MJH Chemicals P/L v Fiddes & 2 Ors [2003] NSWSC 1035 | Case summary

JUDGMENT (Review Registrar's decision - security for costs) 1 MASTER: By notice of motion filed 28 February 2003 the plaintiff seeks that the orders made by Assistant Registrar Whitehead dated 3 February 2003 be discharged and/or set aside pursuant to Part 61 r 3 of the Supreme Court Rules (SCR). The plaintiff relied on three affidavits of Michael Jeffrey Hunter sworn 11 August 2003, 14 August 2003 and 24 October 2003. The defendants relied on the affidavits of Judy Anne Reid sworn 18 July 2003. The plaintiff is MJH Chemicals Pty Limited. The first defendant is Geoffrey David Fiddes. The second Defendant is Ross Kim Pogson. The third defendant is Christopher John Mackay. The first, second and third defendants practice as a firm of solicitors Fiddes Pogson Mackay (Fiddes). 2 There are some cases that are authority on the consideration that ought to be given on review. They are Beaufort Air-Sea Equipment Pty Ltd v Emhart Australia Pty Ltd (NSWSC unreported, Master Malpass, 18 December 1992); Brijeski v Sunbeam Corporation Ltd (NSWSC unreported, Master Greenwood, 29 January 1997); Westpac Banking Corporation v Abemond Pty Ltd and Westpac Banking Corporation v Cameron (NSWSC unreported, Santow J, 3 November 1994); Modern Woodcraft Pty Ltd v Nott (NSWSC unreported, Young J, 7 March 1997); Mariala Estates Ltd v Athanasi & Ors [2001] NSWSC 1013; and Abram v National Australia Bank Ltd [2001] NSWSC 916. 3 From these decisions, the approach I should take is that I should inform myself of all the material before the Registrar at the time when he made the decision and the Registrar's decision. The affidavit of Michael Gerard Coffee filed 28 August 2002 was not relied upon at the hearing before the Registrar, but is relied upon in this review. I should make my own decision based on the material before me after having the benefit of counsel's submissions. 4 Fiddes were the plaintiff's former solicitors who represented it in equity proceedings seeking injunctive relief and damages against the State Rail Authority (SRA) (the first proceedings). It is alleged that upon the advice of Fiddes the plaintiff settled the first proceedings on terms that the SRA would not publish in any quotation, tender documents, and specification any reference to the plaintiff's name or brand name of its graffiti remover products. In breach of the settlement, the SRA wrongfully disclosed the confidential information by publishing in a quotation, tender document and/or specification. During the period 25 March 1988 until 31 August 1991, Fiddes advised the plaintiff not to seek further or other injunctive relief against the SRA despite the breach of settlement. 5 It is further alleged that on 11 May 1990, on the advice of Fiddes, the plaintiff instituted proceedings against the SRA in the equity division (second proceedings) claiming injunctive relief and damages. On 19 April 1999, damages were awarded in favour of the plaintiff against the SRA in the sum of $1.00. The plaintiff was ordered to pay the costs of the SRA in the second proceedings. The plaintiff alleges that in advising it not to institute the second proceedings prior to 11 May 1990 Fiddes acted negligently and in breach of their obligations under the retainer or in breach of their duty of care.

Registrar's decision 6 By notice of motion filed 18 September 2002, the defendants sought orders that the plaintiff provide to the defendant within 28 days security pursuant to Part 53 r 2(1)(e) of the SCR in the sum of $60,000.00 otherwise the proceedings be stayed until such security was provided; or in the alternative, that the plaintiff provide within 28 days security for the defendants' costs pursuant to s 1335(1) of the Corporations Act 2001 (Cth), in the sum of $60,000.00 otherwise the proceedings be stayed until such security was provided. This motion was heard by Assistant Registrar Whitehead on 9 December 2002. 7 On 3 February 2003, the Registrar delivered judgment and made the following orders: "1. The plaintiff provide security for costs of the defendants in the sum of $51,000 in a form acceptable to the Registrar within 28 days, otherwise the proceedings are to be stayed until such sum is paid. 2. The plaintiff pay the defendants' costs of the motion filed 18 September 2002." 8 As before the Registrar, it still remains the case that there is no reason to believe that the plaintiff will be able to meet an order for payment of the defendant's costs. Thus, the court's jurisdiction to make an order for security for costs is enlivened. Once the discretion is invoked it is unfettered. In an application for security for costs the court must achieve a balance between ensuring that adequate and fair protection is provided to the applicant as well as avoiding the injustice to an impecunious company by unnecessarily prejudicing it in the conduct of litigation - see Buckley v Bennell Constructions Pty Ltd (1974) 1 ACLR 301. 9 The plaintiff seeks to challenge the Assistant Registrar's decision on the basis of his findings in relation to delay. Relevantly at paragraphs 8 and 9 of his judgment the Registrar referred to the general principles to be applied when considering whether to make an order for security for costs. They are: "The power to order security for costs is discretionary. A number of the principles relevant to exercise of the discretion have been set forth by Smart J in Sydmar Pty Limited v Statewide Developments Pty Limited (1987) 11 ACLR 616. At pp. 626-627 his Honour set forth matters which are relevant to exercise of the discretion: '1. Whether the plaintiff's claim is made bona fide and has reasonable prospects of success; 2. Whether the plaintiff's lack of funds has been caused or contributed to by the conduct of the defendant; 3. Whether the plaintiff's proceedings are merely a defence against "self help" measures taken by the defendant; 4. Whether the making of an order would unduly stultify the plaintiff's ability to pursue the proceedings; 5. The extent to which it is reasonable to expect creditors or shareholders to make funds available to satisfy any order for security which is made; 6. Whether the defendant has delayed in making the application for security; 7. Whether the company is a "true plaintiff"; 8. Whether substantially the same facts are likely to be canvassed in determining the action and the cross-action'." 10 Another way of stating paragraph 6 above is that an application for security for costs should be brought promptly. This factor has been more fully considered in Buckley; Smail v Burton [1975] VR 776; Southern Cross Exploration NL v FAI (1985) 1 NSWLR 114 and Commonwealth v Cable Water Skiing (Australia) Ltd (1994) 14 ACSR 760. 11 In Buckley, Moffitt P at 309 stated: "The primary reason why the application should be brought promptly and pressed to determination promptly is that the company, which by assumption has financial problems, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it is allowed to or commits substantial sums of money towards litigating its claim." 12 This view was similarly expressed by Gillard J in Smail at 777. 13 In Southern Cross Exploration NL, Waddell J stated at 125 that the court is entitled to have regard to the length of the delay, the reasons for it, the nature of the acts done during the intervening period and whether security is sought both for future costs and those which have already been incurred. 14 In Cable Water Skiing Bollen J stated at 762 that delays are not an automatic bar to the making of the order for security for costs. Rather, it is a factor to be taken into account in the exercise of the court's discretion. 15 In relation to delay Assistant Registrar Whitehead stated: "15 In relation to the issue of delay I note that the defendants have sought security in respect of future legal costs and not costs incurred to date. That is not the end of that issue. Delay is not answered by seeking costs only in respect of the future. The plaintiff has been put to the expense of incurring legal costs in conducting the proceedings when there has been no previous notice of an application for security to be provided. This is a consideration relevant to the exercise of the discretion. 16. It is evident that the proceedings have been dormant at times. The defendants submit that the proceedings are not very advanced in terms of completeness. There has been no discovery and no affidavits have been filed. The plaintiff submits otherwise, and says that it is in the process of giving discovery (paragraph 22 of the Hunter affidavit). 17. The plaintiff submits that the defendant had evidence of the financial position of the plaintiff in September 1999, when Ms Crittenden did an ASIC search of the plaintiff. The application for security was not made until some 12 months after a mediation of the matter in July 2001. The existence of the ASIC search is not conclusive of the matter. An impecunious company may have interested parties behind it to provide security if requested. A lack of funds is not the only matter to be considered. 18. Having regard to the history of the proceedings I am not prepared to disqualify the defendants from security for the reason of delay alone. In reaching this conclusion about the delay issue I consider that the seeking of security only in respect of the future costs is relevant." 16 Hence it is necessary to examine delay. The statement of claim was filed on 4 February 1994, so at first glance there seems to have been an inordinate delay (nearly 10 years) in bringing this application. There is a cogent explanation at least from 4 February 1994 to 13 April 1999 when Bryson J delivered judgment in the second proceedings. To properly quantify a professional negligence claim against the defendant, the avenues of redress against the SRA had to be fully explored and this was not complete until, at the latest 30 April 1999, when the plaintiff was ordered to pay costs of the second proceedings. 17 Shortly after the finalisation of the SRA proceedings, this matter was listed for a contested hearing in the District Court. The hearing date was vacated at the request of the plaintiff. On about 3 June 1996 this matter was placed in the "Not Ready List". Between June 1996 to 7 March 2001 the plaintiff took no steps to actively prosecute this appeal, and it remained parked in the Not Ready List in the District Court. The plaintiff lodged an appeal in relation to the SRA proceedings to the New South Wales Court of Appeal, but this was discontinued by consent on 29 November 2000. 18 The critical period for which the plaintiff is required to explain the reasons for delay in making an application for security for costs is between 7 March 2001 and 20 August 2002. However, prior to this period namely, on 22 September 1999 the defendant's solicitor Ms Crittenden, had already caused a search of the plaintiff to be undertaken and she obtained copies of the plaintiff's annual returns for the years ending 30 June 1993, 30 June 1995 and 30 June 1998. This led her to believe that the plaintiff did not have the funds to meet any future order for costs against it. On 13 July 2001 the plaintiff gave the defendant informal discovery. On 18 July 2001 the parties attended an unsuccessful mediation. On 21 December 2001 the plaintiff filed an amended statement of claim. On 13 February 2002 the defendant filed a defence to the amended statement of claim. In March 2002 a dispute arose in relation to the defendant's access to documents produced by the SRA on subpoena. On 6 May 2002 Deputy Registrar Howe granted access to the defendant to those documents. The plaintiff has been ordered to give discovery to the plaintiff. Currently a list of documents is being prepared. Despite the effluxion of 2½ years, very little work had been undertaken by either party to ensure that this matter is ready for trial. Up to this date, neither party has expended sums of money preparing for the hearing. 19 I have taken delay into account together with the other discretionary factors mentioned earlier in this judgment. I have reached the same conclusion as Assistant Registrar Whitehead. In the exercise of my discretion security for costs should be provided. The amount of the security is not in dispute. I dismiss the appeal. The decision of Assistant Registrar Whitehead dated 3 February 2003 is affirmed. The notice of motion filed 28 February 2003 is dismissed. 20 Costs are discretionary. Normally costs follow the event. The plaintiff is to pay the defendant's costs. 21 The Court orders:

MJH Chemicals P/L v Fiddes & 2 Ors

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