The solicitors
84 A good deal of attention at the hearing of this application was devoted to the position of General Trade's solicitors, Clifford Gouldson Lawyers (Clifford Gouldson). AGL alleged that they stood to benefit from the company's success in this proceeding, as a creditor of the company, and that General Trade should therefore be required to prove that they are unable or unwilling to fund the litigation.
85 The position of Clifford Gouldson was established in evidence by three affidavits sworn by Mr Harrison Humphries, the Legal Practice Director of Clifford Gouldson, dated 23 December 2022, 10 February 2023 and 24 February 2023. Across those affidavits, he deposed, amongst other things, to the fact that Clifford Gouldson:
(a) had written off the debt that was owing to it by General Trade, and was no longer a creditor of the company;
(b) was retained by General Trade on a speculative basis, with payment of its fees being contingent upon its success in the proceeding;
(c) had current work in progress on the matter of approximately $713,000 (including GST); and
(d) was unwilling to fund the litigation further via the provision of cash for security for costs because:
(i) the provision of cash was a far greater financial imposition on its business than the accumulation of work in progress; and
(ii) the risk associated with recovery of that cash was not one that it was prepare to take, over and above the risk of not recovering its work in progress.
86 It was not entirely clear how the first of these points was to be reconciled with the third, though it seemed likely that the amount of over $700,000 in work in progress had not yet been billed. Mr Wood SC suggested that the phrase "written off" had perhaps been used somewhat loosely, but, in any event, there had been no attempt to challenge or contradict the ultimate evidence that Clifford Gouldson was not a creditor of General Trade.
87 Counsel for both parties addressed the authorities in relation to this issue in some detail, seeking to apply them by analogy to, or distinguish them from, the present circumstances. It is appropriate, in light of these submissions, to consider that case law.
88 At the outset it should be noted that not all of the authorities cited involved an application for security for costs brought specifically under s 1335 of the Corporations Act. Several involved applications brought pursuant to s 56 of the Federal Court Act. A number of New South Wales cases, relied on by AGL, considered motions brought pursuant to r 51.50(1) of the Uniform Civil Procedure Rules 2005 (NSW) (or its predecessor), which provides:
In special circumstances, the Court may order that such security as the Court thinks fit be given for costs of an appeal.
89 This provision has obvious differences on its face from the wording of both s 1335 of the Corporations Act and s 56 of the Federal Court Act. However, once it has been identified in a particular case that the applicant or plaintiff is impecunious, the case law concerning each of those provisions appears to regard it as relevant to ask whether an order for security for costs might stifle the litigation, and in appropriate cases to query whether the position of the applicant's or plaintiff's solicitors ought to have any bearing on the answer to that question. Therefore, subject to one possible caveat noted below, the issue presently under consideration is essentially the same no matter the jurisdictional basis for the application for security for costs.
90 A relatively early authority cited by General Trade in its written submissions was Shackles. There, Byrne J considered an application for security for costs against a large group of impecunious individual plaintiffs. The plaintiffs were represented by Slater and Gordon, who acted on a "no-win-no-fee" basis but stood to benefit substantially from the plaintiffs' success in the proceeding. In response to a submission by the defendants that the solicitors should raise the security since the proceeding was effectively brought for their benefit, his Honour stated as follows at 430:
In my opinion it is not correct to say that the solicitors are the persons for whose benefit the litigation has been brought. In any litigation the solicitors acting for a plaintiff stand to benefit from its prosecution. This is no less true in the case where the fee agreement is such that the solicitors are entitled to be paid only in the event of success. It cannot be suggested in the former case that the solicitors stand to benefit from the litigation in the sense that a shareholder in a corporate plaintiff does. Solicitors who undertake to act for an impecunious client at risk to themselves are in principle in no different position. Indeed, it has been said that by so acting they are performing a commendable public service, consistent with the best traditions of the legal profession: Clyne v NSW Bar Association (1960) 104 CLR 186 at 203-4.
91 It is worth noting that nothing in this statement appears to confine its application specifically to cases where the plaintiffs are natural persons. So much is demonstrated by the fact that the passage from Shackles extracted above was subsequently applied in circumstances where the plaintiff was an incorporated association: Environmental Defendants Office (Tas) Inc v Chipman [2003] TASSC 72 [37] per Holt M.
92 The point surfaced again, in the context of a representative proceeding, in Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 (Bray). There, Finkelstein J stated as follows at 375 [252]:
It is also appropriate to bear in mind that it is commonly the case in a class action that a person will stand behind (I mean fund) the applicant. Usually this will be the applicant's solicitor, who will sometimes charge what is referred to as a "contingency fee" for the privilege. When a proceeding is brought by a "nominal plaintiff" that is a plaintiff who will not himself benefit from the action but is making the claim for the benefit of someone else, an order for security is usually made. A party who is being funded by his solicitor is not really a "nominal plaintiff". Nevertheless, the solicitor does stand to benefit from the action (especially as regards the additional fee) if the action is ultimately successful, as the solicitor will then be able to recover his costs. That is a relevant, though not a decisive, consideration when deciding whether security should be ordered.
93 In apparent contrast to Shackles, this passage suggests that solicitors acting on a contingent basis will "stand behind" the applicant and will "stand to benefit" from the applicant's success in the litigation, particularly by their charging of an additional fee. On this basis, the position of the solicitors may have some bearing on the outcome of an application for security for costs.
94 The same point appeared to be made by Hodgson JA in Porter v Gordian Runoff Ltd [2004] NSWCA 69 (Porter), sitting alone on three motions, including two as to security for costs of an appeal. His Honour ultimately ordered that security for costs be provided by the appellant, finding that a number of considerations favoured that outcome. Most relevantly for the present purposes, he found at paragraph [41]:
In my opinion it is also relevant to these applications that each of the respondents has already lost in the order of $1 million by reason of the proceedings, this being money which the respondents appear to have virtually no chance of recovering. The appellant, on the other hand, has not lost much money by reason of the proceedings. It appears that he owes over $1 million to barristers, and it may well be that he owes substantial amounts to his solicitor. This does not mean that his appeal can be considered as being brought on behalf of his legal advisers, but it does mean, I think, that his legal advisers have a large stake as a matter of fact in the success of the appeal.
95 While it was not wholly clear from his Honour's judgment how much weight he placed on this consideration, it can potentially be inferred that the "large stake" of the appellant's lawyers was a matter favouring an order for security for costs.
96 His Honour's decision was upheld on appeal in Porter v Gordian Runoff Ltd [2004] NSWCA 171, where Bryson JA (with whom Sheller and Giles JJA agreed) noted at paragraph [32] that the appellant's evidence was "to the effect that the persons who stand to benefit from success in the appeal are his lawyers". Again, it was not wholly clear how much bearing this evidence had on the conclusion drawn by the Court of Appeal; however, it being mentioned tends to suggest that it was at least of some relevance to the making of the order for security for costs.
97 In Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434 (Ballard), Ward JA (as her Honour then was), again sitting alone on two applications for security for costs of an appeal, seemed to take into account similar considerations, although the factual setting was somewhat different. The appellant, against whom the applications were made, argued that an award of security would stifle the appeal, but there was evidence that he had entered into a "Funding and Priority Deed", pursuant to which a litigation funder had agreed to pay certain costs and other amounts at first instance and on appeal. It also appeared from that Deed that the solicitors for the appellant had agreed not to charge him for any legal costs that they incurred in connection with the appeal, and agreed to pay all expenses and disbursements arising from the appeal. He would only be liable for those costs, expenses and disbursements to the extent that they could be met from a surplus remaining after the funder had been paid under the Deed.
98 Against this background, her Honour drew the following conclusion as to the stifling effect of an order for security for costs at paragraph [41]:
I am not satisfied that the making of an order for security for costs will necessarily stifle the appeal. I say that for the reason that Mr Ballard has been able not only to procure funding for the litigation below but, and more relevantly, has been able to secure an arrangement with his solicitor for the appeal to be carried out at the solicitor's cost. There is nothing to suggest that Mr Ballard would be unable to secure additional funding if required to provide security for costs (or that his solicitor, who would appear from the Deed to have some personal interest in the maintenance of the appeal, would not be in a position to provide such security).
99 Again, it is not wholly clear from this passage to what extent her Honour's conclusion was contingent on the fact that the solicitors had not only agreed to receive payment on a deferred and speculative basis, but had positively offered to advance funds to meet the appellant's other expenses and disbursements as they arose. This unusual arrangement might be regarded as increasing the resemblance that the solicitors bore to a litigation funder.
100 Shortly after the decision of Ward JA in Ballard, the issue was addressed by Allsop CJ and Middleton J in their joint judgment in Madgwick v Kelly. In that case, the solicitors for the applicants in the class action, Macpherson and Kelley, were acting under a conditional costs agreement by reason of which, unless there was success, they would only receive a small proportion of their legal fees and disbursements. It was contended by the respondents that Macpherson and Kelley were receiving a benefit from supporting the litigation because they stood to receive the balance of their costs if it was successful. The primary judge, in Kelly v MIS Funding No 1 Pty Ltd (2012) 300 ALR 675, addressed this submission as follows at 697 [101] - [103] of his judgment:
[101] … I consider it a remarkable proposition that a lawyer acting under a conditional costs agreement is relevantly standing behind the litigation or is standing to benefit. I do not understand the position of a lawyer acting for an applicant in a class action to be any different from that of the lawyer for a plaintiff acting on a "no win-no fee" basis in the thousands of such individual cases conducted in many different Australian courts each year. Such arrangements are usually entered into because the plaintiff is unable to pay legal fees and disbursements as they are incurred. It would be remarkable if such claimants, already finding it difficult to meet the expense of litigation, were liable to pay security for costs because their barristers or solicitors were prepared to act on the basis that they are not paid unless the case is successful. This has never been the law in Australia.
[102] The preparedness of barristers and solicitors to provide legal services upon a "no-win-no fee" basis is an important aspect of access to justice, particularly in class actions. …
[103] One would be surprised if the barristers and solicitors that provide legal services in class actions upon a conditional fee basis would not prefer to be paid at the time the services are provided, rather than having payment for such complex legal work conditional on success. Put another way, I do not accept that it is proper to characterise as a benefit, a payment ultimately made to a lawyer who has agreed that he or she is only entitled to be paid upon winning the case, and is required to wait perhaps years for payment of both legal fees incurred and disbursements advanced. In a class action context the fee uplift involved is little compensation for the risk of non-payment and delay in any payment. It should not militate as a factor in favour of an order of security for costs. There is also nothing in the authorities which indicates that a person that retains a lawyer under a conditional costs agreement should be in a worse position in relation to security for costs than a person who can afford to do so.
101 On appeal, Allsop CJ and Middleton J quoted these paragraphs in full at 12 - 13 [43] before stating at 13 [44]: "We respectfully agree". Their Honours went on to add the following remarks at 13 - 14 [47] - [48], dealing with the decision of Finkelstein J in Bray:
[47] … There are principled reasons to distinguish between a commercial litigation funder and solicitors such as Macpherson and Kelley under these agreements. The former take a percentage of the judgment; the latter earn professional fees. Here, the fees could not rise above costs as recovered. Solicitors are entitled to charge professional fees for undertaking the professional responsibilities of running the case, as officers of the court, with all the attendant responsibilities (including duties to the court) that that entails. No one, the solicitors included, should ever lose sight of those responsibilities. The expected or contingent receipt of proper professional fees (and there was not the slightest suggestion here that Macpherson and Kelley's fees, including the "case management fee", were other than proper) is not a basis for requiring an officer of the court to contribute to a fund for the costs of the other side of the litigation. Looking at the matter from the point of view of the solicitors, it could not be considered reasonable for them to be required to fund on an ongoing basis the litigation brought under Pt IVA.
[48] To the extent that what was said by Finkelstein J at 375 [252] can be seen as contrary to that, it was comment by way of obiter dicta and, in our respectful view, wrong. …
102 Although references to the immediate class action context are interspersed throughout these passages, there is no clear basis to treat their Honours' reasons, or the reasons of the primary judge with which they agreed, as being confined to that specific setting. Most notably, the primary judge drew an analogy at [101] between "the position of a lawyer acting for an applicant in a class action" and "that of the lawyer for a plaintiff acting on a 'no win-no fee' basis", suggesting that the latter was something different to the former, and was not specifically connected to the class action context. He then observed, apparently in respect of the latter, that "[s]uch arrangements are usually entered into because the plaintiff is unable to pay legal fees and disbursements as they are incurred" and that "[i]t would be remarkable if such claimants … were liable to pay security for costs because their barristers or solicitors were prepared to act on the basis that they are not paid unless the case is successful". Again, Allsop CJ and Middleton J agreed with these remarks in their entirety.
103 In the hearing of the present case, Mr O'Shea KC submitted that the ratio of this part of Madgwick v Kelly was expressed in the final sentence of paragraph [47], in that way confining the precedential value of the case to the setting of litigation brought under Pt IVA of the Federal Court Act. Given what has been said already about the generality with which the principles were expressed in the first instance judgment, with which Allsop CJ and Middleton J agreed, that submission should not be accepted. It seems more likely that the ratio is captured in the preceding sentence of that paragraph, and the final sentence is merely a conclusion drawn by application of that principle. In any event, the penultimate sentence of the paragraph would at least constitute seriously considered dicta, which should not be overlooked. Mr O'Shea KC appropriately acknowledged, in this connection, that the case supported the proposition that, in general, practitioners who provide legal services on a speculative basis should not be required to meet orders for security for costs.
104 Shortly after the decision in Madgwick v Kelly, Sackville AJA (sitting alone) in Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd [2013] NSWCA 404 (Tyneside) appeared to take into account, in assessing the possible stifling effect of an order for security for costs, the position of a solicitor acting on a deferred payment basis. The factual background on the point appears sufficiently in the relevant passage at paragraphs [27] - [28] of his Honour's judgment, as follows:
[27] As I have indicated, the evidence shows that the appellants' solicitors are owed at least $371,000 on account of costs and that they are prepared to defer their payment of costs and disbursements in relation to the appeal until judgment is delivered. Clearly the solicitors have a substantial interest in the outcome of the appeal: cf Ballard v Brookfield Australia Investments Ltd [2012] NSWCA 434, at [41], per Ward JA. Mr Smallbone asserted from the bar table that the solicitors would not be prepared to contribute towards an order for security, but there was no evidence to that effect.
[28] I am not satisfied on the evidence that the solicitors, given that they have such a large stake in the outcome of the proceedings, would not be prepared to advance further funds, if an order for security were made, to ensure that the appeal could go ahead.
105 An application for review of Sackville AJA's decision was determined in Tyneside Property Management Pty Ltd v Hammersmith Management Pty Ltd (2014) 103 ACSR 201. By the time of that application, the solicitors in question, Moray & Agnew, had ceased to act. However, the members of the Court of Appeal made mention of the above paragraphs from the judgment of Sackville AJA without doubting the correctness of the conclusion. In particular, Emmett JA (with whom Meagher JA agreed), stated as follows at 219 [89] - [90]:
[89] Given that Moray & Agnew had such a large stake in the outcome of the proceedings, Sackville AJA was not satisfied, on the evidence, that Moray & Agnew would not be prepared to advance further funds, if an order for security were made, to ensure that the appeal could go ahead. His Honour came to that conclusion in the light of the observation that there was no evidence to the effect that the solicitors would not be prepared to contribute towards an order for security.
[90] Moray & Agnew are no longer acting for the appellants in the appeal. Thus, a significant change in circumstances has occurred since the orders made by Sackville AJA. While the change in circumstances has no bearing on the correctness of the decision of Sackville AJA, it will have a bearing on the manner in which the court should dispose of the motions.
106 The decision of Sackville AJA was subsequently cited in the judgment of Barrett JA in LRSM at paragraph [44]. There, as set out above, his Honour contrasted the position of arm's length trade creditors with the position of the solicitors acting on a deferred payment basis in Tyneside, querying whether the former should be regarded as "standing behind" the corporate plaintiff in the relevant sense, and in this way suggesting that the latter did "stand behind" the company. His Honour regarded the solicitors in Tyneside as occupying that position on account of their "connection" with the company, arising out of their decision to "continue acting in litigation on a deferred payment basis".
107 Taking stock, the authorities so far considered suggest that courts in New South Wales have adopted a different approach to that prevailing in other jurisdictions when addressing the position of the solicitors for the impecunious applicant in the security for costs context. In the New South Wales Court of Appeal, in particular, there has been a much greater readiness to take into account, as a matter favouring an order for security, the fact that the solicitors "stand behind" the applicant or "stand to benefit" from the litigation.
108 Further cementing this apparent disparity in approach, in Capic v Ford Motor Company (No 2) [2016] FCA 1178 (Capic), Perram J, without specifically addressing the New South Wales authorities, adopted a position consistent with Madgwick v Kelly, stating as follows at paragraph [21]:
It is true, I accept, that the lawyers for Ms Capic are acting on a no-win no-fee basis at this point, and that the costs recoverable by them if the class action succeeds may well exceed the fees which might be payable by Ford under an adverse costs order. To that extent, it is possible that some of the damages awarded may ultimately find their way into the lawyers' hands. However, I do not think for the purposes of the issue of stultification that attorneys in that position are to be seen as standing behind the action. A similar conclusion was reached in Madgwick and in Bray.
109 This passage was quoted with approval by Lee J in the more recent case of Schofield v TFS Manufacturing [2020] FCA 1526 (Schofield), where his Honour addressed an application for security for costs in a representative proceeding brought pursuant to Pt IVA of the Federal Court Act. There, it was submitted by one of the respondents that, while the solicitors for the applicants had put on evidence to the effect that they were "not in a position" to provide the security, there was no detail as to what this meant, nor any evidence as to whether consideration had been given to whether another firm would conduct the proceedings and provide necessary security. In relation to this submission, Lee J stated as follows at paragraph [28], immediately before making reference to the judgment of Perram J in Capic:
Although those submissions do not say it in terms, if it is suggested that in order to prove stultification, a solicitor acting on a no-win no-fee basis is required to establish that they are not in a position to provide security, then this is a submission that ought be expressly rejected.
110 Again, this statement does not appear to be confined to the context of representative proceedings.
111 The approach taken in recent authorities of this Court stands in apparent contrast to that taken in New South Wales. The point was considered in some detail by Parker J in Longjing, it being expressly in issue in that case whether the plaintiff's solicitors had an interest, as a creditor, in the outcome of the proceedings. The plaintiff submitted on multiple grounds that they did not. In the first place, it argued that an approach that put pressure on the solicitors to provide security would give rise to an undesirable conflict between the solicitors' role as creditor and its professional duties to the client and to the Court. Having regard to the decisions in Ballard and Tyneside, Parker J rejected this submission, stating relevantly as follows at paragraphs [47] - [49]:
[47] The question posed by counsel's submission comes down to whether, in a case such as the present, a solicitor creditor should be treated differently from other creditors having an interest in the outcome of the litigation. In my opinion, there is no reason in principle for any such exception to be recognised. I agree that for a solicitor to advance monies to his or her client may put the solicitor in a delicate position so far as his fiduciary duties to the client and his professional duties to the Court are concerned. It may also give rise to issues of undue influence. But these problems are not new and they are not confined to loans for the purposes of legal proceedings.
[48] Even if monies are not separately advanced, a solicitor who defers payment of his or her fees pending the outcome of the proceedings, where the client is unable to pay, is effectively speculating on the outcome of the litigation … That is not a criticism of the practice in general or of SR's [the solicitor's] conduct in these proceedings in particular. A retainer on such a basis is entirely legitimate and may be important in affording access to justice. But we should not pretend that such arrangements are not a source of profit for solicitors or that they do not create the potential for conflict. They clearly are and they clearly do.
[49] In a case such as this, the rationale for awarding security is to mitigate the unfairness of the defendant being exposed to the full risk of loss if the litigation succeeds, but having no recourse if it fails from those who stand to benefit from the litigation. I see no reason why the fact that the person who stands to benefit is a solicitor should make any difference. A solicitor in such a situation may need to be more careful in explaining the implications to the client, and may perhaps even need to ensure that the client obtains independent legal advice. But that is what the solicitor should do anyway and the difficulty and potential additional expense is no reason to make an exception which would disadvantage the defendant.
112 It is relevant to note from this passage that the firm of solicitors in Longjing was already a creditor of the plaintiff. This provides a potential point of distinction from the decisions of this Court. However, it is not wholly clear to what extent the creditor status of the solicitors motivated the broader statements of principle made by Parker J. His Honour appears to have found that the solicitors stood to benefit from the litigation, but it is not clear whether this finding was made on the basis that the solicitors were creditors, or that the solicitors were acting on a deferred payment basis, or both. His Honour also identified a further matter of some relevance at paragraphs [67] - [68], after a discussion of the decision in LRSM:
[67] I have already explained why, in the present case, SR [the plaintiff's solicitors] stands to benefit from the success of the litigation. In my opinion, SR should be seen, in addition, as standing behind the litigation in the relevant sense.
[68] SR has the conduct of the proceedings as Longjing's solicitor. SR also has the practical ability to control the proceedings because SR can, under the terms of its costs agreement, require payment of its outstanding fees, and thereby, in effect, bring the proceedings to an end, at any time (see [26] above). SR has also allowed the funding of the litigation from (at least) the China Grand settlement payment. In my opinion, SR is in an entirely different position from the ordinary trade creditors considered by the Court of Appeal in LRSM. It is notable that in LRSM at [44] (quoted at [65] above), Barrett JA expressly referred to solicitors acting on a deferred payment basis as having a relevant "connection with the company" which distinguished them from such trade creditors.
113 The potential conflict between this passage and the decision in Madgwick v Kelly was addressed at paragraph [70]. After quoting paragraph [47] of the judgment of Allsop CJ and Middleton J, his Honour said:
If I considered that this was inconsistent with what the Court of Appeal said about solicitors acting on a deferred fee basis in LRSM, I would be obliged to follow LRSM in any event. But I do not think that what the Full Court said is inconsistent with LRSM. A solicitor who accepts a retainer on a conditional basis is obliged, as a matter of contract, to conduct the case through to completion without requiring payment of fees in the meantime (unless the retainer is terminated for some other reason). That is quite different from the position of SR here.
114 It seems that his Honour sought to resolve the apparent inconsistency between Madgwick v Kelly and LRSM by emphasising the importance of the finding as to whether or not the solicitors were "standing behind the litigation". The solicitors in the case before him had a relevant "connection with the company" in the sense described in LRSM and stood behind the litigation, since they could bring the proceedings to an end at any time by requiring payment of their outstanding fees under the costs agreement. Accordingly, they could reasonably be expected to provide security. By contrast, a solicitor acting merely on a conditional basis could not be expected to provide security, since, as Allsop CJ and Middleton J observed in Madgwick v Kelly, they are ordinarily required to conduct the case to completion without requiring payment of fees. Because they lacked that material degree of control over the litigation, they could not be regarded as standing behind the litigation in the relevant sense.
115 Justice Parker further explained the point in Union Steel Pty Ltd v Union Steel Investments Pty Ltd [2020] NSWSC 1511 [85] - [86] (Union Steel), and distinguished the facts of that case from the facts in Longjing as follows:
[85] … [I]n Longjing the solicitors were already creditors of the corporate plaintiff as a result of having acted for it in earlier unrelated litigation. Also, the terms of the solicitors' retainer were in evidence. They showed that, contrary to the usual position where solicitors, once retained, are obliged to conduct litigation to its conclusion, Longjing's solicitors were entitled to withdraw at any time, thus in effect giving them control over the conduct of the litigation.
[86] In the present case, Mr Kekatos [the solicitor] may have agreed to "carry" the remaining costs of the litigation through to completion on a speculative basis, but it was not clear from the evidence whether he had the sort of control over the ongoing conduct of the litigation which the solicitors had in Longjing. More importantly, there is nothing to suggest that Mr Kekatos was owed any money by Ms Huybers [the sole director and shareholder of the plaintiff corporation] before he started acting for her in the proceedings.
116 On this basis, his Honour found that the solicitor was not a person who was standing behind, or standing to benefit from, the litigation.
117 In Carter v Mehmet t/as ATF Ian G Mehmet Testamentary Trust [2021] NSWCA 32 (Carter), Meagher JA (sitting alone) considered an application for security for costs of an appeal made against the three appellants in the proceeding, each of which was impecunious. It was noted in his Honour's reasons that the appellants' lawyers stood to benefit from the successful prosecution of the appeal by the recovery of their unpaid costs and expenses from the hearing at first instance. Whilst the stated position of the lawyers was that they would not provide security, it was not established that they did not have the means to do so. In addressing this point, his Honour initially stated as follows at paragraph [33]:
The present case does not concern a claim for personal injury. In such litigation the supply of legal services on a "no win-no fee" basis ensures access to justice for impecunious plaintiffs. For that reason, including in appeals in which the lawyers may stand to recover earlier unpaid fees as well as those incurred in the appeal, there is a general practice not to order security: see the observations of Handley JA in de Groot v Nominal Defendant [2004] NSWCA 88 at [29].
118 His Honour proceeded to discuss the decisions in Porter, Tyneside, Madgwick v Kelly and LRSM and drew from those cases the following relevant considerations:
(a) whether the solicitors stood to benefit if the appeal was successful;
(b) whether the solicitors had communicated their reasonable unwillingness to provide financial support; and
(c) whether the solicitors had "some more particular connection with the debtor company or the litigation", such that they could be said to be "standing behind" the appellants.
119 On the facts of the case before him, his Honour concluded at paragraph [37] that:
… the lawyers in this case are not "mere" arms-length trade creditors. Their position is similar to that of the solicitors in Tyneside. They have resolved with Mr Carter [the first appellant] that the appeal should proceed on a "speculative" basis. In the absence of that arrangement the appeal could not proceed. Their doing so makes it necessary for the respondents to incur costs which they will not recover (in the absence of any security) in the more likely event that the appeal fails. Addressing the question of fairness as between the appellants (and those "standing behind" them) and the respondents, it is reasonable that those lawyers provide some financial support to secure the continuation of the appeal. There is however a difficulty in determining the amount of that contribution in the absence of evidence as to the quantum of the unpaid fees and the particular arrangements between the lawyers and Mr Carter, all matters which from the appellants' perspective could have been clarified.
120 While the respondents sought to characterise the solicitors in that case as creditors or contingent creditors, his Honour did not seem to regard this point as integral to the resolution of the question of security for costs and it does not feature in the passage extracted above. Rather, the decisive factor appears simply to have been that the solicitors resolved that the appeal should proceed on a speculative basis.
121 This same question was the subject of relatively detailed consideration by Mitchelmore JA (sitting alone) in Kordovoulos v Dixon-Hughes [2022] NSWCA 110 (Kordovoulos). There, the solicitors for the appellants had accepted an arrangement whereby the recovery of their outstanding legal costs from the proceedings before the primary judge were contingent on the outcome of the appeal. Her Honour recognised at paragraph [44] that the case did not involve commercial parties or transactions, and in this way the solicitors' conduct might have a "facilitative aspect to it, in terms of access to justice". However, she proceeded to find that an order for security for costs should be made on account of the solicitors' position, stating as follows at paragraphs [45] - [46]:
[45] By reason of the arrangement I have referred to as between the appellants and the appellants' solicitors, the solicitors "stand to benefit from the successful prosecution of the appeal beyond being paid their costs of the appeal incurred on a no win-no fee basis": Mehmet at [32] (emphasis added). For the reasons I have just explained, the amount by which they stand to benefit is likely to be considerable, and gives them a substantial interest in the outcome of the appeal. As a result of the position that the appellants' solicitors have adopted with respect to their costs, the appellants have been able to proceed notwithstanding their impecuniosity; and the first respondent will incur further costs in defending the judgment on appeal which, in the absence of any security, she has no realistic prospect of recovering if the appeal is dismissed: Mehmet at [41]. …
[46] I accept that the appellants could not meet a costs order if they do not succeed on the appeal. However, in view of the conclusion I have reached regarding the position the appellants' solicitors have taken in running the appeal, the appellants' impecuniosity does not of itself establish that the appeal would be stultified if an order for security for costs were made. In this respect, as the respondents raised in their respective written submissions, and Senior Counsel for the first respondent raised in oral submissions, there is no evidence from the appellants' solicitors as to whether or not they would be prepared to advance funds by way of security: Tyneside Management Pty Ltd v Hammersmith Management Pty Ltd [2013] NSWCA 404 at [27] per Sackville AJA.
122 The final sentence of this passage, and the reference to Tyneside, perhaps suggests that, if the appellants' solicitors had put on evidence as to their inability or reasonable unwillingness to provide funds by way of security, this might have affected the outcome.
123 A rather different approach to this issue of evidence was taken by Basten AJA (sitting alone) in Anderson v Canaccord Genuity Financial Ltd [2022] NSWCA 168 (Anderson), another case concerning security for costs of an appeal. On the question of stultification, the respondents' submissions invited the Court to draw the inference that the appellant's solicitors were so heavily invested in the success of the appeal that they would provide security to allow the appeal to proceed. To this, his Honour stated as follows at paragraph [80]:
I acknowledge that this has been treated as a relevant consideration in earlier cases. As was noted in Carter, the legitimacy of that approach found support in the reasons of Hodgson JA in Porter v Gordian Runoff Ltd, upheld on appeal. Nevertheless, there are troubling aspects underlying that approach. They have to do with the role of lawyers (including both solicitors and counsel) in relation to the conduct of litigation. Starting with the proposition that legal representatives should not proceed with litigation that they deem to be hopeless, the findings with respect to the merits of the appeal mean that this is not such a case. That being so, it is open to legal representatives to proceed on the basis of a contingency fee agreement which provides for a form of success fee, or simply a fee agreement contingent on acceptance that the client will be unable to meet the fees absent success in the litigation. There is no obligation on solicitors or counsel to act on such a basis. However, if an inference were to be drawn from their apparent willingness to act on a particular basis, and in circumstances where they could not reasonably be expected to give evidence as to their assessment of the merit of the case, or their own financial circumstances, such an inference might have unintended ramifications for the future conduct of litigation.
(Footnotes omitted).
124 It is not wholly clear why, as noted in the final sentence of this passage, the solicitors could not reasonably be expected to give evidence as to their own financial circumstances. However, the passage otherwise seems to adopt a sentiment somewhat reminiscent of the earlier Federal Court authorities insofar as it observes, from a policy perspective, that there might be "unintended ramifications" to treating the fact that solicitors are acting on a speculative basis as a reason to infer that they will make arrangements to provide security for costs. Going further, his Honour concluded at paragraphs [84] - [85] that:
[84] … It is sufficient to decline to draw an inference, in the absence of any evidence to support it, that if security were ordered, the solicitor would make arrangements to provide it.
[85] The result in Carter apparently reflected the amount that the solicitors might reasonably be expected to provide, given their interest in recovery of unpaid fees. However, the reasonableness of the expectation, and how it may be applied, will depend upon the circumstances of the individual case. There is a difficulty, as noted above, in accepting that such an expectation arises in this case in an amount which would have a material effect on the interests of the respondents in the present case. I am not prepared to draw such an inference.
125 While the observation that each case will turn on its own circumstances is, with respect, apt in this context, there is a potential difficulty in this passage. The excerpt from paragraph [84] seems to suggest that evidence should have been put on, presumably by the party seeking the order for security for costs, to support the inference that the solicitors would make arrangements to provide security, if ordered. However, it is not clear how exactly that party would go about producing evidence as to the other side's solicitors' ability or willingness to put up the necessary funds. If his Honour's judgment is properly to be taken to suggest that such evidence ought to be provided by the party seeking the order for security, then it would seem to propose a reversal of the usual evidentiary onus in this context.
126 On the whole, this survey of the authorities paints a complicated picture. This Court and courts in New South Wales appear, quite consistently, to have taken different approaches to the relevance of the position of the solicitors for the impecunious applicant or plaintiff in circumstances where it is alleged that an order for security for costs will stifle the proceedings. The Victorian case of Shackles seems to be aligned with the position in this Court.
127 Although all of the relevant cases in this Court, and Shackles, were representative or class action proceedings, there is nothing to suggest that the approach adopted in them is exclusive to that specific context. Instead, the approach has typically been expressed in broad statements of principle, to the effect that solicitors who agree to receive payment of their fees on a deferred or speculative basis do not, by that fact alone, stand to benefit from the litigation, or stand behind the applicant or the litigation, in any sense relevant to the question of stultification. The existence of such an arrangement between the solicitors and their client is therefore not, in and of itself, a basis for the solicitors to be required to put up funds by way of security. This is markedly different to the approach taken in the New South Wales authorities, where consideration is routinely given to whether the solicitors are standing behind their impecunious client or the litigation more generally, or are otherwise liable to benefit from their client's success in the litigation.
128 It may be that the difference between the approaches has its origins in particular findings and underlying assumptions as to the nature of the arrangements between the solicitors and their impecunious clients, arising from the specific jurisdiction being exercised. As noted above, most of the New South Wales decisions have involved applications for security for the costs of an appeal, where the solicitors have deferred the payment of outstanding fees already charged in respect of the first-instance proceedings: see, eg, Ballard, Tyneside, Carter, Kordovoulos. In this setting, it may be natural to understand the deferred fees to be in the nature of or akin to a "debt" and to assume that the solicitors' position is therefore analogous to that of an ordinary creditor, from whom some contribution for security for costs might reasonably be expected. This conclusion may be strengthened in particular cases by the fact that the solicitors have offered positively to pay the appellant's expenses and disbursements as they arise (eg Ballard), or continued to act on terms giving them a substantial measure of control over the conduct of the case (eg Longjing), indicating that they are to some extent a "driving force" behind the litigation, taking on characteristics similar to those of a litigation funder.
129 In the decisions of this Court, by contrast, there has been less reason to assume as a starting point that the solicitors are comparable to ordinary creditors. In the context of class action and representative proceedings, there is no accrued "debt" at the time the application for security for costs is made, but instead more often an amount of "work in progress" that has not yet become due and payable. One therefore starts from the position that the solicitors are not creditors, but instead something different, meriting some more unique treatment. The question, then, is whether there is any good reason to depart from that starting position, or to start instead from the position that solicitors are comparable to ordinary creditors.
130 In the first place, allowing solicitors to act on a speculative basis, without the deterrent of potentially having to put up an amount of funds by way of security for costs, is apt to promote access to justice. This interest in access to justice looms large in the context of class action or representative proceedings, as reflected, in particular, in the judgments delivered by Allsop CJ and Middleton J in Madgwick v Kelly, and by the judge at first instance in that case. It has also been acknowledged in certain decisions of the New South Wales Court of Appeal, including in Carter and Kordovoulos, which seem to suggest that access to justice concerns might militate against a finding that the solicitors ought reasonably to be expected to put up funds for security for costs. Rather unusually, however, those latter cases have seen those concerns as arising specifically in the context of personal injury proceedings or, at least, in cases that are not of a commercial nature. While the interest in ensuring access to justice certainly might be more acute in those circumstances, it is not apparent why it should be regarded as arising only there: if a company is impecunious, for instance, why is there not a similar prima facie interest in ensuring that its solicitors are not dissuaded from acting on a no-win-no-fee basis by the possibility that, as a consequence of doing so, they might be required to put up their own funds to meet an order for security for costs? Why should there be a policy of preserving the utility of speculative costs agreements for solicitors acting in non-commercial contexts only?
131 It is not unreasonable to expect that solicitors will, for various reasons, be less inclined to act on a no-win-no-fee basis in a commercial setting. But if they do ultimately choose to do so, taking into account the circumstances of the case and the attendant risks, it is not immediately apparent why they should thereafter face a more difficult position in the security for costs context. If it is accepted that they should not, and that access to justice concerns may be live in any context that solicitors are acting on a speculative basis, then it is reasonably arguable that the fact that they are acting on such a basis should not provide any immediate reason to regard their position as supporting an order for security for costs. On the contrary, one would think it more likely, if anything, to weigh against such an order.
132 That having been said, the point raised in those cases that regard the solicitors' position as relevant is one developed from the perspective of the respondent in the action. It is recognised that the applicant's solicitors will receive a real benefit from conducting the litigation, including profit, if the applicant is successful, while the respondent will not recover from the applicant if the action fails. Necessarily, there is an asymmetry of risk as between the applicant's solicitors and the respondent in circumstances where those solicitors are actively supporting the applicant's case. While they carry the risk that they will not be paid if their client is not successful, the respondent will be out of pocket regardless of the outcome. As the New South Wales authorities reveal, this has been regarded as a significant matter, as it should be.
133 Whilst that approach is far more satisfactory, I am obliged to follow the approach in this Court in Madgwick v Kelly that "[t]he expected or contingent receipt of proper professional fees … is not a basis for requiring an officer of the court to contribute to a fund for the costs of the other side of the litigation". I apprehend that I must also adhere to what was said by the primary judge in Madgwick v Kelly and Byrne J in Shackles, and held by Perram J in Capic, to the effect that a speculative or no-win-no-fee arrangement between the solicitors and their client will not, in and of itself, afford any reason to treat the solicitors as standing to benefit from the litigation or standing behind that client or the litigation in any sense relevant to the overarching question of stultification of the proceedings.
134 Even adopting that view, it may not be necessary to go as far as Lee J appeared to in Schofield in rejecting the suggestion that a solicitor acting on a no-win-no-fee basis is required to establish that they are not in a position to provide security. While there is good reason to start from the position that the solicitors acting on such a basis are not to be expected to put up funds by way of security, the circumstances of an individual case may justify a departure from this position. It ought to be kept in mind that the impecunious party in the context of a security for costs application bears an evidentiary onus on any question of stultification, and its solicitors are best placed to put on evidence as to the terms and effect of the arrangements in place as to fees, expenses and disbursements. Accordingly, when relevant, the solicitors ought to be expected to provide evidence demonstrating why there is no particular feature of the case that would justify a departure from the usual starting position expressed above. To the extent that what was said by Basten AJA in Anderson runs contrary to this, I would respectfully decline to follow his Honour's views. It may be that the evidence provided by the solicitors ultimately does furnish some reason to expect that they ought to put up security for costs; for instance, where it indicates that:
(a) the amounts proposed to be charged by the solicitors in the event of success exceed what is required to recover proper professional fees and any further sum intended to account for the risks inherent in a deferred and contingent payment arrangement, such that there is a true "benefit" to the solicitors; and/or
(b) the solicitors have entered into an arrangement with their client pursuant to which they now enjoy a substantially increased degree of control over the conduct of the proceeding and can properly be said to be "standing behind" their client or the litigation.
135 In such circumstances, it will also be relevant to determine whether the solicitors are able and not reasonably unwilling to provide security, in accordance with the series of propositions set out earlier in this judgment.
136 A more difficult question is the extent to which the characterisation of the solicitors as a creditor of the impecunious party, on account of existing unpaid fees or other expenses, might work to displace the usual starting position articulated above. As has been recognised already, this issue seems to surface relatively frequently in the New South Wales authorities, but its precise effect on the outcome of those cases in unclear. It might be thought that, if the solicitors are owed a debt by their client only on account of the fact that they have deferred payment of professional fees already charged, then this should not warrant any departure from the default position; the situation is, in principle, no different to that where the solicitors have entered into a deferred or contingent fee agreement with their client from the outset. If, however, the solicitors are owed an amount because they are taking additional steps to fund the litigation, or because the client has become indebted to them in another manner strictly unrelated to the provision of legal services, then some significance might be attributed to the increased resemblance they might then bear to a litigation funder or an ordinary creditor.
137 In this way, some of the matters taken into account in the New South Wales authorities might continue to find expression. The key distinction is the acknowledgement, at the outset of the exercise, that the existence of the arrangement for the payment of fees on a deferred or contingent basis does not, invariably and in and of itself, constitute a benefit liable to be realised upon the impecunious party's success in the litigation, or amount to standing behind that party or the litigation, for the purpose of determining whether an order for security for costs would stifle the proceeding.
138 Turning to the facts of this case, there appears to be no basis to depart from the default position expressed by Allsop CJ and Middleton J in Madgwick v Kelly. Mr O'Shea KC submitted that this was an "unusual" case, but no particular feature of it seems to render it dramatically different to those surveyed above. On the evidence, which was uncontested, Clifford Gouldson is acting on a speculative basis, has accrued a substantial amount of work in progress, is not a creditor of General Trade, and is otherwise unwilling to put up funds by way of security on account of, amongst other things, the effect that this will have on the firm's cash flow. There is nothing in these facts that is peculiar or warrants departure from the approach in Madgwick v Kelly. In accordance with that approach, Clifford Gouldson cannot be said in the relevant sense to stand to benefit from General Trade's success in the litigation, or to stand behind General Trade or the proceedings more generally, notwithstanding the fact that the firm might recover a substantial sum in the event of General Trade's success.
139 Even if Clifford Gouldson was assumed to be "standing to benefit" or "standing behind" in the relevant sense on account of its acting for General Trade on a speculative basis, its unwillingness to provide security might well be considered reasonable in the circumstances. It is possible to suppose that a law firm would have good commercial reasons not to put up a significant sum by way of security for costs on behalf of a client, given the effect this might have on its cash flow. This is particularly so when the firm has not been able to recover any of its own fees from that client, and runs the risk of recovering nothing from the proceedings at all.
140 Mr O'Shea KC submitted that the solicitors' unwillingness could not be reasonable because General Trade had already sued AGL unsuccessfully in the Queensland Supreme Court, both at first instance and on appeal, and then gone into liquidation, with none of the costs of those proceedings having been paid. If the effect of this submission was intended to be that Clifford Gouldson could not reasonably refuse to provide security here because they have acted for General Trade previously in circumstances that led to AGL being unable to recover costs that it was awarded, the submission should not be accepted. While the result of the prior proceedings might conceivably be relevant to the overall exercise of the Court's discretion to award security for costs in this proceeding against General Trade, it cannot readily be understood to bear on the reasonableness of Clifford Gouldson's unwillingness to provide security for costs itself. The position might be otherwise if the solicitors' conduct in the prior proceedings supported a conclusion that they were standing behind General Trade to a significant extent in the present litigation. But the evidence does not seem to go so far; the observation that Clifford Gouldson previously acted for General Trade in an unsuccessful claim against AGL is too far divorced from the conclusion that the firm should now be required to put up its own funds by way of security for costs.
141 Accordingly, Clifford Gouldson cannot be required to contribute to, or reasonably be expected to provide, the further security for costs sought by AGL.