Plaintiff v Defendant

Supreme Court of Victoria|2012-12-13|Before: LANSDOWNE AsJ

SECURITY FOR COSTS - variation of order due to change in circumstance - security for past costs - delay - significance of orders for past costs - security for future costs

1 The application before me is the defendant's summons seeking additional security for costs filed 19 October 2012. The additional security is sought in two tranches. The first tranche relates to past costs and the costs of the mediation, currently scheduled for 20 December 2012. The amount sought in the summons for this tranche is $658,782.75. The second tranche is in respect of costs if the proceeding does not settle at mediation, up to but not including the first day of trial. The amount sought in the summons in this tranche is $423,824.80.

2 Security for costs up to and including mediation was previously ordered by Associate Justice Efthim and paid. Accordingly, the first tranche seeks to vary the order of Associate Justice Efthim by way of additional security.

3 At the hearing, the defendant reduced the amount sought in the first tranche to $322,592.40, i.e. less than half the amount originally sought. The reduction was due to the acknowledgement by the defendant that it could not seek past costs incurred prior to the date of its original application for security, which was made by summons filed 19 February 2009, and which led to the order of Associate Justice Efthim.

4 The application was heard on its first return date, 9 November 2012. The plaintiff resisted the whole of the past costs sought on the basis that the defendant had delayed in bringing the application, and opposed the security sought in relation to costs of the mediation on the basis that provision for mediation had been made by Associate Justice Efthim. The plaintiff also resisted the order in respect of past costs in relation to matters the subject of existing costs orders in favour of the defendant, and some quantum differences. In respect of the second tranche, the plaintiff conceded liability to pay an amount by way of additional security but disputed the quantum sought. The plaintiff proposed an amount of security for the defendant's costs between mediation and trial in the sum of $102,550.

5 The defendant relies on two affidavits of a costs specialist, Ms Elizabeth Harris, sworn 19 October 2012 and 7 November 2012. It also relies upon the affidavit of its solicitor, Jonathon Kelp, sworn 25 May 2011, in respect of an earlier application, and a supplementary affidavit by that solicitor sworn 7 November 2012.

6 The plaintiff relies upon the affidavit of its solicitor, Kevin Elkington, sworn 1 November 2012 and costs specialist, Paul Linsdell, sworn 2 November 2012. Each party prepared written submissions.

7 This proceeding commenced by writ filed 2 July 2008. It has had a complex history thereafter. In essence, the plaintiff seeks an account of profits, alternatively damages, from the defendant consequent upon the defendant's alleged misuse of the plaintiff's confidential information. The confidential information in question is a model for the restructuring and refinancing of long term asset leases. The amount sought has, according to counsel for the defendant, been estimated by the litigation funder for the plaintiff as $37M.

8 The defendant first sought security for costs by letter dated 23 July 2008. The plaintiff refused that request pending the filing of a defence. Then followed various pleading steps and applications culminating in an amended defence filed 28 November 2008 and a further amended statement of claim filed 12 December 2008.

9 The defendant sought security for costs again by letter dated 7 January 2009 and by summons filed 19 February 2009. That application was heard by Associate Justice Efthim on 6 March 2009. By reasons given 28 May 2009, he held that the plaintiff was required to provide security for the defendant's costs up to and including mediation in the amount of $155,776.50. Those reasons were given effect to in orders made 28 July 2009 which required security in that sum by 11 August 2009. That security was provided on that date by bank guarantee in favour of the defendant provided by the litigation funder for the plaintiff.

10 There followed numerous interlocutory applications and iterations of the statement of claim. The defendant made a second application for security for costs by summons dated 23 February 2010. In addition to additional security, that summons sought particular discovery by the plaintiff. That summons did not proceed.

11 On 9 March 2010, the List Judge, Justice Croft, struck out the plaintiff's second further amended statement of claim on the defendant's application and refused leave to the plaintiff to replead in the form then proposed. There followed a number of attempts by the plaintiff to replead which were not accepted by the defendant or the Court. At a hearing before the trial judge on 18 March 2011 the plaintiff sought leave to file and serve a proposed fourth further amended statement of claim. The defendant sought an order that the proceedings be dismissed or permanently stayed. By judgment given 16 May 2011, Croft J dismissed the proceeding and ordered the plaintiff to pay the defendant's costs including all reserved costs on a party/party basis. Orders to give effect to this judgement were made 23 September 2011. On 9 December 2011, the Court of Appeal granted leave to appeal the orders and heard the appeal instanter, allowing the appeal against the order dismissing the proceeding and setting aside the costs order.

12 Following the judgment of the Court of Appeal, Justice Croft made orders by consent on 30 April 2012 that the plaintiff be granted leave to file and serve its amended statement of claim in the form of the draft fourth further amended statement of claim dated 1 March 2012. A second further amended defence was filed by the defendant in accordance with those orders on 25 May 2012. A reply was filed on 19 June 2012. Various directions hearings and applications before Justice Croft have ensued, including applications by each party in relation to discovery. The proceeding is now to be mediated on 20 December 2012 and is listed for trial on liability only commencing 29 July 2013.

13 In his reasons dated 28 May 2009 for judgment on the defendant's first application for security for costs, Associate Justice Efthim allowed the following amounts of security, prior to any discount, for the following steps:

14 Associate Justice Efthim then considered the six factors identified by Heerey J in Farmitalia Carlos Erba SRL v Delta West Pty Ltd,[1] ("Farmitalia") by reason of which an amount of security for costs may appropriately be discounted. The factors and his conclusions are as follows:

The chance of the case collapsing without coming to trial. (Efthim AsJ considered it unlikely the case would collapse.)
The apparent prospects of success (Efthim AsJ did not take this into account, there being no evidence before him).
The order for security should not be the means for effectively denying the applicant from pursuing the case. (Efthim AsJ concluded that this factor did not apply.)
A large discount can be made if little information is before the Court. (Efthim AsJ. considered this applied in relation to discovery in particular and so some discount should be applied.)
To the extent that some of the costs of the parties seeking security will relate to a case that is not essentially defensive a deduction should be made. (Efthim AsJ concluded that was not relevant.)
There is the likelihood the amounts given as an estimate of costs would be reduced by a Taxing Master (Efthim AsJ considered this likely even though he himself had made deductions.)

15 Having regard to these factors, AsJ Efthim applied a discount of 30% to the figure of $165,395 to arrive at the sum he ordered, being $115,776.50.

16 The defendant asserts that an application to vary this order is justified pursuant to r 62.05 of the Supreme Court (General Civil Procedure) Rules 2005 which provides as follows:

The Court may set aside or vary any order requiring a plaintiff to give security for costs.

17 The commentary to that rule gives instances where increase has been held to be appropriate given a change in circumstances. The change in circumstances here relied upon principally turns on the number of unsuccessful attempts by the plaintiff to finalise its statement of claim, culminating in dismissal of the proceeding by Croft J., subsequently overturned by the Court of Appeal. There was also an appeal against an aspect of the orders made by Associate Justice Efthim and other interlocutory applications. None of these matters were included as events within the security ordered by Efthim AsJ, although there were at that time some interlocutory applications on foot (including a strike out application in respect of the statement of claim) which he disregarded for the purpose of the calculation of security.[2]

18 The plaintiff does not dispute that the circumstances have changed but says that the defendant's application should be refused in respect of past costs because of its delay in making it.

19 The defendant submits that there is no jurisdictional bar to an order for security for costs already incurred and points to authority to this effect[3] and a recent instance in this Court where such security was ordered, Pathway Investments Pty Ltd and anor v National Australia Bank Limited.[4] In that case, Davies J. ordered a substantial sum in respect of costs already incurred, including pre-commencement costs, in a large class action funded by a litigation funder.

20 The plaintiff does not dispute that the issue is one for the Court's discretion but asserts that the defendant has so delayed in the bringing of the application, that it should not now be afforded security for costs already incurred. It relies on a series of decisions in which security for past costs was refused because of delay in bringing the application, including the judgment of the West Australian Court of Appeal in Christou and anor v Stanton Partners Australasia Pty Ltd and anor[5] ("Christou").

21 The plaintiff also relies on the fact that some of the items for which security is now sought are already the subject of costs orders in favour of the defendant, which the defendant has not sought to tax, and the costs expert retained by the plaintiff disputes the quantification of some items claimed in respect of past costs.

22 In reply, the defendant cautions against reliance on previous instances of refusal of security for past costs, on the basis that the discretion is a general one, and unfettered, and each case depends on its own facts.

23 That is certainly correct, but the cases to which the plaintiff has drawn my attention do in my view illustrate the general reluctance of the Court to award security for past costs. That this is the usual approach is also confirmed by the leading text, Dal Pont, Law of Costs.[6] The instance of such an award relied upon by the defendant is arguably distinguishable on its facts. Although a litigation funder is also involved in that case, the proceeding is of a much larger scale- it concerns a class action, the damages sought have been estimated in early material in the realm of $450m, the security sought was $11m and the security ordered $6.2m.[7]

24 The general principles in relation to delay are helpfully set out in the judgment of the Newnes JA , with whom Murphy JA agreed, in Christou in the following paragraphs:

It is, however, incumbent upon a defendant who wishes to obtain security for its costs to apply promptly for that relief once it is, or ought reasonably be, aware that the plaintiff would be unable to meet an order for costs. Security for costs is not a card that a defendant can keep up its sleeve and play at its convenience. Delay is an important consideration in the determination of an application for security for costs because it is capable of causing prejudice or unfairness to the plaintiff. A plaintiff is entitled to know at the earliest opportunity, before it has committed substantial resources to pursuing the litigation, whether it will be required to provide security. The later an application is made the greater the likelihood that it will cause substantial disruption or distraction in the conduct of the plaintiff's case, and if the plaintiff is unable to provide security, the greater the costs that will have been wasted. The oftcited words of Moffitt P in Buckley v Bennell Design & Constructions Pty Ltd (1974) 1 ACLR 301 are apposite:

The right to seek security for costs and to stay proceedings, with the possible result that a claim for damages is frustrated, is a powerful weapon. Therefore, the litigant who seeks to use it against his opponent is at risk of not having it available, unless the application is made and persevered with in circumstances involving the least oppression of his opponent. 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 toward litigating its claim (309).

21. I would add that in an era when the need to ensure the efficient use of judicial resources has become increasingly important, delay may also be significant in that regard. A late application which frustrates the action will mean that the judicial resources already devoted to the case will have been wasted. Where it results in the adjournment of an imminent trial it will often have the result that the trial dates will be wasted: see Town & Country Sport Resorts (Holdings) Pty Ltd v Partnership Pacific Ltd [1991] FCA 459

22. There are, however, degrees of delay and the effect of delay will vary according to the circumstances. The reason for the delay will also be an important consideration. Where delay has occurred it will not necessarily bar an order for security for costs, but generally the longer the delay, the more proximate the hearing and the more that has been done by the plaintiff to advance the case, the greater will be the significance of the delay and the more difficult it will be for the defendant to persuade the court that an order for security for costs will not be unfair or oppressive: Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 514.

23. In order to show prejudice it is not necessary for a plaintiff to establish what it would have done differently if the application had been made earlier (although such evidence would be an important consideration in the exercise of the discretion); prejudice will generally be regarded as inherent in substantial delay: Green v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 [57].

25 I will consider the following matters by application of these principles: the length of any relevant delay; the sufficiency of the defendant's explanation for that delay; and the impact of that delay on the plaintiff, and the case generally, if security is now ordered. In relation to prejudice to the plaintiff, and whether evidence of actual prejudice is required, Hodgson JA in Green, referred to in paragraph 23 of Christou above, set out what I consider to be the correct approach:

In my opinion, it is not necessary, in order for a plaintiff to show prejudice from delay, that the plaintiff prove what the plaintiff would have done if the application had been made earlier; although if a plaintiff does prove that it would not have gone ahead with the proceedings if the application had been brought when it should have been, this would be a very powerful consideration against granting security in the case of a delayed application. In my opinion, where substantial costs have been incurred since the time when an application for security should have been brought, it would be unreasonable to deny the existence of prejudice unless the plaintiff can prove exactly what the plaintiff would have done if the application had been brought earlier.

26 Accordingly, I will approach the matter on the basis that while evidence of actual prejudice to the plaintiff is not essential to resist an application for security for costs on the ground of delay, the presence or absence of such evidence is of relevance in the exercise of the discretion.

27 I begin my consideration of delay on 23 February 2010 when the defendant filed its second application for security for costs. That summons sought variation to the order of Efthim AsJ, but the summons did not specify on its face the additional amount sought. The summons also sought specific discovery.

28 The summons was returnable before Justice Croft on 3 March 2010. Prior to that date, on 24 February 2010 the solicitors for the plaintiff proposed an adjournment of the hearing to allow evidence to be put on and instructions to be obtained, which required a short period of time given recent surgery undertaken by Mr Manderson.[8] The defendant replied by letter dated 25 February 2010[9] to the effect that it did not accept the reasons advanced for adjournment and would seek to proceed. On 3 March 2010 Justice Croft directed that the application be heard by Efthim AsJ, whose associate informed the parties by email dated 12 March 2010 that His Honour would hear the application on 16 March 2010.[10] In the meantime, Justice Croft had struck out the plaintiff's statement of claim (on 9 March 2010). The solicitors for the plaintiff suggested by email dated 15 March 2010 to the solicitors for the defendant that the hearing of the summons be adjourned until "our client has had an opportunity to file and serve its amended pleading".[11] The defendant agreed, by letter dated 1 April 2010, but only if the plaintiff stipulated a date for such amended pleading, which date was no later than 20 April 2010.[12] Significantly for the arguments advanced on this summons, the defendant did not agree by that letter to delay the hearing of its application for further security indefinitely, and nor did it require that its defence be filed before hearing of such application. The letter also noted that "our client reserves its right to claim security for costs in respect of the costs expended to date and those that are incurred until our client's security for costs summons is heard" (emphasis added).

29 The plaintiff by its response dated 13 April 2010 declined to specify a date by which it would replead and reiterated the view that the application for further security should not be heard before the repleaded statement of claim. This was apparently accepted by the defendant because the reply of 21 April 2010 agreed that "the hearing of the application for security for costs would be premature at this time."[13] The letter reiterated the reservation of a right to claim security for costs expended to date.

30 The defendant did not thereafter prosecute the summons filed 23 February 2010 in relation to further security. It did not foreshadow a further application for security for costs (other than in respect of the appeal) until after the appeal, when, by letter dated 29 March 2012 from the solicitors for the defendant to the solicitors for the plaintiff[14], it sought agreement in principle from the plaintiff that it pay further security. The application for security was not further pursued until the defendant provided draft directions to the associate to Justice Croft on 27 September 2012, which made provision for an application to be filed by 19 October 2012. Those directions were made, and this application filed in conformity with them.

31 Prior to the making of this application, both parties proposed further applications for discovery (by orders made by consent on 21 June 2012) and those applications were heard by Croft J. on 15 August 2012. He ordered each party to provide particular discovery. The parties made further discovery on 14 and 27 September 2012 and engaged in further correspondence about the adequacy of same.

32 The defendant says on this application that it was not practicable to prosecute an application for further security until the pleadings were closed, and this did not occur until the filing of the reply on 19 June 2012. Accordingly, the defendant says that the relevant period for delay, if any, is only from 19 June 2012 i.e. a period of 4 months. As I set out above, it appears costs were incurred during that time (June to October) in relation, at least, to discovery applications, compliance and inspection.

33 In support of this submission, the defendant relies on the exchange of correspondence in 2010, in relation to the summons of February 2010. The defendant also relies on the plaintiff's resistance to its March 2012 request for agreement in principle to provide further security. The plaintiff, by letter of its solicitors of 5 April 2012, declined to give this agreement on the basis that the defendant had not responded to the latest comment in relation to the proposed amended statement of claim. The letter states that, until that response was received "our client is not in a position to reach any agreement on the issue of security for your client's future costs of the proceeding, simply because we are unable to determine at this stage precisely what the future steps of the proceeding are likely to be".[15] The defendant says this reflected an agreed position that the application not be made until the close of pleadings.

34 In my view, it is stating it too highly to say there was such an agreed position. The plaintiff's letter refers to knowing the defendant's current view in relation to the proposed statement of claim, not the close of pleadings, and the plaintiff did, in any event, give the requested agreement in principle by letter dated 12 April 2012.[16] The amended statement of claim was shortly thereafter agreed and filed by consent. The responsive amended defence was served 25 May 2012.

35 There is no evidence of any actual prejudice to the plaintiff if security is now ordered for past costs. Further, the defendant says prejudice could only arise if the plaintiff took steps it may not have taken had it known that an application for security might be made. The defendant relies on the reservations of its right to prosecute an application for further security in the 2010 letters referred to earlier, including in relation to past costs, to say that there cannot be any prejudice because the plaintiff was always on notice of the likelihood of such an application.

36 Mr Linsdell asserts in his report that security is not ordered in respect of past costs the subject of a costs order.[17] He does not cite any authority for that proposition. The plaintiff relies on a statement in Dal Pont that while security may be ordered in respect of costs already incurred, they must be costs not the subject of an existing costs order.[18] The case cited in the text as authority for that proposition, Jet Corporation of Australia Pty Ltd v Petres Pty Ltd (1985) 10 FCR 289, does not, however, on examination, address that issue. Accordingly, there is no authority before me in relation to the issue.

37 Argument was put for the plaintiff that the defendant has a remedy available to it other than security in respect of past costs the subject of a costs order, being taxation. The defendant says that, as a practical matter, this remedy is not available prior to conclusion of the proceedings because the taxation would require the defendant to waive its privilege in the file.

38 On examination, I do not consider that it is necessary to determine this issue, nor possible to determine its impact. Orders for costs have been made on a number of occasions after Efthim AsJ's judgment in relation to security, including on that application, but orders have been made each way. Thus, arguably, some offsetting may be required if security is to be refused because of past cost orders. That task cannot be undertaken on this application. Further, the significance in quantum of the issue is hard to determine. In particular, the main costs order in favour of the defendant, the order of Croft J. on dismissal of the proceeding, was set aside by the Court of Appeal, which suggests that the significance may not be great.

39 For these reasons, I will disregard the fact that some past costs sought to be secured may be the subject of existing costs orders in favour of the defendant.

Discussion and conclusion in relation to past costs

40 The case for or against ordering security for past costs is in my view finely balanced. On the one hand, in favour of an order, there is no dispute that the threshold of impecuniosity is established i.e. the plaintiff would be unable itself to meet an adverse costs order in the event of the defendant succeeding at trial. Yet if the plaintiff is successful, the benefits will flow to the persons behind the plaintiff or the litigation funder. In those circumstances, there is a powerful argument for security.

41 Further, for most of the period from the filing of the second application for security by the defendant in February 2010 the plaintiff did not have a pleading on foot that was acceptable to the defendant and the Court. This was the case from 9 March 2010 at least until 1 March 2012, when the statement of claim for which leave was later given by consent was served, and, arguably not until 30 April 2012 when that pleading was filed by consent. Even if the period between dismissal of the proceedings (May 2011) and successful appeal against that order (December 2011) is disregarded, for much of the period which the plaintiff now says represents unacceptable and disentitling delay by the defendant, the steps undertaken by the plaintiff were directed to getting its own house in acceptable order, before the litigation could progress. The argument that the plaintiff has necessarily suffered prejudice by steps undertaken during the period of delay is correspondingly weakened. There is no evidence of any actual prejudice.

42 As against these factors, in my view there were obvious opportunities available to the defendant to seek to prosecute the summons for further security from at least July 2010 when the solicitors for the defendant wrote to the solicitors for the plaintiff identifying concerns in the draft statement of claim served after the strike out by Croft J. on 9 March 2010. These opportunities include that response to the draft statement of claim and every response thereafter to a new iteration, and the return of the plaintiff's summons for leave to file its current version which came before Croft J. on 29 November 2010. The defendant chose not to utilise these opportunities.

43 I do not accept that the explanation for the February summons for security not proceeding was solely the plaintiff's request. The plaintiff made the initial suggestion to await a new pleading, which was agreed, but once that was supplied and it became evident that further steps would be required before pleadings were closed, this explanation for failing to prosecute the summons lost its force. The weakness in this explanation could only have been reinforced by the subsequent attempts to secure agreement in relation to an acceptable statement of claim.

44 The defendant relies on the statements in its letters of 1 April 2010 and 21 April 2010[19] that it reserved its right to seek security for costs already expended. Certainly notice to the plaintiff in this form is better than no notice at all, but it needed to be followed up with action. Otherwise, the threat could reasonably be seen as hollow. In this regard, I respectively adopt the view expressed by Schmidt J. in Karl Suleman Enterprises Pty Ltd (in liquidation) v Pham and ors[20], that merely putting the plaintiff on notice in this way is not of itself enough.

45 All that the defendant did thereafter in relation to security for costs for the trial was write, in January 2011, and seek an undertaking from the litigation funder that it would meet a costs order. The undertaking was refused but the defendant did not then take the matter any further.

46 I consider the course of events shows that the defendant chose to concentrate on strike out of the plaintiff's pleading, ultimately seeking and obtaining judgment, rather than obtaining further security. This may have been a legitimate forensic choice at that time, but the defendant should not now be permitted to change tack, because the plaintiff was successful in overturning that judgment on appeal and eventually securing an acceptable pleading.

47 The arguments advanced by the parties in this application were also advanced before Justice Croft on the application for costs arising from his dismissal of the proceedings. The defendant sought costs orders as against the litigation funder, Hillcrest Litigation Services Ltd, and the individuals behind the plaintiff, as well as the plaintiff. Justice Croft dismissed the applications against the litigation funder and the individuals, and also the application for costs on a higher scale as against the plaintiff. He was critical in his judgment[21] of the delay at the hands of the defendant in making the first application for security for costs[22]. In making this criticism, Justice Croft noted the submission put then, as now, by the defendant that it could not have acted sooner given the absence of concluded pleadings. Justice Croft did not determine the force of the submission, but noted that it was inconsistent with the continued steps taken by the defendant in relation to discovery, notwithstanding the absence of concluded pleadings.

48 I take the same approach. I do not consider the absence of concluded pleadings constituted sufficient basis for the defendant's failure to take timely action in relation to further security, given that it continued to expend funds in commenting on the various iterations of the statement of claim.

49 Further, given that the applications for non party costs orders before Croft J. failed in part because of delay by the defendant prior to the first application for security, it is, to say the least, surprising that the defendant did not take action to protect its position in relation to costs immediately the appeal was determined, and the judgment dismissing the proceedings overturned, in December 2011. There was then no statement of claim on foot, but the new draft statement of claim was served 1 March 2012. The defendant did not, on the evidence before me, take action in relation to security until 29 March 2012 i.e. 28 days after service of the new draft statement of claim, when its solicitors sent two letters, one to the solicitors for the plaintiff's litigation funder, Hillcrest Litigation Services Ltd ("Hillcrest")[23] and one to the solicitors for the plaintiff.[24]

50 The letter to the solicitors for Hillcrest sought an undertaking by 12 April 2012 that Hillcrest pay any costs order made in favour of the defendant. The letter to the solicitors for the plaintiff sought an agreement in principle by 5 April 2012 that the plaintiff provide further security. After some further correspondence between the parties, the plaintiff confirmed by letter dated 12 April 2012 that it "will have to provide further security for costs in an amount to be agreed upon or fixed by the Court and stands prepared to provide this security".[25] By letter of the same date, Hillcrest refused to provide the requested undertaking.

51 Yet no action was taken by the defendant to prosecute its claim for security, which had been agreed in principle on 12 April 2012, until 27 September 2012 that is, more than five months later, when it proposed a timetable for the making of an application. The letter of instructions to Ms Harris, the costs specialist retained by the defendant, was not sent until a week later on 5 October 2012.

52 As set out earlier, on the facts of this case I do not consider the absence of a filed statement of claim to be fatal to an application for further security, or to excuse delay in making such application, given that the parties were actively engaged in negotiation about such a document. But if I am incorrect in that view, in any event there was no barrier once the statement of claim had been filed by consent on 30 April 2012. The defendant could then have made its application, if necessary to be considered once the responsive defence had been served and the issues identified.

53 In summary, I do not accept the explanation for delay given for failing to prosecute an application for further security from at least July 2010, allowing for a period of consideration of the then draft of the statement of claim. Prior to the dismissal of the proceeding on 23 September 2011 the defendant appears to have chosen to focus on obtaining judgment, rather than security. Following the overturning of that order on appeal, again the defendant did not act promptly, even once an agreement to provide security in principle was given. It was presumably evident to the defendant that the existing security was insufficient at least by February 2010, when it filed the second application, but it was not prosecuted.

54 I will shortly consider the application for security for future events. As will be seen, I will allow for security for the future events of mediation, advice on evidence and an expert witness report, even though amounts were allowed for these items in the earlier order. Thus the security already ordered for these items is to be supplemented, not because the requirements for these events have changed, but because it has become insufficient having regard to other steps taken. Thus, the defendant is arguably achieving some security for past costs in any event.

55 In all the circumstances, I do not consider that my discretion should be further exercised to afford security for costs already incurred.

56 The plaintiff disputes that any further amount should be awarded for the mediation because this was an event specifically provided for by Efthim AsJ in the earlier order. If it is to be ordered, the plaintiff disputes the amount sought.

57 My concern with this submission is that it assumes a prescriptive allocation of amounts ordered by way of security for particular events to the actual costs incurred in respect of those events. It is unrealistic and artificial in my view to require a party whose costs are secured in respect of a particular event to allocate that security only to that event. The reference to known or likely standard future events is necessary for the purpose of the calculation of the amount of the security, but given that the particular future course of the litigation is not known at that time it would be unduly prescriptive to limit the use of that security to those events only.

58 On the other hand, the mediation has not yet been held, and to allow further security for the mediation is to allow the defendant to apply the amount included in the previous security for that event to other costs. It provides by default some security for past costs, notwithstanding the unwarranted delay in applying for such security.

59 On balance I consider it appropriate to order further security for the mediation. It is clear that the past security has been well exceeded by the costs actually incurred, and the mediation is such an important event I consider that the defendant's position in relation to the costs thereby incurred should properly be protected. The amount that I will order is, in the scheme of things, not large, and so I would hope that the unavoidable delay in delivery of this judgment has not prejudiced the arrangements already made for the mediation.

60 The defendant's expert, Ms Harris, calculates $48,071.80 for the costs of the mediation. This calculation was based on a two day mediation and one day preparation, and it is now agreed that the mediation be one day only, with a corresponding reduction in the costs of counsel. The amount allowed for the mediator by Ms Harris (and accepted by the plaintiff's costs expert, Mr Linsdell) is $5,000 per day, which is, however, substantially less than the amount to be charged by the mediator the parties have agreed upon, which is $11,000 per day. Mr Linsdell has calculated the defendant's party/party cost of the mediation at $31,497.73 allowing one day for the mediation and one day preparation (as now agreed), but allowing the same amount as Ms Harris for senior counsel ($7000 per day) and junior counsel ($3000 per day). The discrepancy is otherwise accounted for by lower solicitor charges, including the allowance for care and attention, skill and responsibility. In relation to this loading, Mr Linsdell takes the view that a 15% loading should apply to solicitor charges, rather than the 30% proposed by Ms Harris.

61 Mr Linsdell says that the approach taken in Supreme Court taxation is to allow a skill loading in respect of certain items only, not the whole of solicitor charges. Ms Harris agrees with this in her affidavit in reply, but says that Associate Justice Efthim took the approach of a skill loading on all items. It is not necessary to determine this issue, because, in any event, Mr Linsdell appears to accept that, given the limited information disclosed by the defendant to Ms Harris, a loading can be calculated on the whole of the solicitor charges. He says, however, that this should be on a cautious basis given this limited information and so proposes 15%. Ms Harris in her affidavit in reply affirms her view that 30% is appropriate, citing one instance where the amount she proposes as a 30% loading is substantially less than what would be recovered by a loading on that item only, being the review of discoverable documents.

62 The expert's have not been cross examined, the costs of doing so no doubt not being warranted. Accordingly, I am not in a position to examine their competing assertions beyond face value. I consider that a cautious approach is appropriate, and so will accept Mr Linsdell's approach. I do so largely because it is due to the defendant's choice that the whole file has not been made available to Ms Harris. This is understandable, as the litigation is not concluded and the file contains privileged material. It may also be, as the defendant submits, that this choice operates to the defendant's prejudice on this application, not the plaintiff's, as the whole file may well disclose further necessary steps, the costs of which are recoverable on a party/party basis. Nevertheless, a calculation made on limited material should in my view be approached cautiously.

63 Associate Justice Efthim allowed $50,000 for the mediation then some time in the future, prior to discount, but assumed a two day mediation. The mediation is now set and proximate. It is now agreed it will be a one day mediation, and the parties have agreed on a mediator at a higher rate. I will allow counsel fees as agreed for one day mediation and one day preparation at $7000 for senior counsel and $3000 for junior counsel, being $20,000. I will also allow the defendant's half of the agreed mediator rate (one day mediation, one day preparation), being $11,000. For solicitor's costs I accept the objections made by Mr Linsdell as to items and loading, and so allow $5,650.20 for solicitor charges and a 15% loading, totalling $6497.73.[26] The total is $37,497.73. This amount is to be paid or secured prior to the mediation, unless the parties otherwise agree in writing. I will make no discount, given the proximity of the event, the certainty of the mediator's costs and the agreement as to counsel fees.

64 There is no current order in relation to security for costs following the mediation. The defendant sought security up to the trial in its first application but Efthim AsJ took the view that security should only be ordered up to and including the mediation. Accordingly, in so far as the defendant seeks security for costs to be incurred after the mediation the application is a fresh one, not an application for variation. The plaintiff does not dispute that it should provide some security.

65 The issue between the parties is quantum. The defendant seeks security for future costs up to but not including the first day of trial on the basis of Ms Harris's report in the sum of $423,824.80. The defendant says no discount should be applied to this sum. Mr Linsdell for the plaintiff says that the amount of anticipated party/party costs justifiable to the first day of trial are in the sum of $186,566.42. Efthim AsJ applied a 30% discount to the sum he arrived at for future costs. If such an approach were taken here, the discounted amount on Mr Linsdell's figures would be $130,596.49. The plaintiff proposed this sum in its written submissions. At hearing, counsel further reduced the proposal to $102,550.

66 I will not consider each individual item in detail. Estimates for an application for security for future costs are necessarily that- the procedure is not a taxation, and a broad brush approach is appropriate. The events addressed by Ms Harris and Mr Linsdell between mediation and trial are as follows:

• Case management conference: Both parties include items in relation to the case management conference which has been scheduled. Mr Linsdell proposes lower solicitor costs and only half the amount allowed by Ms Harris for senior counsel to settle the list of issues.

• Advice on evidence: Ms Harris proposes an allowance of $27,690 including counsel fees of $26,000. Mr Linsdell says this item should not be allowed as advice would already have been given and the item includes perusal of large numbers of discovered documents otherwise provided for.

• Witness statements: Ms Harris allows for ten witnesses for the defendant and five for the plaintiff. Mr Linsdell allows for seven for the defendant and five for the plaintiff. The experts also disagree as to the number of hours to be allowed for taking statements and the extent to which counsel involvement would be a party/party cost. Ms Harris proposes $127,974.40 for witness statements (including $50,000 for counsel), and Mr Linsdell $42,772 (including $23,000 only for counsel).

• Expert witness statements: Ms Harris allows approximately $98,000 in respect of two expert witnesses for the defendant and one for the plaintiff, including $54,000 payment to the experts and $20,000 for counsel conferring with experts (being senior and junior counsel at the agreed rates for two days). Mr Linsdell says only $25,000 should be allowed for payment of experts as AsJ Efthim allowed $40,000 and he (Mr Linsdell) has provided elsewhere for $15,103.20 for briefing of the experts. Mr Linsdell also says no separate allowance should be made for counsel conferring with experts as this is included in preparation. He also disagrees with the quantum of some solicitor items included.

• Directions hearing: Ms Harris allows $5894 for a directions hearing. Mr Linsdell says this is unnecessary.

• Court book: Mr Linsdell disputes that a conference with counsel as to the contents is party/party in nature ($298).

• Preparation for trial: Ms Harris allows for solicitor conferences with ten witnesses, Mr Linsdell for seven in total (five lay and two expert). There may also be a dispute as to whether one or two solicitors should be allowed. Generally, Mr Linsdell only allows for one on a party/party basis.

• Correspondence: Ms Harris allows $2156 for general correspondence. Mr Linsdell says this is excessive and speculative.

• Brief on trial: Ms Harris allows solicitors' costs for drawing and engrossing the brief to senior counsel to appear on trial and a solicitor skill loading of $37,000. Mr Linsdell says that no amount should be allowed for the brief, given the ongoing involvement of counsel, and his approach in relation to the skill loading is to allow 15% on all solicitors costs. He also disagrees with Ms Harris' allowance of $18,000 to qualify expert witnesses on the basis that it is a duplication of amounts already allowed under expert witness statements. He and Ms Harris agree on the preparation and conference fees for senior and junior counsel of $56,000 and $24,000 respectively.

67 Efthim AsJ allowed $20,000 for such advice, on the basis that an advice at an early stage and before mediation may be helpful. Thus a similar issue arises in relation to a request for further security for this item as in relation to mediation. Further, I consider there is force in the observation by Mr Linsdell that it is reasonable to assume the defendant has already obtained advice, even if not formalised, in relation to evidence, given the number of times this matter has been before the Court since the last order. It follows that any further security runs the risk of being in respect of past costs.

68 This item was not the subject of detailed submission. As the pleadings only closed after the last order, I will allow an amount, but $10,000 only, being one day for senior and junior counsel.

69 No specific justification has been advanced by the defendant as to the number of such witnesses (Ms Harris was required to assume ten lay witnesses), other than the assertion by counsel for the defendant that more than ten persons are named in the pleadings. The submission was not elaborated, and, at a minimum, if it was to be the basis of the number of witnesses to be assumed, would require analysis of the issues as to whether each of those persons needed to be called. No order has been made for witness statements and it may be that evidence in chief of some or all lay witnesses will be required orally. I accept that those witnesses will need to be proofed, but the documentation required may then be at a lower level of formality. I also accept the comment of Mr Linsdell that senior counsel may not need to be involved in every proof or witness statement, but I consider some solicitor costs should be allowed for conferring with counsel and witnesses (item 53, which Mr Linsdell entirely discounts).

70 Taking all these matters into account, I will allow $50,000 for witness statements/proofs prior to a skill loading and before any discount.

71 Associate Justice Efthim allowed $40,000 for one expert report. If a further amount is allowed, the past security is effectively applied against past costs not the subject of the order, as in relation to mediation and advice on evidence. The plaintiff does not argue entirely against a further amount, but submits that the defendant has not advanced any evidence that two experts are required for the defendant.

72 I accept this submission. The instructions to Ms Harris from the defendant's solicitors ask her to assume two expert witnesses for the defendant, but only one for the plaintiff. The only explanation given for the increase in number for the defendant, and disparity in number with the plaintiff, was given in reply by counsel for the defendant, being that one expert is required in respect of accounting and one in respect of lease financing, and that the plaintiffs themselves are experts. An explanation provided in this way is not capable of proper examination by the other party. I will allow for one expert only.

73 The amount claimed by the defendant in the first application for one expert was $48,531.40 and $40,000 was allowed. Costs have increased, but the defendant should bear some deduction given that any award will effectively allow it to utilise the previous security for past costs, despite no application having been pursued in a timely way. The plaintiff did not elaborate in submissions on Mr Linsdell's assertion that he has allowed solicitor costs in the sum of approximately $15,000 elsewhere in relation to experts. I will allow $40,000.

Case management conference, directions hearing and court book

74 A case management conference has been scheduled after mediation. This event is included in the costs as prepared by each party, but the quantum is in dispute. Neither counsel took me to these items. The defendant says no further directions hearing should be included. Given that this matter is in a managed list, I consider it likely there will be a further directions hearing. The dispute about the court book is minor. Taking a broad approach, I will allow what is claimed by the defendant for all these matters.

75 This relates back to the dispute about numbers of witnesses. I will allow the amount as reduced by Mr Linsdell of $4256 prior to skill loading or discount.

76 No doubt there will be some letters, but I accept the submission of the plaintiff that the number is (necessarily) speculative and may be excessive. In the overall scheme of things I do not consider allowance needs to be made for this by way of security.

77 Neither counsel took me to these items specifically, although there was some oral submission in relation to the approach to skill loading generally. I will allow the amount claimed by the defendant by way of solicitors' costs for this brief. Notwithstanding previous involvement by counsel, a specific amount for the trial brief is warranted in my view. I accept Mr Linsdell's criticism of the proposed disbursement for qualifying expert witnesses. I will also, for the reasons set out earlier, adopt his approach to the skill loading. Accordingly, the amount to be included under this item is $2838 for solicitors' costs and $80,000 for counsel fees.

78 Accordingly, I allow items 18-31, 82-89 and 90-95 as claimed by the defendant (case management conference, directions hearing and court book- total $22,877.80 of which $6377.80 are solicitor costs and $16,500 counsel fees). In relation to items 32-40 (advice on evidence) I allow $10,000 for counsel fees. In relation to items 41-59 (witness statements) I allow $50,000, being counsel fees of $23,000 as allowed by Mr Linsdell and $27,000 for solicitor costs. In relation to items 60-81 (expert witnesses) I allow $40,000, being $27,000 for the witness and $13,000 solicitor costs. In relation to items 96-99 (preparation for trial) I allow $4256 solicitor costs. I disallow items 100-102. In relation to items 103 to 110 I allow $2838 in solicitors' costs and $80,000 for counsel.

79 Of the amounts set out above, $53,471.80 is professional costs. For the reasons set out above, I accept the plaintiff's submission that the skill loading should be 15% on this amount. The total amount for solicitors' costs with that loading is $61,492.57. The disbursements total $156,500.00. The total is $217,992.57.

80 I consider as follows the factors identified in Farmitalia that may mean a discount when ordering security is appropriate. If the proceeding does not settle at mediation, the prospects of settlement or discontinuance thereafter cannot be assumed to be great. I am not in a position to assess the prospects of success, and it is not asserted that the order for security will stifle the litigation. There is a degree of uncertainty in relation to some of the material used for assessment of these future costs (in particular the number of lay and expert witnesses) but I have been conservative in this regard and I consider that discount is not warranted on this basis. There is no counter claim. There is the prospect of further reduction on taxation, but again I have been conservative as to what is allowed.

81 For these reasons I will discount the amount to be ordered by 10% only.

82 The discounted figure to be ordered by way of security for future costs, excluding mediation, is $196,193.31, which I will round down to $196,193.00.

83 The defendant is required, in consultation with the plaintiff, to draw an order to give effect to these reasons. I will hear the parties as to costs if required.

[2] Unpublished judgment dated 28 May 2009, which is KJE-2 to Mr Elkington's affidavit, at [19].

[3] Southern Cross Exploration NL and ors v Fire & All Risks Insurance Co Ltd (1985) 1 NSWLR 114 ("Southern Cross Exploration"), at 122-123

[5] [2011] WASCA 176. The other cases relied upon are Southern Cross Exploration, op cit; Darelvale Holdings Australia Pty Ltd v Watejet Designs Pty Ltd unreported decision of Merkel J. in Federal Court proceeding V337 of 2002 27 August 2003; Felsink Pty Ltd v City of Maribyrnong and anor [2007] VSC 49; Green v CGU Insurance Ltd [2008] NSWCA 148; Karl Suleman Enterprises Pty Ltd (in liquidation)v Pham and ors [2010] NSW SC 886; Ransard Pty Ltd v MM Holdings (No 2) Pty Ltd [2009] QSC 438; Melunu Pty Ltd v Claron Constructions Pty Ltd and ors [2004] NSWSC 1064

[6] 2nd edition, LexisNexis Butterworths, Australia 2009 at [28.37].

[7] Op cit, at [47], [1] and [56].

[8] Letter dated 24 February 2010, being Exhibit JLK-40 to Mr Kelp's affidavit of 25 May 2011.

[9] KJE-3 to the affidavit of Mr Elkington sworn 1 November 2012.

[10] Part of KJE-5 to the affidavit of Kevin Elkington sworn 1 November 2012.

[14] Affidavit of Kevin Elkington at [11].

[21] Manderson M & F Consulting (A Firm) v Incitec Pivot Limited [2011] VSC 441, delivered 23 September 2011.

[22] Ibid, at [38]-[40], [52]- [53]

[23] JLK-1 to Mr Kelp's affidavit sworn 7 November 2012

[26] Mr Linsdell's report, being Exhibit PGL-2 to his affidavit of 2 November 2012, at [40] and [41].

Court (General Civil Procedure) Rules 2005

At a glance

Court

Decision date

Before

Source

Judgment (119 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (3)