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[2019] VSC 5
General information, not legal advice.
Supreme Court of Victoria
2019-02-01
Matthews JR
Original judgment source is linked above.
PRACTICE AND PROCEDURE - Security for costs - Discretionary factors - Whether the additional security sought is for steps relating to the defendant's defence or to its counterclaim - Defendant effectively in position of plaintiff in respect of the additional security sought - Additional security not ordered - Supreme Court (General Civil Procedure) Rules 2015, r. 62.02(1) - Colmax Glass Pty Ltd v Polytrade Pty Ltd [2013] VSC 311; Interwest Ltd v Tricontinental Corp Ltd (1991) 5 ACSR 621; Visco v Minter [1969] 2 All ER 714; T Sloyan & Sons (Builders) Ltd & anor v Brothers of Christian Instruction [1974] 3 All ER 715; ;
1 The defendant/plaintiff by counterclaim, Canaan Holdings Pty Ltd ('Canaan'), brings an application for security for costs by way of summons filed 5 September 2018 ('Security Application'). The Security Application has been referred to me for hearing and determination pursuant to r 84.04 of the Supreme Court (General Civil Procedure) Rules 2015 ('Rules').[1]
2 The Security Application is for orders that the plaintiff/defendant by counterclaim, Grace Christian Chapel ('GCC'), provide additional security for Canaan's costs in defending GCC's claim up to and including mediation in an amount of $40,000 (excluding GST) and that GCC's claim be stayed pending the provision of the security.[2] As will be elaborated upon later, GCC has already provided security for Canaan's costs in defending GCC's claim up to and including mediation. The Security Application is for additional or further security for three steps in the proceeding, those steps being GCC's application for summary judgment on (alternatively, for orders striking out or dismissing) paragraphs 31 to 52 of the defence and counterclaim, Canaan's application for leave to file and serve an amended defence and counterclaim, and the Security Application ('Additional Security').
3 Canaan relies on the following affidavits in support of the Security Application:
(a) An affidavit of Peter Michael Lucarelli sworn 3 September 2018 ('First Lucarelli Affidavit'). Mr Lucarelli is a partner of Baker McKenzie, solicitors for Canaan;
(b) An affidavit of Anna Helene Sango sworn 4 September 2018 ('Sango Affidavit'). Ms Sango is a principal lawyer and director of Kirk Barclay Pty Ltd and practices as a costs lawyer;
(c) An expert report dated 24 August 2018 from Ms Sango ('Second Sango Report');[3] and
(d) A further affidavit from Mr Lucarelli sworn 23 October 2018 ('Second Lucarelli Affidavit').
4 GCC opposes the Security Application and relies on the following:
(a) An affidavit of Nicole Emily Davis affirmed 16 October 2018. Ms Davis is a solicitor employed by Madgwicks Lawyers, solicitors for GCC; and
(b) An expert report from Catherine Dealehr of the Australian Legal Costing Group dated 16 October 2018 ('Dealehr Report').[4]
5 Counsel for both parties filed written outlines of submissions prior to the hearing.
6 For the reasons set out below, I am not satisfied that it is an appropriate exercise of the Court's discretion to make orders for the Additional Security and the Security Application will therefore be dismissed.
7 I will first describe what these proceedings are about, and then describe the relevant procedural history. Given the basis upon which the Security Application was argued, it is necessary to set out the claims made in the proceedings in some detail.
8 The below description of these proceedings is taken from the current filed pleadings.
9 By its statement of claim filed 20 December 2017 ('SOC'), GCC seeks the recovery of a loan which it says it made to Canaan and which it says has not been fully repaid. This loan is said to have been made pursuant to a loan agreement entered into on 5 March 2012, whereby GCC agreed to advance up to $3 million to Canaan in respect of a property development in Box Hill, Victoria ('Property'). GCC says that it advanced a total of $1,644,848.67 to Canaan pursuant to the loan agreement, of which $445,160.20 has been repaid. GCC alleges that despite demand, Canaan has not repaid the balance of the loan, being the sum of $1,199.688.47 excluding interest ('GCC Loan').[5] GCC also makes claims, further or alternatively, for moneys had and received or in unjust enrichment,[6] in respect of the same sum.
10 In its amended defence and counterclaim dated 21 September 2018 ('ADCC'), Canaan denies GCC's allegations, on a number of bases.
11 By way of defence, Canaan denies the GCC Loan and alleges that:
(a) The parties entered into a lease of the Property on or about 4 March 2012, whereby Canaan leased the Property to GCC for 3 years commencing 1 February 2012 at a rental of $200,000 per calendar month;[7]
(b) The parties entered into an agreement on or about 4 March 2012 whereby GCC purchased Canaan's business then operating at the Property, for $1;[8]
(c) On or about 5 March 2012, Canaan entered into an agreement with Grace International whereby Grace International would advance funds to Canaan up to the sum of $3 million, and after 2 years it had the option of converting that sum to shares in Canaan (along with some other terms) or being repaid the sum advanced;[9]
(d) At the same time, GCC and Canaan entered into an agreement whereby GCC agreed to purchase 10% of the shares in Canaan for $3 million;[10]
(e) The payments made to Canaan of $377,786.17 on 10 April 2012, $94,643.20 on 15 June 2012 and $97,183.82 on 15 June 2012 were not advances under the GCC Loan but were payments of rent under the lease for the Property;[11]
(f) The payments made of $469,087.16 on 3 January 2013, $304,940.03 on 6 June 2013, $194,212.47 on 15 September 2014 and $102,165.92 on 9 December 2014 were not advances under the GCC Loan but were payments made by Reverend Stephen Lee, founder director and chairman of GCC, to Joshua Cheng, alternatively to Canaan, under loan agreements made between Mr Lee and Mr Cheng, alternatively Canaan;[12] and
(g) The payments which GCC alleges were made in part repayment of the GCC Loan were not repayments under the GCC Loan but were payments made to satisfy the loans between Mr Lee and Mr Cheng, alternatively Canaan.[13]
12 As part of its defence, Canaan pleads certain matters by way of set off, as follows:
(a) On or about 17 September 2013, Canaan and GCC entered into an agreement whereby Canaan loaned to GCC the sum of $1.28 million in respect of land to be purchased in the Maesai district of Thailand ('Maesai Loan'), which sum was advanced on 17 September 2013 and which has not been repaid;[14]
(b) On or about 25 February 2015, Canaan and GCC entered into an agreement whereby Canaan loaned to GCC the sum of $300,000 in respect of land to be purchased in the Pattaya district of Thailand ('Pattaya Loan'), which sum was advanced on 25 February 2015 and which has not been repaid;[15]
(c) If Canaan is found liable to GCC, then it is entitled to set off any amount for which it is found liable against the sums it is owed under the Maesai Loan and the Pattaya Loan.[16]
13 By way of counterclaim, Canaan refers to and repeats the allegations in respect of the Maesai Loan and the Pattaya Loan, and alleges that GCC is indebted to Canaan in the sum of $2,679,904.30 (ie the amounts of the Maesai Loan and Pattaya Loan plus interest), and claims that amount from GCC.[17]
14 For the sake of completeness, I note that GCC denies Canaan's allegations and makes a number of allegations by way of responding to Canaan's set off and counterclaim,[18] however it is not necessary for me to go into any detail in that regard. Suffice to say that GCC says that the Maesai Loan and the Pattaya Loan were not loans but were investments, were not made by Canaan but by Mr Cheng, and were not made to GCC or pursuant to any agreement with GCC.
16 On 8 February 2018, the Court made orders by consent, without an application being filed, that GCC provide security by way of payment into Court of $109,242.25 for Canaan's costs of the proceedings up to and including mediation ('Existing Security').[19] The Existing Security was subsequently paid into Court.[20]
17 On 13 February 2018, Canaan filed its defence and counterclaim.
18 On 20 March 2018, I made orders by consent for a timetable for various steps to be completed in the proceedings up to and including mediation. These were for the completion of pleadings, requests for and provision of further and better particulars, discovery and mediation.
19 On 18 July 2018, Canaan filed a summons seeking leave to file and serve an amended defence and counterclaim ('Amendment Application').
20 On 8 August 2018, GCC filed a summons seeking summary judgment on the counterclaim, further or alternatively orders that paragraphs 31 to 52 of the defence and counterclaim be struck out or dismissed ('Summary Judgment Application').
21 The Security Application was made by summons filed on 5 September 2018 by Canaan.
22 On 6 September 2018, I heard and determined the Amendment Application and the Summary Judgment Application. I dismissed the Summary Judgment Application and allowed the Amendment Application, and orders were made accordingly. I also made directions for the Security Application and adjourned the hearing of it to 30 October 2018.
23 As noted above, the Additional Security sought by Canaan is for its costs of dealing with the Amendment Application, the Summary Judgment Application, and the Security Application.
General principles regarding security for costs
24 The principles concerning an application for security for costs are well established and have been considered in many decisions of this Court, including US Realty Investments LLC #1 v Need[21] and Colmax Glass Pty Ltd v Polytrade Pty Ltd.[22] For convenience I adopt the summaries set out in US Realty and Colmax. Rule 62.02 of the Rules applies.
25 In summary, the Court first looks to whether the jurisdiction to grant security for costs has been enlivened. This requires one of the grounds set out in r 62.02 of the Rules to apply. Here, the relevant grounds are that GCC is not ordinarily resident in Victoria and it does not have assets in the jurisdiction to satisfy any adverse costs order.[23] GCC is a foreign charitable organisation, incorporated in accordance with the laws of the province of British Columbia, Canada.[24] GCC did not contest this, and effectively conceded that the Court's jurisdiction to award security for costs had been enlivened.
26 Once the jurisdiction is enlivened, the Court has a discretion as to whether security ought be awarded. That discretion is unfettered, although it must be exercised judicially.
27 As noted in US Realty, exercising the discretion involves the Court carrying out a balancing exercise between the injustice to GCC if the grant of security prevents it from pursuing proper claims, and the injustice to Canaan if no security is ordered and it is ultimately successful but unable to recover its costs.[25] Relevant considerations may include the plaintiffs' prospect of success, delay, whether the claim would be stultified, whether the plaintiff's impecuniosity is caused by or contributed to by the defendant, the voluntary assumption of risk by the defendant, the extent to which it is reasonable to expect shareholders, creditors or beneficiaries to contribute to the security ordered, whether the plaintiff's proceeding is merely defensive, and whether the defendant has made a cross-claim raising the same facts.[26]
Discretionary factors: plaintiff in a defensive position; effect of a counter-claim?
28 The only discretionary factors addressed by the parties in this case were the last two of those referred to above, which were effectively run as one argument before me. Of those two discretionary factors, Derham AsJ summarised them in Colmax as follows:
Whether the plaintiff's proceeding is merely a defence against "self-help" measures taken by the defendant: Heller Factors Pty Ltd v John Arnold's Surf Shop Pty Ltd (in liq);[27] Sydmar Pty Ltd v Statewise Developments Pty Ltd;[28] Interwest Ltd v Tricontinental Corp Ltd.[29] Each case must be looked at to see whether in substance the claim set up is by way of defence such that the plaintiff's claims are properly characterised as defensive.[30]
...
Where the defendant has raised a cross-claim, whether substantially the same facts are likely to be canvassed in determining the claim and the cross-claim. The court would ordinarily seek to avoid the situation where the claim is stayed because of the inability of the plaintiff to provide security while the defendant's cross-claim covering the same factual areas proceeds.[31]
29 It was not submitted in this case that GCC's claim was a 'defensive' one within the meaning set out in paragraph 20(c) of Colmax. Rather, the emphasis was on whether Canaan's set-off and counterclaim were defensive in nature.
30 Generally, and consistent with the summary set out in Colmax, security will not be ordered against the counterclaimant where the counterclaimant's claims are simply defensive. However, where the counterclaimant has in substance taken up the position of a plaintiff, security may be required, although it may be appropriate to discount the amount to reflect the costs of any issues in common with the plaintiff's claim.[32] In Interwest, Ormiston J stated:[33]
In my experience counterclaimants are rarely required to provide security and the existence of a counterclaim frequently dissuades defendants from pursuing an application for security, but there is no doubt that the jurisdiction exists to grant security and is 'unfettered' in the sense described. Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate .... That would appear to be an overstatement, but the fact that a plaintiff, or counterclaimant, has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court's discretion ... In [New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619] the plaintiffs, who were resident outside the jurisdiction, brought a separate cross-action against the applicants for security. The conclusion reached by the Court of Appeal is perhaps best expressed by Vaughan Williams LJ at 625-6: "One must look at each case to see whether in substance the claim set up by a defendant is set up by him by way of defence to the claim against him ... I do not think that there is any hard and fast rule on the subject. We have to consider whether, in substance, upon the facts of the particular case, the defendants in the original action are to such an extent plaintiffs in the cross-action, that they ought according to the general practice in the matter to be ordered to give security for costs, because they have taken up the position of plaintiffs, irrespective of defence to the original action."
31 Where the counterclaim raises matters outside the plaintiff's claim, the defendant will be treated as a plaintiff so far as the counterclaim is concerned, and security for costs may be ordered. In Visco v Minter, Ormrod J stated:[34]
where a defendant counter-attacks on the same front on which he is being attacked by the plaintiff, it will be regarded as a defensive manoeuvre. But if he opens a counter-attack on a different front, even to relieve pressure on the front attacked by the plaintiff, he is in danger of an order for security for costs depending on the court's assessment of the position in each case.
32 Counsel for the parties were able to identify only a small number of cases where the issue of security for costs against a plaintiff was considered in the context of a defence which was akin to a set-off and a counterclaim.
33 Both counsel referred to T Sloyan & Sons (Builders) Ltd and another v Brothers of Christian Instruction.[35] In that case, the plaintiffs were builders who claimed an unpaid portion of the construction contract from the defendant. In its defence, the defendant pleaded that the amounts were not owing due to defects in the building works, and cross-claimed for damages arising from the defects. The cross-claim was for approximately six times the amount claimed by the plaintiffs. It was held that:
the [defendant's] cross-claim set out in their defence and counterclaim can properly be treated as a defence or set-off (it does not matter for present purposes what it is called) to the [plaintiffs'] claim, insofar as the former does not exceed the latter. But insofar as the [defendant's] claim exceeds the [plaintiff's] claim it must be treated as a counterclaim to which the [plaintiffs] are in the position of defendants and in respect of which they cannot as such be ordered to give security.[36]
34 This was applied in Al-Said v De Rozario,[37] where Eames J of this Court stated that '[w]here part of the counterclaim properly relates only to defending the claim of the plaintiff, then in my view the court should award security for that portion of the action which is so confined',[38] and proceeded to reduce the amount of security sought by the defendants so as to exclude (as best he could, on the material provided), costs for those areas raised in the counterclaim which 'do not really cast the defendants in the role of defendants so much as plaintiffs pursuing a separate cause'.[39]
35 In ADS Advertising v Central West Business Park,[40] Whelan J (as his Honour then was) dealt with an application by the defendant for security for costs against the first plaintiff in circumstances where the defendant had a counterclaim against both plaintiffs. His Honour applied Interwest, saying that the relevant consideration was whether the first plaintiff's claims might properly be characterised as defensive.[41] In ADS Advertising, Whelan J concluded that the first plaintiff's claims were defensive only in part, such that the correct approach was to order security but to reduce the amount so as to reflect the defensive aspect of the claims.
36 In Sydmar, Smart J took the view that certain matters alleged in the defence also substantially comprised the defendant's cross-claim, which he said was large and would involve the determination of issues of fact and law not directly arising in defence to the plaintiff's allegations. According to his Honour, the relevant paragraphs of the defence, forming a set-off, were in the nature of a separate proceeding or claim and formed the basis of a substantial part of the defendant's cross-claim, such that by looking at the substantial position of the parties, the defendant was in substance a plaintiff with respect to those paragraphs of the defence. For this reason, along with some other reasons as set out in the judgment, Smart J declined to order the plaintiff to provide security for the defendant's costs.[42]
37 Counsel for GCC also took me to MLW Technology Pty Ltd v May[43] and to Saint-Gobain. In both those cases, the plaintiffs had applied for security for their costs of defending the counterclaims made against them by the defendants. The counterclaims were not held to be defensive or purely defensive and security was ordered in favour of the plaintiffs. In MLW Technology, some adjustment was made for the factual issues common to the claim and counterclaim.[44]
Principles regarding the amount of security to be ordered
(a) the amount of security is within the Court's discretion;[48]
(b) the amount is that which the Court thinks just, having regard to all of the circumstances;[49]
(c) in ordering security, the Court does not set out to give the defendant a complete and certain indemnity for costs;[50] and
(d) the Court's task is not akin to a taxation of the defendant's probable costs.[51]
39 In Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd,[52] Tate and Kyrou JJA summarised the relevant legal principles regarding the quantum of security as follows:
Consideration should the Additional Security be ordered?
40 As noted above, the only real issue in contest between the parties on the question of whether the Additional Security should be ordered (apart from the quantum), was whether the security sought was for the counterclaim only such that Canaan was effectively in the position of a plaintiff in that regard and therefore GCC should not be ordered to give the Additional Security.
41 Canaan submits that the Additional Security relates to its costs of defending the proceedings and that it is entitled to seek security for its defence costs. It submits that a set-off is a defence to a plaintiff's claim,[60] and that in this instance, it would provide a complete defence to GCC's claim. Canaan does not dispute that the set-off is also the basis for its counterclaim, but submits that it is entitled to defend GCC's claim and does so. It says that it is not necessary to make a counterclaim in order to plead a defence of set-off.
42 Further, Canaan submits that the set-off and counterclaim are intermingled and pertain to the same or similar factual matrix, so that it is entitled to the Additional Security. Canaan relies on the Second Sango Report which makes the same point, and Ms Sango also says that it is not reasonable to deduct any portion of the costs associated with the Summary Judgment Application.
43 In this regard, Canaan submits that the broad dispute between the parties (i.e. the issues raised on GCC's claims and those on the set-off/counterclaim) concerns a number of financial transactions and that ultimately the dispute is about where the liability for them should fall.
44 In addition, Canaan observes that the Summary Judgment Application, which makes up a substantial portion of the Additional Security sought, was not its application but one brought by GCC. Canaan says it was defending itself against an attack on its own defence, and the fact that it was also 'defending' (in the sense of protecting) the counterclaim does not change the fact that it was a defensive response. Irrespective of the counterclaim, Canaan says it still had to incur the costs of defending its set-off.
45 Further, Canaan submits that, following Sloyan and Al-Said v De Rozario, if an apportionment of the Additional Security should be made based on the proportion by which the counterclaim exceeds GCC's claims, then only the Summary Judgment Application and the Amendment Application components of the Additional Security should be so apportioned. Counsel stated that the quantum of GCC's claims was approximately 60% of the quantum of Canaan's counterclaim.
46 GCC submits that the Additional Security sought by Canaan is for costs relating to its counterclaim and for this application, and says that the Security Application should not be granted as Canaan seeks that security in its capacity as a plaintiff and not as a defendant.
47 GCC says that the issues on the counterclaim are separate and distinct from the issues on GCC's claims, that the counterclaim does not raise the same substratum of facts, and that the counterclaim is not merely defensive but is the launch of a counter-attack on a different front.[61] GCC says that Canaan is a plaintiff so far as the counterclaim is concerned and it cannot seek security for its own costs of that counterclaim. GCC says that the question is not whether it is a set-off or a counterclaim, but whether Canaan is counter-attacking on a different front. GCC also relies on the Dealehr Report,[62] where Ms Dealehr states that the Additional Security relates to the counterclaim and is not claimable by Canaan as security for its costs.
48 Further, GCC says that if its primary position that the counterclaim is a counterattack on a different front is not accepted, then relying on Sydmar,[63] it submits that the Additional Security should not be ordered as the Court should avoid the situation where GCC's claim could be stayed but Canaan's counterclaim proceeds.
49 GCC also submits that the fact that it consented to orders and provided the Existing Security does not mean that the Additional Security should be granted, as it consented to the Existing Security before Canaan had filed its counterclaim.
50 GCC was not seeking security for its costs of defending Canaan's counterclaim, but noted that it was open for it to do so. In resisting Canaan's application for the Additional Security, GCC referred to and relied on a number of cases establishing that security for costs can be ordered against a counterclaimant, as referred to above.
51 In my view, the question of whether the Additional Security is related to Canaan's defence of set-off, or to its counterclaim, or is so intimately connected to the defence, is to be determined by reviewing the substance of the claims made and not by reference solely to whether the claims made by Canaan reside in the 'defence' part of the ADCC or the 'counterclaim' part of it. This is consistent with the authorities referred to above, particularly Interwest.[64]
52 Further, in considering this question, I am not assisted by the views expressed by either of the costs lawyers retained by the parties as to whether the Additional Security relates to the counterclaim and is claimable by Canaan or not. This is a question for the Court to determine.
(a) Where the plaintiff is really in the position of a defendant, due to it responding to the defendant's self-help measures or the defendant's counterclaim, such that the defensive position of the plaintiff is a factor tending against awarding security to the defendant for the costs of defending the plaintiff's claim;
(b) Where the plaintiff is defending a counterclaim from the defendant in circumstances where the factual matrix and issues are the same, such that it is a factor tending against granting security, due to the risk of and unfairness associated with the plaintiff's claim being stayed while permitting the counterclaim on the same facts and issues to proceed;
(c) Where the plaintiff is defending a counterclaim by the defendant, in circumstances where it is not appropriate to deny security as at least part of the counterclaim is defensive, but where the quantum should be reduced for the overlap;
(d) Where part of the defence, and the substance of the counterclaim, are in the nature of a separate claim or proceeding, such that it is a factor tending against granting security to the defendant or at least a basis for reducing the amount of the security; and
(e) Where part of the defence and the counterclaim amount to separate claims and it is appropriate for the defendant to provide security for the plaintiff's costs of defending the counterclaim, sometimes with an adjustment for common issues.
54 The substantive allegations made by Canaan regarding the Maesai Loan and the Pattaya Loan are made in the 'set-off' part of the ADCC, and are repeated in the counterclaim part of the pleading. I am satisfied that regardless of where these allegations lie in the pleading, in substance Canaan is a plaintiff so far as those allegations are concerned. They are new allegations, not related to the claims made by GCC, and they require a consideration of different facts and evidence. I do not accept Canaan's submission that these allegations are intermingled with GCC's claims and that they concern the same facts. Nor do I accept the submission that as the broad dispute is about financial transactions between the parties, the issues are similar. Considering the claims at such a level of generality and abstraction does not assist with analysing whether Canaan is in truth a plaintiff so far as the set-off and counterclaim is concerned. Canaan's allegations raise distinct facts which will need to be determined. The GCC Loan, the Maesai Loan and the Pattaya Loan all concern different transactions which occurred at different times, and in respect of which there are no admissions as to who the relevant parties to each transaction are.
55 Of the scenarios identified in paragraph 53 above, the circumstances of this case fall mostly within sub-paragraphs (d) or (e) of that paragraph, noting as I did earlier that GCC is not seeking security for its costs of defending the counterclaim.
56 However, none of the cases to which I was taken or which I have reviewed dealt with a situation such as the one we have here, which is where rather than security for the whole of the proceeding or for part of a proceeding based on certain milestones within it, the security was sought for discrete applications within the proceeding.
57 Here, around half of the Additional Security sought is for the costs of dealing with the Summary Judgment Application. In that application, Canaan was resisting GCC's attempt to get summary judgment on the claims made by Canaan in the set-off and counterclaim, alternatively dismissal or strike out of those paragraphs. Therefore, the Summary Judgment Application concerned those portions of the ADCC for which Canaan stands, to a large degree, in the position of plaintiff. In relation to the Summary Judgment Application, therefore, seeking Additional Security for that is akin to Canaan using an application for security for costs as a sword rather than a shield. It is not to the point that Canaan was defending its set-off and counterclaim by responding to the Summary Judgment Application.
58 Similarly, by perusing the amendments Canaan sought leave to make to its defence and counterclaim in the Amendment Application, it is readily apparent that all of those relate to the set-off and counterclaim. Most of the amendments are to the particulars, either by way of clarification or provision of further particulars, and while it may well be the case that these amendments were prompted by complaints made by GCC about Canaan's pleading, it remains the case that the amendments are to the set-off and counterclaim. Therefore, the Amendment Application can be analysed in a similar way to the Summary Judgment Application, with the same result.
59 As I regard Canaan's set-off and counterclaim to be a counter-attack on a different front, and since the costs for which the Additional Security is sought all relate to the set-off and counterclaim, in this instance I do not believe it is appropriate that I exercise the Court's discretion to order that the Additional Security be given.
60 Had I been dealing with an application by Canaan for security generally in relation to the proceedings, rather than just for the Summary Judgment Application and the Amendment Application,[65] then the outcome may well have been different. In such an instance, the set-off and counterclaim being offensive rather than defensive would need to be considered so as to form a view as to whether it was appropriate to order GCC to provide security or for such security to be discounted. However, in the peculiar circumstances of the Security Application, where all of the costs (except in respect of the application itself) relate to the set-off and counterclaim which I have found to place Canaan in the position of plaintiff, ordering GCC to provide the Additional Security sought is not appropriate.
61 While including an allowance for a security for costs application within the security to be ordered is commonplace, in light of the outcome of the Security Application, I do not consider it appropriate to order additional security for it.
62 In light of these conclusions, it is not necessary for me to consider the effect of a stay of GCC's claim if the Additional Security is ordered but not paid. I would observe, however, that this may be something that would need to be considered if the security was being ordered, particularly since it seems that a somewhat circular situation could result. If GCC's claim was stayed but Canaan's counterclaim proceeded, then GCC's claim may effectively comprise a set-off in defence of the counterclaim. Further, given that the Additional Security is for such discrete elements of the proceedings, I am not convinced that it would be in the interests of justice for a stay of GCC's claim to be a possible outcome. These observations are confined to the situation before me, being the Additional Security, and are not made in the context of security for costs for the proceedings generally.
Consideration - if the Additional Security should be ordered, what is the appropriate quantum?
63 Given my conclusions set out above, it is not necessary that I determine the amount of security. However, as this was argued by counsel, I set out my views about it briefly below.
64 The Additional Security sought by Canaan is in the amount of $40,000 which is a slight reduction from the estimated costs in Second Sango Report which totalled $41,080.46 for the following steps and amounts, inclusive of solicitors' costs, counsel's fees and other disbursements:
(a) $20,393.46 for the Summary Judgment Application;
(b) $10,739.80 for the Amendment Application; and
(c) $9,947.20 for the Security Application.
65 As noted above, Canaan relied on the Second Sango Report and GCC relied on the Dealehr Report which responded to it.
66 The Additional Security sought was for the amounts which Ms Sango stated she believed were reasonable, applying rates based on the Supreme Court scale and the amounts of time to be spent on the relevant tasks which she considered to be appropriate.[66]
67 Ms Dealehr stated that she did not disagree with Ms Sango's approach to and method of calculating these amounts.[67] Rather, the two costs experts differed on whether the amounts were claimable based on whether they were part of the counterclaim or not. Ms Dealehr also stated that based on her instructions, if security was to be awarded, it should be reduced by the amounts for which GCC had already provided security and which (on her instructions) had not been used.[68]
68 I am not persuaded that the Additional Security should be reduced in the manner contended for by Ms Dealehr, except as referred to in paragraph 69 below. The First Sango Report estimated an amount of $117,853.55 for the steps between commencement of the proceedings and up to and including mediation, and it set out what those steps were and the amounts estimated for each of those steps. The Existing Security, as agreed between the parties, was for less than that, being $109,242.25. Some of the amounts of the Existing Security which Ms Dealehr says have not been fully utilised relate to steps which have not yet but will occur (such as discovery and mediation). It is therefore not appropriate to discount the Additional Security for steps such as those. Nor do I consider it necessary, when taking a broad brush approach as the authoritie[69]set out,69 to reduce the Additional Security for the small amounts which may have not been fully utilised on the other steps.
69 The Existing Security included an amount of $5,278.70 for an interlocutory application in respect of disclosure of GCC's critical documents.[70] While that interlocutory application did not eventuate, the Summary Judgment Application, Amendment Application and the Security Application did. If I were minded to grant the Additional Security, I would factor into the quantum of that security the allowance already made for an interlocutory application which did not eventuate, so as to avoid any doubling-up between the Existing Security and the Additional Security. Accordingly, I would reduce the amount of the Additional Security from $41,080.46 by $5,278.70, to $35,801.76.
70 I would then apply a discounting factor of 40% for the reasons set out in Sydmar, which is the proportion by which the amount of the counterclaim exceeds the amount of GCC's claim. While in some respects this is a somewhat crude, or rough and ready, way to approach it, it is consistent with Sydmar and with the broad brush approach taken to the matter of the quantum of the security generally. After rounding, this would result in an amount of $21,481 being ordered.[71]
71 For the above reasons, I will dismiss the Security Application. In my view, the Additional Security sought was for steps which were wholly referable to Canaan's set-off and counterclaim, which due to the substance of the claims made therein place Canaan in the position of plaintiff in respect of those claims. Accordingly, it is not an appropriate exercise of the Court's discretion to order that GCC provide the Additional Security sought. As mentioned, if I had concluded otherwise and if I had concluded that the Security Application should be granted, the amount of additional security I would have ordered would have been $21,481.
72 My preliminary view in relation to the costs of the Security Application is that costs should follow the event, such that Canaan should pay GCC's costs of and incidental to the Security Application. The parties are requested to confer and, if they have a different view to that expressed, then short written submissions (of no more than 3 pages each) along with any affidavit(s) relied upon should be submitted to my Chambers and I will make a ruling on costs on the papers.
[1] Orders were made pursuant to r 84.04 on the Court's own motion on 5 September 2018.
[2] The summons filed 5 September 2018 sought security in the amount of $40,000 which is a slight reduction from the estimated costs in the expert report of Anna Helene Sango dated 24 August 2018 of $41,080.46.
[3] A copy of the Second Sango Report is exhibit PML-10 to the First Lucarelli Affidavit. Ms Sango deposes that she had earlier provided an expert report to Baker McKenzie dated 29 January 2018, which is exhibit PML-5 to the First Lucarelli Affidavit ('First Sango Report'): Sango Affidavit, [7].
[4] A copy of the Dealehr Report is exhibit NED-3 to Ms Davis' affidavit.
[5] SOC, [3], [9], [11], [14]-[15].
[18] These are set out in GCC's reply and defence to amended counterclaim dated 19 October 2018.
[19] First Lucarelli Affidavit, [8]; Exhibit PML-2.
[20] First Lucarelli Affidavit, [9]; Exhibit PML-3.
[21] [2013] VSC 590 ('US Realty') [18]-[38].
[22] [2013] VSC 311 ('Colmax') [14]-[22].
[23] First Lucarelli Affidavit, [5]-[6].
[25] US Realty, [22], citing Tradestock Pty Ltd v TNT (Management) Pty Ltd [1977] FCA 1; (1977) 14 ALR 52, 56.
[28] (1987) 73 ALR 289, 302 ('Sydmar').
[29] (1991) 5 ACSR 621 ('Interwest').
[31] Colmax, [20(d)], referring to Sydmar at 300.
[32] Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335, [38]-[43] ('Saint-Gobain'); Interwest, 628.
[33] Interwest, 626. Applied in Saint Gobain, [39].
[34] [1969] 2 All ER 714, 716 ('Visco v Minter').
[35] [1974] 3 All ER 715 ('Sloyan').
[37] (Unreported, Supreme Court of Victoria, Eames J, 10 September 1992).
[40] [2005] VSC 265 ('ADS Advertising').
[43] [2003] VSC 24 ('MLW Technology').
[45] [2017] VSC 362 ('Raventhorpe').
[46] Referring to Oswal v Australia and New Zealand Banking Group Limited (Security for costs - Stage 2) [2016] VSC 119, [7]-[13].
[48] Procon (Great Britain) Ltd v Provincial Building Co Ltd [1984] 2 All ER 368.
[49] Allstate Life Insurance Co v ANZ Banking Group Ltd (No 19) [1995] FCA 1778; (1995) 134 ALR 187, 197.
[50] Premier Building and Consulting Pty Ltd v Spotless Group Ltd (No 7) [2005] VSC 275.
[52] [2017] VSCA 293 ('Trailer Trash').
[53] Pathway Investments Pty Ltd v National Australia Bank Ltd [2012] VSC 97 [37] ('Pathway Investments').
[54] Interwest Ltd v Tricontinental Corporation Ltd (1991) 5 ACSR 621, 528; Pathway Investments [2012] VSC 97, [37].
[55] Pathway Investments [2012] VSC 97, [37].
[56] Quadrant Constructions Pty Ltd (in liq) v Morgan Smith Barney Australia Pty Ltd [2009] VSC 455 [56] ('Quadrant Constructions').
[57] Quadrant Constructions [2009] VSC 455 [56].
[58] G E Dal Pont, Law of Costs (Lexis Nexis Butterworths Australia, 3rd ed, 2013) [28.33].
[59] Wollongong City Council v FPM Constructions Pty Ltd [2004] NSWSC 523 [50].
[62] In particular, paragraphs [6]-[9] of the Dealehr Report.
[63] (1987) 73 ALR 289, 300.
[65] For completeness, I note that it is also for the Security Application.
[70] First Sango Report, [18(g)], and Attachment 4 at pp 10-11.
Grace Christian Chapel
Canaan Holdings Pty Ltd
(1987) 73 ALR 289
(1977) 14 ALR 52
(1979) 22 SASR 20
(1995) 134 ALR 187