Plaintiff v Defendant

Supreme Court of Victoria|2013-10-25|Before: CROFT J

PRACTICE AND PROCEDURE - Security for costs - Arbitration - Commercial - significance of delay in making application - weighing of discretionary factors - Corporations Act 2001 (Cth), s 1335(1) - Commercial Arbitration Act 1990 (Qld), s 47 - Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; - ; - -

1 This application has been brought pursuant to s 47 of the Commercial Arbitration Act 1990 (Qld) ("CAA"), s 1335 of the Corporations Act 2001 (Cth) and under the Court's inherent jurisdiction, for an order for security for costs in relation to an arbitration due to commence on 25 November 2013.

2 The plaintiff in this proceeding, Trility Pty Ltd ("Trility"), is the respondent to an arbitration ("the Arbitration") before Mr Michael Shand QC ("the Arbitrator") with the defendant, Ancon Drilling Pty Ltd ("Ancon") pursuant to an Arbitration Retainer Agreement dated 15 December 2011.

3 The proceeding was commenced by originating motion filed in this Court on 3 October 2013 and seeks, inter alia, security for costs in the amount of $1,174,481.82, with the Arbitration to be stayed until such security is provided or until further order.

4 Section 47 of the CAA provides:

"47 General power of the court to make interlocutory orders

The court shall have the same power of making interlocutory orders for the purposes of and in relation to arbitration proceedings as it has for the purposes of and in relation to proceedings in the court."

It is common ground that this Court is vested with jurisdiction in respect of the CAA by reason of s 4 of the Jurisdiction of Courts (Cross Vesting) Act 1987 (Qld). In any event, s 47 of the Commercial Arbitration Act 1984 (Vic) confers on this Court the same power as its Queensland counterpart.[1]

"Where a corporation is plaintiff in any action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence, require sufficient security to be given for those costs and stay all proceedings until the security is given."

6 The dispute between the parties concerns the works the subject of a Subcontract Works agreement dated 29 April 2010 ("the Subcontract"), which were undertaken during the period from 2010 to 2011. Pursuant to the Subcontract, Trility engaged Ancon to drill three horizontal boreholes as part of the construction of a wastewater treatment and desalination plant in Agnes Water and the Town of 1770 in Queensland. The site of the Subcontract works was a beach within the Great Barrier Reef Marine Park, with the works being subject to environmental restrictions including that no works could be carried out during the turtle nesting season between 1 October and 28 February. The price for the Subcontract works, subject to the terms of the Subcontract, was $6,419,767 plus GST.[2]

7 It is accepted by the parties that work was carried out by Ancon under the terms of the Subcontract, and that Trility has made payment for this work in respect of five invoices.[3] In any event, disputes arose about certain terms of the Subcontract. A Notice of Termination dated 15 August 2011 was sent by Trility to Ancon, and by letter dated 23 September 2011 Ancon accepted Trility's repudiation.[4]

8 Trility submits that the power to award security for costs is engaged when it appears that there is "reason to believe" that Ancon will be unable to pay Trility's costs of the Arbitration in the event that Trility's defence succeeds.[5] The meaning of the term "reason to believe" was considered in the Court of Appeal decision in Livingspring Pty Ltd v Kliger Partners[6], where Maxwell P and Buchanan JA said:[7]

"The phrase "reason to believe" is the touchstone of jurisdiction. It requires a rational basis for the belief - and no more. The wording adopted may be contrasted with other familiar formulations such as "If the court is satisfied that..." or "If in the view of the court it is likely that...". The section requires the making of a judgment, a risk assessment; is there a risk that the corporation will be unable to pay? (It adds nothing, in our view, to say that it must be a "real risk".) A risk assessment is, of necessity, imprecise. The section calls for a practical, commonsense approach to the examination of the corporation's financial affairs.

It may be said, with justification, that this is a low threshold. But the test simply reflects the policy of the provision, which is to protect a defendant against the risk of the plaintiff corporation's impecuniosity. The provision equips the court with the means to require that the defendant be secured against the risk."

9 The principle that guides the exercise of the discretion with respect to security for costs is the achievement of a balance between ensuring that the defendant is adequately and fairly protected from prejudice arising from the limited liability character of the plaintiff and the risk of unnecessarily shutting out from relief a plaintiff whose case, if litigated, may result in its obtaining relief.[8]

10 To assist in this balancing exercise, the courts have developed a number of guidelines, or discretionary factors, which assist in exercise of the discretion.

11 It is uncontroversial that the discretion to award security for costs is unfettered and should be exercised having regard to all of the circumstances of the case.

12 In Ariss v Express Interiors Pty Ltd[9], Phillips JA said:[10]

"Although of course, like any discretion conferred upon a court, it must be exercised judicially, the discretion conferred by s 1335 should be accepted now as altogether unfettered, but upon the footing that the very fact of which there must be credible evidence in order to enliven the jurisdiction in the first place may itself be a factor, even a most significant factor, in the exercise of the discretion."

13 Subsequently, in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd[11], Winneke P and Phillips JA stated that:[12]

"The authorities tend to suggest that the discretion given to the court by s 1335 to make an order for security against an impecunious company is "open ended" and not to be fettered by rigid guidelines or principles ..."

14 The task of the court then is to decide which of any number of discretionary factors should be taken into account in determining whether to exercise the discretion and to give them the weight according to the particular circumstances of the case.

15 In Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd[13], French J (as his Honour then was) considered a number of these factors that may be taken into account in determining whether any application for a security for costs order should be granted. Those factors include: whether the orders being sought would frustrate the claim, the merits of the claim, whether the defendant was the cause of the plaintiff's impecuniosity, and whether there was delay on the part of the applicant.

16 In KP Cable Investments Pty Ltd v Meltglow Pty Ltd[14], Beazley J identified a further three factors that should be added to the well established list which the court may take into account in determining any application for security:[15]

"5. Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security...

An issue related to the last guideline is whether the persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking...
Security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not be made against parties who are defending themselves and thus forced to litigate..."

17 Trility submits that the need to look behind the financial circumstances of the plaintiff to those who stand to benefit from the litigation should lead to the Court finding there is "reasonable belief" that Ancon will be unable to meet an adverse costs order.[16]

18 In Bell Wholesale Co Pty Ltd v Gates Export Corporation[17], Sheppard, Morling and Neaves JJ said:[18]

"In our opinion a court is not justified in declining to order security on the grounds that to do so will frustrate the litigation unless a company in the position of the appellant here establishes that those who stand behind it and who will benefit from the litigation if it is successful (whether they be shareholders or creditors or, as in this case, beneficiaries under a trust) are also without means. It is not for the party seeking security to raise the matter, it is an essential part of the case of a company seeking to resist an order for security on the ground that the granting of the security will frustrate the litigation to raise the impecuniosity of those whom the litigation will benefit and to prove the necessary facts."

19 In support of its submission, Trility points to a decision of the South Australian Supreme Court[19] where it was said that the Court should expect the respondent to a security for costs application to put forward as evidence a full and frank statement of its assets and liabilities and of the assets of those who stand behind it.[20]

20 In Dagenham Nominees Pty Ltd trading as Banwell Marine Service v Gary Shanks[21], the two directors of the plaintiff company produced affidavit material that their financial circumstances were modest, that they did not have the capacity to both provide security as well as fund the appeal, that the company itself would not be able to provide security of costs, and that a loan of $5000 from one of the directors would not be able to be obtained for a number of months.

21 Despite this evidence, Blue J found that:[22]

"Dagenham has not adduced evidence of the assets of Mr and Mrs Banwell, or of material facts relevant to their ability to provide or raise the funds necessary to provide security for costs. The evidence contained in Mr Banwell's two affidavits falls far short of discharging the requisite onus of proof referred to above."

22 Trility also submits that the affidavit evidence put forward on behalf of Ancon establishes that the company would not be in a position to meet an adverse costs order[23], while also inviting the court to draw an adverse inference from the fact that no evidence has been put forward by Ancon as to the financial position of those that stand behind the company.[24]

23 In support of this, Trility relies on an unreported judgment of the Supreme Court of Western Australia in Blackbird Entertainment Pty Ltd & anor v I O Research Pty Ltd [25], where White J said:[26]

"Furthermore, the failure, which must, I consider, be regarded as deliberate, to disclose their financial position in Ainsworth's replying affidavit provides support for that proposition, on the principle of Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298. As to that, I respectfully adopt what Murray J said in Tipperary Developments Pty Ltd (supra), at 8-9:

"For the defendant it is argued that I may have regard to the failure of the plaintiff to provide complete information about its financial position and prospects and by applying what is generally referred to as the rule in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, that the unexplained failure of a party to give evidence may, in appropriate circumstances, lead to an inference that the uncalled evidence would not have assisted that party's case, so entitling the court the more readily to draw an inference against that party which might otherwise fairly be drawn from the evidence which was adduced. That is, of course, an important limitation upon the operation of the rule. It is limited to assisting the court to draw an inference which is available from circumstantial evidence. The absence of evidence to the contrary may not, however, be directly converted into circumstantial evidence itself tending to prove the fact in issue against the silent party, as was made clear in Jones v Dunkel itself. The rule cannot be used to fill gaps in the evidence or to convert conjecture or suspicion into a matter of inference:

See per Kitto J at 308, Menzies J at 312 and Windeyer J at 321. Therein lies the impediment to the application of the rule in this case."

24 Trility submits that, given its requests with respect to Ancon's financial accounts, and what it says is the continued production of insufficient responses to these requests,[27] the evidence provided by Ancon is indicative of a deliberate attempt to conceal the financial history of the company, which allows the Court to draw an adverse inference by reference to the rule in Jones v Dunkel.[28]

25 A number of affidavits have been provided by both parties as evidence in the substantive proceeding, the dispute the subject of the Arbitration. Some of these affidavits have been provided to this Court as evidence in support of party submissions.

26 As some of the information contained in these affidavits contains commercially sensitive information, it is not appropriate that I refer to their contents in any great detail for the purposes of this application. Nevertheless, some general comment is required in relation to their nature as they relate to this application, and to the weight that should be given to the factors for which they are relied upon.

27 Trility submits that this evidence "clearly establishes that there is a reason to believe that Ancon will be unable to pay Trility's costs of the arbitration in the event that Trility's defence succeeds", and that "[t]he ability to meet an adverse costs order is entirely dependent on the will of its shareholders."[29]

28 The evidence provided by Ancon in the Arbitration includes an affidavit of its Managing Director, Mr Ashley Grant Peters ("Peters"), affirmed on 23 September 2013 ("the Peters Affidavit"), as well as two affidavits provided by Mr Domenic Matthew Gatto ("Gatto"), partner of King & Wood Mallesons ("KWM"), (affirmed on 23 September 2013 ("the First Gatto Affidavit") and 25 September 2013 ("the Second Gatto Affidavit")) who has the conduct of the Arbitration on behalf of Ancon.

29 These affidavits set out, inter alia, the current financial circumstances of Ancon, as well as providing some background as to the circumstances leading to the substantive dispute. While agreeing that they provide a "current snapshot" of these circumstances, Trility submits that the evidence produced goes no way to explaining what happened to assets previously held by the company or how they were valued, and nor is any evidence produce from the people who stand behind Ancon as to their financial position.[30]

The Joint Venture agreement and Ancon's former assets

30 It is clear from the evidence that in February 2012 Ancon entered into an agreement with Geotech Drilling Pty Ltd ("Geotech Drilling") whereby Ancon's property and equipment was divested by a transfer to Geotech Drilling, and whereby Ancon and Geotech Drilling agreed to a profit sharing arrangement pursuant to this agreement ("the Joint Venture Agreement")[31].

31 Ms Karen Thomas ("Thomas"), partner at Fisher Jeffries, says that upon learning of Ancon's divestment on about 12 April 2012, Trility sought from Ancon, by letter dated 16 April 2012, assurances and credible evidence as to Ancon's ability to meet any future adverse costs order.[32]

32 By letter dated 20 April 2012, Ancon provided a response which included a bank statement with names redacted, as well as a statement from its representatives that the bank statement was that of its clients.[33]

33 Further correspondence from each party followed, with Trility again seeking assurances and Ancon providing a similar response.[34]

34 Trility submits that these responses should be seen as a deliberate attempt by Ancon to disclose the history of its accounts.[35]

35 Trility also submits that in its responses, Ancon has not provided any explanation as to what has happened to any consideration for the transfer of its assets, nor of any of the profit distribution for the first two periods during which it was entitled to receive profits under the Joint Venture Agreement.[36]

36 In answer to this serious allegation that it has deliberately chosen not to disclose the history of the account, Ancon points to the evidence in the letters sent by KWM[37] and the confirmation in these that the transaction history provided was of Ancon's relevant accounts.[38]

37 It is the last letter in this correspondence sent on 9 May 2012 in which Ancon invited Trility to make an application for security for costs.

38 A key point in this application lies in the weight that should be given to a respondent's ability to point to any future right to profits as evidence that it will be in a position to meet any subsequent adverse costs order.

39 Ancon does say that if the Court were to order security in the amount sought by Trility it would not currently have the resources that would be necessary to both pay that amount and continue to fund the preparation of the Arbitration.[39]

40 It does, however, submit that there is "a proper basis for concluding that Ancon would be able to meet an adverse costs order, were one to be made, at or about the time a result can be expected in the Arbitration and the process of taxation of any costs completed (assuming these costs cannot be agreed), from the earnings that Ancon reasonably expects to make in accordance with the terms of the agreement with Geotech Drilling."[40]

41 In support of this submission, Ancon relies on Peters' statement that he is optimistic that Ancon will earn up $6 million between 23 September 2013 and April 2015 under the Joint Venture Agreement.[41]

42 For its part, Trility argues that, when deciding whether there is a sufficient reason to believe that a party will be unable to pay a future costs order, the court must only look at the funds in existence today. It is submitted that it is not proper to take into account any potential rights to future earnings.

43 In this respect, Trility relies on the decision in Tan Kah Hock v AWAP SGT 26 Investments Ltd,[42] a case where the first and second applicants together owned twenty five shares in the first respondent. The evidence before the Court was that the company was profitable and that the shareholder's entitlement to dividends out of the company would more than satisfy the application for security. In that case Gilmour J found that, despite this and the fact that there was no reason to believe that the company would not continue to be profitable, a shareholder's right to dividends is dependent upon matters that are not within their control. Consequently, this entitlement was disregarded for the purposes of the application.

44 More particularly, Gilmour J said:[43]

"However, the respondents submit and I accept, that the first and second applicants, as shareholders in Awap, have no entitlement to be paid dividends from Awap's profits. Pursuant to Arts 123 and 126 of AWAP's Articles of Association, its directors have a discretion as to whether dividends are declared. It cannot be presumed that dividends in a sufficient amount, or at all, will be declared. AWAP, by its directors, may determine to employ its profits in its present and or other business activities. I do not regard the mere possibility that the first and second applicants will be the beneficiaries of dividends as amounting to them presently having assets within the jurisdiction."

45 The position is similar with respect to receivables. In HP Mercantile Pty Ltd v Dierickx,[44] the appellant company was involved in the business of debt recovery. On the question as to weight to be given to potential future earnings, Ward JA said:[45]

"The force of the application for security for costs in the present case lies in the fact that the company's readily realisable assets at present (by reference at least to the financial statements), are comprised of case. There are amounts shown by way of receivables in the current year, but there is no (and can be no) certainty having regard simply to the financial statements as to whether those receivables would be readily able to be recovered within any particular time frame for satisfaction of a costs judgment, in circumstances where the costs judgment for the appeal coupled with the costs judgment at trial is likely to exceed the current amount held by way of cash."

46 The evidence set out in the Peters Affidavit provides limited detail about the Joint Venture Agreement with Geotech Drilling and the rights of Ancon to enjoy certain rights of return pursuant to this agreement. Clause 5.2 of the Agreement confers a right to future profits but no other interest in the assets of the Joint Venture.[46]

47 Trility submits that the effect of the Joint Venture Agreement is that any potential future profits are to be distributed contingent on certain performance criteria being achieved, as well as certain other payments first being made.[47] By Mr Peters' own assessment, Ancon's right to amounts previously stated was being "optimistic", with his optimism being based largely around Geotech Drilling's budget forecasts.[48]

48 On the basis of the decisions in HP Mercantile and Tan Kah Hock, Trility submits that the Court should not take these potential future earnings into account when deciding whether there is a sufficient reason to believe Ancon will not be able to pay a costs order in the future.

49 As the authorities show, the list of discretionary factors that have been taken into account by courts when deciding whether to exercise the discretion should not be seen as exhaustive. In every case, regard should be had to all the circumstances of the case without any predisposition in favour of the award of the security.[49]

50 Ancon submits that the primary discretionary factor to which the court should turn its mind is what Ancon calls the "gross delay on the part of Trility in bringing an application for security in circumstances where nothing material has changed in respect of the scope of the arbitration, or the anticipated costs, in about 18 months' time."[50]

51 The issue of security was first raised by Trility by a letter sent from its solicitors, Fisher Jeffries, to KWM on 16 April 2012. Prior to this, Ancon submits that Trility first became aware that Ancon had been prejudiced by Trility's alleged failure to pay it in accordance with the Subcontract.

52 By letter dated 7 May 2012, Trility informed Ancon that it did not accept that Ancon would be able to meet any adverse costs orders. On 9 May 2012, Ancon then invited Trility to make an application for security.[51] Such application was not made until 3 October 2013.[52]

53 In the affidavit of Gatto affirmed 7 October 2013 ("the Third Gatto Affidavit"), evidence is put forward of the work done by both Ancon's representatives and lay witnesses in preparation for the Arbitration, as well as the related costs that have been incurred by Ancon since the invitation to apply for security was first made.

54 It is this evidence, together with the proximity of the time at which the application for security for costs is made to the commencement of the hearing of the substantive proceeding, in the Arbitration, which Ancon says would cause it to suffer significant prejudice if an order for security for costs was now made.

55 Any delay in bringing an application for security for costs is, as the authorities indicate, likely to be seen as a factor that carries considerable weight. In Christou v Stanton Partners Australasia Pty Ltd[53], ("Christou") the delay from when the applicant first became aware of the plaintiff's financial application until they first announced their intention to apply for security was around nine months.

"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 an keep up its sleeve and play at its convenience. Delay is an important consideration in the determination of an application for a 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 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."

57 The closer is the proximity of the hearing of the substantive proceeding to the time at which any application for security for costs is made, the more weight is likely to be given to the delay factor.

58 In James v Australia and New Zealand Banking Group Ltd[55], Toohey J said:[56]

"In my view the compelling reason why an order for security for costs should not be made against Yallambee Pty Ltd, a reason which is equally applicable to the other applicants if for any reason that well-established principle to which I have referred is inappropriate, is that the hearing is to begin on 4 November, a hearing date that was fixed in August this year. The substantive application was lodged on 13 November 1984 yet this motion for security for costs was not filed until 2 October 1985... It is well established that an application for security for costs should be made promptly... The matter is now so close to a hearing and so much time and costs have been expended that it would be a grave injustice to the applicants if they were ordered to provide security for costs when it is apparent that they cannot comply with such an order."

59 In this proceeding, the application for security for costs has been filed barely seven weeks before the hearing of the substantive proceeding, the Arbitration, in a situation where Ancon submits that Trility has known since June 2011 that Ancon was, on its view, facing financial difficulties.[57] Indeed, the very idea of applying for security was put to Trility by Ancon's representatives some 17 months ago, and yet Trility has waited until seven weeks before the commencement of the Arbitration to file an application for security.

60 In reply to these submissions, Trility accepts that it would clearly be unfair if a plaintiff continued to prosecute a claim where the plaintiff would not have done so if security had been ordered at an earlier date.[58] But Trility submits that delay cannot of itself be fatal to the application.[59]

61 Clearly it depends on the circumstances. Thus in Idoport Pty Ltd v National Australia Bank[60], Einstein J said:[61]

"...evidence of delay does not necessarily render the application fatal on its own. The passage of time is merely one factor to be taken into account during the balancing exercise undertaken by the Court."

62 Trility also submits that the relevance of delay and any prejudice flowing from it must be determined by having regard to stultification. Ancon has not submitted stultification in response to this application. Rather, it says that had security for costs been ordered at an earlier stage, it would have altered the way in which it conducted its litigation in order to save costs.[62]

63 Further, Trility submits that "the potency of any delay is also mitigated by the fact that the defendant, as is the case here, has put the plaintiff on notice that it may make a security for costs application."[63]

64 In Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd[64], Lehane J said:[65]

"Obviously, there are degrees of promptness and obviously, equally, security for costs being a discretionary matter, there are cases where delay will weigh more heavily with the court than it does in other cases. In Southern Cross Exploration, for example, Waddell J held that it was appropriate to order that security be provided for costs well into a very long hearing. It is notable, however, that in the cases where, despite delay, an order has been made for the provision of security, there have been present at least one and usually two other factors. One is that the hearing or resumed hearing was not immediately imminent, certainly not as immediately imminent as it is in these proceedings. The other is that there has been some forewarning: usually correspondence concerning the financial standing of those who might benefit from the success of an applicant or plaintiff, and often detailed correspondence foreshadowing an application for security for costs."

65 It is quite clear from the evidence that Trility has had a continuing concern about the ability of Ancon to meet any adverse costs order since 16 April 2012.[66]

66 In the course of the correspondence between the parties regarding security for costs, these concerns were raised on four separate occasions by Trility; first on 16 April 2012, and again on 7 May 2012, 22 February 2013 and 3 April 2013.[67]

67 At any stage during this time, Trility was able to act on its concern and make an application to the Court seeking security, but it chose not to do so. There is nothing in the evidence to suggest that the timing of the application was not entirely within Trility's control; and for reasons which follow, I do not regard an impending or hoped for mediation as any inhibition in this respect.

68 Thomas says that due to the "continuing correspondence between the parties about mediation and the potential opportunity to resolve the disputes between the parties by mediation, Trility did not press its application for security for costs until the mediation on 12 August 2013 was unsuccessful."[68]

69 Having regard to the substantial time passing between Trility's first concern as to its ability to recover costs and the conclusion of the mediation it seems that rather than being a justification for delay it is more indicative of Trility keeping the threat of a security for costs application as "a card that a defendant can keep up its sleeve and play at its convenience."[69]

70 The issue of whether waiting for a mediation to be completed before there is a need to issue a security for costs application was considered in Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 3[70]), where Collier J said:[71]

"...it is an accepted principle in the ordering of security for costs that such an application should be made promptly. Although I know the respondents did not file an application for security for costs until after it was clear that a mediated settlement of this matter would not take place, the success or otherwise of the mediation would not have prevented the respondent's applying at an earlier date for security for costs of the trial, particularly if payment was sought to be made after the date by which medication [sic] was ordered to take place."

71 In my view, the same approach is applicable in the present context. There is no reason why Trility could not have made its application shortly after its concern with respect to Ancon's financial position arose. In the absence of a more plausible explanation, this provides further support for the view that the prospect of such an application was sought to be preserved by Trility as a threat.

72 In the recent decision of Rolfe v Investec Bank (Aust) Ltd[72], ("Rolfe") the Court of Appeal dealt with question of security in relation to the costs of an appeal. While there are of course different rules governing procedure at the appeals stage, the comments of Santamaria JA are instructive in this instance.

73 In Rolfe, the Court accepted that the respondent had promptly raised with the appellant the question of security for its costs. The Court also found that the delay had been explained to a certain extent.

74 However, having found that the respondent had not prosecuted its entitlement to seek security in a timely manner, His Honour said[73]:

"The failure of the respondent to bring its threatened application on a more timely basis may have encouraged the appellant to continue in the belief that none was to be made."

75 In further support of its submission that the application for security for costs should not be granted, Ancon claims that its current financial position has been significantly adversely affected by Trility's failure to pay to Ancon the amounts owing under the Subcontract, being the amount of approximately $13.3 million being claimed in the Arbitration.

76 In circumstances where Ancon's weakened financial position is the direct consequence of Trility's actions, Ancon submits that Trility ought not to be granted security.

77 In Wollongong City Council v Legal Business Centre Pty Ltd[74], Beazley JA (as her Honour then was) said:[75]

"If the plaintiff's adverse financial circumstances are alleged to be due to the effect of the defendant's alleged conduct subject of the claim, the plaintiff bears the onus of establishing the adequacy of its financial position before the dealings with the defendant and that the defendant's conduct either caused, or at least materially contributed to, the plaintiff's inability to meet an order for costs: see Fiduciary v Morningstar Research [2004] NSWSC 664; 208 ALR 564 at [100]; Jazabas Pty Ltd & Ors v Haddad & Ors [2007] NSWCA 291."

78 The evidence relied upon by Ancon in support of this submission is to be found in the Peters Affidavit, where evidence is provided regarding the work done by Ancon in accordance with the Subcontract.

79 Peters says that Trility's failure to pay was of enormous significance to Ancon's financial position and that Trility's failure to meet its payment obligations under the Subcontract absorbed almost an entire year's revenue.[76] Ancon, it is said, was at risk of going "broke" if Trility continued to refuse to pay, and the company was needing to seek and obtain urgent investment in order to be able to fund its operating costs.[77]

80 It was under these conditions that Ancon entered into the Joint Venture Agreement with Geotech Drilling, pursuant to which Ancon divested its property and equipment. Peters says that the terms of the Joint Venture were less favourable than they could have been, and that the company would be in a much stronger financial position today were it not for the conduct of Trility.

81 Trility submits that from the evidence before the Court it should be inferred that the financial position of Ancon has resulted from its own actions in selling all of its assets to Geotech Drilling for an undisclosed amount and its having novated its business contracts to Geotech Drilling.

82 In my view, this consideration of the mix of discretionary factors which are, in the present circumstances, to be weighed in the balance for the purpose of the exercise of discretion with respect to this application indicates that overwhelming weight is to be given to the delay in bringing the application.

83 As I have indicated, there is no plausible explanation for the delay given Trility's long standing concern - clearly evidenced in correspondence between the parties - other than that the application was being held as a Sword of Damocles over Ancon for tactical purposes. An explanation for the delay which Trility sought to maintain was that it thought the application should await the outcome of a mediation of their dispute. In my view, this is no satisfactory explanation, as there was no inhibition in its making the application much earlier and, in any event, the mediation only became impending for the purposes of an application of this kind as a result of Trility's own inaction in any event. Rather, in all the circumstances, it might be readily inferred that Trility wished to take Damocles' sword to the mediation.

84 In terms of prejudice there is the obvious consideration that if Trility's long held concern does have a firm basis then it may not be able to recover any costs awarded in its favour from Ancon. On the other hand, Ancon submits that it has been adversely affected financially as a result of Trility's conduct which is the subject of the Arbitration. It is a reasonable inference on the basis of the evidence that this state of affairs will continue at least until the substantive dispute is resolved. It is also clear, in my view, that if this application were to be granted the hearing of the substantive dispute by the Arbitrator would be further delayed and so this prejudice would continue - and all because of the delay on the part of Trility in bringing this application. In the absence of any satisfactory explanation on Trility's part this prejudice must carry the greatest weight in the discretionary factors considered.

85 Further, the prejudice arising from the likely delay in the arbitral proceedings is not a prejudice which readily invites any satisfactory ameliorating measures. A delay of this kind, apart from being likely to increase costs in any event, may lead to commercial business consequences for a party such as Ancon which are not readily ascertainable or adequately compensable It is relatively easy to make allowances to compensate a party for taking steps in litigation which would not have been taken - or not to the same extent, as Ancon says - but the potential consequences flowing from delay of a commercial or business nature are of a different kind.

86 Having regard to these matters it is not, in my view, necessary to explore the other discretionary factors in any more detail and nor is it necessary to form a final view on the veracity or significance of these factors. This is because to the extent they may be thought to be on the other side of the balance they are very much outweighed by the delay factor, for the reasons indicated.

87 For the preceding reasons, the application is dismissed.

88 The parties are to bring in orders to give effect to these reasons. I reserve the question of costs and will hear the parties further on this issue.

[1] See PWT Asia/Pacific Pty Ltd v Boncorp Pty Ltd (unreported, Supreme Court of Victoria, Byrne J, 23 November 1993, BC9304560).

[2] Defendant's submissions, para 2.1-2.3.

[6] Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377

[7] Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 at 382.

[8] Tradestock Pty Ltd v TNT (Management) Pty Ltd & ors [1977] FCA 1; (1977) 14 ALR 52.

[9] Ariss & anor v Express Interiors Pty Ltd (In Liquidation) [1996] 2 VR 507

[10] Ariss & anor v Express Interiors Pty Ltd (In Liquidation) [1996] 2 VR 507 at 514.

[11] Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; [1999] 2 VR 191

[12] Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; [1999] 2 VR 191 at 195.

[13] Bryan E Fencott and Associates Pty Ltd v Eretta Pty Ltd [1987] FCA 102; (1987) 16 FCR 497 at 505-512.

[14] KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189.

[15] KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189 at 197-198.

[17] Bell Wholesale Co Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 52 ALR 176.

[18] Bell Wholesale Co Pty Ltd v Gates Export Corporation [1984] FCA 34; (1984) 52 ALR 176 at 179.

[19] Dagenham Nominees Pty Ltd v Shanks [2011] SASC 163; (2011) 110 SASR 577.

[20] Plaintiff's submission para 18; see also Transcript p 7.

[21] Dagenham Nominees Pty Ltd v Shanks [2011] SASC 163; (2011) 110 SASR 577.

[22] Dagenham Nominees Pty Ltd v Shanks [2011] SASC 163; (2011) 110 SASR 577 at 582.

[25] Blackbird Entertainment Pty Ltd & anor v I O Research Pty Ltd, (unreported, Supreme Court of Western Australia, White J, 2 June 1998, BC9802243).

[26] Blackbird Entertainment Pty Ltd & anor v I O Research Pty Ltd, (unreported, Supreme Court of Western Australia, White J, 2 June 1998, BC9802243) at 16.

[28] Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298; and see Transcript, p 26.

[31] Peters Affidavit, para 6; and Affidavit of Ms Karen Thomas (26 August 2013) ("the Thomas Affidavit"), para 11.

[36] Plaintiff's submission, para 22.13.

[39] Defendant's submission, para 34(a).

[40] Defendant's submission, para 34(c).

[42] Tan Kah Hock v AWAP SGT 26 Investment Ltd [2008] FCA 540.

[43] Tan Kah Hock v AWAP SGT 26 Investment Ltd [2008] FCA 540 at [19].

[44] HP Mercantile v Dierickx [2013] NSWCA 87.

[46] Exhibit AGP-2 of the Peters Affidavit.

[47] Plaintiff's submissions, para 22.12.

[51] Affidavit of Domenic Matthew Gatto (23 September 2013) ("the Gatto Affidavit"), para 11.

[52] Outlines of the correspondence between parties after the issue of security was first raised are provided for in the Thomas Affidavit and the Gatto Affidavit.

[53] Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176.

[54] Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 at [20]

[55] James v Australia and New Zealand Banking Group Ltd (1985) 9 FCR 442.

[56] James v Australia and New Zealand Banking Group Ltd (1985) 9 FCR 442 at 446.

[57] Defendant's submission, para 5.8 and the First Gatto Affidavit, para 6.

[60] Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744.

[61] Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744 at [70].

[62] Plaintiff's submission para 72, see also transcript p 28.

[64] Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68.

[65] Crypta Fuels Pty Ltd v Svelte Corporation Pty Ltd (1995) 19 ACSR 68 at 71 .

[66] Thomas affidavit and Peters affidavit.

[69] Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 at [20].

[70] Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 3) [2006] FCA 1498

[71] Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 3) [2006] FCA 1498 at [5].

[72] Rolfe v Investec Bank (Aust) Ltd [2013] VSCA 293.

[73] Rolfe v Investec Bank (Aust) Ltd [2013] VSCA 293 at [54].

[74] Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245.

[75] Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [33].

Jurisdiction of Courts (Cross Vesting) Act 1987(Qld)

Arbitration Act 1990

Arbitration Act 1984

At a glance

Court

Decision date

Before

Source

Judgment (163 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (7)