1. In August 2020, RW & ME Smith Pty Ltd ('Smith P/L') issued a County Court proceeding against Boral Resources (Vic) Pty Ltd ('Boral'). The central allegation is that Boral, in July 2015, unlawfully terminated a cartage agreement ('the Agreement') between the two companies.
2. After a five-day trial in May and June 2021, the County Court judge, on 30 May 2022, dismissed the claim and ordered Smith P/L to pay Boral's costs.[1]
3. Smith P/L has now sought leave to appeal. Boral in this application seeks that Smith P/L provide security for its costs in the sum of $40,000.
4. Smith P/L is operated by Mr Robert William Smith ('Mr Smith'). Mr Smith and his wife are the directors and shareholders of the company. Boral owns and operates a concrete plant ('the plant') at Swan Hill.
5. The Agreement is dated 1 August 2014 and is described as a 'Concrete Cartage Agreement'.
6. By clause 22.2 of the Agreement, Boral was entitled to immediately terminate the Agreement in the event of 'a material or wilful breach' by Smith P/L of any of its terms. Boral contended that Mr Smith's actions on 9 July 2015 (discussed in a moment) breached its safety policies and procedures. Boral was also entitled by clause 22.4 to terminate the Agreement without cause on three months' notice to Smith P/L.
7. Her Honour's findings of fact at [15] can be summarised as follows: On 9 July 2015 at about 6.30 am, Mr Smith, at the request of a Mr Neil Congram ('Mr Congram'), the acting site manager (and an employee of Boral), attended the plant to assist with the repairs of a drive chain on a 'head drum'. Mr Smith, at Mr Congram's request, ascended a ladder and identified that the chain was detached. Boral could not obtain the services of a contract mechanic, so Mr Smith, at Mr Congram's request, carried out the repairs to the chain over a period of two hours. To do so, it was necessary for him to ascend a ladder and remove a safety guard so that he could access and replace the chain. This was all done under the supervision and direction of Mr Congram. The process took approximately two hours. The chain was repaired and normal operations at the plant resumed.
8. On 21 July 2015, Boral terminated the Agreement alleging that Mr Smith's repairs to the Boral machinery constituted 'serious misconduct' by Smith P/L. It said that the work involved multiple breaches of Boral's non-negotiable safety policy.
9. Smith P/L continued to work for Boral until 13 October 2015. On that day it ceased work, and a termination agreement ('the Termination Deed') was entered into by the two companies.[2]
10. It is undisputed that Smith P/L is impecunious.
11. The issue on this application is whether this Court should make an order that will, almost certainly, stifle the prosecution of the appeal. Of course, without such an order Boral, the victor in the County Court will be forced to incur more expense on top of what, with equal certainty, is a fruitless order for costs against Smith P/L.
12. The application boils down to one issue: are the prospects of success of the proposed appeal of sufficient strength that they warrant the Court declining to make an order in Boral's favour?

1. At trial Smith P/L ran multiple arguments concerning the termination of the Agreement by Boral. Most of these were a distraction from the central issues. The nub of her Honour's decision was as follows:

(a) Smith P/L did not establish that Boral's summary termination of the Agreement was wrongful. The Agreement covered the work carried out by Mr Smith. His conduct in carrying out the repairs in an unsafe manner was in breach of the terms of the Agreement and Boral's 'Non-Negotiable' safety rules. Mr Smith breached clauses 1.1(d), (f) and (h) of the Agreement. In particular, he failed to confirm that 'isolation [was] in place' when the safety guard was removed. Mr Smith's actions entitled Boral to summarily terminate the Agreement pursuant to clause 22.2. Her Honour characterised Mr Smith's actions as amounting to serious misconduct.

(b) Alternatively, assuming Boral was not entitled to terminate the Agreement summarily as a result of Mr Smith's actions, it would nevertheless have terminated the contract on three months' notice (as it was entitled to do under the Agreement) during which time Smith P/L continued to provide services to Boral. Therefore, no compensable loss could be established.

(c) Alternatively, and assuming (a) and (b) were incorrectly decided, then the Termination Deed indemnified and released Boral against any liability to Smith P/L in respect of its termination of the Agreement.

1. The relevant principles were not at issue. It is only necessary to repeat the recent statements of this Court in Mikkelsen v Li:[3]

The general principle is that, ordinarily, the discretion to order security for costs will be exercised in favour of a respondent who applies for such an order if:

(a) there is an unacceptable risk that the appellant would not be able to meet a costs order in favour of the respondent made consequent upon the appeal being unsuccessful; and

(b) there are no discretionary or other considerations which require that security for costs not be ordered.

The onus lies on the respondent to persuade the Court that it should exercise its discretion to order security for costs. If the appellant contends that there are circumstances peculiar to his or her case that militate against the making of such an order, he or she has an evidentiary onus to identify them and to draw the Court's attention to any evidence that supports them.

The factors that inform the exercise of the Court's discretion whether to order security for costs include the following:

(a) the prospects of success of the appeal;

(b) the magnitude of risk that a costs order would not be satisfied;

(c) whether the giving of security would be oppressive in that it would stifle a reasonably arguable claim;

(d) whether the conduct of the respondent that is the subject of the appeal has contributed to the risk that the appellant would not be able to satisfy a costs order;

(e) whether the appeal is defensive in nature;

(f) whether the respondent has cross-appealed;

(g) whether the respondent has delayed in applying for security for costs;

(h) whether there are aspects of the public interest which ought to be taken into consideration in deciding whether security should be provided; and

(i) whether there are particular discretionary matters that are relevant in the case.

it will be a significant, but not decisive, factor in an application for security of the costs of an application for leave to appeal. This recognises that, in contrast to the position at trial, there has already been a determination of rights adverse to the impecunious applicant, and the respondent has already incurred trial costs. In those circumstances, a respondent should not be put to additional cost without meaningful prospects of recovery.[4]

1. It is conceded by Smith P/L that it is impecunious and therefore the requisite unacceptable risk has been established by Boral.
2. Smith P/L advanced two discrete submissions in relation to this application. First, it said that notwithstanding that an unacceptable risk had been established, given that the appeal has reasonable prospects of success and that an order for security for costs 'will almost certainly stultify' the appeal, there should be no order.
3. Second, it sought that this Court deal with the question of leave to appeal within the meaning of s 14C of the Supreme Court Act 1986 at this stage, asserting that if this was determined favourably on a 'broad brush' approach, then the weight of discretionary factors should militate against an order for security for costs.
4. We decline the invitation contained in the second proposition. There is no reason to deal with this application other than in the conventional manner, as demonstrated by multiple decisions of this Court.
5. So, the substantive question is whether there is sufficient merit in Mr Smith's appeal to not make an order for security for costs or to order security in a lesser amount.
6. We consider that there is force in the attack on the first of her Honour's conclusions: that the conduct of Mr Smith constituted a breach of the serious misconduct provisions of the Agreement. Her Honour at [82]-[85] of the Reasons concluded that Mr Smith's actions fell within the definition of cartage works as described in clause 28 of the Agreement, namely 'deliveries of Goods and associated tasks performed by the Contractor for Boral in accordance with this Agreement'.
7. However, as her Honour found at [15]-[18] of the Reasons, Mr Smith (a former manager at the plant) was called out by Boral in the early hours of the morning; not to cart concrete or provide an associated transport service (covered by the Agreement) but to assist with the carrying out of repairs to machinery at the plant. Then he was asked to carry out the work on the chain. In doing so he was acting on the request of Mr Congram who, as her Honour found, supervised the work, including the removal of the safety guard and the failure to ensure that electrical 'isolation [was] in place'.
8. At the trial there was evidence of a stationary truck owned by Smith P/L being in the vicinity of the point at which the repairs were being carried out. However, this is not addressed in the Reasons and its relevance (if any) to the work being carried out by Mr Smith on the piece of machinery is quite unclear. Her Honour's statement later in the Reasons at [85] that the truck was being loaded with concrete at the time the incident occurred does not sit comfortably with the description of the events contained at [15]-[18].
9. There is prima facie force in the argument that the work performed by Mr Smith was unrelated to the Agreement (ie, it was work on a piece of machinery and had nothing to do with the delivery of Boral goods or associated tasks) and accordingly clause 22.2 (the termination clause) and the relevant safety clauses, clauses 1.1(d), (f) and (h), relied upon by her Honour in finding that summary termination was warranted, were not engaged.
10. In addition, there is at least an arguable case, it seems to us, that given Mr Congram's role as acting site manager and notwithstanding Boral's safety rules, Boral authorised Mr Smith to carry out the work as he saw fit - under Boral's supervision. In those circumstances (and regardless of the non-negotiable safety rules), it may be argued that there could be no breach of those rules given Boral's tacit, if not express, approval of Mr Smith's actions.
11. There are several other arguments mounted in the written case of Smith P/L on this point which we do not need to consider for the purpose of this application.
12. In relation to the second ground (no compensable loss), her Honour's findings are brief and rely upon the drawing of a series of inferences, at [177] of the Reasons, as to the likelihood of Boral terminating the Agreement. No evidence was led from the Boral personnel who made the decision to terminate the Agreement (Mr Malcolm Ball and Mr Phil McIntyre).
13. Determining whether the damages payable by a party to a contract for its repudiation of a contract should be restricted by the lawful right of that party to terminate is problematic.
14. It suffices to refer to the cautionary words of the New South Wales Court of Appeal in TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd,[5] Hope JA (with whom Priestley and Meagher JJA agreed) held that there was no automatic restriction by virtue of an alternative right to terminate, that the court was not obliged to assess damages by reference to 'an improbable factual hypothesis' and that regard needed to be had to the facts of each case to determine whether the repudiating party would have exercised its lawful right of termination.[6] This approach is consistent with the High Court's recent statement of principle in Berry v CCL Secure Pty Ltd.[7]
15. In TCN, the Court warned against drawing natural inferences and noted that 'principle does not require the assessment of damages to be based on a fiction in disregard of the actual facts'.[8]
16. The inference drawn by her Honour may well have been open on the factual matters set out at [177] of the Reasons. However, it is significant that Boral did not call any evidence to establish the counterfactual relating to termination of the Agreement pursuant to clause 22.4.
17. In rejecting a Jones v Dunkel[9] submission by Smith P/L in relation to the two relevant witnesses (Mr Ball and Mr McIntyre), her Honour said at [43] of the Reasons that the real issue was 'whether those events[10] warranted summary termination'. But this approach does not address the question of the appropriate inferences available in determining the issue of termination of the Agreement under clause 22.4 if the grounds for summary termination failed. This is particularly so when, on her Honour's findings at [23], it was Mr Ball and Mr McIntyre who decided to terminate the Agreement on the basis of serious misconduct.
18. The body of evidence (ie, the factual basis for the drawing of the inference that Boral would have terminated the Agreement on notice) needed to be examined closely in light of the failure by Boral to call the relevant decision makers in support of the defence of no compensable loss that it propounded at trial. This raised consideration of the principles derived from the decisions of Jones v Dunkel, and more tellingly, Blatch v Archer[11] as explained in Swain v Waverley Municipal Council by Gleeson CJ:

More than 200 years ago, Lord Mansfield said that 'all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted'. This basic principle of adversarial litigation is not a matter of esoteric legal knowledge; it accords with common sense and ordinary human experience.[12]

1. On this issue, there is a reasonably arguable basis upon which to challenge her Honour's conclusion.
2. The third substantive basis for her Honour's finding are the terms of the Termination Deed granting Boral indemnity from Smith P/L and specifically the releases given by Smith P/L to Boral in respect of claims and liabilities.
3. The judge concluded that the Termination Deed was enforceable, and its scope extended to the wrongful termination claim of Smith P/L. Her Honour held that both clauses 3.1 and 3.2 applied to the claim.
4. Clause 3.1 released Boral from claims that may 'directly or indirectly, arise from the [cartage agreement] and the vehicles, equipment and drivers used and engaged in the provision by [Smith P/L] of the transport services'. This, her Honour held, applied to the claim of Smith P/L. Clause 3.2 provided a seemingly wider protection to Boral by Smith P/L agreeing that it has 'no further claims or entitlements against Boral either now or in the future and hereby releases and indemnifies Boral against any and all such claims'.
5. The stated purpose of the Termination Deed was to bring the relationship between the two parties in respect of the provision of transport services to an end. The contract termination clause (clause 1) was described as enabling 'the Contractor to sell the vehicle within the Boral fleet'. It then provided for final payments of money by Boral to Smith P/L (clause 2). Whether the Termination Deed was then intended by clause 3, to cover (or should be construed as covering) a release or indemnity in respect of a claim for wrongful termination of the Agreement is not as clear as Boral contends.
6. We think that it is, at least, tenable that the construction by the judge of both clauses may be incorrect. Clauses 3.1 and 3.2 need to be examined and interpreted not only by reference to their own words, but equally as importantly in the light of the deed as a whole - 'the entire text of the contract' and its commercial purpose.[13]
7. Moreover, clause 3.2 which her Honour held provided Boral with a release from the claim is, as her Honour acknowledged, 'broad in scope' - indeed, extraordinarily broad in the light of the subject matter and purpose of the deed.
8. In circumstances where the Agreement had already been terminated, the execution of the Termination Deed was, as noted, simply to enable Smith P/L to sell the trucks to an approved Boral contractor at a price higher than on the open market. However, in consideration, Boral exacted a very wide release and indemnity provision. This was a mandatory and universal requirement of Boral. It was submitted that this constituted unconscionable conduct under the Australian Consumer Law[14] and recent High Court authority. The argument is not plainly hopeless. However, the more relevant point is that the Termination Deed was only entered into because of the termination of the Agreement which may have been unlawful.
9. This is a reasonably arguable ground of appeal.

1. We consider that there are sufficiently arguable grounds contained in the proposed notice of appeal to refuse the order sought by Boral. To grant security for costs would stultify an appeal which has reasonable prospects of success. Whether those prospects are made out on the appeal after a consideration of all the evidence and the relevant authorities, is, of course, a quite different question.
2. A further relevant discretionary factor is that Smith P/L is effectively the alter ego of Mr and Mrs Smith and was incorporated for the purpose of the Agreement at the request of Boral. Had the proceeding been brought personally, security would not be ordered. It should not be ordered in this case.
3. In the circumstances and in the exercise of our discretion we decline to make an order for the security for costs.

[1] RW & ME Smith Pty Ltd v Boral Resources (Vic) Pty Ltd [2022] VCC 729 ('Reasons').

[2] In fact, two deeds of termination were signed. The first on the 21 August 2015 and the second on the 13 October 2015 - relied upon at the trial.

[3] [2022] VSCA 126, [9]-[11] (Kyrou and Walker JJA) (citations omitted).

[4] Wu v Bi [2022] VSCA 22, [17] (McLeish and Emerton JJA) (emphasis added) (citations omitted).

[5] (1989) 16 NSWLR 130 ('TCN').

[6] Ibid 154-56; See also Willis Australia Group Services Pty Ltd v Mitchell-Innes [2015] NSWCA 381, [117]-[123].

[7] [2020] HCA 27; (2020) 271 CLR 151, 175-76 [38] (Bell, Keane and Nettle JJ); [2020] HCA 27.

[8] (1989) 16 NSWLR 130, 156 (Hope JA).

[9] (1959) 101 CLR 298; [1959] HCA 8 ('Jones v Dunkel').

[10] Mr Smith's actions in repairing the machinery.

[11] [1774] EngR 2; (1774) 98 ER 969, 970.

[12] [2005] HCA 4; (2005) 220 CLR 517, 525 [17]; [2005] HCA 4 (citations omitted).

[13] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, 116-17 [46]-[52] (French CJ, Nettle and Gordon JJ); [2015] HCA 37.

[14] Competition and Consumer Act 2010 (Cth), sch 2.