Otto Group Holdings Pty Ltd v Mortgage Specialists Pty Ltd

Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 24.04(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2025 (Cth)), or to record a variation to the order pursuant to r 24.04 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2025 (Cth).

1. By an application filed on 25 March 2025, the respondent in this proceeding (Mortgage Specialists) sought that the applicant (Otto Group) provide security for costs. Although Otto Group initially disputed the form in which security was sought, ultimately orders were proposed (and made) by consent to the effect that security for costs was ordered in the form that had been sought by Mortgage Specialists. This was after issues were raised of some factual complexity, following hearing dates in June and July.
2. The parties have sought that an extant dispute between them regarding costs be determined on the papers. To this end, written submissions have been filed by the parties. For the following reasons, I consider it appropriate to order that Otto Group pay part, but not all, of the costs of Mortgage Specialists relating to the security for costs dispute.

1. Some background to the dispute was provided in an affidavit of Tamra Seaton made on 21 March 2025. That affidavit sets out correspondence between the parties regarding a contemplated security for costs application.
2. Security was initially proposed by Otto Group in the form of an undertaking by a "director" of Otto Group by reference to a property on Sussex Street (Sussex Street Property) he was said to own "with net equity of approximately $800,000". Concerns were raised by Mortgage Specialists following searches that showed (amongst other things) another person - Jue Fang (Ms Fang) - as registered proprietor of the Sussex Street Property. Concern was also raised by Mortgage Specialists regarding a "lack of evidence about the equity in the property, and otherwise a lack of clarity about [Otto Group]'s financial position". In a response sent on 21 February 2025, Otto Group referred to a statement that "if the registered proprietor is Jue Fang we are instructed that she is willing to provide the security". Otto Group suggested that "[n]o request ha[d] been made as to the equity position" and that it would be a waste of time, money and effort to provide that evidence unless Mortgage Specialists "indicated that the proposal was in essence one it would consider".
3. Otto Group did not provide the further clarity requested, nor supporting evidence regarding the equity position asserted in the Sussex Street Property.
4. A security for costs application was accordingly filed on 25 March 2025. Affidavit evidence was subsequently filed on behalf of Otto Group, seeking to demonstrate the value of the Sussex Street Property.
5. At the hearing of the security for costs application on 10 June 2025, I expressed concerns regarding the adequacy of the alternative form of security proposed by Otto Group. This was in circumstances where the proposed form (an undertaking, unsupported by personal guarantee) did not appear to be supported by cases relied upon. It was also in circumstances where Ms Fang's financial position was not fulsomely disclosed, with the evidence (inter alia) not disclosing the extent of her liabilities. The security for costs application was adjourned to the following week after a willingness to address these issues was indicated by Otto Group. This was also to provide the parties with an opportunity to resolve the issue by consent. After availability issues arose on the part of the parties, the listing was further adjourned to 3 July 2025.
6. During the listing on 3 July 2025, an issue arose after cross-examination of a person identified as Ms Fang. Mortgage Specialists indicated that the person who had been cross-examined did not appear to be the person they had previously dealt with as "Ms Fang". As this was said to have taken Mortgage Specialists by surprise, an opportunity was sought to provide evidence regarding this issue. As this would have required Otto Group to have been given an opportunity to respond, the matter was adjourned to 5 August 2025. However, I expressed concerns that the cost and complexity of the security for costs application was becoming disproportionate to the dispute between the parties. Given the issues that had been raised, including other concerns that arose from cross-examination, I encouraged Otto Group to consider whether a commercial approach to the dispute may be to proffer security in the form that had been sought.
7. This approach was ultimately adopted by Otto Group. Consent orders proposed by the parties were subsequently made in Chambers.

1. Otto Group submitted that it would be appropriate for the costs of the security for costs application to be "costs in the cause". In the alternative, Otto Group submitted that there should be no order as to the costs of the application, with the intent that each party bear its own costs.
2. Otto Group observed that it had not disputed that security ought to be provided and that the only dispute between the parties had concerned the form security should take. Otto Group submitted that Mortgage Specialists had not been prima facie entitled to the security sought: Firexpress Australia Pty Ltd v Imago Exchange Pty Limited [2022] FCA 129 (Firexpress) at [66]-[68] (Markovic J). Otto Group submitted that it was not unreasonable for it to have sought for security to be imposed in an alternative form.
3. Further, Otto Group submitted that it had not acted unreasonably in ultimately agreeing to provide security in the form of a bank guarantee. This was regardless of whether it would have succeeded in persuading the Court to order security in an alternative form. This, it was submitted, was in circumstances where the application had developed into a "case within a case", having already occupied two half day hearings and requiring further hearing on the issues that arose from the last occasion. It was in circumstances where the interlocutory dispute had, as I had suggested on the last occasion, become disproportionate in its scope, cost and complexity to the point of difference between the parties. In this context, Otto Group submitted that it had acquiesced to the orders sought by Mortgage Specialists not because it was conceded that Mortgage Specialists would ultimately succeed on the interlocutory dispute, but rather in the interests of expediency and keeping the costs of the proceeding within reasonable bounds.
4. In circumstances where the security for costs application had not been fully determined, Otto Group submitted that the appropriate order was that costs be costs in the cause. Otto Group relied upon what was said by Markovic J in Bideena Pty Ltd v Growth Super Fund Pty Ltd (No 2) [2017] FCA 327 (Bideena) at [61]:
   1. Bideena submitted that the appropriate order is that there be no order for costs of the interlocutory process in accordance with the principles set out in Lai Qin. However, here I am concerned with an interlocutory process in a proceeding which has not yet been finally determined. Similar circumstances faced a Full Court of this Court in Yperion Technology, which considered the costs to be awarded on an interlocutory application for leave to appeal which had been compromised. There the Full Court expressed the view that, in the absence of a determination on the merits, the Court should not ordinarily make an order for costs based on a prediction of likely outcome but that it would be appropriate to "reflect in the order for costs ... the result ultimately to be achieved on a final hearing by making an order for costs in the cause".
5. Otto Group also relied upon what was said at [11]-[13] in Yperion Technology SAS v Luminex Pty Ltd [2013] FCAFC 38 (per North, Barker and Nicholas JJ):
   1. The first factor is that the Court has not determined the merits of the appeal but has acceded to consent orders proposed by the parties. In the absence of a determination on the merits the Court should not ordinarily make an order for costs by reference to a prediction of what the likely outcome of the appeal would have been had the matter been resolved on the merits. There may be some cases in which the outcome is so obvious that it would not be wrong in principle to make an order for costs by reference to the likely outcome of the appeal after a determination on the merits. However, that is not the case in this appeal.
   2. The second factor is that this appeal concerned an interlocutory, not a final, order. There is more force in the argument that each side should bear their own costs where a matter is resolved by final orders. Where there is no such finality it may be appropriate to reflect in the order for costs on the interlocutory matter the result ultimately to be achieved on a final hearing by making an order for costs in the cause. Then the party which achieves success in the final outcome obtains its costs for the interlocutory application which, by its nature, was part of the process of achieving success at the final determination of the case.
   3. In the end, justice is served in the circumstances of this appeal if the parties' costs of the application to the primary judge and to the Full Court are costs in the cause.

1. In succinct submissions, Mortgage Specialists suggested that Otto Group had effectively "capitulated" to its application by agreeing to provide security in the form that it had sought all along. Mortgage Specialists submitted that this "change in position" meant that Mortgage Specialists had "incurred costs in bringing and then pressing its application that it should not have incurred". It was submitted that these "wasted costs" ought to be paid by Otto Group.

1. The interlocutory dispute between the parties has not been required to be fulsomely determined. This is on account of Otto Group agreeing to provide security in the form sought by Mortgage Specialists.
2. I do not accept it has been demonstrated that this was "capitulation" by Otto Group in the sense considered in cases such as Bideena. Although it was apparent that the alternative security proposed by Otto Group faced some hurdles, it is not clear that those hurdles were, necessarily, incapable of being overcome. Otto Group's change in position is plausibly explained as a commercial decision, rather than a capitulation to the arguments made through the security for costs application. This is in circumstances where, given the issues raised regarding Ms Fang's identity, the dispute had become disproportionate to what was actually at stake.
3. However, the application was necessitated by Otto Group not satisfactorily answering Mortgage Group's concerns regarding the alternative form of security proposed. It is not apparent that supporting evidence had been supplied regarding Ms Fang's asserted equity in the Sussex Street Property until 29 April 2025. Although Otto Group had suggested that it would be a "waste" to provide such evidence unless Mortgage Specialists confirmed that it would "consider" the proposal, Mortgage Specialists had made it clear that it considered that it was unable to consider the adequacy of the proposal without evidence of (inter alia) the equity situation. It is not apparent that it would have been unduly burdensome for Otto Group to have provided the website extracts and bank statement ultimately relied upon to Mortgage Specialists earlier.
4. If the matter had concluded on the basis of the evidence available at the hearing on 10 June 2025, I have no doubt that I would have refused to accept the alternative form of security proposed by Otto Group and would have ordered security for costs in the form sought by Mortgage Specialists. This is in circumstances where the financial circumstances of Ms Fang remained opaque. Although some evidence of equity in the Sussex Street Property had been provided, evidence had not been provided of Ms Fang's liabilities beyond the situation regarding that particular property. As I discussed with Otto Group's Counsel at the listing, if the equity in that property was to be considered against other, extant, liabilities exceeding its value, then its viability as security would have been significantly diminished. Although Otto Group had placed particular reliance upon the case of Firexpress, no personal guarantees had been proffered in a similar form to what was accepted in that case (or otherwise).
5. By 13 June 2025, however, further evidence had been filed regarding Ms Fang's financial position. Whether that evidence would have been accepted as sufficient, together with the other evidence relied upon, would have been a matter for determination after hearing. By this stage, it had also been made clear that Otto Group was open to bringing the documentation otherwise relied upon more closely within the terms of what had been accepted in Firexpress. I accept that some questions remained regarding Ms Fang's evidence, which was the subject of challenge. However, from 13 June 2025 I consider that there was a real contest between the parties regarding the alternative form of security proposed. Although that contest may not have been resolved in Otto Group's favour, this does not now need to be determined, in circumstances where a consent position has been reached.

1. Having regard to the foregoing, I consider it appropriate to order, in the particular circumstances of this case, that Otto Group pay the costs of Mortgage Specialists of preparing and pursuing the security for costs application, up to 13 June 2025. The costs of the dispute will otherwise be regarded as costs in the cause.

I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Laing.