Plaintiff v Defendant

Supreme Court of Victoria|2015-09-23|Before: DIGBY J

PRACTICE AND PROCEDURE - Appeal under Order 77.06 - Security for Costs - To be provided in hybrid form - Less than half by bank guarantee - And the remainder by Director's personal undertaking - Sufficiency of Director's personal undertaking - Exercise of discretion.

1 This is an appeal by the defendant under order 77.06 of the Supreme Court (General Civil Procedure) Rules 2005 from orders made by an Associate Judge on 13 August 2015 by which her Honour ordered the plaintiff to provide security for the defendant's costs in a total amount of $112,360.80 in the following form:

(1) as to $50,000 of that security by way of a bank guarantee; and

(2) as to the balance of $62,360.80, by way of a personal undertaking from the plaintiff's Director Mr Simon Cleal in the form of Exhibit "MC-7" to the affidavit of Mr Michael John Champion affirmed 8 June 2015.

2 The terms of the undertaking (Exhibit 'MC-7') are:

I, Simon Cleal, director of the Plaintiff, Cleal Holdings Pty Ltd, undertake to this Honourable Court that I will be personally liable to pay any costs that the Plaintiff becomes liable to pay in respect of costs ordered against the Plaintiff in favour of the Defendant in this proceeding.

3 The defendant's Notice of Appeal dated 27 August 2015 is in the following terms:

By 4.00pm on 14 September 2015, the plaintiff provide to the defendant's solicitors an Australian bank guarantee in the amount of $50,000.
By 4.00pm on 14 September, the plaintiff file and serve a personal undertaking from its director in the form of Exhibit "MC-7" to the affidavit of Mr Champion affirmed on 8 June 2015 to the defendant's solicitors for the amount of $62,360.80.
The proceeding be stayed until the plaintiff provides the two forms of security above.
Costs of the application up to and including 17 July 2015 be paid by the plaintiff on the standard basis.
Costs of the application from 18 July 2015 be costs in the proceeding.

SCOPE OF APPEAL

The defendant appeals against orders 1, 2 and 3 above insofar as they permit the security ordered by the Associate Judge to be provided by way of a personal undertaking from its director in the form of Exhibit "MC-7" to the affidavit of Mr Champion affirmed on 8 June 2015.

GROUNDS OF APPEAL

Having found (correctly) that the amount of security that ought to be provided to the defendant for its costs of the proceeding up to the conclusion of mediation was $112,360.80 the Associate Judge erred in failing to order security in that amount in a form that adequately protected the defendant.
The Associate Judge erred in:-

finding at [29] that the defendant would be adequately protected by $50,000 in the form of a bank guarantee and security above that amount being provided by way of a personal undertaking from the plaintiff's director in the form of Exhibit "MC-7" to the affidavit of Mr Champion affirmed on 8 June 2015 (the undertaking); 2. proceeding on the basis that the undertaking was either security or adequate security for any part of the defendant's costs;

proceeding on the basis that the defendant bore the onus of establishing that the party offering the undertaking was impecunious; and

alternatively to (c), finding at [29] that there was no evidence that the party who offered the undertaking was impecunious.
The Associate Judge also erred in failing to hear the parties at the resumed hearing on 13 August 2015.

Orders 1 and 2 made in the proceeding on 13 August 2015 be vacated and replaced with an order that the plaintiff provide security for the defendant's costs of the action incurred up to the time of the conclusion of mediation in the sum of $112,360.80 by payment into Court of $112,360.80 or by provision to the Prothonotary of an Australian bank guarantee in the sum of $112,360.80.
Order 3 made on 13 August 2015 be amended accordingly.
An order for the defendant's costs of the appeal.

4 By its Notice of Appeal, the defendant appeals all the orders made by her Honour on 13 August 2015, in substance, however, only order 2, which requires the plaintiff to provide $62,360.80 of the required security by way of personal undertaking, was the focus of the defendant's submissions on appeal.

5 In its written submission dated 4 September 2015, the defendant points out that in this matter there was agreement that the plaintiff must provide security for the defendant's legal costs in the proceeding. The only issues before her Honour by the time the defendant's application was concluded on 13 August 2015 were as to the precise amount and the appropriate form of the security for costs to be provided.

6 Neither the plaintiff nor defendant appeals her Honour's decision as to the quantum of security to be provided. The defendant accepts as appropriate the sum of $112,360.80 as set out in a costs report of an independent cost consultant, one Patricia Coleman.

7 The defendant submits that this appeal is solely as to the form of security ordered by the Associate Judge. The defendant submits that having found that the appropriate amount to be ordered was $112,360.80, the Associate Judge should have ordered payment into court or provision of the required security bank guarantee, or some equivalent security in that amount. The defendant submits that the Associate Judge's orders providing for the majority of the security sum to be provided by way of personal undertaking does not provide adequate security for the defendant.

8 The defendant submits that the benefits of the director's personal undertaking which has been ordered are uncertain and that Mr Cleal's financial position and conduct, as well as the structure of his affairs, raises serious and justifiable doubts and concerns about the efficacy and sufficiency of the security ordered rather than providing the security to which the defendant is entitled in relation to its legal costs. The defendant submits that the practical effect of the orders is that the undertaking provides no, or no adequate, security for its legal costs in relation to the majority of the amount of security determined to be necessary.

9 These proceedings were commenced by Writ and Statement of Claim dated 19 March 2015. This pleading alleges that the plaintiff and the defendant entered into various joint venture agreements relating to residential property developments which it was the plaintiff's task to 'sell off the plan'. The development did not proceed. The agreements between the plaintiff and the defendant are in dispute. It is not however disputed that pursuant to such agreements the plaintiff's role was principally to procure sales.

10 The defendant's Defence of 5 May 2015 asserts that prior to entry into the agreements, the plaintiff represented that it had all necessary approvals and licences to effect the desired property sales, whereas the defendant alleges that was not the correct position. That is so, the defendant alleges, because the plaintiff was not a registered Real Estate Agent within the meaning of the Real Estate Agents Act 1980 (Vic).

11 The history of the matter also includes attempts by the parties to resolve the issue of security informally following the issue of these proceedings. These attempts at resolution were unsuccessful and an application by the defendant for security was ultimately made on 9 June 2015. That application was heard in part by the Associate Judge on 22 July 2015.

12 Prior to the 22 July 2015 hearing, the plaintiff had acknowledged to the defendant that it should provide security for the defendant's costs and the defendant had agreed that the security could be provided in staged fashion with the initial tranche to cover the period of costs incurred by it up to the end of a mediation in relation to the parties' disputes.[1]

13 At the hearing of 22 July 2015 the Associate Judge, of her own motion, made orders for the appointment of an expert cost consultant to provide an expert opinion as to the quantum of the defendant's costs up to the end of mediation. Otherwise, the Associate Judge adjourned the defendant's part heard security for costs application to 13 August 2015, a date after it was expected the cost consultant's report would be filed.

14 On 10 August 2015, Patricia Coleman of LIV Costs Lawyers, who was engaged jointly by the parties, estimated the defendant's costs in the proceeding up to the end of the contemplated mediation, as in the sum of $112,360.80. On 13 August 2015, her Honour came on the Bench and, after very short discussion to which I shall return, delivered written reasons and pronounced the orders under appeal.

15 Both parties accept that this Appeal is an appeal by way of rehearing, although there is some divergence of submission about the need to identify error on an appeal such as this which is concerned with an interlocutory application and interlocutory orders in an area of practice and procedure.

16 In essence that divergence arises, it was submitted, as a result of cases in this Court including the decisions of Hargrave J in Neely v Southern Cross Feeds Pty Ltd (No 2)[2] and of Robson J in Re Ascot Vale Self Storage Centre Pty Ltd (In Liquidation)[3] and of Cavanough J in Mainstream Construction (Aust) Pty Ltd v Carr Electrical Pty Ltd,[4] which it is submitted by the defendant support the argument that it is not necessary to identify error in respect of an appeal relating to interlocutory proceedings or an interlocutory order.

17 However, in this appeal, I consider that the issue as to whether or not it would be appropriate for me to set aside the learned Associate Judge's decision and exercise the relevant discretion, absent an antecedent finding of identifiable error does not arise. This is because I am persuaded that her Honour has fallen into error for the reasons which follow.

18 In this matter I accept the defendant's submissions as to the purpose of an order for security for costs, namely, in some appropriate manner, to secure to the defendant in an amount sufficient to meet an order for costs that may be made against an impecunious unsuccessful plaintiff.

19 I also accept that the onus is on the party seeking security both as to the threshold question of whether there is reason to believe that the plaintiff corporation will be unable to pay the legal costs of the defendant, if successful, and also in relation to there being an onus on the applicant for security to persuade the court that a security for costs order should be made in the circumstances.[5] In this regard I consider that it is clear that these matters have been made out or conceded.

20 The usual method of providing security for costs is by way of payment into Court or the provision of a bank guarantee, that is by way of cash or cash equivalent. However, the form of security can be a form less disadvantageous to the party furnishing the required security, provided the party in whose favour it has been given is adequately protected.[6]

21 In this case the plaintiff initially sought to avoid providing security in the normal way by offering in its place a personal undertaking of one Simon Cleal, a director of the plaintiff. That proposed undertaking was rejected by the defendant as insecure and unsatisfactory and there was also a contest between the parties about the amount of security to be provided. Ultimately, in the interlocutory development of this matter, the plaintiff offered a bank guarantee of $50,000 in place of the earlier proposed undertaking.

22 During the course of the hearing before the Associate Judge on 22 July 2015, at a point in time in the proceeding when the quantum of security remained a live issue, the plaintiff submitted that the court should order security of $50,000 by way of bank guarantee, also submitting that any additional security should be by way of an undertaking. However, at no stage did the plaintiff offer security above $50,000.

23 However, where alternative forms of security are proffered, the onus is on the plaintiff to satisfy the court that the proffered alternative to cash, or its equivalent, will adequately protect the defendant.

24 The defendant points out that the purpose underlying s 1335(1) of the Corporations Act 2001 is to ensure the defendant, not being a voluntary litigant, is protected from the consequences of limited liability.[7] That purpose is in my view particularly relevant because here a company known as Skleat Investments Pty Ltd is the sole shareholder of the plaintiff and apparently in the position to gain any benefit from these proceedings should the plaintiff succeed. However, although Mr Cleal's contentious personal undertaking has been proffered to secure the defendant, there is no security of any kind offered by the sole shareholder, Skleat Investments Pty Ltd.

25 How the protection to be afforded by the provision of security is effectively and most appropriately achieved will vary from case to case.

26 In Addenbrooke Pty Ltd v Duncan (No 3)[8] a personal undertaking, without an associated undertaking not to dispose of assets that were relevant, was initially accepted by the court, however, a bank guarantee was subsequently ordered in its place when a further hearing before the court brought to light that the party which had provided the undertaking had materially overstated his assets.

27 Both Rosengrens Ltd v Safe Deposit Centre Ltd[9] and Addenbrooke are illustrations of the importance ascribed by the court to being satisfied that, in the circumstances, there will be adequate protection provided by means of the security which is being proffered. This factor nevertheless has to be balanced with all other relevant considerations in the proper exercise of the court's discretion.

28 The plaintiff submits that an order of security for costs and the form by which it is to be provided are matters of discretion, although the plaintiff concedes that such discretion is to be exercised judicially.

29 In Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd[10], the plaintiff company was impecunious, and so were its director and shareholder who offered security by way of personal undertakings. The plaintiff submits that in Epping Plaza although the court considered that the individuals concerned had no chance in that case of making good the undertakings offered, the court accepted the proposition that those undertakings were nevertheless to be taken into account as one relevant factor in the exercise of discretion under s 1335 of the Corporations Act 2001.

30 The plaintiff submits that the relevant discretion is further informed by Order 62.03 of the Court's Rules, whereby security may be given 'in the manner and at the time the court directs'. The plaintiff says the learned Associate Judge correctly identified those principles and exercised her discretion accordingly. The plaintiff submits that the court properly considered the form of the undertaking offered by Mr Cleal and accepted, unlike the court in Epping Plaza, that Mr Cleal was not impecunious.

31 The central consideration engaged here, by the defendant's arguments in particular, is as to whether her Honour's exercise of discretion miscarried because it can be seen either her Honour failed to act in accordance with principle, or acted on an irrelevant consideration, or failed to factor into the exercise of her discretion a relevant consideration or arrived (somehow) at an unreasonable or unjust decision in the manner explained by the High Court in House v R[11].

32 In her Reasons[12], her Honour at paragraph [29] in particular, concluded that security should be provided in the fashion which her Honour ordered.

33 In House v R, Dixon, Evatt and McTiernan JJ state the principles applicable when a court exercising appellate jurisdiction is considering the exercise of judicial discretion by the court below, as follows:

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution, for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.[13]

34 At [29] of her Honour the Associate Judge's Reasons, her Honour states:

There was no evidence that the director who offered the personal undertaking is impecunious. The plaintiff is entitled to offer security in the manner least disadvantageous to it, so long as the defendant is adequately protected. The defendant will be adequately protected by $50,000 in the form of a bank guarantee and security above that amount provided by way of a personal undertaking from the director.

35 Her Honour makes no reference in the Reasons for concluding that the personal undertaking proffered was proffered by a person who was not impecunious nor does her Honour refer to the evidence justifying this conclusion. Neither does her Honour expose the basis upon which she is satisfied that the Director's personal undertaking for the bulk of the security, which her Honour considers should be provided by the plaintiff, would be effective to secure the defendant's position.

36 Although her Honour observes in paragraph [29] of her reasons that security may be provided in the manner least disadvantageous to the party providing it, her Honour also notes in the same paragraph that such accommodation may be permitted, "so long as the defendant is adequately protected".

37 Her Honour did not, other than referring to her view that Mr Cleal was not impecunious, provide any reasons for concluding that the hybrid form of security of costs which she envisaged ordering, would either in relation to the $50,000 bank guarantee, or in relation to the larger component ($62,360.80) to be provided by way of a personal undertaking, provide adequate protection to the defendant.

38 I consider also that it is to be inferred from her Honour's statement at [29] of her Reasons that 'there was no evidence that the Director who offered the personal undertaking was impecunious', that her Honour was proceeding on the basis that it was incumbent upon the defendant to establish that the person proffering the undertaking on behalf of the plaintiff was impecunious, that the defendant had failed to do so, and therefore the Court should accept that the profferor was not impecunious. Put another way, the same statement by her Honour, in my view, conveys that her Honour was also proceeding on the basis that it was a matter for the defendant to establish that the personal undertaking proffered was not adequate for some reason.

39 Both approaches fail to take into account that once it is established that a certain amount of security is required, the onus is upon the party proffering a form of security to satisfy the Court that the form of security proffered will be adequate to protect the defendant. The plaintiff has failed to do so.

40 The plaintiff argues that her Honour was entitled to conclude that Mr Cleal was not impecunious. The plaintiff argues that therefore Mr Cleal's proffered undertaking to be personally liable is a factor to be weighed in the balance in the proper exercise of her Honour's discretion.

41 The plaintiff further submits that in the overall balance of relevant factors, it can be seen, or is to be inferred, that her Honour was proceeding on the basis that because $50,000 was to be provided as security by way of bank guarantee, it was appropriate to give some weight to the personal undertaking that was available from Mr Cleal in evaluating the sufficiency, in the overall, of the security for costs to be provided to the defendant.

42 Mr Williams QC gave examples of the relative significance of the sum of security provided as a concrete sum, that is to say, by cash or bank guarantee, or the like, and a remaining component of security which might be provided, in a hypothetical situation, by a personal undertaking. He argued that it is a matter of weighing up all the relevant circumstances and the balance produced by these components or factors. Mr Williams argued that in the context of the overall provision of security for costs, in particular including a $50,000 bank guarantee, the exercise of discretion by her Honour could not be seen to have miscarried because her Honour was entitled, taking the $50,000 of concrete security into account, to regard the personal undertaking for the balance of the necessary security as sufficient.

43 I accept the accuracy of the following matters in paragraph [26] of the defendant's submissions dated 4 September 2015 -

Mr Cleal did not provide a sworn evidence as to his assets and liabilities. Such unverified evidence as was presented to the Court (AB127-129 and AB207-242) suggests that his assets are confined to:-

(a) $50,000 cash at bank, which was to be applied to provide the proposed bank guarantee;

(b) a residential premises which was asserted to be worth $451,000 (AB129), was currently for sale (AB083 and AB086-87) and which was subject to a mortgage securing borrowings totalling $3.703 million (AB204, AB215 and AB523 at line 12); and

(c) furniture and household effects in respect of which no independent valuation was provided, which were asserted to be worth "$160,000-odd (AB523 at line 15), which it appeared were also encumbered to third party financier(s) (AB208-235, AB523 at lines 14-25) and which may not in any event be available to creditors due to the exemptions applicable under s 116 of the Bankruptcy Act 1966 (Cth).

44 It therefore appears to be clear on the materials before the Associate Judge that there is no proper basis upon which to find that Mr Cleal has, or is in the foreseeable future likely to have, the financial capacity to meet his proffered personal undertaking to provide $62,360.80. Nor on the same material has the plaintiff otherwise established that the personal undertaking proffered in relation to security for the defendant's costs to the required extent of $62,360.80 had any financial substance or that such an undertaking would adequately protect the defendant.

45 Furthermore, the context in which the personal undertaking was proffered by the plaintiff included:

(a) no security having been proposed over any assets of Mr Cleal, including no security over any of the proceeds of the sale of his residential premises and in any event, given the extent of mortgage security borrowings to which Mr Cleal's residential premises is subject, it was unlikely that any such proceeds would be available to satisfy any order for costs that might ultimately be made;

(b) Mr Cleal appeared to have no disclosed interest in the plaintiff. All of the shares in the plaintiff are held by Skleat (AB036-043), which has not been shown to hold those shares beneficially. Skleat would appear to have the direct interest in the outcome of the proceedings.[14]

46 In my view, the evidence of Mr Cleal's personal financial situation, outlined above, establishes on the balance of probabilities that Mr Cleal's personal undertaking does not afford any protection, or likely protection, for the defendant's costs in the proceeding. Furthermore, I note that on this appeal the plaintiff's submissions did not refute the accuracy and the purport of the summary of financial facts and conclusions set out in paragraph [26] of the defendant's submissions of 4 September 2015.

47 Mr Williams also conceded in submissions that Mr Cleal is "a person with a lot of risk", an observation made by Mr Williams in respect of Mr Cleal's financial situation. It was also acknowledged in this regard that Mr Cleal had been advanced the sum of approximately $3.7m, referred to above, by a financial institution and that it was clear on a comparison of that debt and Mr Cleal's assets, that in the overall net position Mr Cleal's assets were substantially exceeded by his borrowings. I add that as part of that overall picture, Mr Cleal's residential premises property, referred to above, is also subject to a first mortgage securing $338,700.

48 In my view, the above matters cast further doubt on the financial sufficiency of Mr Cleal's position. Additionally, I note that Mr Cleal provided no sworn evidence as to his financial situation on the application before her Honour.

49 Furthermore, there was no dispute between the parties that at best the personal undertaking ordered would, if it was ultimately pursued, either result in a judgment debt, or in an order made in related contempt proceedings. However, such a judgment debt would, when obtained, be of no more value to the defendant than the net worth of Mr Cleal at the time a judgment was enforced.

50 Accordingly, in my view, there is no proper basis upon which to conclude that Mr Cleal's personal undertaking provides any, or any adequate, cost protection to the defendant either, now or in the foreseeable future.

51 For the above reasons, I consider that her Honour erred in the proper exercise of discretion in relation to the defendant's application for security for costs by:

(i) failing to take into account or sufficiently take into account that the plaintiff's Director's personal undertaking in respect of security for costs was insufficient to provide any, or any adequate protection to the defendant in relation to that part of the required security for its legal costs, should it succeed against the plaintiff in the proceeding;

(ii) deciding that the proffered personal undertaking from a Director of the plaintiff would provide any, or any adequate protection, to the defendant in relation to that part of the required security for its legal costs, when there was no proper basis on the material for that decision;

(iii) failing to take into account that it was for the plaintiff to establish that the proffered personal undertaking, in addition to the bank guarantee of $50,000, would provide adequate protection to the defendant in respect of its costs in the proceeding;[15] and

(iv) deciding that $62,360.80 of the sum of security for costs found to be required should be by way of personal undertaking was, in the circumstances, an unreasonable and unjust decision.

52 In Ground 3 of the Notice of Appeal, the defendant complains that the Associate Judge also erred in failing to hear the parties at the resumption of the part heard hearing on 13 August 2015. That Ground is referred to in the defendant's written submissions of 4 September 2015, at paragraph [23(d)]. The defendant does, however, not develop that submission anywhere in its written submissions and similarly did not do so in its oral submissions on the appeal, that is until a point in time when I asked for clarification from counsel for the defendant as to whether her client sought to impugn the Associate Judge's decision on the basis of a denial of procedural fairness.

53 The defendant's response, by counsel, was in the affirmative and the submission which was then made in that regard was that at the adjourned hearing before her Honour on 13 August 2015, both the defendant (and the plaintiff it was submitted) expected to be given the opportunity to make further submissions to the court. In the defendant's case it expected to make further submissions in relation to an error in its written submissions dated 13 August 2015 and in relation to its argument that the plaintiff should not be permitted to provide security by way of personal undertaking.

54 I note that the plaintiff does not complain that it did not have the opportunity to make further submissions or present further materials to her Honour on 13 August 2015.

55 The relevant background to the hearing on 13 August 2015, is that on the 22 July 2015 her Honour heard argument in relation to the defendant's application for security for costs. Towards the end of that argument on 22 July 2015, on her own motion, her Honour ordered the parties to engage a costs consultant to provide an independent cost estimate to assist the court. Her Honour then adjourned the security for costs application to 13 August 2015.

56 It appears that in the application, as at 22 July 2015, there was no expert evidence in respect of costs issues adduced by either party.

57 On 10 August 2015, Patricia Coleman, the independent expert consultant engaged by the parties pursuant to her Honour's directions, produced an expert report which put forward the sum of $112,360 as the quantum of the defendant's costs up to mediation, on a standard basis.

58 On 12 August 2015, the plaintiff filed an affidavit addressing issues it had with the Coleman costs report. On 13 August 2015 the defendant filed outline written submissions in relation to the Coleman costs report.

59 The defendant's submissions of 13 August 2015 included an express submission that security should be provided by way of payment into court, or provision of a bank guarantee. The defendant also submitted that the amount of security should be in the sum of $118,860.80.

60 It was noted in these submissions from the defendant that $6,500 was to be added to the earlier figure of $112,360 opined by the costs consultant, so as to arrive at the $118,860.80. The defendant's written submissions dated 13 August 2015 stated that this higher figure represented the appropriate sum of security. The additional component of costs ($6,500) to be added was explained by the defendant as based on the failure of the costs consultant to include certain costs leading up to the hearing on 13 August 2015, including the costs of the defendant's attendance at court on 13 August 2015.

61 The defendant however now concedes that its written submissions of 13 August 2015 were in error in that respect because it would appear that the $6,500 of costs said to relate to legal work leading up to and including the defendant's cost of appearing on 13 August 2015, were in fact allowed in the original $112,360 figure opined by the costs consultant.

62 When her Honour came on the Bench on 13 August 2014 she proceeded almost immediately to hand down her decision and publish her Reasons on the security for costs application.

63 However, on 13 August 2015, in response to an enquiry from counsel for the defendant her Honour had acknowledged that she had received the defendant's submissions of 13 August 2015, and that since the filing of the costs consultant's report on 10 August 2015 she had received a response from both parties in relation to the costs consultant's report. At a point in time shortly after these exchanges her Honour handed down her decision on security for costs.

64 It is notable that at the hearing of 13 August 2015, save that counsel for the plaintiff stated that he had anticipated that her Honour would have heard further submissions from the parties on that day, neither party objected to the course her Honour had taken and neither party sought to make further submissions to her Honour, or to press her Honour to hold back or reconsider her interlocutory ruling in light of additional submissions, or additional material, which either party wished to rely upon.

65 Counsel for the defendant on this appeal now submits that on 13 August 2015, and perhaps more materially prior to her Honour's decision on that day, her client was deprived of the opportunity to make further submissions on two matters. One was to correct the error in the defendant's submission of 13 August 2015, in relation to the erroneous inclusion of the $6,500 which I have mentioned. The other matter which the defendant had desired to submit was that it was inappropriate for security to be ordered by way of personal undertaking.

66 As I have outlined, the parties, certainly the defendant, did not at the hearing of 13 August 2015 seek to insist upon putting further submissions or material before her Honour. It should not, in my view, behove the defendant to now complain about a matter which could have been raised and pursued before her Honour on 13 August 2015.

67 Further in relation to the first matter which the defendant claims it was unable to raise on or before 13 August 2015, there can be no prejudice to the defendant because its proposed correction, or reduction of the $6,500 to a figure of $112,360.80 was, in any event, the sum which her Honour ordered in respect of the quantum of costs. The adjustment which the defendant desired to raise by way of a correction ultimately did not need to be raised with her Honour.

68 In relation to the second matter, namely the defendant's desire to have a further opportunity to argue that a personal undertaking should not suffice as security, in my view on 13 August 2015 it was reasonable for the Associate Judge to consider that all which the defendant wished to submit, and put before the court on this aspect of the application, had already been submitted or filed. Furthermore, in my view, it was reasonable for the Associate Judge to consider that the parties were, on 13 August 2015, only concerned to address the recent costs consultant's report. In that regard, her Honour noted that both parties had by 13 August 2015 filed material in respect of the recent expert costs report. That material included the defendant's written submission dated 13 August 2015, which contained a submission in relation to the only form of security which it regarded as appropriate.

69 Accordingly, for the above reasons, I can see no error on her Honour's part in relation to the conduct of the proceedings below and, in particular, I am far from satisfied that her Honour failed to afford procedural fairness to the defendant.

70 Finally, I note that the outcome of this appeal, at all events, renders any possible unfairness to the defendant of no consequence.

71 The plaintiff by its Notice of Contention dated 11 September 2015 pursuant to Rule 77.06.8 raised the following grounds:

The learned Associate Judge ought to have held that provision of $50,000 by way of a bank guarantee alone, further or alternatively supported by an additional personal undertaking from the plaintiff's sole director, was sufficient security for the defendant's costs up to and including mediation, in circumstances where:

the defendant sought security in the sum of $75,800; 2. the learned Associate Judge's finding that security in the amount of $112,360.80 should be provided was based on that sum being a cost consultant's estimate of the whole of the defendant's costs up to and including mediation on a standard basis;

the cost consultant's estimate included an assessment in relation to discovery of $44,120 plus professional loading of 10%, it having been asserted by the defendant to the cost assessor that discovery would be no less than 5,000 pages, whereas there was no or no adequate evidence, and no finding, that discovery would be so extensive;

the costs consultant's estimate included 'pre-application costs' (estimated by the cost consultant to be $16,096 plus professional loading of 10%), whereas the defendant's application properly did not seek security for pre-application costs, and 2. the learned Associate Judge did not, as is appropriate and customary for a Court in determining the amount of security to be provided, apply a discount or reduction of up to one-third of the estimated costs to reflect the likelihood of reductions by the taxing Court, overestimations, and the chance of early settlement.

72 It is to be noted that by its Notice of Contention, the plaintiff seeks to affirm the orders of her Honour made on 13 August 2015. The Notice of Contention does not seek to in any way interfere with or impugn the total sum of security which her Honour identified as appropriate to be provided by the plaintiff to the defendant in this proceeding.

73 The plaintiff's Notice of Contention does, however, raise in a somewhat unusual way, what appears to be arguable adjustments to the total sum of security in the figure of $112,360.80 which was arrived at in the cost consultant's report of 10 August 2015. Those asserted adjustments are to be found in the plaintiff's Grounds of Contention, in sub-paragraphs 1(a) to (e).

74 The plaintiff's written submissions dated 22 September 2015 address these asserted adjustments in some considerable detail, starting at paragraph [14] of those submissions and extending through to paragraph [47], including in Annexure A to those submissions.

75 At the outset of his submissions today, Mr Williams helpfully clarified what appeared to be a tension, or perhaps an inconsistency, with his client's Notice of Contention and supporting written submissions. That apparent tension or inconsistency being that the plaintiff's Notice of Contention sought to affirm the decision below including the total amount of security which her Honour decided was required, while at the same time parts of the Grounds of Contention and the plaintiff's written submissions included reasons which the plaintiff asserts justify a lesser sum than $112,360.80 as sufficient security for the defendant's costs. Mr Williams, however, clarified that on this appeal the defendant unequivocally seeks to uphold the decision and orders below.

76 Mr Williams explained that insofar as the plaintiff raises issues concerning the consultant's cost report at sub-paragraphs 1(a) to (e) of its Notice of Contention, those issues were not raised so as to set aside or vary her Honour's decision or orders, nor to persuade me that the sum of security found by her Honour to be appropriate, namely, $112,360.80, was at all excessive.

77 Mr Williams explained that the asserted overestimates and alike referred to in sub-paragraphs 1(a) to (e) of the plaintiff's Notice of Contention and addressed in his client's written submissions of paragraphs [18] to [44], and Annexure A, were to provide the basis for an argument to lessen the impact of the defendant's emphasis on the extent of security which had been ordered by way of director's personal guarantee, namely the $62,360, in comparison with the remaining security of $50,000 by way of bank guarantee.

78 Because the plaintiff accepts and does not challenge her Honour's conclusions as to the overall total sum of security to be provided, I consider that it is unnecessary for me to attempt to address the suggested adjustments to the expert cost consultant's report put by the plaintiff in the way summarised in the preceding paragraph, because the unchallenged fact remains that the plaintiff was required to provide adequate security for the total sum determined. Accordingly, I make no finding or orders in relation to the plaintiff's Notice of Contention.

79 Being satisfied as to the errors below which I have identified, and again noting that the parties accepted that the plaintiff was obliged to provide security for the defendant's costs and on this appeal do not dispute the amount of those costs fixed by the learned Associate Judge, I consider that in the proper exercise of the discretion under review, an order should be made requiring the plaintiff to provide the $62,360.80 component of security by payment into Court.

The defendant's appeal filed 27 August 2015 is allowed.
Orders 1, 2 and 3 of Associate Justice's orders made 13 August 2015 be set aside.
By 4:00 p.m. on 23 October 2015 the plaintiff provide security for the defendant's costs of the action incurred up to the time of the conclusion of mediation in the sum of $112,360.80 by payment into Court of $62,360.80 and by the provision to the defendant's solicitors of an Australian bank guarantee in the sum of $50,000.00.
The proceeding be stayed until the plaintiff complies with order 3 above.
The plaintiff pay the defendant's costs of the appeal on the standard basis.
The costs of the appeal are taxable forthwith.
The plaintiff is granted an indemnity certificate under section 4 of the Appeal Costs Act 1998 in relation to the costs of this appeal.

[1] I note the matters which the defendant has set out in its submission at paragraph [29]. In that part of the defendant's submissions it states: "Finally, if Her Honour's decision resulted from a concern that an order for security in excess of $50,000 may have stultified the proceeding, this was not a matter before Her Honour. The plaintiff had agreed to provide security. Any risk of stultification was for the plaintiff to assert and prove. It chose not to adopt this course, aware, no doubt, that to do so would require full disclosure of the identity and financial resources of each of the ultimate beneficiaries of the litigation, including Skeat and all beneficiaries of any trust or trusts of which it is trustee".

[5] Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 at [11] and [20]-[23].

[6] Rosengrens Ltd v Safe Deposit Centre Ltd [1984] 3 All ER 198 and Addenbrooke Pty Ltd v Duncan (No 3) [2004] FCA 322.

[7] Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd [1999] VSCA 43; [1999] 2 VR 191 at [14].

[8] [2014] FCA 322 ('Addenbrooke').

[10] [1999] VSCA 43; [1999] 2 VR 191 ('Epping Plaza').

[12] Cleal Holdings Pty Ltd v JG King Developments [2015] VSC 414.

[14] Refer defendant's submissions 4 September 2015 at [27].

[15] Having concluded in relation to Ground 2 that the Associate Judge erroneously proceeded on the basis that the defendant bore the onus of establishing that the party proffering the personal undertaking was impecunious, it is not necessary for me to further deal with the alternative Ground 2(d).

Court (General Civil Procedure) Rules 2005

At a glance

Court

Decision date

Before

Source

Judgment (119 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (2)