Jurisdiction
8 There is jurisdiction to order Gurtler to provide security pursuant to s 56 of the Federal Court of Australia Act (1976) (Cth) and O 28 of the Federal Court Rules. Section 1335 of the Corporations Act 2001 (Cth) applies in addition to these jurisdictional bases in respect of Loanpos.
9 The discretion of the Court to make an order for security for costs pursuant to s 56 is broad and unfettered. Although it must be exercised judicially it is not confined by O 28 r 3 of the Federal Court Rules: Bell Wholesale Co Ltd v Gates Export Corporation (No 2) (1984) 2 FCR 1 at 3-4; Chapman v Luminis Pty Ltd [2002] FCA 496 at [12].
10 The respondents seek orders against both Gurtler and Loanpos, on the basis that if one or the other of these applicants provides some or all of the security, then to that extent there is no need for the other to also do so. Compare Winnote Pty Ltd (In Liq) v Page (2005) 64 NSWLR 244.
11 The respondents submit that there are three relevant considerations which militate in favour of the orders sought:
(a) Loanpos is insolvent and Gurtler is a funded litigant. Hence, Loanpos will not be capable of paying any costs orders, and in so far as Gurtler is funded, the litigation is being pursued partially for the funder's benefit. As a result, the Court should take into account that the funder ought to be required to bear the risk of adverse costs orders. See O 28 r 3(1)(b) of the Federal Court Rules, Green (as liquidator of Arimco Mining Pty Ltd)v CGU Insurance Ltd (2008) 67 ACSR 105 at 85.
(b) The action involves factually and legally complex issues. Hence, there will be significant costs incurred in defending the action and those costs have been estimated by an experienced assessor to far exceed the security already provided and even the security now sought.
(c) The costs of defending the action are proportionately greater than the costs of pursuing the action. The burden of discovery has been significantly borne by Finance Now, which has needed to provide much more extensive discovery than any other party. This is not disputed by Patsan. Finance Now and Turnbull may need to brief up to three experts to properly defend the proceedings. Patsan makes the same submission for his part. The allegations of breach of duty involved are serious, and while easily made must be rigorously scrutinised by the defendants.
12 An application to vary an order for security for costs must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application: Darling Harbourside (Sydney) Pty Ltd v Sanirise Pty Ltd (unreported, Beaumont, Carr, Sackville JJ, 17 May 1996), cited in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2001] FCA 1603 at [11] and Capital Webworks Pty Ltd v Adultshop.com.Limited [2002] FCA 1420 at [4].
13 Gurtler submits that Finance Now's application is based on changed circumstances, not the discovery of new material and that the changed circumstances are either not material to the question of costs, or are not significant in their impact on costs, for the following reasons:
(a) The joinder of the second applicant (Loanpos) has not materially altered the issues in the proceedings. It has effectively removed the issue of standing.
(b) The joinder of Turnbull has not materially altered the issues in the proceedings as they relate to Finance Now, or at all.
(c) The repleading of the applicants' case has simplified and clarified the applicants' case, without materially altering the issues in the proceedings.
(d) Lee J sought to restrict liberty to apply in relation to further security. Finance Now sought liberty in case the discovery given by the applicants was so voluminous that it could not have been anticipated when security was first ordered. This has not occurred, and is not relied on.
(e) The scope of Finance Now's discovery obligation has not materially increased since the original security for costs application was made.
(f) If Finance Now has incurred recoverable costs greater than the amount of the existing security (which is not admitted) this is not a reason for increasing the amount of the security. The Court does not ordinarily give a respondent a complete indemnity against costs: Brundza v Robbie & Co (1952) 88 CLR 171; Bryan E Fencott & Associates v Eretta Pty Ltd (1987) 16 FCR 497.
(g) The amount claimed by way of additional security includes work which was in contemplation when the original application was heard and determined by Lee J.
(h) The amount claimed is excessive. For example, the estimate of solicitor costs is based on an average hourly rate of $436.79 per hour, while the Federal Court scale allows a solicitor $235 per hour, which is about half. The estimate of Senior Counsel fees is based on $1,000 per hour, excluding GST, while the applicable rate in Western Australia is $561 per hour, including GST, which is about half.
14 Gurtler further submits that Finance Now has failed to comply with the requirements of the Federal Court Rules, and has twice failed to comply with the requirements of the specific orders for discovery such that discovery is consequently inadequate and must be provided afresh. He submits thatthe applicants should not be required to provide additional security for costs which would not be allowed on taxation in any event.
15 At the conclusion of the hearing of the motions on 30 March 2009, I ruled that the liberty to apply ordered by Lee J did not have the effect of curtailing the respondents from bringing the present motions. It is not in the interests of justice that there, in effect, be a lengthy trial within a trial, first as to what, in the context as exposed by the transcript, the effect of the liberty to apply was and second whether the "conditions" there said to have been laid down had been met or not. It is more than three years since that order was made. It is both expedient and in the interests of justice in the broad sense that the question of security for costs be considered on the evidence now before the Court, always bearing in mind that it is an application for increased security.
16 It is commonplace that as an action progresses that, for example, the scope of discovery becomes clearer and the parties accumulate additional knowledge upon which to base an estimate of the likely costs, as in this case, of defending proceedings brought against them.
17 When the first application for security was before Lee J it was estimated on behalf of Finance Now by Mr Bruce Hambrett, its solicitor, (Turnbull was not then a party) that the costs of the proceedings on a taxed party and party basis up to and including the trial would be in the order of $203,870. There was no suggestion at that time that Mr Hambrett did not have the qualifications or experience to make such an estimate. He set out his understanding of Gurtler's claim and the issues in dispute as at 14 November 2005. His understanding was based on Gurtler's case as then pleaded in his Amended Statement of Claim, which was filed and served on or about 14 September 2005. The second applicant and third respondent were not then parties to the proceedings.
18 Mr Hambrett has, in respect of this motion, set out in detail why, in his opinion, the nature and scope of the case against Finance Now has altered since then. He deposes that a larger number of issues are now in dispute. These are set out in some detail in his affidavit.
19 Mr Hambrett, in light of these changed circumstances has revised his estimate to a little below $1.5 million. He deposes that his revised estimate is based upon:
(a) the fees and costs incurred up to the time of swearing his affidavit by Finance Now and Turnbull in the order of $500,000.00 (excluding costs and disbursements in relation to certain applications made by Turnbull. He considered that at least $350,000.00, representing 70% of those costs and taking into account the costs orders made in the proceedings would be recoverable by Finance Now and Turnbull on a party/party basis; and
(b) his assessment of the costs on a party/party basis likely to be incurred by Finance Now and Turnbull in defending the claims made against them to the conclusion of the hearing.
20 He provided a detailed breakdown of the basis of his estimate.
21 For the purposes of his estimate he made the following assumptions:
(a) the need to brief both senior and junior counsel to review Finance Now and Turnbull's evidence, because of the likely volume of evidence and complexity of issues to be agitated at the final hearing of the proceedings;
(b) that it may be necessary to brief an expert accountant to provide expert evidence in relation to the quantum of damage alleged to have been suffered by the applicants;
(c) that it may be necessary to brief an information technology expert to provide expert evidence in relation to the technological aspects of the systems developed by Finance Now and Loanpos;
(d) that Turnbull and Mr Russel Pillemer may be required to give evidence in the proceedings; and
(e) that it may also be necessary to prepare a further 5 or more additional affidavits from lay witnesses in relation to the matters in dispute.
22 He further deposes that further security for costs was required to make up, to an extent, the anticipated shortfall between the two estimates. This took into account not only the amendments to the pleadings and theadditional parties but importantly the extremely wide categories of documents sought by the applicants for discovery which have required a review of substantially all of Finance Now's records, which are in excess of 13,000 documents and total more than 61,000 pages.
23 This revised estimate covers the costs related to both Finance Now and Turnbull.
24 I do not accept the applicants' submission that its claim either simplifies or clarifies the applicants' case. A comparison of the amended statement of claim filed on 14 September 2005 is, in my view, a less complex and detailed pleading than the substituted statement of claim filed on 22 February 2008.
25 There is no reason not to accept the evidence of Mr Hambrett as to the significantly wider scope of discovery confronted by Finance Now than was the case in anticipation in December 2005. The categories of documents articulated in a document filed on 27 August 2008 by Gurtler and Loanpos for discovery by the respondents is in very wide terms and was productive of a review by Finance Now of all its records which are in excess of 13,000 documents comprising more than 61,000 pages. Some 8638 documents have been discovered by Finance Now; 816 by the applicants and 93 by Turnbull.
26 I accept that the estimate of costs by Mr Hambrett may, to some extent, be at rates for practitioners higher than may be recoverable on taxation. However, that challenge to the estimate can be catered for by the generous discount which those parties have applied to it.
27 Gurtler complains that Turnbull is guilty of delay. Certainly an application for security for costs should be made promptly: Crypta Fuels Pty Ltd v Svelte Corp Pty Ltd (1995) 19 ACSR 68; January Force Pty Ltd v Tricon Restaurants Australia Pty Ltd [1999] FCA 1746; Wyong-Gosford Progressive Community Radio Inc v Australian Communications Media Authority (No 2) [2006] FCA 1043. Turnbull was joined as a party to the proceedings on 3 September 2007. Gurtler submits that there is no explanation for the delay of 15 months in applying for security for costs.
28 It is unnecessary to consider Gurtler's submissions based on the fact that Finance Now and Turnbull claim separate orders. It is accepted by them that they should be treated as parties with essentially identical interests and who have the same solicitors and counsel. I will consider their position on a joint basis.
29 I do not consider the delay complained of to be of any significance. Turnbull and Finance Now are to be considered for these purposes as one party. No prejudice arises to Gurtler by the asserted delay on the part of Turnbull.