PPK Willoughby Pty Ltd v Baird

PPK Willoughby Pty Ltd v Baird - [2019] NSWCA 48 - NSWCA 2019 case summary — Zoe

Judgment

THE COURT: Application for leave to appeal is made from a judgment of Harrison J sitting in the Common Law Division of the Supreme Court of New South Wales (PPK Willoughby Pty Ltd v Baird [2018] NSWSC 1889) in which his Honour ordered the Plaintiff, within 28 days of the date of his order (which was 11 December 2018), to provide security for the costs of pending litigation in an amount of $400,000 in respect of the 2nd to 106th Defendants and in the amount of $850,000 in respect of the 107th and 108th Defendants. His Honour also ordered that the proceedings be stayed pending compliance by the Plaintiff with the order requiring payment of security for costs.
At the conclusion of the hearing on 12 March 2019, an order was made dismissing with costs the application for leave to appeal. What follows are the reasons of the Court for that order.
A decision to order security for costs is one pertaining to practice and procedure and, as such, is one in respect of which appellate courts have been directed to exercise particular caution in reviewing: see Adam P Brown Male Fashions Pty Ltd v Philip Morris Incorporated (1981) 148 CLR 170 at 177. In that case, the members of the plurality endorsed the well-known observations of Sir Frederick Jordan in In the matter of the Will of F B Gilbert (dec) (1946) 46 SR (NSW) 318 at 323: "… I am of opinion that …there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal."
A decision to order security for costs is not only a matter of practice and procedure but is one which involves the exercise of the Court's discretion, at least after the Court has satisfied itself that there is reason to believe that, where the plaintiff is a corporation, it will be unable to meet the costs of a defendant if ordered to do so (Uniform Civil Procedure Rules 2005 (NSW) r 42.21(d) (UCPR)) or, in the language of s 1335 of the Corporations Act 2001 (Cth), "it appears by credible testimony that there is reason to believe that the corporation will be unable to pay the costs of the defendant if successful in his, her or its defence". The breadth of the discretion is reflected in the language used in UCPR r 42.21: "such security as the court thinks fit, in such manner as the court directs." Considerations relevant to the exercise of that broad discretion are set out in the very well-known and frequently applied decision of Beazley J (as her Honour then was) in KP Cable Investments Pty Ltd v Meltglow Pty Ltd (1995) 56 FCR 189 at 196-198.
Discretionary decisions, whether in the context of substantive or procedural relief, also engage the strictures against over-ready appellate interference and the correlative need for "added restraint" associated with House v R (1936) 55 CLR 499 with the consequence that a "heavy burden" lies on an applicant seeking leave to appeal from a discretionary judgment on a question of practice or procedure: see, for example, Oswal v Burrup Fertilisers Pty Ltd (recs and mgrs apptd) [2011] FCAFC 117 at [8] and [11]; see also Warragamba Winery Pty Ltd v State of New South Wales [2010] NSWCA 174 at [6] where the task of an applicant seeking leave to challenge such a decision was described as a "difficult" one; see also Cicek v The Estate of the Late Mark Solomon [2014] NSWCA 278 at [69]-[70]; Dank v Cronulla Sutherland District Rugby League Football Club Ltd [2014] NSWCA 288 at [73]-[75]; Treadtel International Pty Ltd v Cocco [2016] NSWCA 360; 117 ACSR 176 at [29]; Mei Zhang v Ye Cheng [2018] NSWCA 299 at [12].
Leave applications in this Court attract a general obligation on the applicant for leave to establish that there is an issue of principle, a question of public importance or a reasonably clear injustice going beyond something that is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; BE Financial Pty Ltd v Das [2012] NSWCA 164 at [32]-[38]; Age Co Ltd v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26 at [13]; Secretary, Department of Family and Community Services v Smith (2017) 95 NSWLR 597; [2017] NSWCA 206 at [28].
The key reasoning underpinning the primary judge's decision to order security for costs in the present case was contained in paras [26]-[33] of his judgment: 26. The present applications are slightly unusual in my experience. First, as already indicated, there is no issue that the plaintiff has no income or assets of its own or within its control or that it is currently only supported by sympathetically interested third parties on an ad hoc basis as the circumstances require. It is not in issue that the plaintiff would be presently unable to satisfy an adverse costs order from its own resources or without external assistance. This was also the agreed position. Moreover, it was plainly established on the defendants' evidence. The plaintiff did not proffer any evidence to the contrary. 27. Secondly, the plaintiff does not assert that its nominal impecuniosity was caused by the defendants or that it is in any way related to the acts or omissions or other breaches upon which the plaintiff sues. It is accepted that the plaintiff's claims for damages assert that the plaintiff's returns from developing the land were reduced by these matters. There is, however, no contention that the plaintiff's solvency or financial viability were fundamentally destroyed or eradicated or even diminished as a consequence. 28. Thirdly, and in a related sense, the plaintiff does not contend that it is prejudiced in any way by the failure of the defendants to prosecute the present applications sooner. The plaintiff does not say that, but for these applications, it would have taken a different course, or would have considered some alternative forensic strategy. It does not say that it altered its position in some fashion in reliance upon the understanding or expectation, fostered or encouraged by the defendants' inaction or some form of actionable representations, that security would not be pursued, or that it has suffered loss or some other identifiable detriment as a result. 29. As I understand the authorities, the fact that a defendant may have delayed the bringing of an application for security for costs will be less relevant, and possibly even irrelevant, unless it can be seen to have generated or produced some consequence of significance. That has not occurred in this case. These applications were flagged in 2016 at a time when the plaintiff was actively trading and presumably possessed of assets and an income stream that it could have pointed to in response to any suggestions that it was worthless. Its current financial position is the result of no more or less than consistent adherence to its favoured business model. The foreshadowed applications neither caused the plaintiff to stop what it was doing nor to alter its course in any way. At best, the plaintiff is only able to say that the defendants' applications would have been less likely to succeed if brought earlier. That is not the same as saying now that they should be defeated by inconsequential delay since then. 30. The parties dealt at some length with the question of whether or not, and if so when, the defendants were, or should have been, aware of the fact that the plaintiff was divesting itself of assets or more significantly of the time that it had done so completely. In my opinion, this is a false issue. That is for the reason that it is tied to the question of delay and the assessment of whether the defendants should have sought security sooner. However, in accordance with my assessment, this issue only assumes importance if the delay caused prejudice or disruption to the plaintiff in the ways I have earlier discussed. As it is my opinion that it did not do so, it is unnecessary to determine the time by which the defendants knew or ought to have discovered what the plaintiff was doing with its properties or the proceeds of their sale. 31. The 2nd to 106th defendants invited the plaintiff, by letter dated 16 November 2018, to propose a person of satisfactory financial standing to provide the necessary assurances by way of bank guarantee or payment into court. This suggestion was not taken up by the plaintiff. 32. A significant factor informing the exercise of my discretion is the existence of persons who are behind the plaintiff and who stand to benefit from the result in these proceedings, in the sense of sharing in the proceeds of the plaintiff's victory, without being prepared to expose themselves to the risk of a corresponding burden in the form of an adverse costs order. This conduct is also relevant to the assessment of whether it is fair that the defendants should bear all of the risks as to costs of the proceedings. A proper characterisation and understanding of that imbalance is important to the exercise of my discretion in this case. It cannot be a matter of no consequence that the plaintiff in effect wishes to consume what is sweet but discard what is sour. 33. The plaintiff's submissions emphasised that the principle that underpinned the rule that security for costs applications should be brought promptly and without delay was one of fairness. In my view, it would not be unfair to the plaintiff if it were ordered to provide security, even at what the plaintiff would wish to characterise as this late stage. By way of contrast, it would be decidedly unfair to the defendants to be required to continue to expend resources on the defence of the proceedings without any enforceable prospect, far less anything even approaching a reasonable expectation, that their costs would be paid if they were ultimately to succeed. The current balance of risk is all one way. Earlier in his reasons (at [10]), his Honour had noted that the Plaintiff did not contend that any delay associated with the Defendants' respective applications was such as to cause any identified prejudice to the Plaintiffs.
The first proposed ground of appeal sought to be raised by the Applicant is that the primary judge applied an incorrect principle "namely that unless a delay in the bringing of security for costs application generated a 'consequence of significance', that delay was (or the Court could treat it as) irrelevant to whether or not security should be ordered or, in the alternative, to whether security should be ordered for both past and future costs of the litigation." The Draft Notice of Appeal refers in this context to paras [29]-[30] of the primary judge's reasons which we have set out above.
This proposed ground of appeal overstates in a significant way the primary judge's reasoning particularly in para [29] of the reasons for judgment. His Honour did not in that paragraph go so far as to say that delay was "irrelevant" or that the Court could treat it as "irrelevant" unless the bringing of a costs application generated a consequence of significance.
What his Honour said in terms was that "the fact that [the] defendant [had] delayed the bringing of an application for security for costs will be less relevant, and possibly even irrelevant, unless it can be seen to have generated or produced some consequence of significance." (Emphasis added). His Honour's use of the word "possibly" in the sentence quoted illustrates that he formed no final view in respect of that matter and cannot fairly be taken to have endorsed or embraced such a view. His Honour's statement that delay will be "less relevant" unless it can be seen to generate or produce some consequence of significance is not criticised in the Draft Notice of Appeal and rightly so in our opinion.
The relative significance of delay in the making of a security for costs application and as a factor in the exercise of judicial discretion to award security for costs will inevitably vary with the facts of each case, the nature, extent and cause for any delay and the overall justice of the case. Insofar as his Honour suggested that some authorities established that delay could "possibly even [be] irrelevant, unless it can be seen to have generated or produced some consequence of significance", we would not agree. In our opinion, delay will invariably be a relevant discretionary factor in any application for security for costs, but the degree or extent of its relevance will vary according to the circumstances of any given case along a spectrum from the slight to the extreme.
The observations made by the primary judge in para [28] of his reasons as set out above accurately record that the Plaintiff did not as a matter of fact contend that it was prejudiced in any way by the failure of the Defendants to prosecute the applications for security for costs sooner and did not make any of the kind of submissions described by his Honour and which are frequently made on security for costs applications in circumstances where there has been delay. It was perfectly appropriate for the primary judge to make reference to the absence of such submissions by the Plaintiff in resisting the order for security for costs at first instance.
In the course of oral argument on the leave application, when pressed to point to any evidence of prejudice, senior counsel for the Applicant pointed to evidence led at first instance that legal costs of $362,910.25 had been incurred since the time at which he contended the Defendants could or should have become aware of the Plaintiff's impecuniosity. But the incurring of legal costs for the purposes of preparation of evidence will not axiomatically or presumptively be prejudicial and there will generally be no basis to infer from that fact alone that such costs would not have been incurred had the Plaintiff been on notice of the Defendant's intention to seek security for costs, that is to say, prejudice by reason of the incurring of legal costs is not a matter that may be inferred per se from that fact alone.
In its submissions in support of the application for leave to appeal and in an attempt to isolate an issue of principle that may attract a grant of such leave, the Applicant made reference to the decision of this Court in Green v CGU Insurance Limited [2008] NSWCA 148; 67 ACSR 105 (Green) and, in particular the judgment of Hodgson JA (with whom Campbell JA agreed) at [57]. In that paragraph Hodgson JA said as follows: In my opinion, it is not necessary, in order for a plaintiff to show prejudice from delay, that the plaintiff prove what the plaintiff would have done if the application had been made earlier; although if a plaintiff does prove that it would not have gone ahead with proceedings if the application had been brought when it should have been, this would be a very powerful consideration against security in the case of a delayed application. In my opinion, where substantial costs have been incurred since the time when an application for security should have been brought, it would be unreasonable to deny the existence of prejudice unless the plaintiff can prove exactly what the plaintiff would have done if the application had been brought earlier.
The Applicant also makes reference to the decision of the Western Australian Court of Appeal in Christou v Stanton Partners Australasia Pty Ltd [2011] WASCA 176 at [23] (Christou) where Newnes JA (with whom Murphy JA agreed) said, applying Green: In order to show prejudice it is not necessary for a plaintiff to establish what it would have done differently if the application had been made earlier (although such evidence would be an important consideration in the exercise of the discretion); prejudice will generally be regarded as inherent in substantial delay.
In our opinion, there is no necessary tension between these passages and the observations by the primary judge in the present case in paras [28]-[30] of his reasons. When read in the context of the argument that had been put in Green, Hodgson JA was accepting the uncontroversial submission that prejudice may, in certain circumstances, be inferred with the corollary that it is not necessary, in order for prejudice to be demonstrated, that the plaintiff prove "exactly" what it would have done had the application been made earlier. His Honour of course went on to observe that, if the plaintiff does in fact prove that it would not have gone ahead with the proceedings if an application for security for costs had been brought earlier, that would be a very powerful consideration against the grant of security. What the primary judge was saying in para [28] of his reasons for judgment in the present case was simply that the Plaintiff had not done that in resisting the application for security for costs. That was correct as a matter of fact and was not irrelevant. It might also be observed that the primary judge in Green had made a strikingly similar observation (as recorded in Hodgson JA's judgment at [12]), and that Hodgson JA (at [58]) saw no error in the primary judge's approach concerning delay.
In relation to the observation in Christou that "prejudice will generally be regarded as inherent in substantial delay", it is plain from Newnes JA's use of the word "generally" that his Honour was not intending to suggest that substantial delay is presumptively prejudicial, in the same way that we do not read Hodgson JA's observation in the final sentence of para [57] in Green as establishing any presumption of prejudice from the incurring of substantial legal costs.
Even if (which we do not accept) there were some tension between this Court's decision in Green and the observations by the primary judge in para [29] of the decision from which leave to appeal is sought, we do not consider that the interests of justice would require the grant of leave as we are of the clear view that any appeal would be highly unlikely to succeed.
A second aspect of the Applicant's argument in relation to its application for leave to appeal is really to the effect that the delay in making the application for security for costs was so gross that the discretion exercised in favour of the Respondents miscarried. We do not consider that there was delay, let alone gross delay in circumstances where the Plaintiff's impecuniosity only occurred at an advanced stage of the proceeding and the applications for security for costs were made within a relatively short period of time from the Defendants' actually becoming aware of the Plaintiff's impecuniosity through evidence filed by the Plaintiff for the purposes of the final hearing. Senior counsel for the Applicant did not contend that there was any principle or authority in support of the proposition that time, for the purposes of measuring delay, should commence to run from the date upon which the applicant for security could or should have been aware of a plaintiff's impecuniosity, as opposed to the date upon which the applicant actually became aware of that impecuniosity. There is no apparent error in the primary judge's assessment of the extent or significance of any delay, and the interests of justice do not require or justify the grant of leave to appeal.
In the language of the authorities collected at para [5] above, no issue of principle, question of public importance or any "reasonably clear" injustice has been demonstrated so as to attract a grant of leave to appeal. In this latter context, the Applicant has not established that it would suffer any substantial injustice if leave were not granted: CBX2 Pty Ltd v National Australia Bank Ltd [2016] NSWCA 79 at [29]. Indeed, we see no injustice whatsoever in the grant of security for costs in the present case. Neither at first instance nor on this application was there any suggestion that the orders for security for costs would stultify or stifle the litigation, and even if that were the effect of the orders, that would not be determinative: Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [91]-[96].
Nor is this a case where there is any suggestion that the conduct impugned in the principal proceedings was in any way causative of the impecuniosity of the Applicant for leave to appeal. The impecuniosity was caused by what the primary judge referred to as the Plaintiff's "business model", namely withdrawing the proceeds of sale of various properties that had been developed from the company's accounts over time. That was the prerogative of the Plaintiff's directors but it does not generate an injustice that should result in either the Plaintiff being free to conduct expensive commercial litigation insulated from the risks of an adverse costs order or the Defendants being deprived of the security which the primary judge, in the exercise of his discretion, saw fit to order.
For all of the above reasons, we refused leave to appeal with costs.

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