Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd

REASONS FOR JUDGMENT 1 On 10 November I delivered judgment on a motion brought by the respondent for security for costs. The respondent was successful and I ordered the applicant give security in the total sum of $200,000: Power Infrastructure Pty Ltd v Downer EDI Engineering Power Pty Ltd [2010] FCA 1222. I also ordered the applicant to pay the respondent's costs of and incidental to the motion. At the time judgment was pronounced, the respondent indicated it wanted to apply for a special costs order. The order it now seeks is that the costs be paid on an indemnity basis and that they be payable and taxable forthwith, relying on O 62 r 3(1)-(3) of the Federal Court Rules. 2 There were two reasons for the application. One was the respondent's offer to compromise the amount sought by way of security in a sum less than the amount ordered. The second was the unreasonableness of the applicant's position on the motion. 3 On 6 September 2010, about five weeks after the motion had been filed, the respondent made an offer in writing to settle the motion ("the Calderbank letter") by accepting the sum of $175,000 as security, noting that the amount was within the range identified by the applicant's costs expert, and left the offer open for acceptance until 5 pm on 1 October 2010. Mr Black, the author of the letter and the respondent's solicitor, foreshadowed that the respondent would rely on the offer in respect of the costs of the motion. The letter also noted: Your client's acceptance of this offer will either avoid the need for a contested hearing as to security for costs, or ensure that the only matters to be determined are to [sic] the timing and form of any security which could be determined within a short hearing. Should your client choose to accept this offer we invite it to propose the dates by which it would provide security, on the basis that the final instalment of security should be provided not later than 6 weeks prior to the date set down for the commencement of the final hearing. 4 The letter was met with a terse response from the applicant's solicitor, Mr Tomko. Not only did the applicant emphatically reject the offer, asserting that its primary position was that the respondent was not entitled to security for costs, but it demanded that the respondent should pay it $1,476,200 with interest at prevailing Court rates from "say" 20 July 2009 by close of business on 15 September 2010. 5 The motion was heard over a day and a half. There was really only one issue. That issue was whether the Court had jurisdiction to order security. Jurisdiction was founded on the terms of s 1335 of the Corporations Act 2001 (Cth), which requires that it appear "by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the [respondent] if successful in his, her or its defence". The applicant's only point was that it was not impecunious, and therefore there was no reason for such a belief, because it had a valuable chose in action, being a claim in debt or damages, which formed part of the principal proceeding. For the reasons I gave in my judgment, that point was without merit. 6 The applicant does not oppose an order for indemnity costs and, in my view, the order is justified. The applicant, however, resists the second order sought, namely, that costs should be payable and taxable forthwith. 7 The general rule in an interlocutory proceeding is that a party is not entitled to have a bill of costs taxed until the conclusion of the principal proceeding. But the Court has a discretion to make an order of the kind the respondent seeks. Order 62 r 3 of the Federal Court Rules provides: Time for dealing with costs (1) The Court may in any proceeding exercise its powers and discretions as to costs at any stage of the proceeding or after the conclusion of the proceeding. (2) Where the Court makes an order in any proceeding for the payment of costs the Court may require that the costs be paid forthwith notwithstanding that the proceeding is not concluded. (3) An order for costs of an interlocutory proceeding shall not, unless the Court otherwise orders, entitle a party to have a bill of costs taxed until the principal proceeding in which the interlocutory order was made is concluded or further order. 8 In Rafferty v Time 2000 West Pty Ltd (No 3) [2009] FCA 727 ("Rafferty"), Besanko J said: The general rule serves a number of purposes. First, it avoids multiple taxations in a proceeding. Secondly, it avoids the apparent unfairness which may arise where, at an early stage of a proceeding, a party who is ultimately successful is required to pay costs to a party who is ultimately unsuccessful. Finally, it prevents interlocutory proceedings being used as a weapon to exhaust the financial resources of one of the parties. At the same time, the Court may order that costs be paid forthwith, and the cases suggest that that power may be exercised in circumstances in which there is an element of unreasonableness in the conduct of the unsuccessful party, and it is likely that there will be a long delay between the interlocutory proceeding and the conclusion of the principal proceeding. 9 Here, the respondent submits that there should be a departure from the general rule because the applicant's opposition to security was unreasonable and because it will be a long time before the proceeding will conclude. Of course, until or unless the security is paid, the proceeding is stayed and no-one knows how long that situation could last. 10 The applicant denies that its opposition to security was unreasonable, submits that its conduct of the argument wasted no time on spurious arguments on discretionary matters, that appropriate concessions were made, that cases in which such an order has been made are "very far removed" from the present case, and that its behaviour generally does not justify the order sought. In particular, it points out that it has not been guilty of delay, it has not been evasive and there is no history of non-compliance with orders or of behaviour that causes prejudice to the respondent. In short, it submits that "there is no relevant delinquency". 11 The applicant points out, too, that the Calderbank letter envisaged that there would still be a court hearing on the motion, even if the Calderbank offer were accepted, albeit that the hearing would then be of limited compass. The applicant also argued that the amount of security required to be paid included an allowance in respect of the security for costs motion so that if the respondent obtains the further order it seeks, the applicant will be penalised twice. 12 The applicant's submission that its opposition to security was not unreasonable must be rejected. In my view, its acquiescence in an order for indemnity costs is inconsistent with such a position. No such order will ordinarily be made in the absence of an offer of compromise under the Rules unless the offeror can show it was unreasonable for the offeree to refuse the offer: Black v Lipovac [1998] FCA 699, 217 ALR 386 at [217]-[218], CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75]. 13 Differing views have been expressed in this Court about when an order should be made that costs in an interlocutory proceeding should be payable and taxable forthwith. In Vasyli v AOL International Pty Ltd (Federal Court of Australia, unreported, 2 September 1996) Lehane J said that as a matter of practice in this Court the power is exercised "only in very special circumstances". In Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 14) (Federal Court of Australia, unreported, 18 August 1995) Lindgren J suggested that the provision for leave to tax costs before the conclusion of proceedings and to order that those costs be paid forthwith was "possibly under utilised", particularly in "lengthy and complex cases where substantial costs have been thrown away as a result of ill considered pleadings being drawn". In Rafferty Besanko J seemed to think that some kind of reprehensible behaviour was necessary. For my part, I do not think that any hard and fast rules can be made. Mr Cotman SC, counsel for the applicant, referred to a number of decisions of this Court in which the Court departed from the ordinary rule to contrast them with the circumstances of the present case. In one of them, Brasington v Overton Investments Pty Ltd [2001] FCA 571 at [13] - [14] Emmett J observed: [13] The rationale for [O 62 r 3(3)] appears to me to be that since an interlocutory proceeding does not resolve the final issues between the parties, it would, in ordinary circumstances, be inappropriate that an unsuccessful party in an interlocutory proceeding be required to pay costs immediately, since that party might ultimately be entitled to an order for costs in the substantive proceeding. The general principle appears to be that costs ought to be resolved when the proceeding has been concluded, and the rights of the parties have been finally determined. [14] However, the rule clearly contemplates that, in some circumstances, the principle should be varied. Where costs have been incurred by one party by reason of an interlocutory application that is incompetent or misconceived, such that on proper analysis, it should never have been brought, it appears to me to be an appropriate circumstance in which to vary the ordinary rule. Where a final decision is some way off in a proceeding, either because it is lengthy and complex, or for some other reason, that is a factor that should be taken into account. Any costs incurred by reason of an ill considered pleading may also give rise to an exception to the principle. 14 In that case his Honour made the order because he considered the application was misconceived. 15 The respondent submits that the matters Emmett J identifies are apposite in the present case. The applicant's submissions on the motion were unsupported by, and contrary to, authority and no submission was ever made that the authorities were wrongly decided. As I said in my judgment on the motion the point it ran was affected by a fundamental flaw. It required the Court to assume the applicant would win, when the underlying assumption for the exercise of the Court's power to order security is that the applicant will lose. In other words, in effect, I too found the applicant's position was misconceived. 16 These considerations support the order for indemnity costs and they are also a powerful consideration in support of the respondent's further application that the costs be payable and taxable forthwith. I also accept the respondent's submission that the myriad claims advanced in the pleading raise complex factual and legal questions, that the statement of claim is likely to be amended, and that the final determination may be a long way off. Despite the eloquence of the argument, however, I do not propose to depart from the general rule in this case. Although the applicant's position on the motion was unreasonable, indeed, misconceived, I have no reason to think it was not made in good faith. The applicant took a pragmatic approach to the other issues and did not waste time in argument about the amount of security, which was a course well available to it. The respondent has the protection of an order for security for costs and, whilst it is true, as the respondent pointed out, that Mr Black's assessment was insufficient to account for the time actually taken for the hearing of the motion, if the amount of security ordered proves to be inadequate, the respondent can approach the Court for a further order. 17 The respondent also argued that exercising the discretion would further the overarching purpose of the civil procedure provisions of the Federal Court of Australia Act 1976 (Cth) and the Federal Court Rules (see Federal Court of Australia Act, s 37M) because it would avoid a further application to increase security. But I very much doubt that making an order for immediate payment of the costs of the motion to compensate for an underassessment of the costs likely to be incurred on the motion would ensure that there is no application for further security. 18 The respondent also argued that there were particular facts justifying the exercise of the discretion in this case, including the impecuniosity of the applicant, the absence of any guarantee from the applicant's sole shareholder and director, who would benefit from the litigation, and the applicant's failure to contend that the making of the security for costs order would stultify the claim. These are considerations of significance in the security for costs motion. But I do not regard them as significant on this application.