Should the proceeding be dismissed or the security order varied?
4 Rule 5.23 provides as follows:
5.23 Orders on default
(1) If an applicant is in default, a respondent may apply to the Court for an order that:
(a) a step in the proceeding be taken within a specified time; or
(b) the proceeding be stayed or dismissed for the whole or any part of the relief claimed by the applicant:
(i) immediately; or
(ii) on conditions specified in the order.
(2) If a respondent is in default, an applicant may apply to the Court for:
(a) an order that a step in the proceeding be taken within a specified time; or
(b) if the claim against the respondent is for a debt or liquidated damages - an order giving judgment against the respondent for:
(i) the debt or liquidated damages; and
(ii) if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or
(c) if the proceeding was started by an originating application supported by a statement of claim, or if the Court has ordered that the proceeding continue on pleadings - an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or
(d) an order giving judgment against the respondent for damages to be assessed, or any other order; or
(e) an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order.
Note 1: The Court may make any order that the Court considers appropriate in the interests of justice - see rule 1.32.
Note 2: An order or judgment under this Division may be set aside or varied
5 Notwithstanding that they did not comply with the security for costs order, Mrs and Mr Frigger filed a proposed substituted originating application and proposed substituted statement of claim on 3 May 2016.
6 Then, on 31 May 2016, they filed an interlocutory application to vary the security for costs order in the following terms:
1. Pursuant to rules 1.39 and 39.05(c) the orders of 13 April 2016 be varied as follows:
Order 1: The applicants pay into court, within 7 days of the payment by the liquidator of the sale proceeds of the applicants' service station business, the sum of $15,000 by way of security for costs in relation to the first stage of this proceeding up to and including any application by the respondents for summary judgment and the applicants application to restrain the named lawyers from acting in the proceeding with liberty to the respondents thereafter to apply for further security.
Order 2: The costs of the application be costs in the cause.
2. Costs in the cause.
7 The Court has power to vary a security for costs order under s 56(3) of the Federal Court of Australia Act 1976 (Cth) and R 1.32 and R 39.05 of the Rules. Ordinarily, such an order must be founded on a material change of circumstance since the security for costs application was heard, or the discovery of new material which could not reasonably have been before the Court at that hearing. See Austcorp Project No 20 Pty Ltd v The Trust Co (PTAL) Limited, in the matter of Bellpac Pty Limited (Receivers and Managers Appointed) (in liq) (No 4) [2015] FCA 850 at [11] to [13].
8 Mrs and Mr Frigger, relying on this power, submit, as set out in [4] of their written submissions filed 31 May 2016, that:
The claimants seek an extension of time to comply with the security for costs payment. Mrs Frigger had already given evidence that an order for security would result in real and unnecessary hardship. In the affidavit of 25 May 2016 Mrs Frigger states that her husband and she are reliant on allocated pensions from their self-managed superannuation funds. Until the liquidator pays to the Friggers the sale proceeds of the service station business, there are no cash funds to pay security. The liquidator has no power or authority to retain those funds. Those funds are not an asset of Computer Accounting & Tax Pty Ltd (in liq). The liquidator has abused his power by demanding that BankWest withdraw those funds from the Frigger's bank account with that Bank and depositing to an account in CAT's name, which demand was complied with.
9 As can be seen, Mrs Frigger now contends that she and her husband would have funds to meet the security for costs order if and when they receive funds in the contested litigation in CIV 2765 of 2010 pending in the Supreme Court of Western Australia, in which she is confident she and her husband will be successful. See the Court's recent judgment on that related matter in WAD 674 of 2015, Kitay, in the matter of Computer Accounting & Tax Pty Ltd (in liq) [2016] FCA 720.
10 Whether or not Mrs and Mr Frigger are successful in that Supreme Court proceeding is not for this Court to predict. There are, however, many obvious obstacles facing their pathway to success. It is not appropriate to regard the conduct of that litigation as a new legitimate basis to found a variation of the security for costs order. The Court therefore disregards the possible outcome of that proceeding for security purposes.
11 The second aspect to the variation application concerns the quantum of $75,000. In this regard, Mrs Frigger contends that the Court initially set the quantum without sufficient evidence of the amount before it. The relevant submissions of the Friggers are encapsulated at [7] to [12] of their written submissions filed 31 May 2016 as follows:
7. No evidence or submissions were made in relation to the amount claimed. Mr Eastwood's affidavit of 24 February 2016 states he had incurred $36,000 in costs, but no proof was provided nor any calculation as to how that amount was incurred. Mr Eastwood attached a letter at CVE10 he had sent to the Friggers on 29 October 2015 in relation to another matter. The cavalier attitude of Mr Eastwood and Mr Stephenson in relation to their costs is telling and a matter of significance which should be noted by this court.
8. During the hearing on 5 April 2016 Mr Stephenson telephoned Mr Crennan during a short break and suggested he would be "satisfied" with an amount of $75,000. Mr Crennan was appearing by video-link from Melbourne. the Friggers had no opportunity to instruct Mr Crennan in regards to that amount. The applicants opposed the entire application for security for costs, including the amount claimed of $75,000.
9. The amount claimed of $75,000 is not credible: see affidavit of Angela Frigger dated 25 May 2016.
10. This court should find it significant that since October 2015, neither Mrs Sandra Banning nor Mr Campbell-Smith have provided any affidavits or evidence substantiating the assertions made by Mr Stephenson from the bar table. the Friggers submit that these proceedings are being conducted entirely by Mr Stephenson and Mr Eastwood without instructions from either of those parties.
11. Based on Schedule 3 Mrs Frigger has calculated that no more than $12,000 has been incurred for the work done to date. She has added $3000 to be "on the safe side" and on that basis the Friggers submit that $15,000 is the correct amount for security for costs up to and including an application for summary judgment by the respondents.
12. The application for security for costs was unusual in its form and the way it was resolved. On 5 April 2016 numerous oral submissions asserting and containing false evidence were made from the bar table by Mr Stephenson on behalf of the respondents. As counsel for the Friggers was appearing by video-link they were not able to instruct him to refute those submissions. The applicants obtained transcript of Mr Stephenson's submissions and filed an affidavit dated 8 April 2016 but that evidence was not considered in the decision.
12 Mrs and Mr Frigger were represented by experienced counsel from the Melbourne Bar when the security for costs application was heard. The question of security being in the sum of $75,000 was openly proposed to the Court. The Court considered it an appropriate sum to meet the range of legal services identified in para 1 of the orders, set out in [1] above. The quantum in that sum for those purposes was not the subject of any specific challenge. There was no proposition that the quantum should be paid in stages. Rather, Mrs and Mr Frigger were represented, at least in part, as persons of substance who were able to meet a costs order.
13 Mrs Frigger now contends the sum of $75,000 is too high, having regard to Sch 3 of the Rules and the costs allowable for work done and services performed. She reasonably makes the submission that an assessment of costs for security purposes is not intended to cover every last cent and is to be assessed by the Court more "in the round" and by way of a reasonable estimate of what should be paid by way of security. On her calculation, a sum of around $10,000 would be more appropriate.
14 Be that as it may, on 17 June 2016, the Court ordered the respondents to put on an affidavit to explain the earlier calculation of costs in the sum of $75,000, together with any further submissions, in regard to which the Friggers could file responsive submissions.
15 By affidavit dated 20 June 2016, Mr Cameron Victor Eastwood, solicitor for the respondents, deposes to a reasonable estimate of costs for the work to be done the subject of the security for costs order.
16 Mr Eastwood sets out the basis upon which the solicitors for the respondents are retained and also the basis upon which counsel is retained, acknowledging that the retainer rights exceed amounts that would be payable pursuant to Sch 3 of the Rules. He thus provides two estimates for work already done and to be done based on the retainer agreements or if the amounts were increased under cl 11.1 of Sch 3, and the amounts pursuant to Sch 3. Noting estimates of fees incurred taken from invoices, law practice billing data and advice from counsel, as well as estimates of fees for further work not yet undertaken but reasonably expected, through to and including a trial of some five to eight days duration, including briefing counsel, a solicitor attending trial and relevant disbursements, Mr Eastwood estimates that the total costs pursuant to the retainer would be in the range of about $228,000 to $303,000, and under Sch 3 would be in the range of about $207,000 to $277,000.
17 Mr Eastwood adds that while he has estimated the costs through to trial, he has included in the table an estimate of the fees that he believes will be incurred up to the conclusion of the respondents' application to strike out the statement of claim or proceedings of the Friggers, and the Friggers' applications to restrain lawyers and counsel and for leave to amend the present statement of claim and originating application.
18 By his calculations, the estimated minimum of fees for this work is about $80,000, and it is on that basis that the sum proposed of $75,000, the subject of the present order, was advanced.
19 Mr Eastwood adds that he is instructed that the respondents do not oppose the making of an order which might extend the time for compliance, provided that a "springing order" is made such that if the Friggers fail to pay the security by that time, the proceedings will be dismissed with costs.
20 In general support of the nature of the work to be done and its historical nature and complexity, Mr Eastwood makes the following observations at [8] and [9] of his affidavit:
8. In making the estimates herein I have also had regard to my experience in the last 7.5 years of litigation with the Applicants (and their company) in particular where the Applicants have represented themselves. Based on that I can say that none of those matters has ever run smoothly and the breadth of the issues raised by the Applicants has always been substantial and often irrelevant to the real matters in issue. For example, in this case I am already in receipt of one Statement of Claim dated 19 October 2015 (now apparently abandoned) and a further three versions of either amendments or substituted claims dated 30 December 2015, 26 March 2016 and 3 May 2016, with each being substantially different from the last. I am certain on the basis of the advice from counsel that there will be an application to dismiss the proceedings as presently framed in the substituted claim dated 3 May 2016. If that was not successful it is highly likely there will be further applications to strike-out some or all of the pleadings, or, at least for the provision of further and better particulars in future.
9. Further, most of the matters about which the Applicants appear to complain took place many years ago, and, in the main in a period between 2009 - 2012 (but they are not of course restricted to that time). Therefore I expect that there will be many thousands of pages of relevant documents which will need to be sourced for the purposes of discovery, and, given the allegations presently made I expect that transcript will have to be obtained for a number of relevant hearings from the Supreme Court. My best estimate at the moment is that there will be a need to obtain witness statements from six witnesses for the Respondents (and I have not included myself in that number). This also does not include any expert evidence, but, may do so depending on the nature of the expert evidence put forward by the Applicants. In relation to the Applicants' claim I believe there is scope for two non-expert witnesses (the Applicants themselves) and two experts - one for the costs issues raised and the other for loss and damage issues. There is also potential for other witnesses to give evidence regarding the claim for alleged loss of reputation. On this basis Mr Stephenson of Counsel has advised and I verily believe his best estimate of the length of trial based on the present proposed substituted pleadings dated 3 May 2016 is five to eight days. Owing to the complexity of the matter and the likelihood that there will be substantial documentary exhibits I will be attending the trial with Counsel.
21 Mrs and Mr Frigger in submissions filed 22 June 2016 dealing with Mr Eastwood's affidavit, first submit that Mr Eastwood's affidavit fails to address the matters required by the Court and that Mr Eastwood has not evidenced appropriate experience to provide the estimates provided. I reject each of those contentions. The affidavit provides a detailed estimate of the work the respondents say has to be done and Mr Eastwood deposes as to his experience as a lawyer. I consider the estimate to be a proper attempt to make a reasonable estimate of costs likely to be incurred for the purposes of the security order. I reject, in the circumstances, the further submission made by the Friggers that the figure of $75,000 was "plucked out of the air". As I have said above, the way the matter proceeded before the Court when the security order was initially made, was that each of the parties were represented by experienced counsel and the quantum was not seriously in issue. It is as a result of Mrs Frigger's further submissions as a self-represented party and the matters she then raised that led the Court to require the provision of affidavit evidence on the topic.
22 The Friggers also provide what they call an analysis of Mr Eastwood's evidence. Much of this includes an historical analysis of other costs issues between these parties in earlier proceedings in the Supreme Court. The submissions also touch on other questions that are extraneous to the security issue presently before the Court.
23 I do accept, however, a submission made by the Friggers that in considering the security question, the Court should estimate a security sum not on the basis of an understanding that indemnity costs would be awarded in the proceeding or that cl 1.11 of Sch 3 would apply, but on the basis of what Sch 3 costs would be.
24 The Friggers further contend that a reasonable estimate of items 1 to 17, items 18 to 27 and items 28 to 31 of Sch 3 would produce a total of costs and disbursements not exceeding $10,000.
25 Having regard to the evidence which has been put on by both sides, the Court considers that regard must be had firstly to the full range of work to which the security order relates. It is not just the respondents' strike out matter, but also the respondents' defence of the Friggers' application to restrain the lawyers that must be considered. Furthermore, as Mr Eastwood reasonably notes, the history of proceedings between the parties, including through to the Court of Appeal of the Supreme Court of Western Australia, all bears on matters likely to be in issue. The complexities of historical factual matters and law no doubt will be involved. Merely to refer to the history of disputation between the parties is sufficient to support the observation that the proceedings are hotly contested and are unlikely to be quickly, easily or shortly dispensed with. I consider, in these circumstances, the estimate of $10,000 for all this work, as prepared by the Friggers, to be a serious underestimate of the work involved. It may be that there has been a failure fully to appreciate that there are at least major areas of work that have to be attended to.
26 I also consider, on the other hand, the estimate made by the respondents through to the completion of the two areas of work covered by the security order to be a little higher than necessary, probably reflecting a belief by the solicitors that the respondents will or ought to be entitled to a higher rate than Sch 3 would otherwise allow, or entitled to indemnity costs in due course.
27 Upon reflection, and dealing with the matter in the round, I would therefore reduce the quantum of the current security order from $75,000 to $60,000. As is well understood on the authorities, the Court in assessing an appropriate sum does not seek to estimate exactly what taxed costs in the matter would be, but endeavours to assess a sum that reasonably secures the other party's likely costs in the proceeding.
28 I also consider that the circumstances of the case are such that, given the history of the matters in dispute and the background to them, to which I have adverted, as well as the fact that Mrs and Mr Frigger did not pay the previous security sum in accordance with the order made, and did not apply to vary the security order until such time as the respondents applied for judgment, that there should be an order in the nature of a springing order made now in relation to security.
29 I would order that unless the varied security of $60,000 is paid into Court within seven days, the proceeding be dismissed with costs to be taxed.
30 I would also order that the costs of the respondents' interlocutory application filed 2 May 2016 and the costs of the Friggers' interlocutory application filed 31 May 2016 be in the cause.