Plaintiff v Defendant

2 It is not necessary for me to recite at great length the nature of the proceedings between the parties. In essence, Chaucers is a single-purpose company brought into existence to develop the site of the venue which used to be known as Chaucers Canterbury. It entered into a finance agreement with the plaintiffs. For reasons which are not relevant to this application, the finance agreement did not proceed. The plaintiffs sued Chaucers for a little over $200,000, being the costs of arranging the facility. Chaucers have counter-claimed against the plaintiffs for damages arising out of the failure of the plaintiffs to advance the loan funds to it for the development. By the third party notice against AFS, Chaucers have sued AFS claiming damages in respect of the failure of AFS as its finance broker to arrange the loan funds from the plaintiffs. In particular it is alleged that AFS is liable because of the failure of the plaintiffs to advance the funds, or alternatively that AFS failed to make best endeavours to arrange those funds.

3 That recitation is sufficient to show that there is a large commonality of issues lying between on the one hand the principal plaintiffs in this proceeding and Chaucers, and on the other hand between Chaucers and AFS.

4 It is not in dispute that Chaucers' financial position is such that it would be unable to meet an order for costs made against it should the proceeding by it against AFS fail and it became liable to AFS in costs in respect of that proceeding.

5 The issues that were agitated before me are in respect of the discretion which I have in respect of an application for security for costs.

6 On behalf of Chaucers, Mr Bloch of counsel contended that there were three principal reasons why security for costs should not be ordered in this case. Firstly, he argued that the claim against AFS is in the nature of a counter-claim, a defensive counter-claim rather than a separate and discrete claim brought by Chaucers against AFS. Secondly, he contended that if security was to be ordered against his client Chaucers would be unable to pay that security and thus the action would be stultified. Thirdly, he contended that there had been untoward delay in the bringing of the application for security for costs, as a result of which Chaucers had suffered prejudice.

7 I turn to each of those three arguments. As is evident from my very brief description of the nature of the proceedings between the parties in this case, the counter-claim made by Chaucers against AFS is in essence an alternative claim to that agitated by it in its counter-claim against the plaintiffs. It is not typical defensive type of counter-claim which is such as to persuade a court to decline to order security. For those reasons I would not regard the nature of the claim made by Chaucers against AFS as one which in the exercise of my discretion should induce me not to order for security for costs.

8 The second discretionary matter relied on by Chaucers is that if security for costs were ordered the defendant, that is, Chaucers, would be stultified in its prosecution of its counter-claim against AFS. This is because, of course, any order for security for costs would be accompanied by an order that the cross-claim be stayed unless and until the security for costs were provided. The question of stultification is, of course, a discretionary issue. However, the difficulty in the argument advanced on behalf of Chaucers is that there is a paucity of evidence to support it. There is evidence that Chaucers itself was a single-purpose company, that the purpose for which it was incorporated, and for which indeed it sought finance from the plaintiffs, has not come to fruition, and that Chaucers itself, as clearly revealed, out of its own resources would be unable to meet an order for costs made against it in favour of AFS. Secondly, there is evidence that its sole director, Mr Dale Robertson, is bankrupt and he himself is unlikely, if not highly unlikely, to be able to inject funds to keep the cross-claim against AFS alive. However, Mr Robertson was not the sole shareholder. There is a joint venture partner and no evidence has been put before me as to either the ability or inclination of that joint venture partner to provide sufficient funds to Chaucers to enable it to continue to prosecute its cross-claim against AFS. In the absence of any such evidence, it is in my view inappropriate for me to infer that the action would be stultified if an order for security for costs were to be made. In this respect I refer to Saint-Gobain RF Pty Ltd v MAAX SPA Corp. Pty. Ltd.[1] Thus, the basis advanced on behalf of Chaucers for resisting an order for security for costs does not persuade me in the exercise of my discretion to decline to do so.

9 The third basis advanced by Mr Bloch is that of delay. The counter-claim joining AFS as a party to the proceeding was filed on 30 March 2004. AFS filed an appearance on 20 April. It was not until 20 October 2004 that AFS's solicitor sent a letter to Chaucers' solicitor seeking security for costs. Ultimately the summons seeking that security was issued on 2 December 2004. There was some debate as to when the relevant period of delay occurred, that is, as to whether it took place between 30 March and 20 October or whether it is a more limited period of delay, from the time when AFS's solicitor first became aware of the bankruptcy proceeding against Mr Dale Robertson, namely, in August-September 2004. It may well be that AFS was not subjectively aware of the financial difficulties of Mr Robertson and the attendant difficulties of Chaucers until August or September 2004. However, in my view it was on notice earlier than that that it ought to make some form of investigation of the affairs of Chaucers in order to assess for itself whether it ought to issue an application for security for costs earlier. After all, as I have stated, Chaucers was a single-purpose company. The purpose for which it had been brought into being had not been fulfilled. It would seem to me in those circumstances AFS was in a position to at least have made the usual searches and enquiries as to the financial position of Chaucers. It is perhaps a matter of conjecture what those would have revealed, but it would seem more likely than not that those enquiries, if made, might well have persuaded the solicitors for AFS to issue an application earlier in 2004 than it did. Thus I would accept in favour of Chaucers for the purpose of this application that the period of delay commenced earlier than August-September 2004.

10 The difficulty, however, is that delay per se, whilst a relevant factor, really gains strength only if it is accompanied by attendant prejudice to Chaucers. The chronology which has been produced by Mr Hoyne, who appeared on behalf of AFS, reveals that little by way of interlocutory steps have taken place since the entry of appearance by AFS on 20 April 2004. The main interlocutory step undertaken by Chaucers was the filing of an affidavit of documents, but it would seem, and indeed it was fairly and properly conceded by Mr Bloch, that the affidavit of documents filed was not significantly increased in size, if at all, by the need to include documents relevant to the cross-claim by Chaucers against AFS. In other words, there was a large commonality of documents required to be discovered by Chaucers in the action between itself and the plaintiffs, as in the action between itself and AFS. There was a one-day mediation in July 2004, but otherwise little else occurred by way of interlocutory steps. Mr Bloch argued that, whilst there is no affidavit material to this effect, I should infer and accept that his solicitor did not sit on his hands but did do some work preparing the case for trial against AFS, and I am prepared to draw at least a limited inference to that effect. However, there is no evidence that significant work was done which was not necessary to be done in relation to the claim by the plaintiff against Chaucers. In other words, there was no evidence that in the critical period of time Chaucers' solicitors undertook a large amount of work which is now wasted, preparing the cross-claim against AFS, which it might not have done had the application for security been made more expeditiously.

11 In those circumstances I am not persuaded that there are any discretionary features of sufficient moment which would stand in the way of making an order for security for costs, and I intend to do so. I would, however, limit that order for security for costs in two ways. First, as I have stated, I am of the view that the application for security for costs ought to have been brought earlier than it was, and thus I would not order security for costs for the period between 1 June 2004 and 20 October 2004. I nominate that period perhaps arbitrarily, but it does seem to me that, at least by 1 June 2004, AFS should have known enough to at least have made a request to Chaucers that it either provide security for costs or provide information which would give assurance to AFS that it did not need to make that application. I would also only order security for costs up to and including the first day of the trial. Of course it would later be open to AFS to seek further security thereafter, but it was acknowledged by counsel on both sides that it would be inappropriate for me to order such security now. The parties' counsel sensibly agreed that I should first determine whether an order for security for costs should be made and then hear issues relating to quantum. Thus I have not considered those issues yet.

12 However, I will allow AFS's appeal from the order of Master Wheeler and make an order for security for costs in relation to the periods I have just mentioned.

13 Gentlemen, is it appropriate for me to stand the matter down and you put your heads together to see if you can come up with some quantification?

Thank you both for your assistance. I will stand the matter down and if you could come back before the last matter gets under way, then if I have to hear a dispute about quantum I will do so but I would like you to keep it in very short compass.

1. [1] [2004] VSC 335 at [65].