ceased to be a director. The Deputy President stated, as follows:

It was submitted on behalf of the respondents that I should have regard to Mr Rikys' past association with companies that had been deregistered and infer there was a possibility that the ongoing viability of the applicant and its ability to pay any costs order was uncertain. I am not persuaded this is a relevant consideration in assisting me to assess whether there is a real risk the applicant will be unable to meet any order for costs made in the respondents' favour.

22 In its originating motion filed on 27 August 2013, Hapisun sought orders pursuant to order 56 of the Rules, that the decision made by the Tribunal on 31 July 2013 to refuse Hapisun's application for security for costs be quashed on the following grounds:

1. In determining whether to exercise the discretion to order security for costs pursuant to s 79 of the VCAT Act, the Deputy President erred in law as follows:

(a) the Tribunal applied a test of whether Hapisun had demonstrated that there was a real risk that Rikys would not be able to pay an order for costs, when no such test is contained within s 79;

(b) further, the Tribunal considered this test to be a "threshold question" for the exercise of the discretion.

1. In finding that the "threshold question" had not been satisfied, the Tribunal considered that the jurisdiction to order security for costs had not been enlivened, and the Tribunal accordingly committed jurisdictional error.

23 Hapisun's written submissions can be summarised as follows:

(a) the power conferred on VCAT by s 79 of the VCAT Act calls for the exercise of an unfettered discretion, to be exercised judicially and not capriciously;

(b) the Tribunal erred in law by applying a test which it described as a "threshold question", where no such test or threshold question is contained in s 79 of the VCAT Act;

(c) as such the Tribunal's exercise of the discretion conferred by s 79 of the VCAT Act, or failure to exercise the discretion by reason of the imposition of a threshold question as a precondition to the exercise of the discretion; miscarried, and the tribunal denied itself jurisdiction;

(d) the tribunal applied a stringent evidentiary test, namely whether there was "a real risk that the applicant will be unable to pay the respondent's costs in the event the respondents failed in their defence";

(e) the reasons, along with other recent tribunal decisions, demonstrates that the imposition of a threshold question, and the application of a stringent evidentiary approach to the determination of that threshold question reflects what has become a standard approach to the determination of applications under s 79 of the VCAT Act, an approach which, if not corrected, could become entrenched.

24 In his oral submissions, counsel for Hapisun submitted that the tribunal's adoption of a threshold test in applications under s 79 of the VCAT Act amounted to an impermissible

gloss upon the statute which leads to so complete a frustration of its purpose.[4]

25 He submitted that VCAT has adopted what appears to be a policy that security for costs ought not to be ordered, by the adoption of a threshold test and a stringent evidentiary test. By adopting a threshold test, VCAT has repeatedly offended against the principle enunciated by the High Court in Craig v South Australia[5] where the Court found that:[6]

jurisdictional error will occur where an inferior court disregards or takes account of some matter where the statute or other instrument establishing it and conferring its jurisdiction requires that a particular matter be taken into account or ignored as a pre-condition of the existence of any authority to make an order or decision in the circumstances of the particular case.

26 In response, Rikys submitted that the Tribunal did not err in the exercise of its discretion under s 79 of the VCAT Act in focusing on a "threshold question", namely the ability of Rikys to meet any costs order made against it in the proceeding, and did not fail to apply the proper test. In any event, the questions raised by Hapisun are otiose in light of the Tribunal's findings of fact.

27 Rikys' written submissions can be summarised, as follows:

(a) Hapisun has adopted the unusual approach of seeking relief under Order 56 of the Rules, rather than seeking relief under s 148 of the VCAT Act, presumably to avoid the requirement to seek leave to appeal under s 148(1) of the VCAT Act. While it is accepted that s 148 is not an exclusive code by which a party may seek to review a decision of VCAT, its availability is a very strong discretionary reason for refusing relief under order 56, especially where the alleged error is not clearly a jurisdictional error, and where the orders are interlocutory and not final;

(b) the Tribunal accepted the submission that it is a threshold question in the application of s 79 of the VCAT Act whether there is reason to believe that Rikys will be unable to pay Hapisun's costs if Hapisun were to successfully defend the proceeding and obtain a favourable costs order. This is consistent with other decisions of VACT which reflect a practice whereby the Tribunal exercises its discretion under s 79 having regard to the principles developed in the authorities relating to orders for security for costs under s 1335 of the Corporations Act 2001 (Cth) ("general jurisprudence");

(c) there is no doubt, on the principles governing applications under the general jurisprudence, that the ability of the relevant plaintiff to pay the defendant's costs is the threshold question;[7]

(d) it is also proper for the Tribunal, in exercising its discretion under s 79, to have regard to the purposes of the Tribunal, as averted to in the decisions of Ian West Indoor & Outdoor Services Pty Ltd and Done Right Maintenance;

(e) the Tribunal considered Hapisun's arguments on the other discretionary factors commonly considered in such applications;

(f) the burden of proof in any application for security for costs rests with the applicant. In the current case, the Tribunal found that Hapisun failed to discharge their onus to satisfy the threshold question that there was a real risk that Rikys would be unable to meet an order for costs;

(g) while the reasons referred to a "real risk" that Rikys would be unable to meet an order for costs, this reflected the manner in which Hapisun originally cast its argument in support of the application for security for costs in those terms.[8] Moreover, the Deputy President in her reasons directly and indirectly referred to the test contended for by Hapisun, that is, "reason to believe" and/or that there is "a rational basis for the belief" that Rikys would be unable to meet an order for costs; and

(h) there is no material difference between a "real risk" test and a "reason to believe" test. Both require an examination of the financial capacity of Rikys to meet a costs order. The occasional inconsistent use of language did not affect the result.

28 In his oral submissions at the hearing, counsel on behalf of Rikys submitted that it was inappropriate for Hapisun to utilise the provisions of order 56 of the Rules to circumvent the requirement to seek leave to appeal from the decision of the Tribunal under s 148(1) of the VCAT Act. Further, it was inappropriate for Hapisun to seek to utilise this proceeding to attack the findings of Judge O'Neill VP in Ian West Indoor and Outdoor Services. The Court should discourage applications for judicial review seeking to set aside interlocutory orders made by VCAT, and, in any event, based upon the factual findings made by the Deputy President in the application before her, it would not have mattered what test was applied, as the result would have been no different.

29 In my view, while the Tribunal, in identifying a precondition to the exercise of jurisdiction under s 79 of the Act, has committed an error which amounts to jurisdictional error, I will decline to give the relief sought by Hapisun in its originating motion, on the basis that even if the correct approach had been adopted, based upon the factual findings made by the Deputy President with respect to the financial capacity of Rikys, and her reasoning with respect to the other discretionary matters relied upon by Hapisun in their application, the result would have been no different. I will elaborate further below.

30 The terms of s 79 are set out in paragraph 3 above. Section 1335 of the Corporations Act 2001 (Cth) provides as follows:

Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given.

31 There are at least three material differences between the formulation of s 1335 and s 179 of the VCAT Act, namely:

(a) there is no limitation in s 79 to corporations, such that the section contemplates making orders that natural persons provide security for costs (cf rule 62.02(1)(b) of the Rules);

(b) the inclusion of the words "at any time" in s 79 contemplates that a party may make an application for security for costs at any point in the proceeding, notwithstanding that in the general jurisprudence, any delay in making an application is a significant discretionary factor weighing against the making of an order for security for costs; and

(c) the absence of any reference to a "reason to believe that the corporation will be unable to pay the costs of the defendant", which the authorities have determined is a necessary precondition to a court exercising its jurisdiction under either s 1335 or r 62.02(1)(b) of the Rules.

32 It is trite law to say that when construing the language of a statutory provision, one must look first to the words of that provision and give them their plain and ordinary meaning. As stated by Kirby J in Central Bayside General Practice Association Ltd v Commissioner of State Revenue:[9]

Where the law in issue is expressed in the form of an Act of an Australian legislature, it is in the words of that statute that the context of the legal obligations is to be found, not in judicial synonyms, restatement or approximation.

33 The failure of the legislature to include a long-standing formulation of the test by which the jurisdiction of courts to order security is enlivened must be presumed to have been deliberate.

34 Of course, it is proper that VCAT, as the Tribunal did in this case and other cases referred to me by the parties, has regard to the principles developed in the general jurisprudence when exercising its discretion under s 79. However, it appears from this proceeding and the other authorities referred to me by counsel for both parties that the Tribunal has, as a matter of practice, gone beyond seeking guidance from these principles to incorporating wholesale into s 79 a threshold precondition to the exercise of the otherwise unfettered discretion imposed by the terms of s 79. This is impermissible, and amounts to jurisdictional error. Accordingly, the importation of a threshold test into s 79 of the VCAT Act offends the principle stated by Kirby J above.

35 However, this is an error which, in most cases, including the current case, has no particular practical consequences, except perhaps in the manner in which applications are conducted, and reasons for decision formulated. For even if the financial capacity of a plaintiff[10] to meet an adverse costs order is not a threshold issue, the ability of a party to meet an adverse order for costs must be an important, if not critical discretionary matter in the determination of each and every application for security for costs. After all, the policy behind provisions such as s 1335 and r 62.02(b)(i) is the recognition of the need to protect involuntary participants to litigation from the adverse financial consequences of defending claims against impecunious plaintiffs, particularly those who operate behind the shield of limited liability.[11]

36 Indeed, it is difficult to contemplate a scenario in an application for security for costs where the financial position of a plaintiff was not a paramount consideration, or where security would be ordered where there was not a rational basis for believing that the plaintiff could not meet an order for costs. Perhaps that might arise in particularly unmeritorious claims, but there are other, more effective means of dealing with hopeless cases, under s 75 of the VCAT Act, or s 63 of the Civil Procedure Act 2010.

37 Further, while I am dealing with the question of the construction of s 79 of the VCAT Act, and the manner in which the tribunal in various proceedings has exercised its discretion under s 79 of the VCAT Act, the written and oral submissions made on behalf of Hapisun take issue with what is perceived to be a pre-disposition on the part of the tribunal against ordering security for costs, although this matter is not directly articulated by the originating motion. In her reasons, the Deputy President referred to the statement of Judge O'Neill VP in Ian West Indoor and Outdoor Services that the tribunal

should generally be slow to make an order for security for costs as to do so would stifle the abilities of companies of modest means to bring proceedings in the Tribunal in the reasonable expectation that these proceedings would be determined promptly, efficiently, at a more modest cost than may be the case in the County or Supreme Courts.

38 The Deputy President also made reference to the remarks of Walker SM in Done Right Maintenance and Building Group that

It must not be overlooked this is a Tribunal set up by the Parliament to provide a timely and efficient remedy in those areas of jurisdiction that have been conferred upon it. It cannot be assumed that in every case where a court would order security this Tribunal would order security also.

39 The references in these passages were referred to by counsel for Hapisun in support of its submission that VCAT, in this case and other cases, applies a more stringent evidentiary test to the threshold question than is otherwise warranted by the general jurisprudence.

40 I agree that if in each application under s 79 VCAT approached the question of whether security ought to be ordered with an inflexible pre-disposition against ordering security, especially in cases where it was plain that a plaintiff's financial capacity to meet an adverse order for cost was in serious doubt, it would amount to the impermissible adoption of a binding rule, contrary to the decision of the High Court in Norbis v Norbis.[12] However, I do not consider that the approach taken by the tribunal in this case or the other cases referred to above reflects such an inflexible predisposition. Indeed, it was clear from these authorities that each application was examined on its merits, with careful analysis of the plaintiff's financial position in each case (within the constraints of the evidence advanced by the parties), with differing results.

41 Further, while it is correct that the High Court in Norbis[13] stated that:

a broad discretion left largely unfettered by Parliament cannot be fettered by the judicial enunciation of guidance in the form of binding rules governing the manner in which the discretion is to be exercised.

However, it does not follow that, because a discretion is expressed in general terms, Parliament intended that the courts should refrain from developing rules or guidelines affecting its exercise. One very significant strand in the development of the law has been the judicial transformation of discretionary remedies into remedies which are granted or refused according to wellsettled principles ... It has been a development which has promoted consistency in decision making and diminished the risk of arbitrary and capricious adjudication.

42 Accordingly, it is not impermissible, in exercising its discretion under s 79 for the tribunal to have regard to particular principles, whether they are principles developed by the general jurisprudence, or those which have been developed and enunciated with the particular jurisdiction and legislative framework of VCAT in mind. Counsel for Hapisun is correct in saying that the VCAT Act does not include a provision setting out the objectives and purposes of VCAT as such. But these objectives and purposes can readily be gleaned from provisions such as s 98(1)(d) of the VCAT Act, which requires that VCAT:

must conduct each proceeding with as much speed, as the requirements of this Act and the enabling enactment and a proper consideration of the matters before it permit

and the requirement of s 109(3) of the VCAT Act which provides that VCAT may only make an order that one party pay the legal costs of another party if it is fair to do so. Furthermore, the Second Reading Speech introducing the VCAT Bill[14] makes reference to tribunals being, compared with courts, "relatively informal, inexpensive, and efficient", and, in establishing VCAT, providing access to a justice system which is "modern, accessible, efficient and costeffective". In any event, the remarks made by Judge O'Neill VP in Ian West Indoor & Outdoor could be seen as merely a variant on the principle applicable in the general jurisprudence that on occasion a relevant discretionary matter may be whether making an order for security for costs might stultify the bringing of a meritorious claim.

43 The statements made in Ian West Indoor & Outdoor and Done Right Maintenance demonstrate that the tribunal appreciates the need to exercise the broad discretion under s 79 in the particular legislative and institutional context in which it operates, and, as such, while the language of s 79 seemingly expands the circumstances in which VCAT may exercise its discretion to make an order for security for costs beyond those available to the courts under s 1335 or rule 62.02(1)(b), there are particular features of its jurisdiction which will, in appropriate cases, influence the exercise of the discretion. By way of example, the fact that VCAT is, by the presumption imposed by s 109 of the VCAT Act, a "no-costs" jurisdiction, means that part of any analysis of the question of whether security for costs ought to be ordered needs to include some assessment of the likelihood of whether, even if a defendant was successful in defending a claim, that an order for costs would be made in its favour. Also, considering the range of areas where VCAT has jurisdiction, different considerations will apply in different lists. One would anticipate there being a far greater willingness on the part of the tribunal to order security for costs in a dispute regarding the construction of a substantial apartment development than would be the case in an application in a guardianship matter.

44 In my view, in any event, I do not consider that having reference to the policy considerations referred to above involved the Deputy President imposing a more "stringent evidentiary test" for determining whether there was "reason to believe" that Rikys could not meet an adverse order for costs. The reasons reveal no such thing. What the reasons reveal is that, based upon the evidence before her, and having determined to give limited weight to Mr Munro's criticisms of the financial statements relied upon by Rikys, she was not satisfied that there was reason to believe, or that there was a real risk, that Rikys could not meet an adverse order for costs. There was no doubt that the onus was on Hapisun to persuade the Deputy President to make an order under s 79 of the VCAT Act. While the question of Rikys' financial capacity to meet an order for security was erroneously described as a threshold test, there can also be no doubt that such a matter must be considered to be a material, indeed perhaps a critical discretionary factor. On that matter, she found that Hapisun's assertions of financial incapacity could not be made out on the evidence. Having reviewed that evidence myself, it is quite possible, if not likely, that an application before this Court would meet a similar fate.

45 Indeed, it was not entirely clear from the submissions made on behalf of Hapisun how the adoption of either the "wrong test" or "a more stringent evidentiary test" affected the conclusions reached by the Deputy President. Put another way, it is difficult to see, on the basis of the Deputy President's factual findings, how any difference in approach would have led to a different result. I agree with the submissions made by counsel for Rikys that there is no material distinction between a "real risk that the plaintiff is unable to meet an order for costs", or "reason to believe that the plaintiff is unable to meet an order for costs".[15] There was no suggestion that the Deputy President's findings were otherwise tainted by legal error: for example, that she failed to take into account relevant considerations, or took into account irrelevant considerations, or her findings were so unreasonable that no reasonable tribunal could have made them. Indeed, the reasons, viewed in the light of the evidence before the Tribunal, demonstrated that the Tribunal adopted, in the words of the Court of Appeal in Livingspring[16] "a practical, commonsense approach to the corporation's financial affairs".

46 Notwithstanding the fact that the Tribunal found adversely to Hapisun on what was described as the threshold question, the Deputy President did go on to consider the other relevant discretionary matters raised by Hapisun in its evidence and its submissions: that is, the assertion that Rikys had an unmeritorious claim, and the submission that as there was evidence that the directors and shareholders of Rikys had sufficient assets to provide security and it was reasonable that they be ordered to do so. The Deputy President's findings in relation to those matters were not sought to be impugned by Hapisun in the grounds of review contained in its originating motion, and in any event are unremarkable. In relation to the respective merits of the parties' position in the proceeding, the Tribunal found that it was not possible to form a considered view before the matter went to trial. Such a finding is quite commonplace in applications before this Court. In relation to the position of the persons behind Rikys, the Deputy President determined that this was irrelevant given her findings on the threshold question. Leaving aside the correctness of the reference to a "threshold question", I agree that the financial position of the persons behind a plaintiff company, and their ability and/or willingness to step forward to provide security, can only be relevant if there is a finding that there is reason to believe the plaintiff corporation could not meet an adverse order for costs.

47 Accordingly, while I have found that the Tribunal made an error of law in importing a threshold test of the nature contained within s 1335 of the Corporations Act and rule 62.02(1)(b) of the Rules into s 79 of the Act, I decline to give the relief sought by Hapisun, on the basis that the error had no material impact upon the Tribunal's determination in this instance.

48 There is a strong argument that I ought to have declined to exercise my discretion to give relief under order 56 on the sole basis that it is an abuse of process on the part of Hapisun to utilise the provisions of order 56 of the Rules to attempt to circumvent the leave requirements of s 148(1) of the VCAT Act. Of course, there is no evidence before me that this was Hapisun's purpose in that regard. However, I would note that in my opinion there would have been at least a reasonable prospect of Hapisun being refused leave to appeal, on the basis that even if there was an error of law, it made no material difference to the outcome. Any decision by this Court to grant leave would also have been influenced by the Court's traditional reluctance to interfere with the discretion of inferior courts and tribunals on interlocutory matters, although the concern about an error becoming entrenched below might well have been a countervailing consideration.

49 However, in the current case, given that the error complained of and found was an error which goes to jurisdiction,[17] and the Court had the advantage of full argument on the substantive matters for review, I would not decline to give relief on that basis alone. However, my decision not to do so in this instance should not be seen as encouraging the wholesale use of the order 56 procedure as an alternative to the procedure provided for by s 148 of the VCAT Act, particularly in relation to interlocutory decisions of VCAT.

[1] [2011] VCAT 2410.

[2] [2013] VCAT 141, at [18].

[3] CSO Interiors Pty Ltd v Fenridge Pty Ltd [2013] VCAT 1175.

[4] Donald Campbell & Co Ltd v Pollack [1927] AC 732, at 811.

[5] [1995] HCA 58; (1995) 184 CLR 163.

[7] Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377, at 382.

[8] see paragraph 5 of the affidavit of Darren Noble sworn 23 May 2013.

[9] [2006] HCA 43; (2006) 228 CLR 168 at 97.

[10] Known as "applicants" in VCAT, but referred to as "plaintiffs" here to avoid confusion with references to applicants for orders under s 79.

[11] Ariss v Express Interiors Pty Ltd (in liq) [1996] 2 VR 507 at 513-14.

[12] [1986] HCA 17; (1986) 161 CLR 513.

[14] Handsard, Legislative Assembly, 9 April 1998, 972 (Mrs Wade).

[17] see Hoe v Manningham City Council [2013] VSC 195, at [74].