Plaintiffs v Defendants

2 The application is made pursuant to order 62 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ('the Rules') and s 1335 of the Corporations Act 2001 (Cth) ('the Act'), and seeks security for the defendants' costs to the first day of trial in the form of a cash deposit into court or bank guarantee in a form satisfactory to the Prothonotary of the Court. I indicated at the hearing of this application that if I was minded to order security after hearing argument that I would only order it to secure the defendants' costs incurred to the completion of mediation.

3 In support of their application the defendants rely on an affidavit of their solicitor, David Newman, sworn 9 November 2015. Muranna Park and Octavius rely on an affidavit of their solicitor, Samuel Armytage, sworn 24 November 2015.

4 In this proceeding, the plaintiffs claim relief under the Farm Debt Mediation Act 2011 (Vic) ('FDMA') and the Act. By a loan agreement dated 1 May 2002, the first defendant, Southern Mortgages Limited ('Southern') lent moneys to Muranna Park. The loan was secured by a mortgage of land owned by Muranna Park at Merricks North in Victoria ('the land'). The amount advanced increased over time, and by June 2006 was approximately $2.065 million. The second defendant, DD & D Securities Limited ('DD & D') was an entity within the Southern Financial Group Pty Ltd and on 14 January 2010 it took an assignment of the debt payable by Muranna Park to Southern.

5 Muranna Park defaulted in its obligations under the loan agreement. On 31 May 2013, DD & D obtained judgment in the County Court of Victoria which included an order for possession of the land. On the same day, DD & D appointed receivers to Muranna Park. The receivers exercised powers of sale pursuant to the mortgage, sold the land and paid the proceeds of sale to DD & D. The receivers then retired on 10 April 2015. Upon the retirement of the receivers, a shortfall of approximately $700,000 remained owing to DD & D under the loan agreement.

6 Octavius claims to be a creditor of Muranna Park. The statement of claim alleges that by a loan agreement dated 1 October 2009, it made a capital advance of $465,000 and a separate trading facility advance of $45,000. High rates of interest were payable under those advances. The loan for $465,000 was chargeable with interest of 25 per cent per annum compounding, increasing to 36% compounding upon default; the trading facility loan had an interest charge of 5 per cent per month compounding, increasing to 6% per month upon default. Octavius claims to be owed approximately $3.8 million as of March 2015. The advances by Octavius to Muranna Park are secured by a mortgage over the land which ranks in priority behind the mortgage held by Southern.

7 The second plaintiff, Mr Zerbe, was a director of Muranna Park and of a related entity, Box Stallion Pty Ltd ('Box Stallion'). Mr Zerbe signed personal guarantees in favour of Southern in relation to Muranna Park's liability under a floating charge given by Muranna to Southern and to Octavius in respect of the advances described in paragraph 6 above. He will potentially be exposed to liability under the Southern guarantee for the shortfall remaining owing after the auction of the land and to Octavius in respect to the advances it made to Muranna Park.

8 The plaintiffs say that in taking enforcement action under the loan agreement, the defendants contravened the provisions of the FDMA. It is alleged in the statement of claim that, in breach of s 8 of the FDMA, no written notice was given to Muranna Park that it was intended to take enforcement proceedings under the mortgage over the land, that pursuant to the FDMA a mediation between Muranna Park and the defendants was available, that Muranna Park had 21 days to request such a mediation, and further that no exemption certificate had been issued pursuant to s 16 of the FDMA in respect of the requirements of the FDMA. The plaintiffs contend that by operation of s 6 of the FDMA, the enforcement action was void and therefore the appointment of the receivers was invalid and claim a number of declarations and orders as a consequence of this.

9 The defendants are yet to file a defence but at the hearing of this application it was indicated that they deny the allegations made in the statement of claim and say that the FDMA had no application to Muranna Park because:

(a) the factual matters relied upon by the plaintiffs are irrelevant as they do not show that Muranna Park was a 'farmer' at the time of the enforcement action;

(b) the plaintiff's interpretation of the FDMA is incorrect; and

(c) as a matter of law, Box Stallion was in fact the 'farmer' for the purpose of the FDMA, and irrespective, there is no basis upon which the plaintiffs have suffered any loss or damage in circumstances where DD & D and Southern have not recovered the debt owing to them in full (and in fact have suffered a significant shortfall).

10 The application is made under rule 62.02(1)(b) of the Rules and s 1335(1) of the Act.

11 The relevant principles dealing with applications for security for costs against corporations were collected and discussed by Derham AsJ in Colemax Glass Pty Ltd v Polytrade Pty Ltd, trading as Polytrade Recycling.[1] So far as his Honour's discussion in relation to such principles is relevant in the present context, he stated:

1. Rule 62.02 of the Supreme Court (General Civil Procedure) Rules 2005 provides, so far as relevant:

62.02 When security for costs may be ordered

(1) Where -

...

(b) the plaintiff is a corporation or (not being a plaintiff who sues in a representative capacity) sues, not for the plaintiff's own benefit, but for the benefit of some other person, and there is reason to believe that the plaintiff has insufficient assets in Victoria to pay the costs of the defendant if ordered to do so;

...

(f) under any Act the Court may require security for costs -

the Court may, on the application of a defendant, order that the plaintiff give security for the costs of the defendant of the proceeding and that the proceeding as against that defendant be stayed until the security is given.

15. Section 1335 of the Corporations Act 2001 (Cth) relevantly provides:

Costs

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

1. The first question is whether the threshold condition for the exercise of the power is satisfied, that is, whether there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful. That jurisdictional condition must be satisfied before the discretionary power to order security for costs is enlivened: Livingspring Pty Ltd v Kliger Partners[2].
2. It is well established that the proper approach to the matter is that the Court has an unfettered discretion, but on the footing that the very fact that the jurisdiction has been enlivened in the first place may itself be a factor, even a most significant factor, in the exercise of the discretion.
3. If the Court has jurisdiction to order security, the burden rests on the defendant to persuade the Court that an order for security should be made.
4. In exercising the discretion whether to order a company to give security for costs the court must carry out a balancing exercise. It must weigh the injustice to the plaintiff if it is prevented from pursuing a proper claim by an order for security, against the injustice to the defendant if no security is ordered and at trial the plaintiff's claim fails and the defendant is unable to recover costs from the plaintiff: See the observations of Smithers J in Tradestock Pty Ltd v TNT (Management) Pty Ltd[3]. The Court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, but also it will be concerned not to be so reluctant to order security that an impecunious company can use its inability to pay costs to put unfair pressure on the defendant: Keary Developments Ltd v Tarmac Construction Ltd.[4]
5. The various factors that have been found to be potentially relevant in the exercise of the discretion were summarised many years ago, compendiously, by Smart J in Sydmar Pty Ltd v Statewise Developments Pty Ltd[5]. So far as relevant to the present application, those factors include:

(a) The plaintiff's prospects of success: Whether the plaintiff's claim is made bona fide and has reasonable prospects of success. In this regard, the authorities make the following points:

(i) As a general rule, where a claim is prima facie regular on its face and discloses a cause of action, in the absence of evidence to the contrary, the court should proceed on the basis that the claim is bona fide with reasonable prospects of success;

(ii) Assessing the plaintiff's prospects of success is not really a practicable test in any case of reasonable complexity: Interwest Ltd v Tricontinental Corp Ltd[6]; Although it will ordinarily not be practicable to reach any clear view about the merits of the plaintiff's claim, that is not to say that the merits are always irrelevant (unless totally lacking) or that the bona fides of the claim may be disregarded: Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd[7];

(iii) The court is not obliged to consider at length the merits of the claim, and to do so would ordinarily be a waste of resources: Impex Pty Ltd v Crowner Products Ltd (1994) 13 ACSR 440 (QSC);

(b) Plaintiff's impecuniosity caused by defendant: Whether the plaintiff's lack of funds has been caused or contributed to by the conduct of the defendant in relation to the transaction the subject of the claim: Sir Lindsay Parkinson & Co Ltd v Triplan Ltd[8]. In this regard, the authorities make the following points:

(i) The plaintiff carries the burden of persuasion on the question whether the conduct of the defendant was the cause of the plaintiff's financial difficulties: BPM Pty Ltd v HPM Pty Ltd[9];

(ii) There must be a solid foundation for that conclusion: Right Home Improvements International Pty Ltd v Imperial Alarm Screens (Aust) Pty Ltd[10], referred to in Sandl Trading Pty Ltd v North American Oil Co[11];

(iii) The plaintiff carries the onus of satisfying the court on the basis of admissible evidence, see Ninan v St George Bank Ltd[12];

(c) ...

(d) Security order would stultify pursuit of legitimate claim: Whether the making of the order would unduly stultify the ability of the plaintiff to pursue an arguable case legitimately instituted: See MA Productions Pty Ltd v Austarama Television Pty Ltd[13]; Drumdurno Pty Ltd v Braham[14]; Ariss v Express Interiors Pty Ltd (in liq)[15]; Excelsior Run Pty Ltd (in liq) v Nelius Pty Ltd[16];

(e) ...

(f) Delay in applying for security: Delay in applying for security may be ground for refusing to order security. The company, which can be assumed to be in financial difficulties, is entitled to know its position in relation to security at the outset, and before it embarks to any real extent on its litigation, and certainly before it makes a substantial financial commitment toward litigating the claim. See Buckley v Bennell Design & Construction Pty Ltd[17]; Smail v Burton; Re Insurance Assocs Pty Ltd (in liq)[18];

(g) Defendants' cross-claim raising same facts: Where the defendant has raised a cross-claim, whether substantially the same facts are likely to be canvassed in determining the claim and cross-claim. The court would ordinarily seek to avoid the situation where the claim is stayed because of the inability of the plaintiff to provide security while the defendants' cross-claim covering the same factual areas proceeds: Sydmar Pty Ltd v Statewise Developments Pty Ltd.

21. In Livingspring Pty Ltd v Kliger Partners the Court of Appeal said:

There are, of course, particular discretionary matters of which the plaintiff must necessarily have carriage. If, for example, the plaintiff corporation asserts that an order for security would impose on it such a financial burden as would stultify the litigation, the plaintiff must establish the facts which make good that assertion. We respectfully adopt what the Full Federal Court said in this regard in Bell v Wholesale Co Pty Ltd v Gates Export Corporation (No 2):

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

The same would be true of a contention that the plaintiff's impecuniosity was caused by the defendant.

1. In Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd[19], Winneke P and Phillips JA, made the following observations:

It is thus apparent that the justification for the statutory rule is that the defendant, not being a voluntary litigant, deserves to be protected from the consequences of limited liability. Those who seek to conduct their businesses through limited liability companies expect to receive the benefits which such liability attracts. It seems to us a necessary corollary that they should be prepared to accept the strictures imposed by the section [s 1335] if the company embarks upon litigation: Buckley v Bennell Design and Constructions Pty. Ltd. (1974) 1 ACLR 301 at 304 (NSW Court of Appeal).

It has not been, and could not be, suggested that the section compels the court to order security against an impecunious corporate plaintiff. The court is given an unfettered discretion to do what is justly required by the circumstances of each case. Street CJ made this point in Buckley when he said, at 305:

It seems to me that the discretion could properly be regarded as ordinarily exercisable so as to protect a defendant sued by an impecunious company, but that, if the court in any case takes the view that this protection should not be afforded to the defendant, it has an unlimited and unrestricted discretion to give effect to such view without having to look for special circumstances.

(Citations omitted)

The threshold issue

12 I turn first to the jurisdictional or threshold issue, that is whether there is reason to believe that the first and third plaintiffs will be unable to pay the costs of the defendants if successful.

13 Mr Newman, who is the principal with the conduct of this matter at Maddocks, the defendants' solicitors, deposes that Muranna Park is a proprietary limited company with a paid up share capital of $100. It is not the registered owner of any real property in Victoria. Octavius is a proprietary limited company with a paid up capital of $10 and is not the registered proprietor of any real property in Victoria. The evidence reveals that Muranna Park was in external administration until 10 April 2015 when the receivers retired having sold the land to pay the debt owing to DD & D. As has been stated, at the conclusion of the receivership there remained a shortfall of $700,000 due to DD & D. In addition, Octavius has asserted that Muranna Park owes it approximately $3.8 million under its mortgage which Muranna Park is not able to pay. That mortgage is said by its solicitor, Mr Armytage, in his affidavit, to be its main asset. Muranna Park thus owes $4.5 million to secured creditors after the sale of the the land which secured the debts owing to DD&D and Octavius. DD&D and Octavius are therefore effectively now unsecured creditors. There is no evidence otherwise as to the financial position of Muranna Park and Octavius.

14 It is contended by the defendants that Muranna Park is impecunious and that its inability to pay has had a significant impact upon Octavius' financial position as it is unable to recover the debt owing to it by Muranna Park.

15 Mr Newman deposes that despite requests for information about the financial status of Muranna Park and Octavius, no information has been forthcoming and that it should be inferred that those companies do not have sufficient funds to pay an adverse costs order if they are unsuccessful in the proceeding. In this regard, Mr Newman exhibits a letter from Maddocks Lawyers of 23 July 2015. After outlining what Maddocks' searches revealed in respect of Muranna Park and Octavius, the letter stated:

Our clients are also aware (from the appointment of the receivers to Muranna Park) that Muranna Park is impecunious. Our clients in fact suffered a shortfall of in excess of $700,000. Beyond this, your client's affidavit material states that Octavius is owed a significant sum by Muranna Park (which we understand is in the order of $4 million) with interest compounding at 36% per annum and 6% per month (in circumstances where Muranna Park is unable to pay that debt).

16 On the same day, Mr Armytage wrote back to Maddocks in response. There was no advertence to the remarks made by Maddocks concerning the financial position of Muranna Park and Octavius. Instead, Mr Armytage stated:

Where multiple plaintiffs may face costs orders jointly and severally, and one of the plaintiffs is an individual then the courts are reluctant to order security for costs: Harpur v Ariadne Australia Limited [1984] 2 Qd R 523. For this reason we consider your request for security for costs inappropriate and/or unlikely to succeed.

I shall return to consider the issue which Mr Armytage raises later in these reasons.

17 As against this, the plaintiffs submit that the defendants bear the onus of satisfying the Court that as of the date of the application the corporate plaintiffs would be unable to meet a costs order in the future and that the fact that neither of the corporate plaintiffs held any real estate does not necessarily mean that the plaintiffs are unable to pay costs.

18 In my view, the matters raised in correspondence with the plaintiffs' solicitor by Mr Newman, in his affidavit as to the financial position of the corporate plaintiffs, require a better answer than that. In Churchills Ltd v Pilcher[20] the Full Court of the New South Wales Supreme Court had before it an application for security for costs. Jordan CJ considered[21] that the defendant applicant had been able to place before the court evidence which provided reason for believing that the plaintiff would be unable to pay the costs if it was unsuccessful at trial. He stated:

No doubt the evidence is not conclusive but it is in my opinion amply sufficient to make out a prima facie case. The plaintiff company which is in possession of the whole of the facts, has thought it prudent to offer no explanation to the material which has been placed before the court by the defendant. In these circumstances, there is no reason why the court should not draw from the applicant's evidence any inference which it can reasonably justify.

19 Similarly, the Full Court of the Western Australian Supreme Court in FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd[22] observed:

The applicant is required to do no more than place on the record credible testimony and the exercise of the court at this stage is in judging the testimony and its quality rather than seeing if a matter has been provided by inference. The company, at this stage, is not being asked to explain or contradict something for the purpose of avoiding an inference being drawn. If there is credible testimony, then the court has jurisdiction to make the order and a company which called no evidence to show it could meet a cost order would run the risk of having an order made against it.

20 In Reinsurance Australia Corporation Ltd v HIH Casualty and General Insurance (In Liq)[23] Jacobson J observed at [60] and following:

1. As I have said this is credible evidence of a rational belief required by s 1335. It establishes a prima facie foundation for an order for security.
2. The position therefore seems to be analogous with that which Jordan CJ dealt with in Churchills v Pilcher. ReAc which is in possession of the information as to what reserves have been established thought it prudent to offer no evidence. In those circumstances, I am entitled to draw from the failure to call evidence an inference which I can reasonably justify.
3. The inference which I draw is that the evidence as to the amount of the reserves would not have assisted ReAc and Monde Re. In my view this reinforces the strength of the prima facie case which I have found that there is credible evidence of a rational belief that ReAc and Monde Re will be unable to pay the costs if they are unsuccessful.
4. Nor have ReAc and Monde Re sought to lead evidence of their current financial position. This stance has been taken notwithstanding the auditor's statement that there are inherent uncertainties in the provisions and that outstanding claims liabilities may vary as a result of future information and may result in material adjustments.
5. It is true as Mr Gleeson submitted that this statement was made without qualification to the opinion that the accounts give a true and fair view. But for the purposes of determining whether there is a rational belief of the type contemplated by s 1335, I am left with no evidence on the current position on a matter which the auditor considers may result in material adjustments.
6. On this issue, in relation to the outstanding claims for both film and non-film business, I am entitled to draw the inference that evidence from ReAc and Monde Re would not have assisted.

21 While the defendants bear the onus of establishing the threshold issue, I consider that the corporate plaintiffs, if they had evidence to put forward that they had the means of satisfying any order for costs, they should have put that evidence on. I consider that by reason of the unanswered questions which have been raised by the defendants in the correspondence I am justified in drawing an inference that the plaintiffs had no evidence favourable to their position to put forward and that there is reason to believe that there is a risk that the first and third plaintiffs will be unable to meet a costs order made in favour of the defendants if the defendants are successful at the trial of this matter.

22 I therefore consider that the jurisdictional threshold has been enlivened and I turn now to consider the relevant discretionary factors in considering whether security should be awarded.

23 In Ariss v Express Interiors Pty Ltd (in liquidation),[24] Phillips JA stated:

The impecuniosity of the plaintiff company of which there must be credible evidence before the discretion conferred by s 1335 becomes exercisable is not only the occasion for the exercise of the discretion; it is, as Ormiston J observed in Interwest 'a factor, and often a most significant factor in the exercise of the court's discretion'. In saying this His Honour drew on Pearson v Naydler (1977) 1 WLR 899 at 906, where Negarry V.C. had said that the inability of the plaintiff company to pay the defendants' costs was a 'matter which not only opens the jurisdiction but also provides a substantial factor in the decision whether to exercise it.'

24 As I have already said, I consider that on the evidence that is available, it is probable that the corporate plaintiffs will not be able to pay the defendants' costs if they are successful in defending the proceeding. I am fortified in this view by the fact that the corporate plaintiffs have not chosen to put forward any substantial evidence in relation to their financial position to confront this. As Phillips JA observed in Ariss[25]:

The approach of Megarry V.C. which acknowledges that the impoverishment of the plaintiff company may be a factor in the exercise of the discretion conferred by the statute, seems to me wholly apt, if I may say so with respect; it does no more than recognise that the primary purpose of the section is to provide protection for the defendants who are sued by indigent companies and that where such an action is commenced such protection as the section offers may well be appropriate in the proper exercise of discretion. It will not always be so; but it may be so and the very impecuniosity of the plaintiff which serves to attract the jurisdiction in the first place may be a ground for an order for security.

25 The defendants did not contend at the hearing of this matter that the claim was not made bona fide. On its face it discloses a cause of action with reasonable prospects of success.

26 Muranna Park and Octavius contended that this factor was relevant in this instance. They submit that, but for the appointment of the receivers by the defendants, Muranna Park would most probably have been refinanced and had they acted in compliance with the FDMA and conducted a mediation, as required under the Act, then the window for facilitating that refinance would have been secured and the assets of Muranna Park would have been preserved, including its land and the Octavius debt protected.

27 The plaintiffs contend that because of this, the impecuniosity of the corporate plaintiffs has been caused by the defendants, resulting in losses of about $3.9 million plus costs. It is said that the defendants' conduct has caused Muranna Park to lose its real estate, its viticulture business, its associated business with Box Stallion Wines which purchased all of its grapes for wine making, and thereby exposing Mr Zerbe to his guarantee and prevented Octavius from achieving its arrangements to refinance the whole of the Muranna Park land and operations to realise a return on its mortgage.

28 Mr Rubinstein submitted this discretionary factor has no application in the circumstances. He submitted that the defendants, as lenders, loaned over $2 million to Muranna Park. Muranna Park breached its obligations to repay under the loan facility. Mr Rubinstein submitted that the corporate plaintiffs' impecuniosity was as a result of Muranna Park's own dire trading predicament and not as a result of any action on the part of the defendants. He stated that it had not been suggested that Muranna Park was not in default when the exercise of the powers of sale occurred subsequent to the obtaining of the judgment in the County Court, which was in turn based on Muranna Parks' failure to comply with terms of settlement reached after that default .

29 The onus is on the corporate plaintiffs[26] to establish that their impecuniosity has been caused by the defendants. There is no evidence as to what the financial position of Muranna Park and Octavius was prior to the events which are the subject of this proceeding save that Muranna Park was in breach of terms of settlement it had entered into and with which it did not comply, resulting in a judgment in the County Court. I consider that the scenario put up by the plaintiffs, that but for the defendants' actions, the plaintiffs would not be in their present predicament, to be optimistic speculation at best and not supported by the evidence. I do not consider that the plaintiffs have discharged the onus which they bear of establishing this ground as a discretionary factor in their favour.

30 Although originally the subject of written submissions, this ground was not pressed by senior counsel for the plaintiffs, Mr Cawthorn, at the hearing of this matter.

31 The defendants have not yet delivered a defence by reason of procedural orders I have made earlier in this matter and thus have not been required to simultaneously bring their counterclaim. I inquired of Mr Rubinstein at the hearing of this matter whether there would be a counterclaim and his response was non-committal. He did say however that since the retirement of the receivers in April 2015 the defendants have brought no claim under the mortgage against Muranna Park for the shortfall or against Mr Zerbe under his guarantee. He was nonetheless not prepared to say there would be no counterclaim. I would regard this factor as a neutral one. If there was a counterclaim it seems to be it would be a simple one by one or other of the defendants for debt, but I am not prepared to assign it any weight one way of the other in the present absence of a counterclaim.

32 It is submitted by the corporate plaintiffs that oppressive conduct on the part of the defendants has taken place in this instance. It is contended by the plaintiffs that they have made reasonable preaction attempts to settle the dispute. They are said to have acted reasonably by initiating extensive executive level preaction by retaining a former CEO of Rural Bank and an experienced expert under the New South Wales equivalent of the FDMA to have discussions with the Chief Executive Officer of the third defendant, Bendigo Bank. A draft statement of claim was provided to facilitate discussions. I do not understand how this can be said to give rise to oppressive conduct. The fact that the parties were unable to come to an agreement to resolve the matter and are now in litigation cannot, in my view, considered to be in any sense oppressive. I note that earlier negotiations culminated in the parties entering into terms of settlement which were breached, resulting in the County Court judgment.

33 It is also said that the application made to me in July last year by the defendants that the matter be dealt with by way of pleadings was evidence of tactical delay by the defendants and constitutes oppressive conduct. I do not accept that submission. I consider that the requirement to precisely plead the matter has made the issues in the proceeding far clearer. I reject the submission that the defendants were engaging in oppressive conduct by requiring pleadings in the case.

34 It is also asserted, I believe without foundation, that the reason that the defendants have sought security for costs prior to the filing of defences to avoid having to publicly respond to the allegations made against them in the statement of claim. I do not accept the plaintiffs' submission in that regard.

35 Mr Cawthorn submitted that the plaintiffs were seeking to raise for determination a point of public importance which should be agitated. He submitted that this is the first case litigated under the Victorian FDMA and the conduct of the defendants is relevant to all mortgages and debts subject to the FDMA, particularly farmers who have sought to vertically integrate their farming operations in secondary farming produce markets as has occurred in Muranna Park's case. It is said the plaintiffs' solicitor, Mr Armytage, has caused a search of Victorian Unreported and Reported Decisions to be conducted identify every matter involving the Farm Debt Mediation Act. This proceeding appears to be the first litigated case under the FDMA. It is not said, however, that the award of security will stultify this litigation and prevent the plaintiffs presenting their case and in my view the public interest ground is not a basis for not awarding the defendants' security for their costs.

36 Mr Cawthorn submitted that the defendants had failed to comply with procedural orders that I made on 24 July 2015 that they file and serve any summons making application for security for costs, together with any affidavit in support by 21 August 2015. The orders provided that if the defendants did not make application for security that they would file and serve their defence and counterclaim by 21 September 2015. The summons making application for security was filed on 25 August 2015, several days late and Mr Newman's affidavit in support was not sworn until 9 November 2015. Mr Cawthorn submitted that the defendants were consciously and deliberately delaying the proceeding but I see no foundation for that submission. While the application for security was not made within the time provided by my orders, and no satisfactory explanation has been provided as to why this is the case, I do not consider that that delay has resulted in any prejudice to the plaintiffs. The proceeding is in its early stages and there is no evidence that the plaintiffs have taken any procedural steps or expended costs in reliance on an assumption that an application for security would not be made.[27] The date set down for the hearing of the application was fixed by the court having regard to the availability of a court to hear the matter which was no fault of the defendants.

37 In his affidavit, Mr Armytage contended that each of the defendants are disclosing entities under the Act as the basis for submitting that the defendants are each large companies who, individually or collectively, would be able to bear the costs of the litigation. It is contended that if the court finds the corporate plaintiffs to be impecunious 'then given the precipitous exercise of the defendants' "rights" as referred to in this proceeding the impecuniosity was caused by the actions of the defendants'. I am not at all attracted by that submission. Aside from requiring me to reach some determination as to the merits of the case, it is not a relevant consideration as to whether as a matter of discretion security should be awarded. If it were a relevant factor, large financial institutions such as banks could not successfully obtain the protection which the legislation is designed to provide where claims are brought by entities who are not in a position to meet orders for costs made against them when they have been unsuccessful in proceedings.

Overlapping claims of the corporate plaintiffs with the second plaintiff's claim

38 Mr Cawthorn stated that in resisting the defendants application for security, the plaintiffs placed primary reliance on the fact that the claims of Mr Zerbe, the second named plaintiff, 'overlapped' those of the corporate plaintiffs. As I have noted, the plaintiffs responded to the defendants' request for security with a contention that an order for security would not be made, and in doing so, they relied on the reasoning of the Full Court of the Supreme Court of Queensland in Harpur v Ariadne Australia Limited. In Harpur, Connelly J stated at (1984) 2 Qd R 523 at 531:

Against this background, what is the rule that where there is more than one plaintiff? In such a case all plaintiffs suing the same interest and by the same solicitors and counsel, there is but one set of costs. If the defendants have an opponent who is worth powder and shot they have as much as any litigant is fairly entitled to. The court cannot by its orders guarantee a successful outcome in practical sense to any party. It is thus no answer when security for costs is sought to say that a person of apparent substance may be able to make away with his assets within the jurisdiction before a judgment for costs can be executed...

The 'two plaintiff' cases start with a situation where one is out of the jurisdiction. Prima facie ought to be ordered to provide security but his co-plaintiff is within the jurisdiction. In such a case it was considered that there was no ground for ordering security...

This principal was held to apply even where the plaintiff within the jurisdiction was insolvent. I take the underlying reason to be that the defendant was really in no worse position than if he'd been sued by a single plaintiff resident within the jurisdiction and insolvent. As Brett J remarked at page 650, the cases show that, unless there is ground for making an order for security against all the plaintiffs, it cannot be made against any.

...

In an action brought against the defendant as a common carrier by two plaintiffs one resident abroad. The statement of claim alleged a contract by the defendant with the plaintiffs jointly and in the alternative with each of the plaintiffs separately. Although their Lordship cited no authority both referred to the practice in relation to security for costs before the Judicature Act the critical point was that each plaintiff was liable for the whole of the defendants' costs. Now in John Bishop Caterers Limited v National Union Bank (1973) 1 All English Reports 707 Ploughman J made an order for security against a company although there was a co-plaintiff within the jurisdiction who was a natural person. His Lordship distinguished the earlier cases on the footing that there was in those cases a complete overlap as he put it of the causes of action. Accordingly, as he was not satisfied that the natural person would necessarily be ordered to pay all of the defendants' costs he ordered security.

...

the mischief at which the provision is aimed is obvious. An individual who conducts his business affairs by medium of a corporation without assets would otherwise be in a position to expose his opponent with a massive bill of costs without hazarding his own assets. The purpose of an order for security is to require him, if not to come out from behind the skirts of the company, at least to bring his own assets into play. If however he is already available for whatever he is worth, the object to the legislation is seen to be satisfied.

39 In Opes Prime Group Limited (in liq) (scheme administrators appointed) v Niako Investments Pty Ltd,[28] Derham AsJ considered the issue of 'overlapping claims' in the context of applications for security, He stated at [33]:

[33] The learned authors of Williams, Civil Procedure Victoria summarise the position where there is a corporation and a natural person suing. They make the following points:

(a) If a natural person ordinarily resident within the jurisdiction is also a plaintiff, the court will not as a rule require the plaintiff corporation to give security for the defendants' costs. The individual plaintiff will be liable for the defendants' costs if the proceeding fails, but the defendant would not have been entitled to security if that plaintiff had sued alone, even if the plaintiff was insolvent, and there is no reason why the joinder of a company which is insolvent as co-plaintiff should put the defendant in any better position with respect to security: Pearson v Naydler; Drake v Hunter Douglas Ltd; Harpur v Ariadne Australia Ltd (No 2); Interwest Ltd v Tricontinental Corp Ltd; Ravi Nominees Pty Ltd v Phillips Fox; and Uptown Sydney Development Corp Pty Ltd v Bank of New Zealand (No 1);

(b) However, security may be ordered where there are differences between the claim of the corporation and that of the individual such that there is a possibility that if both fail, the court will not order the individual plaintiff to pay all the costs of the defendant: John Bishop (Caterers) Ltd v National Union Bank Ltd; Hughes v Canon Aust Pty Ltd; Fiduciary Ltd v Morningstar Research Pty Ltd; and Street v Luna Park Sydney Pty Ltd;

(c) The court must consider the degree of the overlap between the claim of the corporation and that of the individual. If there is very limited overlap, so that the defendant will incur substantial costs in meeting the corporation's claim which it will have no entitlement to recover from the natural person should the defendant succeed against the individual, then, in the absence of other relevant considerations, a proper exercise of discretion would generally require security to be provided by the corporation. Where, however, there is a very substantial degree of overlap between the two claims, then because the defendant has a natural person as plaintiff to whom he or she can look for payment of substantially the whole of the costs he or she is likely to incur if he or she successfully defends both sets of claims, a proper exercise of the discretion would generally result in no order for security being made against the corporation: Drangold Pty Ltd v Woody Enterprises Pty Ltd; and

(d) If the corporate plaintiff is ordered to give security, and its claim is stayed until the security is given, the individual plaintiff will not be prevented from pursuing the claim personal to himself or herself: Interwest Ltd v Tricontinental Corp Ltd; Fiduciary Ltd v Morningstar Research Pty Ltd.

[34] Apart from these points, if there is a broad general rule it is simply that the presence of a natural person as a plaintiff with a corporation or corporations is a factor that may tend against the ordering of security against a corporate plaintiff. The simplest example is where an individual plaintiff is a person of substantial means, and that plaintiff's claims largely coincide with those of the corporate plaintiff. In this case the same issues would have to be tried even if the corporate plaintiff's claims were stayed.

[35] Where there is an absence of evidence as to the individuals' capacity to pay costs, or where there is evidence suggesting a likelihood that they could not pay, it is appropriate to take those factors into account in exercising the court's discretion in respect of the corporate plaintiff's claims, while making due allowance for the consideration that an indirect benefit should not be given to the defendant in respect of its defence of the individual plaintiff's claims, for those are not, ordinarily, the subject of any order for security.

[36] On the other hand, reliance on the fact that there is also an individual plaintiff who might be able to pay any costs ordered in favour of the defendants would lead to artificial joinder of individuals and would not give effect to the purpose of the section.

[37] Thus the presence of an individual plaintiff or plaintiff is often likely to be seen as a factor diminishing the defendants' claims to security, but not extinguishing it.

40 The statement of claim pleads that Mr Zerbe signed the guarantees in respect of Muranna Park's liability to Southern and Octavius. Paragraph 36 of the statement of claim asserts that, if the enforcement proceedings initiated by one or other of the defendants are or were void, 'he will be or will have been discharged as guarantor under the Southern Mortgage Guarantee'. The prayer for relief claims a declaration that Mr Zerbe has been discharged under the Southern Guarantee.

41 While the fortunes of Mr Zerbe clearly ride on the coat tails of the corporate plaintiffs, I do not think it necessarily follows that if the plaintiffs are unsuccessful, a joint and several order for costs will be made against them.

42 Costs of course are always in the discretion of the court and it could well be argued by Mr Zerbe, if the plaintiffs were unsuccessful, that his involvement in the proceeding added little to the length or complexity of the case. It is the corporate plaintiff's claims which will be the central focus of the proceedings and it may well be open to a court considering the question of costs, if the plaintiffs are not successful, to require Mr Zerbe to pay a small percentage of the costs; the order made might not be joint and several. I am not sure it can confidently be predicted what the form of order for costs would be if the plaintiffs were unsuccessful or that Mr Zerbe would necessarily 'go down with the ship' for a joint and several order for costs if the corporate plaintiffs lost.

43 As Derham AsJ observes in Opus Prime[29] the presence of a natural person with corporations is a factor which may tend against the ordering of security against a corporate plaintiff. It is not a bar to the award of security but merely a discretionary factor. In addition, here there is no evidence as to Mr Zerbe's capacity to meet an order for costs and, as Derham AsJ observed at paragraph [35] of Opes Prime, it is appropriate to take that factor into account in the present context. In my view, Mr Zerbe's presence diminishes the defendants' claims for security but does not extinguish it.

44 In my view, if one considers collectively the various discretionary grounds to which I have referred, the balance is in favour of an award for security.

45 I now turn to the amount of security sought, as I have said, I indicated at the hearing of this application that if an award of security was warranted, I would only order it to secure the defendants' costs incurred up to the completion of mediation.

46 I now turn to the amount of the security sought. Mr Newman contends that the defendants ought to be awarded $102,000 as security for anticipated costs but that figure is designed to secure the costs up to and attending the first day of trial. The amounts claimed in respect of the items up to and attending at mediation are as follows:

Receiving instructions to defend, filing and service of appearance

Instructions for defence, brief to counsel, attendance on counsel settling defence, service of defence.

Defendants' request for further and better particulars

Interlocutory applications by the parties including instructions, preparation of affidavit in support, perusal of affidavits in opposition, brief to counsel and attending Court to instruct counsel.

47 In his affidavit, Mr Armytage critiques the amounts claimed in the various categories, and some of the matters he raises have merit. Of course, the assessment of quantum of the amount of security is not intended to provide a complete indemnity for costs nor is it an exercise in mathematical precision. I consider that the amount claimed for discovery and inspection are excessive and should be the subject of reduction. The amount claimed for interlocutory applications should, in my view, also be reduced considerably. While it is probable that there will be such applications, I believe the defendants position can be adequately protected by provision of a considerably less sum. I would make the following provisions for security:

(a) Receiving instructions to defend filing and service of appearance - $2,000;

(b) Instructions for defence, brief to counsel, attendance on counsel settling defence, service of defence - $6,000;

(c) Defendants' request for further and better particulars - $1,000;

(d) Inspection and consideration of discovery - $2,500;

(e) Delivery and attending at inspections of documents - $2,500;

(f) Interlocutory applications by the parties including instructions, preparation of affidavit in support, perusal of affidavits in opposition, brief to counsel and attending Court to instruct counsel - $6,000;

(g) Preparing for and attending at mediation - $10,000

Accordingly, I order that the first and third plaintiffs give security for the defendants' costs up to the completion of mediation in the sum of $30,000 in the form of a cash deposit into the court, or bank guarantee in a form satisfactory to the Prothonotary of the Court.

OCTAVIUS SECURITIES AND INVESTMENTS PTY LTD (ACN 138 228 243)

BENDIGO AND ADELAIDE BANK LIMITED (ACN 068 049 178)

[1] [2013] VSC 311, at [14]-[22].

[2] [2008] VSCA 93.

[3] [1977] FCA 1; (1977) 14 ALR 52, at [56].

[4] [1995] 3 All ER 534, at [540].

[5] (1987) 73 ALR 289.

[6] (1991) 5 ACSR 621; 9 ACLC 1218 (VSC).

[7] [1999] VSCA 43; [1999] 2 VR 191.

[8] [1973] QB 609; [1973] 2 All ER 273.

[9] (1996) 14 ACLC 857 (WASC).

[10] (1986) ATPR 40-641 (FCA).

[11] [1998] VSC 8.

[12] [2012] FCA 905, at [48].

[13] (1982) 7 ACLR 97 (SASC).

[14] [1982] FCA 161; (1982) 42 ALR 563.

[16] [2001] VSC 161.

[17] (1974) 1 ACLC 301.

[18] [1975] VicRp 76; [1975] VR 776.

[19] [1999] VSCA 43; [1999] 2 VR 191.

[20] [1940] 57 WN 109.

[22] [2000] WSCA 69, at [11].

[23] [2003] FCA 803.

[26] Colemax Glass Pty Ltd v Polytrade Pty Ltd at paragraph 20(b)

[27] Colemax Glass Pty Ltd v Polytrade Pty Ltd at paragraph 20 (f), see paragraph 11 above.

[28] [2014] VSC 414.