Lynx Engineering Consultants Pty Ltd v The ANI Corporation Limited trading as ANI Bradken Rail Transportation Group

INTRODUCTION 1 These reasons deal with questions of costs. The first relates to security for costs and the second, payment of costs following an earlier application and judgment (Lynx Engineering Consultants Pty Ltd v The ANI Corporation Limited trading as ANI Bradken Rail Transportation Group (No 2) [2009] FCA 363).

SECURITY FOR COSTS 2 The second and third respondents (Bradken) and the fourth respondent (WorleyParsons) each apply for security for costs of the proceedings as against the applicant (Lynx). Bradken seeks orders that Lynx give security for Bradken's estimated costs in this matter in the amount of $852,110 less a discount in respect of security already given ($75,000). 3 Bradken pursues its application for security for costs pursuant to O 28 Federal Court Rules 1979 (FCR), s 56 of the Federal Court of Australia Act 1976 (Cth) (FCA) and s 1335 of the Corporations Act 2001 (Cth) (CA) and the inherent jurisdiction of the Court. 4 Relevantly, the Rules and the two statutes respectively provide as follows: Order 28 Security for costs 1 Interpretation In this Order: a) references to an applicant extend to any person who makes a claim for relief in any proceedings; and b) references to a respondent extend to any person against whom a claim for relief is made in any proceeding. 2 Application (1) An application that an applicant shall provide security for costs shall be made by motion upon notice. (2) The notice of motion shall be supported by an affidavit stating the material facts and the grounds upon which security for costs is sought. 3 Cases for security (1) When considering an application by a respondent for an order for security for costs under section 56 of the Act, the Court may take into account the following matters: (a) that an applicant is ordinarily resident outside Australia; (b) that an applicant is suing, not for the applicant's own benefit, but for the benefit of some other person and the Court has reason to believe that the applicant will be unable to pay the costs of the respondent if ordered to do so; (c) subject to subrule (2), that the address of the applicant is not stated or is incorrectly stated in the originating process; (d) that an applicant has changed address after the commencement of the proceeding in an attempt to avoid the consequences of the proceeding. (2) The Court shall not order an applicant to give security by reason only of paragraph (1) (c) if it appears to the Court that the failure to state his address or the mis‑statement of his address was made without intention to deceive. 4 Manner of giving security Where the Court orders an applicant to give security for costs, the security shall be given in such manner, at such time, and in such terms (if any), as the Court may by order direct. 5 Stay or dismissal (1) Where the Court orders that the applicant provide security for costs, it may order: (a) that the proceeding on any claims by the applicant for relief be stayed until security is provided; or (b) that if the applicant fails to comply with the order to provide security within the time limited in the order, the proceeding be thereafter stayed or dismissed. (2) Subject to subrule (1), the Court may set aside or vary any order made under this Order. (3) Where a proceeding stands dismissed pursuant to an order under this Order, that order shall not be set aside or varied except in special circumstances. 6 Saving This Order does not affect the provisions of any Act under which the Court may require security for costs to be given. 56 Security (1) The Court or a Judge may order an applicant in a proceeding in the Court, or an appellant in an appeal under Division 2 of Part III, to give security for the payment of costs that may be awarded against him or her. (2) The security shall be of such amount, and given at such time and in such manner and form, as the Court or Judge directs. (3) The Court or a Judge may reduce or increase the amount of security ordered to be given and may vary the time at which, or manner or form in which, the security is to be given. (4) If security, or further security, is not given in accordance with an order under this section, the Court or a Judge may order that the proceeding or appeal be dismissed. (5) This section does not affect the operation of any provision made by or under any other Act or by the Rules of Court for or in relation to the furnishing of security. 1335 Costs (1) 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. 5 Lynx accepts that the threshold identified in s 1335 CA has been established. It does not accept that the Court should make the order for security for costs and certainly opposes security being granted in the sum requested by Bradken. 6 As s 56 FCA makes clear, the security should be of such an amount and given at such time and in such manner and form as the Court directs. Section 1335 CA focuses on 'sufficient security' being given for costs which the impecunious plaintiff may be ordered to pay in the event the defendant is successful. The order is discretionary. 7 In Capital Webworks Pty Ltd v Adultshop.com.Limited [2008] FCA 40 (at [10]-[14], I outlined what I considered to be the relevant principles, saying: 10 There is of course no doubt about the power under s 56 of the Federal Court Act 1976 (Cth) to order an applicant (or a respondent) to give security for costs and also a power to increase the amount of any security ordered to be given. Relevant considerations have been referred to in many cases. Amongst the list of considerations which may be taken into account are the following: 1. whether the claim is genuine and has a reasonable prospect of succeeding; 2. whether the party applying for security for costs is attempting to shut down a genuine claim; 3. whether the impecuniosity might have been caused or contributed to by the conduct of the applying party; 4. whether, in the case of a corporation, those standing behind the corporation have made their assets available to fund the costs of litigation and in turn for the benefit that they might receive if it is successful; and 5. whether making the order would frustrate the claim. 11 There are also instances where orders have been made where the existence or otherwise of the matter of public interest has been taken into account in the exercise of the discretion. 12 In addition to the express power to increase the security to be given (s 56(3) of the Federal Court Act 1976), O 28 r 5(2) of the Federal Court Rules provides that '… the Court may set aside or vary any order made under this Order'. Ordinarily in an application to set aside or vary an order of a substantive nature made after a contested hearing it would be expected that a material change in circumstances since the original order was made has occurred or new evidence provided which was not otherwise reasonably available at the time of the granting of the order: Truth about Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd [2001] FCA 1603. 13 The primary purpose of an order for security for costs is to ensure that the successful party has protection for the costs incurred in defending the unsuccessful party's proceedings. It is in the circumstances of the impecuniosity of the unsuccessful party pursuing the litigation that protection is afforded to the successful party. In the present case there is no dispute in relation to the issue of impecuniosity relative to a possible costs order. 14 It is not the case that the Court should give a complete and certain indemnity to a claimant: Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 at 175. In the previous application the Court exercised its discretion to fix the amount of security to be provided by Adultshop at half of the amount sought. There is to be a balance between ensuring that an impecunious corporation or other applicant does not use the impecuniosity in order to put unfair pressure on another party on the one hand and, on the other hand, between shutting out an impecunious applicant on its entitlement to pursue a legitimate case. 8 More recently in Wainter Pty Ltd ACN 008 725 586 v Freehills (A Firm) (No 2) [2009] FCA 770, Barker J confirmed (at [9]): 9 It is well understood, and little authority need be recited in this regard, that in ordering security for costs the Court does not give a full indemnity. The effect of this principle is that the Court has a discretion to choose such amount as it thinks fit in all the circumstances of the case. The amount will not exceed the estimate of party and party costs but it may be less. The Court usually takes "a broad brush" approach to the determination of the amount. In that regard the process of estimation embodies to a considerable extent reliance upon the "feel" of the case after considering relevant factors. It is not usually necessary to descend into the minutiae of the claims and the Court does not sit as a taxing officer would to determine the amounts. However, it may be appropriate to consider some of the detail of the estimates made by the parties in determining quantum. See generally in relation to these principles Reinsurance Australia Corporation Ltd v HIH Casualty and General Insurance (in liquidation) [2003] FCA 803 at 16-17. 9 Bradken also submits that it has good defences to Lynx's claim which weighs heavily against a discount and that there should be no discount as the costs estimate provided by Bradken is 'already a conservative estimate'. It is based on a trial of four weeks and circumstances where there is a reasonable prospect it may be six to eight weeks. It contains no provision for dealing with interrogatories foreshadowed by Lynx and contains no provision for dealing with further interlocutory disputes which given the history of the matter to date appears to be inevitable. That is supported, it is argued, by Lynx's actual experience in costs as set out in its own affidavit where the legal costs of Lynx to date exceed $2 million. 10 Bradken argues (on the basis of Farmitalia Carlo Erba SrL v Delta West Pty Ltd (1994) 28 IPR 336) that one valid way of identifying quantum of an appropriate sum is by establishing the likely award of party and party costs and applying a discount if appropriate based on the following factors: (a) the chance of the case collapsing before trial; (b) the relative prospects of success; (c) whether the order would be oppressive; and (d) whether the material is sufficient to support the costs claimed. 11 In the present circumstances, I am not persuaded that those factors are all appropriate for the following reasons. It is not possible to formulate a clear impression as to the prospects of success. I accept that the claim is not fanciful. Whilst a factor for consideration by the Court is whether Lynx has a reasonably good prospect of success (Australian Quarry Holdings v Dougherty & Ors (1992) 8 ACSR 569), it is not appropriate in an application for security for costs to embark on a detailed consideration of the merits of the action: Caruso Australia Pty Ltd v Portec (Australia) Pty Ltd (1984) 1 FCR 311 at 313). Lynx does have some challenges ahead of it. 12 I accept that Bradken is entitled to protection. It should not be so much as to stultify any claim by Lynx. 13 The Court has discretion pursuant to O 62 r 4(2)(c) FCR to order that a party should be entitled to costs by way of a gross sum rather than taxed costs. Sackville J in Seven Network Limited v News Limited [2007] FCA 2059(at [25]) said: 25 The authorities establish a number of principles applicable to a claim for a gross sum costs order to be made pursuant to FCR, O 62 r 4(2)(c): (i) The purpose of the subrule is to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum v Johnson (No 2), at 120, per von Doussa J, applying Leary v Leary [1987] 1 All ER 261; Harrison v Schipp (2002) 54 NSWLR 738, at 742 [21] per Giles JA. (ii) An order that costs be assessed as a gross sum does not envisage that any process similar to that involved in taxation should take place. On the contrary, the Court applies a much broader brush than would be used on a taxation of costs pursuant to O 62: Beach Petroleum v Johnson (No 2), at 120, 124, per von Doussa J; Harrison v Schipp, at 743 [22], per Giles JA. (iii) The Court should be confident that the approach taken to the estimate of costs is logical, fair and reasonable. The Court should be astute to avoid both overestimating the recoverable costs and underestimating the appropriate amount, for example by applying an arbitrary discount to the amounts claimed: Beach Petroleum v Johnson (No 2), at 123, per von Doussa J. (iv) Although the power to assess a gross sum for costs involves the exercise of a discretion, it is necessary to bear in mind fundamental principles applicable to an assessment of costs on a party and party basis. These include the principles contained in O 62 r 19 (embodying the 'necessary or proper' test) and those stated in Stanley v Phillips (1966) 115 CLR 470, at 478, per Barwick CJ (on a party and party taxation the emphasis is upon obtaining adequate representation to enable justice to be done, not upon the propriety of steps taken to ensure maximum success in the cause): Auspine Ltd v Australian Newsprint Mills Ltd (1999) 93 FCR 1, at 4-5 [12]-[15], per O'Loughlin J; Charlick Trading Pty Ltd v Australian National Railways Commission [2001] FCA 629, at [6]-[8], per Mansfield J. (v) Although the methodology permitted by O 62 r 4(2)(c) initially involves a broader approach than on a normal taxation, the provisions of O 62 and Schedule 2 provide assistance in fixing an appropriate gross sum: Charlick Trading Pty Ltd v ANRC, at [10], per Mansfield J. 14 Bradken points out that the range of party and party costs awarded as a proportion of solicitor and client costs seems to fall broadly within the range of 60 to 70 per cent of total costs and disbursements. Bradken also submits that it would be appropriate for the Court to make a gross sum determination in this matter and that in the event that Lynx is unsuccessful in the proceedings, the Court would need to assess three sets of legal costs incurred over the course of over three years. Bradken submits that it is appropriate to assess the amount of security for costs in accordance with the usual range of recoverable costs in gross costs determinations and consistent with the broad brush approach taken to gross sum determinations, it would be appropriate to use a figure of 70 per cent, according to Bradken, as a reasonable estimate of Bradken's party and party costs. On that basis, Bradken contends that the party and party costs recoverable from Lynx would be $852,110. 15 As a matter of principle, I consider the approach taken in Seven Network is distinguishable from that which is suitable to the current case. The primary reason for this is simply that the observations made by Sackville J were at completion of an extremely lengthy trial rather than in advance of a case which is by no means small but is nowhere near the likely length of the Seven Network litigation. It seems to me that there are some fundamental philosophical differences between striking a figure for a gross sum at the completion of a case (a practice which I consider, with respect, is entirely appropriate) on the one hand as compared with estimating an appropriate figure for the purposes of s 56 FCA at the earlier stages of a case of this nature, before some of the discovery, interrogatories and trial. 16 From the Lynx point of view, although it opposes the grant of any security for costs, it estimates that the appropriate amount of security is at $300,000. That is based upon the scale of costs set out in an affidavit of the solicitor for Lynx. 17 Bradken submits that the scale figures relied upon by Lynx would, if applied to Bradken's circumstances, indicate that Bradken can on a party and party basis expect to recover costs and disbursements of $485,100 to $605,840. It argues that those amounts are for the costs of trial preparation and the trial alone and do not include recoverable costs and disbursements in relation to costs to date (which exceed $600,000 on a solicitor and client basis) and costs and disbursements for dealing with interrogatories foreshadowed by Lynx. 18 WorleyParsons relies on essentially the same principles and statutory provisions. Before concluding my views on the Bradken claim, I will turn to WorleyParsons' submissions. 19 WorleyParsons emphasises that once the Court's jurisdiction has been invoked (which is not in dispute), the Court's discretion is unlimited and unfettered save by a duty to act judicially: Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497. 20 It argues correctly that some of the discretionary factors identified by the Courts as relevant to the determination of applications for security for costs include: (a) the loss that a respondent will suffer if a costs order remains unsatisfied; (b) any delay by the respondent in applying; (c) the strength and bona fides of the applicant's case; (d) whether the making of an order would prevent the applicant from prosecuting its action; and (e) whether any inability of the applicant to meet a costs order has been caused by the respondent's conduct. 21 Evidence pointed to by WorleyParsons in support of the application demonstrates that: (a) Lynx does not own any land in Western Australia. (b) Lynx has declined to put on any evidence of the nature and extent of its assets. (c) Lynx has recently granted a fixed and floating charge over its assets securing a borrowing of $2,275,000 by a related corporation. The maximum prospective liability secured by the charge is $10,000,000. 22 WorleyParsons has observed that in addition, Lynx has put on affidavit evidence to the effect that Lynx's own legal costs incurred (exceeding $2 million) are a significant burden to it. Indeed, this is one of the matters relied upon by Lynx in relation to the stay application. However as previously observed, Lynx has accepted that s 1335 CA is enlivened. 23 WorleyParsons has already incurred solicitor and client costs in relation to pre‑action discovery and these proceedings in excess of $500,000. WorleyParsons estimates that its solicitor and client costs of trial will exceed $1,500,000. WorleyParsons' costs estimates are commensurate with Bradken's costs estimates.