Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd [2020] VSCA 223

2 The proposed appeal relates to Milfoil's allegation that CBA had constructive knowledge that the sum of $245,749.23 - only a small proportion of the claims in issue at the trial - was held on trust in favour of Milfoil, and that CBA dealt with those funds in a manner which was inconsistent with their nature as trust property.

3 Following consideration of the detailed written materials filed by the parties, we determined that this application for security for costs should be determined on the papers in order to save court time and further costs to the parties.[2]

4 CBA seeks security for costs under s 1335(1) of the Corporations Act 2001 and Supreme Court (General Civil Procedure) Rules 2015 r 64.38(2). The security sought is in respect of both CBA's past and future costs. The principles relating to the circumstances in which the Court will order security for costs of a proposed appeal have been discussed in many cases. In Maher v Commonwealth Bank of Australia,[3] Dodds-Streeton JA (Redlich JA agreeing) said that a non-exhaustive list of relevant matters includes:

(1) the prospects of success of the appeal;

(2) the quantum of risk that a costs order would not be satisfied;

(3) whether the making of an order would be oppressive in that it would stifle a reasonably arguable claim;

(4) whether any impecuniosity of the appellant arises out of the conduct complained of;

(5) whether there are any other aspects of public interest which weigh in the balance against such an order; and

(6) whether there are any particular discretionary matters peculiar to the circumstances of the case.[4]

5 CBA contends, and Milfoil does not dispute, that Milfoil does not have sufficient assets to satisfy a costs order if it is unsuccessful in its appeal. CBA relies on a solicitor's affidavit and correspondence between the parties to estimate Milfoil's combined liabilities - including its costs liabilities from the proceeding in the Trial Division - at around $3.87 million. Set against this is Milfoil's one significant asset, a property in Hampton in which there is equity of at most $1.4 million. It appears that Milfoil is not currently engaged in any trading activities. CBA contends, and Milfoil also does not dispute, that Milfoil's poor financial situation does not arise out of conduct complained of in the underlying dispute which is the subject of appeal.

6 Next, CBA argues that Milfoil's prospects of success on appeal are poor. Milfoil disputes this and contends that the narrowing of issues upon appeal is not a concession of the weaknesses of its case, but rather is in accordance with the overarching purpose.

7 CBA contends that a security order will not stultify Milfoil's claim in the current appeal. Milfoil has not provided any evidence to the contrary. Having prosecuted a nine-day trial with senior and junior counsel, and having now briefed both senior and junior counsel in relation to the appeal and to oppose this application for security, there is no evidence before the Court that those standing behind Milfoil are unable or unwilling to continue this proceeding if security is ordered.

8 Milfoil opposes the application for security on two grounds: first, that CBA has delayed in bringing this proceeding; and second, that the security sought by CBA is excessive. As to the delay, Milfoil relies heavily on the fact that CBA has already incurred the costs of preparing the application for leave to appeal and the matter is ready to be set down for a hearing. CBA argues that its delay is both adequately explained and 'slight' - only five months. CBA explains the short period of delay as attributable to CBA's efforts to resolve the issue of security and the proceeding itself, by negotiation - while at all times reserving its right to seek security for costs.

9 In considering the rival contentions concerning delay, it is necessary to refer to the correspondence between the parties since the application for leave to appeal was issued on 3 February 2020 and the application for security filed on 17 July 2020.

10 On 11 February 2020, CBA's solicitors wrote to Milfoil's solicitors referring to an undertaking apparently given by Milfoil, in connection with security for costs of the proceeding below, to notify CBA if the borrowed amount secured by the Hampton property exceeded $1.07 million. CBA expressly reserved its rights to seek security for costs of the application for leave to appeal. In subsequent correspondence, CBA noted that it could not give assurance that it would not seek security when it was unaware of Milfoil's current financial position and of the potential costs of defending the appeal. CBA later attempted to resolve the issue of security by proposing that Milfoil provide a second ranking mortgage over the Hampton property securing its costs liability in respect of these proceedings; reduce Milfoil's secured borrowing to $1.07 million; provide monthly bank statements as to its secured borrowing, and provide an undertaking to the Court that its secured borrowing would not exceed $1.07 million until any costs liability would be discharged. Milfoil refused the offer and offered to provide only the undertaking previously discussed.

11 Following these negotiations, on 10 March 2020 CBA wrote to Milfoil seeking details of its financial position. CBA's solicitors stated that it required this information as part of exploring a way to protect its costs exposure 'without resorting to an application for security for costs, but will make that application if it is necessary'. The letter concluded by again reserving CBA's rights to seek security for its costs.

12 Milfoil provided details of its financial position on 23 March 2020. This forms the basis of CBA's argument that Milfoil's current assets are insufficient to satisfy a costs order if it is unsuccessful in this proceeding.

13 In April 2020, there were without prejudice negotiations 'regarding how to address the risk of Milfoil not meeting any costs order made against it by [this Court]' - in other words as to a means of Milfoil providing security for costs. On 26 May 2020 CBA wrote to Milfoil again reserving its rights regarding security for costs should the matter not settle at a mediation fixed for 17 June 2020. In that letter, CBA's solicitors stated:

As you know, a mediation is scheduled for 17 June 2020. It would be an inefficient use of both parties' resources to take any further steps regarding security for costs between now and 17 June since it is possible that this proceeding may be resolved at mediation. That said, our client continues to reserve all its rights regarding security for costs and is ready to exercise them should this matter not settle at mediation.

14 The proceeding did not settle at mediation. On 26 June 2020 CBA wrote to Milfoil noting that a Calderbank offer issued on 24 June 2020 would expire on 10 July, stating that CBA would not take any further steps regarding security until then, but again reserving its rights to seek security for costs. In the letter, CBA's solicitors referred again to the security for costs issue, stating that:

It would be inefficient for our client to take further steps in relation to security for costs while that offer remains open. Further, taking such steps may be regarded as an attempt to place pressure on your client to accept the offer. For these reasons, our client does not propose to take further steps in relation to security for costs prior to 10 July. Please be advised that our client continues to reserve all its rights in relation to security for costs.

15 This application for security was filed on 17 July 2020.

16 Milfoil contends that it is 'well settled' that any application for security for costs must be made promptly, citing the decision of Black J in Re Colorado Products Pty Ltd (in prov liq)[5] as authority for the proposition that security for past costs is 'less likely' where there has been 'significant delay' in bringing the application.[6]

17 Milfoil contends that CBA's explanation for its delay - that it was engaged in cost-effectively negotiating a resolution to the security issue, and indeed the entire proceeding - is unsatisfactory because CBA could have filed the application and continued negotiations in the meantime. It argues that reserving rights to bring an application is not the same as actually bringing the application, and CBA's delay means that security should not in any case be ordered in respect of past costs.

18 Milfoil has not placed any evidence before the Court as to any resulting prejudice from the delay in CBA bringing the application, other than the vague assertion that an order for security would be 'unfair or oppressive' when 'the parties have completed all of the preparatory work necessary to argue the appeal and [CBA]'s application is made at a time with the hearing of the application is imminent.'

19 While the authorities establish that delay is a significant factor in determining whether to order security, the discretion is one which depends 'entirely on the circumstances of each particular case'.[7] Taken as a whole, we are satisfied that the correspondence in the five month delay period adequately explains CBA's delay in applying for security. In the circumstances, CBA's conduct in raising the security for costs issue early, and consistently and unequivocally reserving its rights at all times; seeking to resolve the issue of security and the proceeding itself through negotiations; and in applying for security promptly after it became clear those negotiations had failed; was entirely proper and in accordance with the overarching purpose under the Civil Procedure Act. We are also unconvinced that Milfoil has suffered any prejudice as a result of that delay. For these reasons, we will make an order for security for costs including costs already incurred by CBA.

20 CBA originally sought security for past and future costs in the amount of $148,000, to be paid into Court. This was subsequently revised to $146,000. The amount of security is supported by a solicitor's affidavit. We have considered the amounts claimed for security and determined that a fair amount in the circumstances of this case is $115,000.

21 We will hear the parties as to the costs of this application by written submissions of two pages each; with the costs issue to be determined on the papers.

[1] Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd [2019] VSC 504.

[2] See Civil Procedure Act 2010 s 47 and Supreme Court Act 1986 s 129B.

[3] [2008] VSCA 122.

[5] [2013] NSWSC 611.

[6] Ibid [69] citing Karl Suleman Enterprises Pty Ltd (in liq) v Pham [2010] NSWSC 886, [50].

[7] Maher v Commonwealth Bank of Australia [2008] VSCA 122, [79].