Joey Construction Pty Ltd v IT Environmental

WIGNEY J: 1 IT Environmental (Australia) Pty Ltd is the respondent in an action commenced against it by Joey Construction Pty Ltd. The nature of that action is sufficiently described in an earlier judgment of the Court: see Joey Construction Pty Ltd v IT Environmental (Australia) Pty Ltd [2018] FCA 534. By interlocutory application dated 5 September 2018, IT Environmental applies for an order for security for costs pursuant to s 56 of the Federal Court of Australia Act 1976 (Cth) and s 1335 of the Corporations Act 2001 (Cth), together with a number of ancillary orders. 2 Under s 56 of the Federal Court Act, the Court or a Judge has the power to order an applicant to give security for the payment of costs that may be awarded against him or her or it, in such an amount, and in such manner and form, as the Court or Judge directs. Section 1335 of the Corporations Act similarly provides that: 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. 3 Rule 19.01 of the Federal Court Rules 2011 (Cth) contains rules relevant to an application for security for costs. 4 The principles that apply in relation to security for costs applications are well known and do not need to be rehearsed in these reasons. It is well accepted that whether or not an order ought to be made is a matter for the discretion of the Court or Judge. The discretion is a broad one. But for the requirement to act judicially, the discretion is effectively unlimited or unconfined. 5 The various considerations that may bear upon the making of an order have been considered in numerous authorities. Those considerations include: the applicant's prospects of success, the extent of the risk that a costs order against the applicant will not be met if the application is unsuccessful; whether the making of an order for security for costs would be oppressive in that it would stifle a reasonably arguable claim; whether any impecuniosity of the applicant arises out of conduct the subject of the proceeding; whether there are other aspects of the public interest that weigh in the balance against the making of an order for security; and whether there are any particular discretionary matters peculiar to the circumstances of the case: see, generally, Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50,635; Soh v Commonwealth of Australia [2008] FCA 1524 at [10], Clack v Collins (No 1) [2010] FCA 513 at [13]. 6 In support of its application, IT Environmental has filed and relies on an affidavit of its solicitor, Mr Jacques Jacobs, dated 5 September 2018. Amongst other things, that affidavit evidence establishes that liquidators were appointed to Joey Construction on 29 August 2016 as part of a creditor's voluntary winding up. The liquidators remain in office. Mr Jacobs' affidavit annexes an annual report to creditors prepared by the liquidators dated 28 November 2017. That report, which relates to the period up to 29 August 2017, reveals that Joey Construction had a deficiency as between assets and liabilities of $1,140,701. 7 It should also be noted that the liquidator's report also records that Joey Construction's director, Mr Taha Amr, initially proposed to pay the liquidators $35,000 to take an assignment of Joey Construction's claim against IT Environmental. That proposal was ultimately not pursued for reasons referred to in the liquidator's report. The liquidators then sought expressions of interest from the creditors of the company as to whether they would be prepared to fund Joey Construction's claim against IT Environmental. It would appear that no creditors expressed an interest in providing any funding and no further investigations by the liquidators were undertaken in that regard. 8 Mr Jacobs' affidavit also provides an estimate of IT Environmental's likely legal costs if the matter was to proceed to a final hearing. It should be noted in that context that Mr Jacobs is a solicitor of some considerable experience. Mr Jacobs estimates that IT Environmental will incur $262,442.50 in legal costs on a solicitor/client basis from the date of his swearing the affidavit. In support of that estimate, he annexed to his affidavit a detailed breakdown of the costs estimate. Mr Jacobs also estimated that the party/party costs incurred by IT Environmental until the end of the final hearing would be approximately $183,709.75. The basis of that estimate was said to be that the party/party costs were likely to be 70 per cent of the estimated solicitor/client costs likely to be incurred by IT Environmental. 9 IT Environmental's application for security for costs was opposed by Joey Construction. Joey Construction did not file any evidence in response to the evidence filed by IT Environmental. Nor was Mr Jacobs cross-examined. No rival figure was given for the estimate of costs should the matter go to hearing. 10 In my opinion, this is an appropriate matter for there to be an order for security for costs. 11 In light of Mr Jacobs' evidence, there could be no doubt whatsoever that there is a real risk that IT Environmental will be unable to recover its costs if ultimately successful at the final hearing. As already indicated, Joey Construction is in liquidation and the liquidator's investigations at the time of the report to creditors indicates that its liabilities are likely to well exceed its assets. 12 Turning to other discretionary considerations, I am not satisfied in all the circumstances that an order for security for costs would be oppressive because it would necessarily stifle Joey Construction's claims. It would perhaps be a fair inference that the liquidators will not pursue the claims if they are required to provide security for costs. It is, however, readily apparent that the director and sole shareholder, who appears to have stood behind Joey Construction, is anxious to pursue the litigation in one way or another, including by taking an assignment of the chose in action. There is no evidence at all as to the director's financial position, and no indication that he would not be willing or able to provide funds to meet any security for costs order, or to find some other means by which the claim against IT Environmental could be pursued. I should perhaps also note that, even if I was satisfied that an order for security for costs would effectively prevent Joey Construction from pursuing its claim, it would not necessarily follow that an order for security for costs would be oppressive in the circumstances, or would provide sufficient reason to decline making such an order. 13 There is no suggestion, let alone evidence, that Joey Construction's impecuniosity arose out of the conduct the subject of the claim against IT Environmental. 14 Mr Hakki Sayan, who appeared for Joey Construction on the application, submitted that it would be unjust to make the order for security for costs sought by IT Environmental, primarily on the basis that Joey Construction's action has considerable merit and, indeed, is a strong case. It was submitted that it would be unjust to make an order if that deprived Joey Construction of the ability to pursue the claim. 15 For the reasons already given, I am not satisfied that an order for security for costs as sought would necessarily stifle the claim. Nor am I prepared to accept, simply on basis of the pleadings and limited material that has been filed thus far, that Joey Construction has a strong case. Indeed, as identified in the earlier judgment in this matter, it would appear that Joey Construction may well face significant issues in pursuing its case against IT Environmental, particularly having regard to the relevant limitation periods and Joey Construction's delay in commencing the case. 16 At best, the merits of the claim are a neutral consideration in all the circumstances. 17 There do not appear to be any other public interest considerations or other factors that would weigh against an order for security for costs in all the circumstances. 18 In relation to the appropriate quantum of the order for security for costs, as indicated, there was effectively unchallenged evidence from Mr Jacobs concerning his opinion as to the likely costs in this matter. There was no competing evidence concerning the likely legal costs from Joey Construction. Nor did Mr Sayan make any meaningful submissions in opposition to Mr Jacobs' estimate. 19 I am of the opinion that Mr Jacobs' estimate is a reasonable estimate in all the circumstances. 20 It should be noted in this context that the liquidator's report recorded that, when considering seeking expressions of interest from creditors to fund the company's litigation claim, the liquidators proceeded on the basis of a costs estimate of between $460,000 and $726,000. The basis of that estimate is unclear, but the fact that it is clearly a considerably larger figure than the estimate given by Mr Jacobs provides some support for the proposition that Mr Jacobs' estimate is reasonable in all the circumstances. 21 In those circumstances, it is appropriate to make an order for security for costs broadly in the terms requested by IT Environmental. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney.