Plaintiffs v Defendant

Supreme Court of Victoria|2017-11-16|Before: Lansdowne As J

[2017] VSC 694 Second Revision (redacted): 12 July 2018

PRACTICE AND PROCEDURE - security for costs - group proceeding funded by overseas litigation funder - funder proposes security for defendant's costs by package consisting of personal undertaking to pay costs awarded against plaintiffs; insurance in respect of adverse costs for the benefit of the funder; and deposit of funds for overseas registration and enforcement of a costs judgment - defendant seeks deposit into Court of cash or bank guarantee - consideration as to whether package of security proposed by the funder is adequate - held: not adequate.

ACA Lawyers by their Victorian agents Septimus Jones & Lee

1 The first plaintiff is a roofing contractor and installer of roof insulation. The second plaintiff is an insulation manufacturer, including for use in retrofit installation in residential property. The proceeding they bring against the defendant, the Commonwealth of Australia, is a group proceeding in which the plaintiffs and the group members seek relief against the Commonwealth in respect of its conduct in 2009 to 2010 of the Home Insulation Program. The plaintiffs and group members bring claims in contract, negligence and misleading and deceptive conduct.

2 The claims by the plaintiffs and group members are funded by a litigation funder, Harbour Fund III LP, a limited partnership incorporated in the Cayman Islands (Harbour III). In the application before me, the defendant seeks security for the defendant's costs of the proceeding in the total sum of $1,423,613. The defendant's summons filed 28 August 2017 proposes that this security be paid in two tranches:

(a) a first and smaller tranche in respect of the defendant's costs from 30 May 2017 until the completion of mediation; and

(b) a larger and second tranche shortly after the conclusion of mediation.

3 Unfortunately, the summons could not be heard until 23 October 2017 and so events may now have overtaken the regime envisaged in the summons. A judicial mediation before Associate Justice Efthim had been scheduled for, and was held on, 1 November 2017 shortly after the hearing, and I was unable to deliver these reasons by that time. The mediation has been adjourned to a date to be fixed. The proceeding is listed for trial in April 2018.

4 The summons invokes the jurisdiction of the Court to order security for costs pursuant to r 62.02 of the Supreme Court (General Civil Procedure) Rules 2015. The defendant also relies on the power of the Court to make orders in relation to security for costs in a group proceeding under Part IVA of the Supreme Court Act 1958, pursuant to s 33ZF of that Act, and the inherent jurisdiction of the Court. The plaintiffs did not seek that the summons be formally amended to state this expressly.

5 There is no dispute that the jurisdiction of the Court to make an order for security for costs is enlivened.

6 The ambit of the dispute is narrow. The plaintiffs do not contest the proposition that security might properly be ordered, nor do they contest the Commonwealth's estimate of legal costs and so the quantum of the security to be ordered. The issue before the Court is only whether the form of security that the plaintiffs propose for those costs is adequate. The defendant seeks security by payment into Court of bank guarantee or cash and opposes the form of security proposed by the plaintiffs, which is a combination of undertakings from their litigation funder, insurance taken out by that funder against an adverse costs order and deposit of the sum of $30,000 as security for the costs of overseas registration and enforcement of a costs order.

7 For the reasons that I now summarise and will shortly elaborate, I accept the submissions of the defendant that the form of security proposed by the plaintiffs is not adequate to meet the object of security for costs, and will order security in the form sought by the defendant.

8 At first blush, the proposed package of security might appear adequate because a promise to pay is to be made by a litigation funder with, at present, considerable liquid assets and the ability to draw down further capital. This promise is supported by insurance against adverse costs orders in ample sum, and deposit of funds to register the order and enforce it overseas. On analysis, however, there is not sufficient evidence that the funder will have sufficient available assets to meet an order for costs at the time required, or that it will use its own funds to do so, as opposed to making a claim on its insurance. If the funder chose that latter course, then this would introduce additional steps to recovery by the defendant that make the package of proposed security inconsistent with the overarching purpose imposed on the Court when considering any order by the Civil Procedure Act 2010 (CPA).

9 I will ask the parties to prepare orders in accordance with these reasons that reflect the timing and staging (if any) now proposed for the deposit of cash or bank guarantee.

10 Subject to one qualification, the parties agree that the principles to apply were considered and helpfully summarised by Hargrave J in DIF III Global Co-Investment Fund LP and anor v BBLPLLC and ors (DIF).[1] In that case, security for costs was sought on the basis that the plaintiff was a foreign company with no assets in Australia. The plaintiff offered security by way of a deed of indemnity from a large insurer, AmTrust Europe, based in the United Kingdom. On appeal from an associate judge, Justice Hargrave held that that security was adequate.

11 In reaching that conclusion, Justice Hargrave considered Australian and United Kingdom authorities, commencing with the decision of the Court of Appeal in Yara Australia Pty Ltd v Oswal (Yara v Oswal).[2] That case also concerned an application for security for costs against overseas plaintiffs. In Yara v Oswal the principal judgment was by Priest JA, with whom Macaulay AJA agreed, but Redlich JA also made some brief observations, including this passage quoted by Hargrave J:

The form of a fund or asset will be immaterial so long as it is adequate to achieve its object as security. The court has an unfettered discretion under r 62.03(1) as to what form of security may be acceptable. The degree of likelihood of the respondent being unable to pay the costs, along with all the circumstances, actual and possible, may be taken into account in the exercise of discretion.[3]

12 Hargrave J noted that Redlich JA also held that the fact the security may not be 'immediately available and accessible' on the making of a costs order against a plaintiff is not a decisive factor which requires the form of security to be rejected.[4]

13 Priest JA enunciated seven relevant principles. The first principle was that 'the purpose of ordering security against a plaintiff ordinarily resident out of Victoria - and with no assets within it - is so that a successful defendant will have a fund in Victoria against which it can readily enforce an order for costs'. The second to fourth principles identified that the decision whether or not to order security is a discretionary one, that all relevant circumstances must be considered, and that those circumstances may be weighed against each other. In DIF, Hargrave J gave particular emphasis to the fifth to seventh principles, which were as follows:

Fifth, a circumstance of great weight, but not necessarily decisive, is that the plaintiff is resident out of Victoria and has no assets within it;

Sixthly, the weight of that circumstance may be outweighed by the plaintiff being able to point to other countervailing circumstances; and

Seventhly, the ultimate question must always be - how is justice best served in the particular circumstances of the case?[5]

14 Hargrave J then considered other Australian and United Kingdom authorities. He summarise the principles he drew from all these authorities as follows (extracted without footnotes):

The effect of the authorities concerning the exercise of the Court's discretion as to the form in which security for costs may be provided by a foreign plaintiff with no assets in the jurisdiction (the 'relevant security circumstances') may be summarised as follows.

First, the first principle stated by Priest JA in Yara v Oswal does not require that, in every case involving the relevant security circumstances, the form of the security must comprise a fund or asset in Victoria. There may be countervailing circumstances which point to the justice of the case not requiring security in the form of a fund or asset in Victoria.

Second, countervailing circumstances may include that the plaintiff has substantial assets in a foreign jurisdiction, judgments of this Court can readily be registered in that jurisdiction at a cost which is secured by an asset or fund in Victoria, and execution of the judgment in the foreign jurisdiction does not pose undue difficulties or obstacles. An undertaking by the plaintiff not to seek security for costs in the event that proceedings to enforce a costs judgment are brought in the foreign jurisdiction may also be relevant.

Third, a plaintiff is entitled to put forward security in a form least disadvantageous to it. Where a plaintiff puts forward security in a form other than payment into court or a bank guarantee from an Australian bank, the central inquiry is whether the proposed form of security is adequate to achieve its object as security; namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff. The fact that some delay may be involved in accessing that security is, while relevant, not decisive.

Fourth, a plaintiff proposing security bears a 'practical onus' of satisfying the Court that the proposed security will not impose an 'unacceptable disadvantage' on the defendant. Where that onus is satisfied, the Court should ordinarily order security in that form.

Drawing these threads together, in exercising its broad discretion as to the form of security for costs in the relevant security circumstances, the Court will usually apply the following principles:

(1) the plaintiff is entitled to propose security in a form least disadvantageous to it;

(2) the plaintiff bears a 'practical onus' of establishing that the proposed security is adequate and does not impose an 'unacceptable disadvantage' on the defendant;

(3) in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff; and

(4) based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case. [6]

15 Hargrave J further identified the approach to be taken in determination of an application for security for costs by these words, in which he echoed the purpose of security enunciated by Priest JJA in Yara v Oswal, without the necessity for the fund to be in Victoria:

The question before the Court is not one of relative adequacy. The central enquiry is whether the form of security put forward is adequate to achieve its object as security, namely, whether that form will give a successful defendant a fund or asset 'against which it can readily enforce an order for costs'.[7]

16 It follows that the Court must assess the security offered by the plaintiffs on its merits, rather than compare it to the form of security sought by the defendant. In this case, if the Court does not consider the form of security proposed by the plaintiffs to be adequate, then the parties agree that the only other alternative available to the Court as to the form of security is the form proposed by the defendant (deposit into Court of bank guarantee or cash in the sum sought).

17 I referred earlier to a possible qualification to the agreement of the parties that the principles enunciated in DIF are the appropriate principles. That possible qualification arises from the decision of the Court of Appeal in Trailer Trash Franchise Systems Pty Ltd and Dale Cooney v GM Fascia & Gutter Pty Ltd (Trailer Trash)[8] a decision of Tate and Kyrou JJA delivered on 18 October 2017. That case concerned an appeal from an order for security for costs made by a County Court judge. The form of security ordered by the judge was not in issue before the Court of Appeal, and the parties did not make any submissions to the Court as to the principles that should guide the County Court in determining the form of security to be ordered.[9] Nevertheless, the Court of Appeal made some observations in relation to the form of security, particularly directed to the impact of the CPA on the determination of the form of security.

18 The County Court judge had ordered security in the form of an undertaking by an individual who was not a party to the proceeding. The Court of Appeal made these observations in relation to that form of security (emphasis added):

The authorities do not preclude an order that security for costs be in the form of a personal undertaking by a third party other than a financial institution. However, where the court has a choice between security in that form and security in a liquid form that enables funds to be accessed with minimum risk that litigation may be required to enforce the security, ordinarily the court should prefer the liquid form. The need to prefer the liquid form where a choice is available has become more acute since the commencement of the CPA because:

(a) section 8(1) requires a court to seek to give effect to the overarching purpose in the exercise of any of its powers;

(b) section 7(1) provides that the overarching purpose is 'to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute';

(c) section 9(1) provides that in making an order in a civil proceeding, a court must further the overarching purpose by having regard to a number of objects, including: the efficient conduct of the business of the court (s 9(1)(c)); the efficient use of judicial resources (s 9(1)(d)); and the timely determination of the civil proceeding (s 9(1)(f)); and

(d) a form of security for costs which does not provide a fund which can be accessed without the cooperation of the opposing party or a person who is connected to that party - and may require the commencement of proceedings to enforce it - has the potential to undermine the overarching purpose. This is because that form of security can give rise to satellite proceedings and additional delay and costs. Such satellite proceedings are contrary to the principle of finality in litigation.[10]

19 I drew the attention of the parties to the decision in Trailer Trash shortly before the hearing, and invited the parties to make submissions arising from it, including whether the observations in the paragraph quoted above, and the conclusion in the paragraph which followed it, embodied a different test to that adopted by Hargrave J in DIF. The plaintiffs submit that if there is any inconsistency, it would not be safe to conclude that the approach of Hargrave J had been overruled. They note that the observations by the Court of Appeal are dicta and were not assisted by argument, and also that the Court of Appeal itself had earlier said that: 'The principles in DIF ... provide valuable assistance.'[11]

20 Counsel for the defendant submits that if there is an inconsistency between the two judgments, then the observations in the Court of Appeal decision should be applied.

21 It is difficult to reconcile the use of the word 'choice' by the Court of Appeal with the judgment of Hargrave J that the Court should not compare the form of security proposed by a plaintiff with that sought by a defendant. Nevertheless, I accept the submission of the plaintiffs that in the absence of the issue being squarely before the Court of Appeal and developed in argument before it, it would not be safe to conclude that the Court intended to depart from the principles enunciated by Hargrave J in DIF, particularly given that the Court was aware of those principles and apparently endorsed them. I will approach the observations by the Court of Appeal as highlighting the significance of the overarching purpose stipulated in the CPA when assessing the adequacy of the security proffered by the plaintiffs.

22 The plaintiffs and group members do not offer any security for the defendant's costs from their own resources. The security that they propose emanates from their litigation funder, Harbour III. That security has a number of elements - insurance against potential liability for adverse costs taken out by Harbour III (the ATE Insurance); proposed undertakings to the defendant and the Court by Harbour III, which are subject to the limit of the ATE Insurance and the funding agreement between Harbour III and the plaintiffs (Funding Agreement); and the deposit of funds to register any judgment for adverse costs in the Cayman Islands (where Harbour III is registered) or in the United Kingdom (where it currently has liquid funds). I now describe these elements in greater detail as they emerged in the negotiations, and at and after the hearing.

Security offered in the course of the negotiations

23 In the negotiations that preceded this application, the ATE Insurance and a redacted copy of the Funding Agreement, coupled with proposed undertakings to notify the defendant and the Court in the event of termination, or foreshadowed termination of either, was the initial proposal by the plaintiffs by way of security for the defendant's costs.[12] The period of the ATE Insurance commenced 19 August 2016 and runs to the conclusion of the proceeding, with the primary limit of indemnity being [redacted] million. The ATE Insurance is provided by four separate insurers, who are severally liable in distinct proportions. The largest proportion is as to one third. The other proportions are, in rounded up terms, 11 per cent, 44 per cent, and 11 per cent respectively.[13] The insured under the ATE Insurance is Harbour III. Harbour III has obtained an assignment of the benefit of the ATE Insurance policy (Policy) to the defendant.

24 The defendant did not accept that proposal and negotiations continued. In their next substantive response,[14] the plaintiffs offered an extended undertaking to the defendant and to the Court. That extended form of undertaking is form first relied on in this application.[15] That extended undertaking included an undertaking on the part of Harbour III to itself meet a costs order against the plaintiffs, subject to certain limitations, and an undertaking to notify if there was default on a call for capital contributions to a specified extent. The extended undertaking also included various undertakings in relation to the jurisdiction of courts, including submission to the exclusive jurisdiction of the English courts in relation to 'enforcement or recognition proceedings' (proposed clause 2(f)) and not to seek security for costs in any such proceedings, whether in the Cayman Islands or in England (clause 2 (e)).

25 The plaintiffs also addressed the following matters in that letter - they proposed that security be provided to the conclusion of the trial, rather than to and including mediation as the defendant had initially sought; they provided information in relation to the financial position of Harbour III and offered to do so in relation to the insurers; and they subsequently provided proof of payment of the first instalment of premium under the ATE Insurance. The letter also states that the relationship agreement between Harbour III and the plaintiffs' lawyers is included, but it was apparently not, because the solicitors for the defendant had to ask for it again.[16] The relationship agreement is not in evidence and the evidence does not disclose whether or not it was received, but the defendant took no point about this at the hearing.

26 The defendant did not accept that package of security, for two expressed reasons. The first reason derives from the fact that Harbour III has no assets in Australia. Any order against it for costs that was not met voluntarily would need to be registered overseas for enforcement. Harbour III is registered in the Cayman Islands, and currently has assets in England. The defendant expressed concern that enforcement of a costs order against Harbour III would require registration and enforcement against assets in a foreign jurisdiction, and the process for registration and enforcement in the country of origin of Harbour III, the Cayman Islands, was unknown. The second expressed reason was that Harbour III's likely asset position as at the date of enforcement was uncertain.[17]

27 The plaintiffs responded with a further and third component of their package of proposed security,[18] being proposed payment into Court of the sum of $30,000 for overseas registration and enforcement costs, noting that this was intended to apply to registration and enforcement in either the Cayman Islands or the United Kingdom. They also provided an assignment to the defendant of the benefit of the proceeds of a successful claim on the ATE Insurance. The assignment also allows the defendant to directly make a claim on the Policy. Somewhat at odds with that form of additional comfort, the plaintiffs also state in that letter that:

It is not the ATE policy that is being proffered as security, it is Harbour's undertaking. The ATE policy is being provided to provide assurance that Harbour has the ability to meet any adverse costs order as, in addition to its own considerable assets, Harbour will also have recourse against the ATE policy.

Further security offered in the course of, and after, the hearing

28 In the course of the hearing, counsel for the plaintiffs proposed an amended form of undertaking (subject to obtaining instructions) and shortly thereafter, having obtained instructions, provided a proposed amended undertaking (Amended Undertaking)[19] which elaborated the amendments proposed in the course of the hearing and addressed a further concern of the defendant. The Amended Undertaking is attached to these reasons.

29 After the close of argument, and before receipt of the Amended Undertaking, I invited the plaintiffs to obtain instructions on a further possible extension to the undertakings to be given by Harbour III, which would add an obligation on Harbour III to notify the Court and the defendant if the amount available to it in liquid funds reduced below a level which I invited them to nominate. The plaintiffs obtained instructions to the effect that they did not consider that further obligation to be necessary and would not include it.[20]

30 Clause 1 of the Amended Undertaking contains obligations on Harbour III to notify the Court and the defendant in relation to termination, or proposed termination, of three matters - the Funding Agreement; the obligations contained within the Funding Agreement to fund an 'Adverse Costs Order'; and the ATE Insurance. Clause 2 of the Amended Undertaking contains undertakings to pay an Adverse Costs Order made in favour of the defendant against the plaintiffs subject to the 'Adverse Costs Limit', to make a claim on that Policy if so requested by the defendant, and, subject to legal advice, to commence proceedings to enforce the Policy if the claim is rejected. If the Funding Agreement is terminated, the undertakings in clause 2 apply only to costs incurred by the defendant up to that termination. 'Adverse Costs Order' and 'Adverse Costs Limit' are defined terms in the proposed Amended Undertaking which reference the Funding Agreement and the ATE Insurance respectively.

31 Clause 3 of the Amended Undertaking was not part at all of the original undertaking. It adds an undertaking by Harbour III not to oppose the making of an Adverse Costs Order against it, and not to oppose enforcement of such an order, subject to rights of appeal and taxation. If the Funding Agreement is terminated, these proposed undertakings also only apply to costs incurred by the defendant to the date of termination. The undertakings are also probably intended to be subject to the Adverse Costs Limit, although the form of expression is such that this can be read as only applying where the Funding Agreement has been terminated.

32 The Amended Undertaking also adds a definition for 'Code of Conduct' for reasons that are unclear to me, as I cannot detect this phrase in the body of the document.

33 I commence my discussion of the final package of security proposed by the plaintiffs with consideration of the Policy.

34 The plaintiffs have provided to the defendant, and the defendant exhibits in this application, a copy of the Policy.[21] As noted earlier, the insured is Harbour III. The liability of Harbour III that is the subject of the cover is liability for the defendant's costs under an order for costs made against either the plaintiffs or Harbour III (clause 2.1.1). The cover is subject to the limit of indemnity, which is [redacted]. The premium payable is a total of [redacted] payable in three instalments, the first of which is [redacted]. The solicitor for the plaintiffs deposes that this first instalment has been paid, and that it is in the order, in Australian dollars, of [redacted] of the amount sought by the Commonwealth as security for its costs to the end of the trial.[22]

35 I accept the submission of the plaintiffs that the limit of cover would appear to be ample and that, given payment of the initial instalment of premium, a large amount of cover is already in place. I also accept their submission that the fact that the cover is provided severally by four insurers, rather than by one only or jointly by more than one, is not of itself a concern given that the cover to be provided by the [redacted] insurer i.e [redacted] alone exceeds the amount sought for security and all the insurers are, on the information obtained by the solicitor for the plaintiffs, Mr Lewis, financially sound.

36 The insurers and Harbour III have agreed on an assignment of the benefit of the Policy to the defendant, which provides that the insurers will pay the defendant directly 'any amounts which the Insured is entitled to by way of indemnity under this policy'. The assignment also provides that the defendant may make a claim directly on the insurers.[23] The plaintiffs initially contended that 'the terms of the assignment endorsement put the Commonwealth in the same position as an insured under the Policy'.[24] This is stating the position too highly in my view, as was conceded at the oral hearing. The assignment allows the defendant to directly make a claim under the Policy, and it allows the insurers to pay the defendant directly, but the assignment does not give the defendant the right to enforce the Policy. In answer to the defendant's criticisms in this regard, the Amended Undertaking contains additional undertakings that Harbour III will, if requested, make a claim on the Policy, and will, if so advised, commence proceedings to enforce it, if a claim is rejected.

37 These additional undertakings go some way to addressing the limitations of the Policy as security for the defendant's costs. They do not, however, address the fundamental objection of the defendant to this form of security which is that the defendant has no knowledge of the relationship between Harbour III and the insurers, other than what has been provided to it, and cannot intervene in that relationship or control it in any way other than by making a claim (which it cannot enforce if it is refused) and directly receiving the benefit of a successful claim. It was difficulties of this kind that contributed to the rejection by Yates J in the recent decision of Petersen Superannuation Fund Pty Ltd v Bank of Queensland Ltd and anor (Petersen)[25] of after the event insurance as adequate security in a group proceeding, funded by an overseas litigation funder who had obtained the insurance. The insured in that case was the impecunious plaintiff itself, not a litigation funder with assets, and the undertakings proposed by the plaintiff were less potent than those proposed in this case in a number of respects, but several of the difficulties that his Honour identified with reliance on after the event insurance as security in that case also apply here.[26]

38 First, the Policy contains a number of exclusions and limitations. By clause 2.2.1, liability is excluded in the event of any dishonesty by Harbour III or any material and deliberate failure to disclose material facts to the insurers, or to act in accordance with the 'claimant indemnification agreement'. This exclusion is only triggered by deliberate act or omission, and I accept that having paid a large premium Harbour III has a substantial commercial interest in ensuring that there is no such failure. Nevertheless, compliance is not within the control of the defendant. The absence of control was regarded as significant by Yates J in Petersen even though it was put to him in that case as well that the risk of exclusion from liability under the after the event insurance was theoretical only.[27]

39 Next, on my reading of the Policy there is some ambiguity as to the relationship between it and the Funding Agreement. The Claimant Indemnification Agreement (with which by clause 2.2.1 of the Policy Harbour III must comply) is Appendix 1 to the Policy, and contains an agreement by Harbour III to 'fund the amount of any Adverse Costs Order against the (plaintiffs)' (emphasis added). This obligation in the Claimant Indemnification Agreement is not expressly limited in any way, except that, in the case of termination of the Funding Agreement prior to conclusion of the proceeding, it is limited to the defendant's costs incurred prior to the termination. By contrast, as I will discuss shortly, the obligation on Harbour III under the Funding Agreement to pay Adverse Costs Orders is limited in a number of further ways. It is not clear to me whether or not Harbour III's obligations under the Policy to meet an order for costs against the plaintiffs are intended to mirror its obligations to the plaintiffs under the Funding Agreement, and if they do not, what might flow from that. The relationship between the Claimant Identification Agreement and the Funding Agreement has not, however, been raised at any time by the defendant as a concern and was not explored in argument.

40 Further, the Policy contains obligations on the insured, Harbour III, to provide certain information to the insurers, including, for example, an obligation to notify the insurers of any event that has led the 'insured's advisor to recommend to the insured that it terminates its investment in the legal action' (clause 4.5 and definition of 'material adverse event'). The insurers agree that such information is received in confidence and will not be disclosed (clause 4.3). In other words, the defendant cannot know or control what information was provided to the insurers on the basis of which the Policy was obtained, nor whether information is being provided as required. The best that Harbour III offers in this regard is its proposed undertaking to notify the defendant and the Court if the Policy is terminated, or it is informed that the insurers intend to terminate it or deny liability.

41 The plaintiffs contend that the ATE Insurance here in place together with the other elements of the package proffered by the plaintiffs mean that the present case is 'relevantly indistinguishable' from DIF.[28] At least in so far as this assertion compares the Policy here with the deed of indemnity held to be adequate security in that case I consider this incorrect. In DIF, the after the event insurer, AmTrust Europe Ltd, offered a deed of indemnity directly to the defendants. Justice Hargrave considered the provision of direct indemnity to the defendants to be critical as is apparent from his conclusion, which I now set out.

In reaching my conclusion, I have had regard to the following countervailing circumstances which satisfy departure from the first principle expressed by Priest JA in Yara v Oswal:

(1) the AmTrust indemnity is irrevocable and unconditional;

(2) the AmTrust indemnity is directly enforceable against AmTrust in Victoria and it is governed by the laws of Victoria;

(3) AmTrust is based in the United Kingdom, a jurisdiction which has clear and straightforward arrangements for the enforcement of Victorian judgments;

(4) the plaintiff has offered extra security to cover the cost of any enforcement in the United Kingdom which may be necessary;

(5) the evidence shows that AmTrust has significant assets in the United Kingdom and is generally of good financial standing; and

(6) as a large regulated insurer, which is also in the business of underwriting legal expense risks, it is unlikely that AmTrust would default on the deed.[29]

42 By contrast in this case, the after the event insurers make no offer of direct indemnity to the defendant. Their obligations are only to the litigation funder Harbour III, and can be sued on only by Harbour III and only in England or Wales (clause 4.1 of the Policy). The only direct provision of security from the after the event insurers to the defendant is the assignment of any benefit under the Policy. This is entirely dependent on the continuation of the Policy and a successful claim on the Policy. In other words, the security given by the ATE Policy in this case is not 'directly enforceable' against the insurers in Victoria at the instance of the defendant and is neither irrevocable nor unconditional. The defendant was correct to refuse it as adequate security, standing alone, as the plaintiffs essentially conceded by offering an undertaking from their litigation funder, in its successive iterations. I now consider that undertaking.

43 The proposed undertaking by Harbour III to the defendant and the Court is in the form attached to these reasons, after all amendments (which are underlined).

44 The defendant identified in the hearing a number of objections to the undertaking as initially proposed by the plaintiffs. One concern was uncertainty as to the enforceability of an undertaking, as opposed to a deed of indemnity. This concern arises because an undertaking is not a civil obligation in the usual sense - it is an obligation the breach of which is enforceable by contempt proceedings and there may be doubt as to the availability of sanction against a corporate entity with no presence by registration or assets in Australia. The defendant now concedes that the inclusion of clause 3 in the Amended Undertaking is likely to sufficiently address this concern because that clause will likely eliminate the need for a proceeding on the undertaking entirely.[30]

45 I observe, however, that while Harbour III submits to the jurisdiction of this Court in relation to the undertaking (original clause 2(d)), the undertaking not to oppose the making of an order for costs against it (added clause 3) and the direct undertakings to pay the defendants' costs if such an order is made (clauses 2(a) and (b) as amended) are still expressed to be subject to limitations. Those limitations may in turn inform the extent to which the Court would consider it appropriate to make an order for costs directly against Harbour III. Thus the extent to which the proposed undertakings to pay adverse costs equate to the form of security considered sufficient in DIF i.e. an irrevocable and unconditional promise which is directly enforceable in this Court may depend on those limitations.

46 The express limitations are three. First, that the obligation and non-opposition only apply to costs incurred while the Funding Agreement is current. Secondly, that the costs are subject to the 'Adverse Costs Limit'. Third, that the costs be the subject of an 'Adverse Costs Order'.

47 'Adverse Costs Order' is defined in the Amended Undertaking to have the same meaning as it does in the Funding Agreement. 'Adverse Costs Limit' is defined in the Amended Undertaking to mean 'the limit of Adverse Costs Orders (Harbour III) has agreed to indemnify the Plaintiffs for under the ATE Policy'. This is a puzzling definition, as the promise of indemnification under the ATE Policy is not between Harbour III and the plaintiffs, but between the insurers and Harbour III (unless the definition is intended to refer to the Claimant Indemnification Agreement which forms part of the Policy). The parties have throughout treated this limitation as relating to the limit of cover under the Policy,[31] which as noted earlier is ample for the purposes of security for the defendant's costs. I will assume this is what is intended, although infelicitously expressed.

48 The limitation in the Amended Undertaking to payment of the defendant's costs incurred during the currency of the Funding Agreement and the limitation to an Adverse Costs Order as defined in that Agreement invite consideration of the Funding Agreement. The parties did not, however, take me to the Funding Agreement and, in particular, the defendant did not raise any concern about its terms as they impact on either the original or the Amended Undertaking. For these reasons, I will not further consider the Funding Agreement. I assume that the defendant does not regard any issue arising from it as detracting to any significant degree from the sufficiency of the proposed security. The defendant's main remaining concerns are perceived difficulty in registration of a costs order against Harbour III overseas, and the prospects of sufficient assets being available at that time.[32] I will discuss these issues shortly.

49 In two of the cases referred to in argument, Petersen and Trailer Trash, undertakings by a non-party were proposed as security and considered inadequate by the court concerned.

50 In Petersen, the security offered was principally after the event (ATE) insurance taken out in the name of the plaintiff. The plaintiff, and its directors, also gave undertakings designed to support this security to the effect that in the event of an adverse costs order against the plaintiff they would make a claim on the ATE insurance. Those undertakings were considered inadequate by Yates J for a number of reasons. First, they did not include an undertaking to sue on the ATE policy to enforce a legitimate claim. Second, the plaintiff was impecunious, and so Yates J considered it unlikely that it would have the financial wherewithal to do so. Further, the proposed undertakings were undertakings to the court, not to the defendants and so imposed no obligation on the plaintiff on which the defendant could directly rely.[33] None of those limitations apply in this case, and here the Amended Undertaking is presented as the security, with the ATE Insurance as its support, rather than the other way around.

51 In Trailer Trash, the Court of Appeal was critical of the judge below in accepting as adequate security an undertaking by the father of the sole director and shareholder of the plaintiff company to pay $10,580 by way of further security for the defendant's costs. The Court expressed its criticisms of principle to undertakings other than those given by 'a financial institution'.[34] On the facts of that case, the Court was critical of the mode adopted to establish the father's capacity to meet a costs order; the fact that the account in which his funds were currently held was a working account and so there was no assurance that any amount would be available at a future time; and that on his own evidence there was no barrier to him providing funds in cash or to support a bank guarantee by way of security.[35]

52 In relation to the first of these criticisms, no documents were produced in Trailer Trash to establish capacity to pay - the father was permitted to rely on the bank balance as at the date of the hearing as shown on his mobile phone. This is not a criticism that could apply in this case. The second and third criticisms in that case could, however, potentially apply to the facts in this case. Here, as there, the funds on which the proposed provider of the undertaking relies are held in a working account, that may fluctuate, and here is shown to have changed over time. Further, Harbour III has not given any evidence to the effect that it cannot provide funds in cash or to support a bank guarantee and its own financial documents show that it currently has such liquid funds. The position of Harbour III is that provision of funds should not be required, given the ATE insurance for which it has already paid a substantial premium, not that provision of funds in cash or to support a bank guarantee would impose hardship or prejudice.[36]

53 The facts in this case are, of course, distinguishable from those in Trailer Trash in significant ways. Here the Amended Undertaking is supported by the ATE Insurance, which provides another source of funds to meet an adverse costs order (subject to the limitations already discussed) should Harbour III be unable or unwilling to meet the order from its own funds. In other words, the provider of the undertaking under consideration in this case, as opposed to that criticised in Trailer Trash, is not the only source of funds from which the adverse costs order may be met. Further, this case is of significantly greater financial dimension than that in Trailer Trash and the bodies offering security, Harbour III and the insurers under the Policy, are major commercial entities, rather than individuals, and as such are arguably not within the intended scope of the observations in that case. Nevertheless, I will consider the second and third criticisms of the undertaking in Trailer Trash further in relation to the likelihood of recovery under the Amended Undertaking, and through the lens of the CPA.

54 Subject to two issues, I conclude that the Amended Undertaking, as supported by the Policy, provides sufficient security for the defendant's costs. Those two issues are the likelihood and ease of recovery if Harbour III does not voluntarily meet an order for the defendant's costs (the defendant's remaining concerns) and consideration of the proposed security having regard to the overarching obligation imposed on the Court by the CPA. I now turn to those questions.

55 The funding to be provided by Harbour III including its ability to meet any adverse costs order is of course dependent on its resources - both those immediately available, and those on which it can call. The material below is drawn from the evidence of the solicitor for the plaintiffs, Mr Lewis, and information he provided to the defendant including financial reports and a document which was compiled by Mr Lewis or at his direction headed 'Experience and Financial Position of HF3'.[37]

56 Harbour III is part of a group of associated corporate entities concerned with litigation funding. The public company in this group, Harbour Litigation Funding Limited (HLF), is a London-based litigation investment advisory company which was incorporated in the United Kingdom in 2007, although Mr Lewis states somewhat opaquely that the 'origins of its business date back to 2002'.[38] The funding model used by HLF is to form closed-ended investment funds (i.e. with a limited number of investors) for specified investment periods. If a case so funded has a successful outcome, distributions of the proceeds are then made to the investors. Harbour III is one of three such investment funds. It was formed on 15 September 2014 in the Cayman Islands as a limited partnership and commenced operations on 2 March 2015 by which date it had reached its full subscription.

57 The plaintiffs rely on the financial position of Harbour III, in particular its demonstrated ability to date to call on investors to make further capital contributions, to demonstrate that it will be able to meet a costs order made against it, or against the plaintiffs for which under the Funding Agreement with them it is liable. They support this submission by reference to the financial information they have provided to the defendant, which I now discuss.

58 The audited accounts for Harbour III show that as at 31 December 2016 Harbour III had [redacted] committed capital, of which [redacted] had been drawn down ([redacted] of the committed capital), represented by approximately [redacted] in cash held at Barclays PLC bank in London and approximately [redacted] in 'investments'. The precise meaning of this term was not made clear, but analysis of the Investment Advisors' Report which forms part of the accounts suggests that 'investments' are the funds already advanced for legal costs in respect of a claim, within the budget for that claim. The Investment Advisors' Report states that during 2016 Harbour III made '10 investments in (claims and judgment collections), representing [redacted] in aggregate budgeted commitments'. The Report then describes the five largest claims, by description of the claim, the budget, the amount already invested, the anticipated claim value and expected conclusion date. Counsel for the plaintiffs said in answer to my query that this case is not one of those five largest claims. The notes to the accounts show that as at 31 December 2016 'total budgeted commitments in ongoing cases' were [redacted] of which [redacted] had by that date been spent and paid.

59 The obligations of investors in Harbour III are governed by their Limited Partnership Agreement (LPA). That agreement is not in evidence. The December 2016 accounts show that the partnership consists of Limited Partners and the General Partner. Mr Lewis deposes that under the LPA each partner has entered into a subscription agreement which requires the investor to contribute specific amounts to Harbour III. He deposes that:

Under the terms of the LPA, as and when at any time, in the opinion of the General Partner...capital is or will be required by Harbour III to make an investment in a Claim or to fund partnership expenses, the partners are required to make capital contributions to Harbour III in the amount of such capital in proportion to their undrawn capital commitments. Funds are to be available within 10 business days after notice is given for a capital call.[39]

60 The plaintiffs have not disclosed the names and financial resources of the investors in Harbour III, other than that the General Partner of Harbour III is Harbour Fund III GP Ltd and a principal investor in Harbour III is Harbour Offshore Fund III L.P., which owned 63.88% of Harbour III as at 31 December 2016.[40] Counsel for the plaintiffs said in answer to a question from me as to the relationship between Harbour III and HLF that he was instructed that the General Partner of Harbour III is a wholly funded subsidiary of HLF, but later conceded that the evidence[41] shows only that a director of the General Partner is a shareholder and director of HLF.

61 The evidence records that at least two calls for further capital contribution have been made since Harbour III commenced operations in the 2015 financial year. The first was made in the 2016 financial year and is recorded in the December 2016 accounts. These accounts show that in 2015 the capital contributions were in the sum of [redacted]. In 2016 a further [redacted] was made by way of capital contributions,[42] leading to the [redacted] capital drawn down of the [redacted] committed capital. A further call or calls appear to have been made in the 2017 financial year. I infer this from the summary provided by Mr Lewis to the defendant which states that as at 21 July 2017, the undrawn capital commitment was [redacted].[43] These figures are confirmed by the administrator of Harbour III, MUFG Fund Services (Ireland) Limited (MUFG) which confirms in a letter to Mr Lewis that [redacted] had been drawn down from the partners as at 5 September 2017,[44] evidencing further capital contributions totalling approximately [redacted] since 31 December 2016. Mr Lewis states that as at 21 July 2017, the amount held in cash at Barclays PLC bank in London was [redacted]. MUFG state that as at 5 September 2017, the amount held in liquid funds at Barclays bank was [redacted].

62 In summary, Harbour III has been able to call on an additional [redacted] in capital contributions since 31 December 2015 to fund additional investments in claims. The amount it holds in liquid funds has fluctuated - being different at each of the four dates given in the evidence. The amount in cash held as at 31 December 2015 was [redacted] (of [redacted] in total assets) and as at 31 December 2016 [redacted] (of [redacted] in total assets).[45] Liquid funds increased substantially over that time. They then reduced. As at 21 July 2017 the cash at bank was [redacted], and as at 5 September 2017 it was [redacted].

63 As noted earlier, the plaintiffs principally rely on the ability of Harbour III to call for further capital contribution, rather than the amount it holds in liquid funds, to demonstrate that its proposed undertaking to directly meet adverse costs orders provides adequate security. The Amended Undertaking seeks to address any deficiency in capital contribution by clause 2(g). By that proposed sub-clause, Harbour III would undertake to the defendant and to the Court to notify the defendant if one or more of its Limited Partners, or the General Partner, default on a capital contribution to a specified extent. The notification obligation is triggered if the aggregate value of such default exceeds 20% of the undrawn capital commitments at the time the capital call is made.

64 Neither party addressed argument to the precise working of this proposed obligation. On my unassisted analysis, its value as an alert by which the defendant could seek further security is limited, because it would seem to depend on the amount of undrawn capital commitment at the time at the time of the call, and the timing of that call viz a viz an obligation to pay adverse costs. There is no evidence as to the proposed timing of capital calls, or whether it is proposed that any amount of capital remain undrawn as a reserve. Further, the defendant would have no ability under the Amended Undertaking to determine when calls are made, or, in particular, how much undrawn capital commitment remains at the time an obligation to meet an adverse costs order arises. If, for example, all capital has been drawn down and invested in this and other litigation at such a time and no liquid funds are available to meet the adverse costs order, the notification provision in relation to capital would seem to offer little by way of security to the defendant. In this regard, the security offered by the ability to call on undrawn capital contribution is significantly less reliable than the likelihood that the major insurer in DIF would meet its promise to directly pay adverse costs. The entity giving the promise to pay in that case was a significant on-going financial enterprise. Here, the entity giving the promise to pay is an investment vehicle, admittedly of some size, but of limited purpose and so duration.

65 I turn now to the liquid funds held by Harbour III as a source of security. The liquid assets of Harbour III are held in a working account. Those funds have plainly fluctuated over time, and indeed since December 2016 have diminished in a relatively short period, although as at the most recent information they were still in significant sum. Other than the nature of the holder of the account and the sums in question, reliance on the liquid funds of the provider of the undertaking in this case would seem to be identical to the reliance which was criticised in Trailer Trash because there can be no assurance that funds will be available when needed. In this regard, I note that it appears that this litigation is not, or at least was not in 2016, considered one of the most significant pieces of litigation being funded by Harbour III. Presumably all the litigation in which it is invested may need recourse from time to time to the liquid funds, in other words, this litigation and the possibility of an adverse costs order is by no means the only, and possibly not a major, liability to be met from Harbour III's funds.

66 In the case of deficiency in liquid funds, the General Partner would presumably make a capital call, but as discussed above this offers little by way of further security to the defendant. Previous calls for further capital contribution have apparently been met, but at some point it is possible that all capital will be drawn down, and, even if that is not the case, the plaintiffs have provided no information as to the identity or financial circumstances of the partners of Harbour III. In the absence of evidence that sufficient funds will definitely be available to Harbour III, the defendant is asked to trust Harbour III and its investors in relation to the financial arrangements that they have made and the probability that they will not default.

67 In this regard, the plaintiffs seek to rely on the history of HLF and the regulatory controls over it to support their contention that Harbour III will, and will be able to, honour its financial commitments to the plaintiffs under the Funding Agreement and to the defendant and the Court pursuant to the Amended Undertaking.

68 HLF has funded litigation and arbitration disputes since 2007 in the United Kingdom, Hong Kong, Australia, New Zealand, the United States, Canada and some other countries with historical ties to the United Kingdom. Mr Lewis says that HFL is currently managing 40 cases.[46] It appears that the 15 cases that are being funded by Harbour III form part of this 40, but the exact corporate relationship between Harbour III and HLF is not clear on the evidence, save for the shared director noted above.

69 In relation to regulation, Mr Lewis asserts that 'HLF is authorised and regulated by the Financial Conduct Authority, a body which regulates the financial services industry in the United Kingdom'.[47] The plaintiffs did not further elaborate exactly what this means, or identify the extent of any government regulatory control or required minimum available capital.

70 HLF is a founding member of the Association of Litigation Funders of England and Wales and has adopted a voluntary code of conduct, the Code of Conduct for Litigation Funders (Code). Amongst the obligations imposed on members of the Association by the Code, is an obligation to maintain access to adequate financial resources to meet their obligations under funding agreements, including to maintain access to (as at November 2016) a minimum of £5 million of capital, or such other amount as is stipulated by the Association. The minimum capital requirement was previously (as at January 2014) £2 million.

71 Under the Code HLF agrees to be responsible not just for its own compliance, but also for the compliance of its subsidiaries and associated entities, as defined. It is not clear on the evidence whether Harbour III would fall within these definitions. In any event, the Code does not bind HLF or Harbour III (assuming it to be such a subsidiary or associated entity) in this proceeding as it applies in its terms only to the funding of the resolution of disputes in England and Wales.

72 The voluntary obligations assumed under the Code for funding of disputes in England and Wales caused me to query in argument if, in the event of insufficient funds to meet all commitments, commitments in England and Wales may be preferred. Counsel for the plaintiffs did not seek to shy away from the possibility that that might occur. This is a further risk that the plaintiffs propose the defendant bear. The Consolidated Schedule of Investments to the December 2016 accounts for Harbour III give a broad indication of the relative investment in the United Kingdom compared to elsewhere. They show that [redacted] of the total fair value of investments in claims of approximately [redacted] was in litigation in Asia and the Pacific, compared with [redacted] in investments in litigation in the United Kingdom.[48] In other words, as at that date at least, the investments in litigation in the region including Australia was approximately 10% of the total investment.

73 Counsel for the plaintiffs submits that the defendant's objections to the proposed package of security have an air of commercial unreality given the information provided as to the financial soundness of Harbour III and HLF. I accept that on the evidence HLF is a major commercial entity with a significant presence in the United Kingdom and a proven track record in the funding of litigation, which is subject to at least the voluntary Code for that funding. I assume that this proven history and regulation includes the meeting of adverse costs orders. However, the exact relationship between HLF and Harbour III is not made clear in the evidence. Further, the use of a closed investment fund created in the tax effective jurisdiction of the Cayman Islands would suggest that HLF takes a commercial approach to risk. Whether this shows that it is, or is not, likely to assist one of those investment funds, if that was required, is a matter for debate.

74 The promise to pay adverse costs considered adequate in DIF was given by a regulated insurer subject to capital adequacy requirements.[49] The only evidence of regulatory control here relates to HLF and the conduct of litigation in England and Wales i.e. not over Harbour III and not for litigation in Australia. That regulatory control and the fact that investment in Asia and the Pacific is not a major component of the activity of Harbour III might mean that in the event of any deficiency, priority would be given to litigation elsewhere.

75 For all these reasons, I am not persuaded that the financial resources, reputation and track record of HLF are persuasive in this application. I will assess the adequacy of a fund to meet an adverse costs order by reference only to the resources of Harbour III, including the ATE Insurance.

Further submissions in relation to availability of assets

76 In the course of, and immediately after argument, I asked the legal representatives for the plaintiffs to obtain instructions on two possible further protections for the defendant in relation to the liquid funds of Harbour III. The first was a 'red circling' of those funds in the amount of the security sought i.e. a further undertaking not to diminish the liquid funds below the amount of security. The plaintiffs did not agree to that suggestion. They say this would have the same vice as the form of security sought by the defendant i.e. a preserved fund, which is not necessary given the ATE Insurance and the proposed undertakings to be given by Harbour III.

77 The second suggestion, which I invited the parties to consider immediately after the hearing, was that the undertaking to be given by Harbour III include a provision to notify the defendant and the Court if the liquid funds available to Harbour III diminished below a certain level i.e. not to preserve funds in that amount, but to notify if the funds fell below that amount. This suggestion was prompted by the capital requirement applying in the voluntary Code applying to litigation funding by HLF and its subsidiaries in England and Wales, discussed above. Harbour III did not accede to that suggestion, largely for the same reasons that the plaintiffs rejected the first suggestion. Its response is in these terms:

Harbour has instructed that it is not prepared to give the further undertaking because to do so would be to the effect of setting aside funds to the specified amount (whether [redacted] or such other amount as the Court may order) and which is tantamount to providing security for the specified amount. That is, security in a UK bank account well in excess of the amount sought by the Defendant, in circumstances where it has already taken out the ATE Insurance Policy, paid a significant premium and is prepared to give the undertakings, including an undertaking to sue to enforce a claim on the ATE Insurance Policy. [50]

78 The defendant does not, in any event, accept that the suggested notification requirement would be sufficient. It remains concerned that notification would not ensure that funds were actually available when required.[51] The defendant further submits that:

Harbour III has not ever explained its reason for resisting the provision of $AUD1.4 million in security in circumstances where that amount represents a tiny fraction of its assets. Indeed, in circumstances where Harbour III has also submitted that its General Partner has the ability to simply call on partners who have committed capital 'to make an investment in a Claim or to fund partnership expenses', there is no suggestion that Harbour III needs to retain the $AUD 1.4 million for operational expenses.[52]

79 I accept this submission, in both its limbs. The second limb echoes the criticism in Trailer Trash that the evidence in that case showed funds were available for deposit, and so an undertaking should not have been accepted as adequate security.

80 The first limb relates to the reason for resistance to the deposit of funds. The reason may lie in the fact that Harbour III has already expended considerable funds in premium for the ATE Insurance, and has an obligation to expend more. Harbour III perhaps envisaged in taking out this insurance that it would be accepted as adequate security. There is nothing from the plaintiffs stating this reason explicitly, but it is suggested by the reasons given for rejection of the notification proposal, as set out above.

Conclusion in relation to availability of assets

81 In short, the only assets identified by Harbour III as being immediately available are in a working account, used to fund multiple other proceedings. Harbour III will not accept any limitation on its use of those funds, even notification to the defendant if the funds fall below a certain level.

82 In Yara v Oswal, in his observations quoted earlier, Redlich JA held that 'the degree of likelihood of the respondent being unable to pay the costs' was a factor to be taken into account in considering the adequacy of proposed security. In DIF, Hargrave J held that there is a 'practical onus' on a plaintiff to show that the security it proposes is adequate and does not impose an 'unacceptable disadvantage' on the defendant. [53] The funds in the working account are currently, or at least as at 5 September 2017 were, more than sufficient to meet the defendant's anticipated costs of $1,687,219. [54] Harbour III can also currently call on substantial undrawn capital. Given the size of both its current liquid funds and the undrawn capital it may seem at first blush that the risk that Harbour III will be unable to meet a costs order from its own resources is so slight as to be theoretical. Harbour III is, however, a closed investment vehicle, not an ongoing financial institution, and there is no evidence as to how, and when, the cash at bank or the undrawn capital are to be utilised. Accordingly, there is no assurance that there will be sufficient liquid funds available when required, or indeed any undrawn capital. In these circumstances, I do not consider that the risk of insufficient funds can be said to be insignificant. The defendant is asked by the plaintiffs to bear that risk, to avoid any restriction being imposed on the free use by its litigation funder of its funds. I consider this to be an 'unacceptable disadvantage' to the defendant. The plaintiffs have not discharged the practical onus cast on them in relation to payment from Harbour III's own funds.

83 The thrust of the plaintiffs' submissions is that this is not of moment, because Harbour III can call on its ATE Insurance. In Trailer Trash, the Court of Appeal was critical of a form of security that 'does not provide a fund which can be accessed without the co-operation of the opposing party...and may require the commencement of proceedings to enforce it'.[55] The defendant can make a claim directly on the ATE Insurance, but in other respects it is a fund that can only be accessed with the co-operation of the plaintiffs, and may require a proceeding to enforce it. For these reasons, it does not alleviate the potential insufficiency of funds held by Harbour III itself.

84 For these reasons, I accept the defendant's submission that the security proposed by the Amended Undertaking combined with the ATE Insurance is not adequate. That is sufficient to dispose of the application, but for completeness, I now turn to issues relating to enforcement. I am also required to consider the interaction of the proposed package of security with the CPA.

85 Harbour III has no assets in Australia. Accordingly, the utility of the proposed Amended Undertaking also depends on the ease with which the defendant could register an order for costs against Harbour III in a jurisdiction where it has assets. I now turn to that issue.

86 The undertaking in both its original form i.e. prior to the hearing and in its final form as the Amended Undertaking envisages by clause 2(e) registration of a judgment against Harbour III in either the Cayman Islands or England. This flows from the fact that by clause 2(e) Harbour III would undertake not to seek security for costs in either of those jurisdictions. The enforcement information on which the plaintiffs relied at the hearing relates to enforcement in the Cayman Islands, not enforcement in England. True it is that Harbour III is registered in the Cayman Islands, but it seems unlikely that the defendant would choose to register a judgment obtained here in that jurisdiction given that Harbour III has no disclosed assets in the Cayman Islands.

87 Nevertheless, should the defendant choose to do so, the plaintiffs say that the procedure is sufficiently set out in a document prepared by the Cayman Islands legal advisors to Harbour III.[56] The plaintiffs rely on the statutory mechanism referred to in that advice, rather than enforcement at common law which is discussed in much greater detail in the advice. Registration is an ex parte procedure, as opposed to enforcement at common law, which requires a fresh proceeding. The difficulty with the plaintiffs' reliance on the statutory mechanism is that the advice itself states that 'as the statutory provisions currently apply only to judgments of certain Australian courts, they are of little practical relevance'.[57] The advice does not state whether or not a judgment of this Court could be registered under the statutory mechanism.

88 The defendant is critical of proposed enforcement in the Cayman Islands for a number of reasons.[58] I do not think that all those criticisms are sound. In particular, criticism that the judgment be for a definite sum of money is met by the fact than no order for costs is enforceable unless taxed, and so for a definite sum. Further, the criticism that enforcement may fail because Harbour III was not present in Victoria would seem to be met by the submission to jurisdiction contained in clause 2(d) of the Amended Undertaking. I do accept the defendant's submission that enforcement in the Cayman Islands is not as well trodden a path as enforcement by registration of a judgment in the United Kingdom. As against this, I accept that the proposed deposit of $30,000 to meet the costs of enforcement overseas is sufficient to meet any unfamiliar difficulties.

89 The more likely jurisdiction for enforcement would appear to be where Harbour III currently at least has funds, being England.

90 The plaintiffs did not initially provide any information as to the procedure to be followed for registration of a judgment against Harbour III in England, but did so after the hearing.[59] The defendant submits that the information now provided does not address potential complication arising from the fact that Harbour III is not registered in England, and may have no commercial presence in England[60]. I accept the plaintiffs' submission that, to the extent the objection relates to submission to the jurisdiction, it is met by clause 2(f) of the Amended Undertaking. By that clause, Harbour III would undertake that it will submit 'irrevocably' to the 'exclusive' jurisdiction of the English courts in respect of 'any enforcement or recognition proceedings commenced by the Defendant against it in that jurisdiction'.

91 I accept that there may be extra procedural requirements in relation to service on Harbour III given that it is not resident in England, but as a corporate entity it is unlikely that personal service is required, or that it will be able avoid service, as an overseas individual may seek to do. I consider that the funds proposed to be deposited in the sum of $30,000 would be sufficient to meet the costs of registration and enforcement in England, even with any such additional procedural requirement for service in the Cayman Islands. In this regard, I note that the sum for enforcement costs in England that was considered acceptable in DIF was the lesser sum of $20,000 (per defendant group) in relation to a company registered in England, and counsel for the defendant appeared to accept in oral argument that $20,000 was the 'going rate' for straightforward registration and enforcement there.

92 I conclude that sufficient financial provision is made for enforcement in England of a judgment for costs obtained against Harbour III in this Court and that the procedural route for enforcement in that jurisdiction is not unduly burdensome.

94 The proposed security is also inadequate in my view when viewed through a CPA lens. This is an additional, and independent, reason for considering the package to be inadequate. Consistency with the CPA is not a matter to which the parties turned particular attention, but it is a matter that under the CPA itself the Court is required to consider, as Trailer Trash emphasised.

95 The Court in Trailer Trash observed that the adequacy of proposed security must be considered in the light of the obligation imposed on the Court by the CPA to give effect in any interlocutory order to the overarching purpose to 'facilitate the just, efficient, timely and cost-effective resolution'. By s 9 of that Act, the Court is required to consider, amongst other matters:

• the just determination of the civil proceeding (s 9(1)(a));

• the efficient conduct of the business of the Court (s 9(1)(c));

• the efficient use of judicial and administrative resources (s 9(1)(d)); and

96 In my view, the security proposed by the plaintiffs offends these principles in two main ways. First, the security is complex. On the plaintiffs' submissions, the combination of the Amended Undertaking and the ATE Insurance affords extra security, if Harbour III is itself unwilling or unable to meet an adverse costs order. However, it also adds significant uncertainty and potential delay.

97 The uncertainty arises from the fact that there are inconsistent assertions from the plaintiffs as to which of the Amended Undertaking or the ATE Insurance is to be regarded as the principal security. The plaintiffs have maintained at some points that the principal security they propose is the undertaking as to personal liability to be given by their litigation funder, Harbour III, not the ATE Insurance.[61] At other points, however, their submissions sits uncomfortably with this assertion. This is particularly the case in relation to their final submission by the email responding to the notification suggestion,[62] quoted earlier, but there are submissions to the same effect in their first written submissions.[63]

98 I infer from the email and these submissions that Harbour III continues to rely principally on the ATE Insurance, including its proposed undertaking to sue on the Policy if so advised. This could mean in practice that notwithstanding personal liability for an adverse costs order pursuant to its Amended Undertaking, Harbour III would seek in the first instance to claim on the Policy to meet the order, rather than pay it and seek reimbursement. From the defendant's point of view, while the Policy may provide additional security, reliance on it in the first instance has the potential for added delay, particularly if the claim is not accepted in the first instance and enforcement of the Policy is required. Enforcement would require first an advice as to merits, and then compliance with the dispute resolution mechanisms in the Policy before a proceeding could be commenced.[64] This is satellite litigation that was the subject of criticism in Trailer Trash. At a minimum, given the investment made by Harbour III in the ATE Insurance, it would seem commercially unlikely that Harbour III would itself meet the adverse costs order without the permission of its insurers, and, probably, an indication that it would be reimbursed.

99 Second, the security proposed by the plaintiffs is limited by the Amended Undertaking to costs incurred while the Funding Agreement remains current, not to security for the whole trial as the plaintiffs proposed and the defendant now seeks. It may be that the Funding Agreement will not be terminated prior to the conclusion of the trial, but if it is then the defendant may be required to seek further security. The notification provisions in the Amended Undertaking would give the defendant notice of the need to do so, but the need to seek further security would cause delay, and impact adversely on the efficient conduct of the business of the Court and efficient use of its resources. This is because the need for further security would likely cause the proceeding to be stayed, and given that the proceeding has already been listed for a major trial in the near future it would appear that substantial party and judicial resources have already been committed to it. This potential difficulty is not raised by the defendant through a CPA lens, but the Court must consider it in that way.

100 A limitation to Harbour III's liability for adverse costs incurred while the Funding Agreement is on foot is understandable, and the Funding Agreement may be the only way that the plaintiffs and the group members can have access to justice in relation to their claims. I consider that, for that reason, the justice of the case (and so the factor identified in s 9(1)(c) of the CPA) means that this potential difficulty with the proposed security is of less weight. As is often the case, the factors that the Court must consider in giving effect to the overarching purpose of the CPA do not all tend in the same direction, and can tend in competing directions. On balance, however, I consider that the proposed package of security offends the overarching purpose of the CPA by its complexity, and potential need for extra steps and satellite litigation to achieve a fund sufficient to meet the defendant's costs.

101 The plaintiffs submit that security for costs is not required to be perfect, but only adequate. This is plainly right. Hargrave J held in DIF that in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff. Here I do not consider that the proposed security meets that test, by reason of the uncertainty as to the availability of funds held by Harbour III itself in the event of an adverse costs order, and by reason of inconsistency between the proposed security and the overarching purpose of the CPA. The nature and amount of Harbour III's assets as at the date of an adverse costs order are not certain; if Harbour III is unable or unwilling to meet the order from its own resources and requires a successful claim on the Policy, the defendant cannot 'readily enforce' the order; there is a possibility that further security may be required if the current funding of the proceeding ceases; and this will have a major impact on this and other proceedings given the stage already reached in this proceeding.

102 For these reasons, I will make orders for the provision of security in the form proposed by the defendant. I ask the parties to prepare orders consistent with these reasons, and will hear them in relation to the costs of the application if required.

Adverse Costs Orders has the same meaning as it does in the Funding Agreement.

Adverse Costs Limit means the limit of Adverse Costs Orders Harbour has agreed to indemnify the Plaintiffs for under the ATE Policy.

ATE Policy means the 'After the Event Insurance Policy' between Harbour and the Insurers executed by the Insurers on 19 August 2016.

Capital Contribution means a contribution by the Limited Partners and the General Partner pursuant to clause 9.1 of the LPA.

Code of Conduct means the Code of Conduct for Litigation Funders of the Association of Litigation Funders of England and Wales.

Funding Agreement means the litigation funding agreement entered into by Harbour and the Plaintiffs on 19 January 2015.

General Partner means the general partner named in the LPA.

Harbour means Harbour Fund III, L.P., an exempted limited partnership under the laws of the Cayman Islands.

Insurers means the syndicate providing the ATE Policy, comprising:

Limited Partner means a limited partner named in the LPA.

LPA means the Limited Partnership Agreement of Harbour dated 2 March 2015.

Undrawn Capital Commitments means the total undrawn capital committed by the Limited Partners and the General Partner pursuant to the LPA.

ON OCTOBER 2017, HARBOUR, UNDERTAKES TO THE DEFENDANT AND TO THE COURT THAT:

1. Harbour will notify the Defendant and the Court immediately if:

(a) it terminates the Funding Agreement or purports to avoid the funding of Adverse Costs Orders pursuant to clause 11 of that agreement;

(b) it notifies the Plaintiffs that it intends to terminate the Funding Agreement or that it intends to avoid the funding of Adverse Costs Orders pursuant to clause 11 of that agreement;

(d) the Insurers terminate the ATE Policy or inform Harbour that they deny liability under the policy;

(e) the Insurers indicate to Harbour that they intend to terminate the ATE Policy or to deny or avoid liability under the policy.

(a) will, in the event that the Funding Agreement is not terminated prior to the conclusion of these proceedings and subject to the limit of Adverse Costs Orders it has agreed to indemnify the Plaintiffs for under the ATE Policy the Adverse Costs Limit, pay to the Defendant any legal costs incurred by the Defendant that are the subject of an Adverse Costs Order against the Plaintiffs and shall, if requested by the Commonwealth, make a claim on the ATE Policy and, if that claim is rejected, commence proceedings to enforce the ATE Policy provided that it has received an opinion from a Queens Counsel admitted in England and Wales (which it must obtain) that there are reasonable grounds for enforcing the ATE Policy;

(b) will, in the event that the Funding Agreement is terminated prior to the conclusion of these proceedings and subject to the limit of Adverse Costs Orders it has agreed to indemnify the Plaintiffs for under the ATE Policy Adverse Costs Limit, pay to the Defendant any legal costs incurred by the Defendant up to the date of termination that are the subject of an Adverse Costs Order, regardless of whether the Adverse Costs Order is made before or after that date and shall, if requested by the Commonwealth, make a claim on the ATE Policy and, if that claim is rejected, commence proceedings to enforce the ATE Policy provided that it has received an opinion from a Queens Counsel admitted in England and Wales (which it must obtain) that there are reasonable grounds for enforcing the ATE Policy;

(c) undertakes not to bring any proceedings in which it asserts a construction of the Funding Agreement which is contrary to its agreement in paragraphs 2(a) and 2(b) above or to raise by way of defence in any proceedings any such construction of the Funding Agreement;

(d) submits to the exclusive jurisdiction of the courts of Australia in relation to any proceedings to enforce the Funding Agreement or this undertaking;

(e) will not seek security for costs in any enforcement or recognition proceedings brought by the Defendant in the Cayman Islands or England in relation to this proceeding;

(f) irrevocably agrees to submit to the exclusive jurisdiction of the English courts in respect of any enforcement or recognition proceedings commenced by the Defendant against it in that jurisdiction in relation to this proceeding; and

(g) during the currency of this proceeding (including prior to the enforcement of any final costs order in the proceeding), will immediately notify the Defendant in writing if one of more of its Limited Partners and/or the General Partner default on a Capital Contribution and the aggregate value of any such default or defaults exceeds 20% of the value of the Undrawn Capital Commitments at the time the capital call is made.

3. Harbour undertakes that it will not oppose the making of an Adverse Costs Order against it as a non-party to the proceeding. Further, Harbour also undertakes that it will not oppose the enforcement of an Adverse Costs Order subject to its rights of appeal and to have any costs the subject of an Adverse Costs Order taxed, save that, in the event that the Funding Agreement is terminated prior to the conclusion of the proceeding, any Adverse Costs order will be limited to the costs incurred by the Defendant as at the date of termination of the Funding Agreement and shall not exceed the Adverse Costs Limit.

Signed on behalf of Harbour by Harbour Fund III GP Ltd, its General Partner

[3] Ibid 249, quoted by Hargrave J in DIF [12].

[5] Yara v Oswal, 268-269 [115] cited by Hargrave J in DIF, [14].

[12] Letter dated 16 June 2017 from the solicitors for the plaintiffs to the solicitors for the defendant, being part of Exhibit LKR-01 to the affidavit of Ms Louise Kristine Rafferty sworn 25 August 2017 (Rafferty Affidavit).

[13] The ATE Insurance policy is exhibited as LKR-04 to the Rafferty Affidavit.

[14] Letter dated 31 July 2017 from the solicitors for the plaintiffs to the solicitors for the defendant, being part of Exh LKR-01 to the Rafferty Affidavit.

[15] Exh LKR-03 to the Rafferty Affidavit.

[16] Letter dated 4 August 2017 from the solicitors for the defendant to the solicitors for the plaintiffs, being part of Exh LKR-01 to the Rafferty Affidavit.

[17] Letter dated 8 August 2017 from the solicitors for the defendant to the solicitors for the plaintiffs being part of Exh LKR-01 to the Rafferty Affidavit.

[18] Letter dated 18 August 2017 from the solicitors for the plaintiffs to the solicitors for the defendant, being part of Exh LKR-01 to the Rafferty Affidavit.

[19] Plaintiffs, 'Supplementary Security for Costs Submissions', Submission in Roo Roofing Pty Ltd & anor v Commonwealth of Australia, S CI 2015 03382, 25 October 2017, Attachment A (Plaintiffs' Second Written Submissions).

[20] Email to my associate sent by the solicitors for the plaintiffs to the Court 26 October 2017 at 1.24 pm.

[21] Exh LKR-04 to the Rafferty Affidavit.

[22] Affidavit of Mr Steven Lewis sworn 14 September 2017, [7] (Lewis Affidavit).

[23] Exh LKR-05 to the Rafferty Affidavit.

[24] Plaintiffs, 'Security for Costs Submissions on Behalf of the Plaintiffs', Submission in Roo Roofing Pty Ltd & anor v Commonwealth of Australia, S CI 2015 03382, 16 October 2017, [21] (Plaintiffs' First Written Submissions).

[26] Ibid [114], [115], [119], [124].

[28] Plaintiffs' First Written Submissions, [15].

[30] Defendant, 'Reply to the Supplementary Submissions of the Plaintiffs', Submission in Roo Roofing Pty Ltd & anor v Commonwealth of Australia, S CI 2015 03382, 26 October 2017 (Defendant's Third Written Submissions), [5].

[31] Letter dated 31 July 2017 from the solicitors for the plaintiffs, being part of Exh LKR-01 to the Rafferty Affidavit, [3] and [4]; Defendant, 'Defendant's Submissions - Application for Security for Costs', Submission in Roo Roofing Pty Ltd & anor v Commonwealth of Australia, S CI 2015 03382, 3 October 2017 (Defendant's First Written Submissions), [22].

[32] Defendant's First Written Submissions, [16].

[36] Email to the Court from the solicitors for the plaintiffs dated 26 October 2017.

[37] Exhibited by the defendant as part of Exh LKR-06 to the Rafferty Affidavit.

[41] Exh LKR-06 to the Rafferty Affidavit, 111.

[45] Exh LKR-06 to the Rafferty Affidavit, 93.

[46] Exh LKR-06 to the Rafferty Affidavit, 82 [2].

[50] Email to the Court from the solicitors for the plaintiffs dated 26 October 2017.

[51] Defendant's Third Written Submissions, [8].

[58] Defendant, 'Defendant's Reply Submissions - Application for Security for Costs', Submission in Roo Roofing Pty Ltd & anor v Commonwealth of Australia, S CI 2015 03382, 20 October 2017 (Defendant's Second Written Submissions), [9]-[10].

[59] Plaintiffs' Second Written Submissions.

[60] Defendant's Third Written Submissions, [10].

[61] Letter dated 18 August 2017 from the solicitors for the plaintiffs to the solicitors for the defendant, [2], being part of Exh LKR-01 to the Rafferty Affidavit.

[62] Email to the Court from the solicitors for the plaintiffs dated 26 October 2017.

[63] Plaintiffs' First Written Submissions, [6], [17], [27], [30].

[64] Exh LKR-04 to the Rafferty Affidavit, [4.7].

At a glance

Court

Decision date

Before

Source

Judgment (188 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (1)