Saint-Gobain RF Pty Ltd v Maax Spa Corporation Pty Ltd [2004] VSC 335

Supreme Court of Victoria|2004-09-06|Before: HABERSBERGER J

COSTS - Security for costs - Application by plaintiff for security for costs of counterclaim - Whether defendant in effect taken up position of plaintiff - Amount of security for costs sought - Inability to pay costs order - Discretionary factors - Application for leave to adduce further evidence - Defendant entering into Deed of Company Arrangement - Effect of s.553C of the Corporations Act 2001 - Order 62.02 of the Supreme Court Rules - Section 1335(1) of the Corporations Act 2001.

By a summons filed on 19 September 2003, the plaintiff/defendant by counterclaim, Saint-Gobain RF Pty Ltd ("Saint-Gobain"), sought an order that the defendant/plaintiff by counterclaim, Maax Spa Corporation Pty Ltd ("Maax Spa"), give security for the costs of Saint-Gobain in defending the counterclaim in the amount of:

"(a) $734,013.57 until the conclusion of the trial; alternatively (b) $109,045.57 until the conclusion of discovery."

The proceeding commenced on 6 June 2003 when Saint-Gobain issued a writ claiming that Maax Spa owed it the sum of $221,886.68 pursuant to an agreement between them for the supply of goods by Saint-Gobain to Maax Spa on credit. Saint-Gobain alleged that between October 2002 and January 2003 Maax Spa had purchased from it on credit goods consisting of resin, fibreglass and related products for use in Maax Spa's business as a manufacturer of spas, at a total cost of $221,886.68, which sum remained unpaid.

On 27 June 2003 Maax Spa filed its defence and counterclaim in which it admitted that between October 2002 and January 2003 it purchased from Saint-Gobain on credit resin, fibreglass and related products in the sum of $221,886.68, but denied that any amount was owing. Maax Spa pleaded that at all material times it had used acrylic sheeting in the manufacture of its spa pools and a vinyl ester thermosetting resin purchased from Saint-Gobain, which was cured into the underlying surface of the sheeting in order to reinforce it and which, due to its high exortherm, had to be applied in two layers. Maax Spa alleged that shortly prior to April 2002 Saint-Gobain had represented and warranted to it that:

"(a) it should purchase from the Plaintiff and use an unsaturated polyester resin containing dicyclopentadiene ('DCPD') because it had a lower styrene level which allowed the resin to be applied in one layer and it would be suitable for the purpose of reinforcing the sheeting. (b) DCPD resin had very good bonding properties; (c) the one coat system saved labour; (d) the clear one coat made it easy to see and roll out the air bubbles; (e) the one coat system saved shop floor space; (f) the one coat without filler made less dust; and (g) the one coat rolled on smoother and reduces grinding for jet surfaces."

Maax Spa further alleged in the defence and counterclaim that acting on the faith of the representations and warranties and in the belief that unsaturated polyester resin was suitable for its purposes and induced thereby, between April 2002 and January 2003, it purchased from Saint-Gobain large quantities of unsaturated polyester resin and used it in the manufacturing process for its spa pools. It further alleged the representations and warranties were false and untrue in that "due to the low styrene level in the resin, it resulted in a weak adhesive bond causing the sheeting to blister thereby rendering it unsuitable for the purpose of being used for the manufacture of spa pools." Maax Spa claimed that as a result it had suffered loss and damage by having to replace the sheeting in a number of spa pools or replace numerous spa pools themselves at a cost of $917,737, which sum was continuing to increase. Alternative causes of action in negligence and breach of the Fair Trading Act 1999 or the Trade Practices Act 1974 (Cth) were also pleaded. The counterclaim sought various declarations about Saint-Gobain's conduct and damages.

By its reply and defence to counterclaim filed on 18 July 2003, Saint-Gobain pleaded in part that it had supplied to the defendant various resins including:

(a) "during or about the period June 2001 to October 2001 a resin known as UPE 1686 unfilled laminating resin (containing DCPD)"; and

(b) "during or about the period December 2001 to January 2003 (but not including the months of April and May 2002), a resin known as SG 150-TE unfilled orthophthallic laminating resin (not containing DCPD) ..."

Factual Background

There was an abundance of affidavit material both in support of, and in opposition to, the application for security for costs of the counterclaim. On behalf of Saint-Gobain, there was filed an affidavit of Elizabeth Anne Michael, the plaintiff's solicitor, sworn 19 September 2003; an affidavit of Judith Rosalie Hedstrom, a solicitor and costs consultant, sworn 26 September 2003; an affidavit of David Ferrier, a chartered accountant, sworn 3 October 2003; an affidavit of Nella Simeoni, the plaintiff's administration manager, sworn 9 October 2003; and a second affidavit by Ms Michael sworn 27 October 2003. On behalf of Maax Spa, there was filed an affidavit of Scott Russell Devenish, the defendant's managing director, sworn 5 November 2003; an affidavit of Adam Kirkwood-Scott, the defendant's accountant, sworn 6 November 2003; and an affidavit of Wayne Douglas Cook, an Associate Professor in the School of Physics and Material Engineering at Monash University, sworn 6 November 2003. In reply, Saint-Gobain filed three further affidavits, a second affidavit by Mr Ferrier sworn 20 November 2003; a second affidavit by Ms Simeoni sworn 21 November 2003 and a third affidavit by Ms Michael sworn 26 November 2003. Not to be outdone, Maax Spa filed two further affidavits, a second affidavit by Mr Devenish sworn 27 November 2003 and a second affidavit by Mr Kirkwood-Scott sworn 27 November 2003.

Ms Michael's first affidavit revealed that the question of the provision of security for costs was first raised by her in a letter to Maax Spa's solicitors dated 11 July 2003. She wrote as follows:

"Our inquiries in relation to your client have revealed the following:- 1. Your client owns no real property in Victoria; 2. Your client owns no real property in Australia; 3. A Dunn and Bradstreet Report indicates that your client's credit rating is extremely poor; and 4. There is a debenture charge registered over your client in favour of the Australian and New Zealand Banking Group Limited. The charge was registered on 30th June 1999 and is stamped to $410,000.00. 5. Your client had a history of slow payment with our client. In the circumstances, we are concerned that your client will not be able to meet a costs order against it in relation to its counterclaim against our client. As you would be aware, the matter involves issues that are highly technical in nature. As such, it is obvious that the costs to be incurred are likely to be significant. In the circumstances, we request that you seek your client's urgent instructions to provide to us financial statements for the past three (3) years (including profit and loss statements and balance sheets) to enable our client to satisfy itself that your client has sufficient assets with which to meet any costs orders made against it. Alternatively, please let us know if your client is prepared to give our client security for the costs of the counterclaim and if so, details of the form of security it is willing to provide."

The defendant's solicitors replied by a letter dated 16 July 2003 which advised that they expected to be able to let Ms Michael have Maax Spa's financial statements for the years ended 30 June 2001 and 2002 "within the next couple of days", but that the financial returns for the year ended 30 June 2003 had not yet been completed. The letter continued:

"We are instructed that the financial returns that we will be forwarding to you will demonstrate that our client's business was strong, viable and very profitable and the only reason that this has changed to any degree is as a result of your client's actions by providing our clients with the resin which has caused our clients substantial loss and damage and is a subject of these proceedings. It was your client's advices to use these resins and it is your client's fault that has caused our client this substantial loss and damage. Despite all these setbacks our client is not involved in insolvent trading and is not in financial difficulty. In order to successfully defend an application for security for costs it will be necessary for our client to incur considerable expense in getting its proofs together to establish firstly that it is still not involved in insolvent trading and secondly if it is in financial difficulty, which is denied, our client will use this letter on the question of indemnity costs [sic]."

The financial statements for the earlier two years were forwarded by the defendant's solicitors on 17 July 2003. They revealed that Maax Spa had made a profit of $213,593 in the 2000-2001 financial year and a profit of $185,331 in the 2001-2002 financial year. The financial statements for the year ended 30 June 2003 was eventually sent on 29 August 2003. They revealed a loss by Maax Spa in that year of $66,841. In further correspondence between solicitors, the defendant's solicitors reiterated the defendant's position that it was not trading whilst insolvent and that there was no need for an application for security for costs. The plaintiff's advisers, however, were not persuaded by the financial information provided.

During this period, Saint-Gobain's solicitor was also writing letters seeking further and better particulars with respect to the sheeting used by Maax Spa and further and better particulars with respect to how Maax Spa calculated its loss and damage. No such particulars were provided.

Ms Hedstrom is an expert costs consultant. In her affidavit she explained that her estimate of costs of $734,013.57 was based on a list "of the likely steps to be taken in the litigation in defending the matter" which was provided to her by Ms Michael at her request. Included in Ms Michael's list of likely steps were suggestions as to the estimated time required to take proofs of evidence from witnesses; for counsel to confer and settle witness statements; for pre-trial preparation by counsel and for the length of the trial. Subsequently, Ms Michael sent to Ms Hedstrom a revised estimate of the quantity of discovery based on the breadth of the recently delivered categories of documents which the defendant sought by way of discovery from the plaintiff.

Ms Hedstrom deposed that she believed that her estimate of costs was "a reasonable and accurate estimate" and that the steps set out in the schedule prepared by Ms Michael were "a reasonable estimate of the steps likely to be conducted in a proceeding of this type."

Mr Ferrier is a chartered accountant with the firm Munday Wilkinson, Chartered and Forensic Accountants. He was engaged by the plaintiff to prepare a report "as to the inability (or otherwise) of Maax Spa to meet a costs order" for the amount sought by Saint-Gobain. In his first affidavit he summarised the conclusions he had reached after analysing the financial statements of Maax Spa for the three years ended 30 June 2001, 2002 and 2003, in the following terms:

"6. In my opinion, if the company were today to be required to meet a costs order approximately $734,000 [sic], it would not be able to meet that costs order from its own resources and without the injection of capital from its shareholders or from other persons. In addition, a costs order of that magnitude would mean that the company would today be insolvent. 7. My analysis of the company's financials reveal that: (a) in the event they were sold, the assets of the company would not generate sufficient cash to pay the liabilities of the company and the costs order; (b) the company has insufficient cash and has no ability to internally generate sufficient additional cash to meet the costs order; and (c) the company is not in a position to borrow additional funds from financial institutions to meet the costs order."

Because of the way events have turned out, it is not necessary to spend too much time considering Mr Ferrier's analysis. It is appropriate, however, to set out a little of the reasoning which led him to reach his conclusions quoted above. With respect to the net asset position of Maax Spa, Mr Ferrier stated that in his opinion the company did not have net assets of $1.55 million as claimed in the 2003 balance sheet. This was because there were assets in that balance sheet, such as dishonoured cheques, prepayments and capitalised relocation expenses, which had no recoverable value; the claimed goodwill of $603,000 was not recoverable and should not have been included; and an unknown sundry debtor of $540,000 was probably not recoverable. These matters reduced the net assets of Maax Spa, in Mr Ferrier's view, to less than $50,000.

Secondly, Mr Ferrier examined the ability of Maax Spa to generate internally sufficient additional cash to meet the costs order. Mr Ferrier examined the impact of the profit performance for the 2002-2003 financial year on working capital, the sources of funding during that financial year and analysed the performance ratios applicable to the company's ability to meet short term liabilities. Reference was made to the costs incurred by Maax Spa in moving to larger premises and in making significant capital improvements including advanced automation and health and safety systems and facilities at those premises. Sources of funding for Maax Spa, according to the balance sheets for 2002-2003, included an extension of its overdraft of approximately $750,000, an equity injection of $600,000, a rent incentive of $300,000 - $400,000, sundry loans of $110,000 and finally a reduction in trade debtors of $310,000. Mr Ferrier reached the conclusion based on a number of different performance ratios that the company was unable to internally generate enough cash from its operating activities to meet a costs order of approximately $734,000.

Thirdly, Mr Ferrier concluded that Maax Spa would be unable to borrow additional funds. He stated that in his experience, in determining whether a company could borrow additional funds, a financial institution would analyse the net asset position of the company and the ability of the company to meet current liabilities. It was Mr Ferrier's opinion that, given the effect on net assets and on the trading position of the company which a costs order of approximately $734,000 would have, Maax Spa would not be able to extend its lending facilities to meet the costs order.

According to the first affidavit of Ms Simeoni, Maax Spa was slow in making payments to Saint-Gobain in accordance with its terms of credit, despite constant efforts by Saint-Gobain to secure payments. Ms Simeoni deposed that in May 2002 Mr Devenish had indicated during a lunch with representatives of Saint-Gobain that his company was experiencing cash flow problems, and had been forced to pay some suppliers on a COD basis. Further, Ms Simeoni stated that in July 2003 she obtained a credit report from Dunn and Bradstreet which rated Maax Spa in the "very high" risk category of financial distress and recommended close monitoring. Ms Simeoni also stated that, according to the plaintiff's invoices, for the period between April 2002 and January 2003, almost all of the resin supplied to Maax Spa did not contain DCPD. The only exception was certain resin supplied to Maax Spa on 24 and 29 January 2003. Finally, Ms Simeoni deposed that of the amount claimed by Saint-Gobain to be owing by Maax Spa, only the amount of $133,328.58 related to the supply of resin, with the balance of $88,558.10 relating to the supply of products other than resin.

In his first affidavit Mr Scott Devenish set out the history of the dispute from Maax Spa's point of view. He disputed that Maax Spa had to be pressed for payment, although he agreed that it took advantage of the generous terms of payment offered by Saint-Gobain. Mr Devenish denied that he had told Saint-Gobain's representatives at the lunch referred to by Ms Simeoni that Maax Spa had been forced to pay some suppliers on a COD basis, although he agreed that he may have told them that the defendant was having problems collecting money from one of its customers. He conceded that in the light of the claims by Saint-Gobain that the SG 150-TE resin did not contain DCPD it would be necessary for Maax Spa to amend its counterclaim. Nevertheless, Mr Devenish maintained that the plaintiff's misrepresentations concerning the resin sold to the defendant had been the cause of all of the problems it had experienced with the blistering and delaminating of its spa pools.

"The financial burden this product misrepresentation has placed on the Defendant company has been paralysing."

He referred to an injection of a further $600,000 of capital by the shareholders after 30 June 2003 in order to assist Maax Spa to cope with the financial problems allegedly caused by the plaintiff. Mr Devenish stated that the additional capital brought the net equity in Maax Spa to $2,159,117. Despite this, he said that:

"the Defendant is in such a financial situation that it cannot provide the security for costs sought by the Plaintiff."

Mr Kirkwood-Scott in his first affidavit deposed that he was a certified practising accountant carrying on business under the name of Eagle Scott Pty Ltd. He was engaged as the defendant's accountant. Mr Kirkwood-Scott stated that the present financial position of the defendant was due entirely to the fact that it had had to replace a considerable number of spa pools and refund the moneys paid for a considerable number of spa pools. This, no doubt, is almost certainly correct, but his attempt to suggest that it was all due to a defect in the resin supplied by the plaintiff was inadmissible.

Mr Kirkwood-Scott also expressed the view, after studying the defendant's books of account and despite acknowledging its present limited cash flow due to the problems it had had with the spa pools, that the defendant:

"is certainly not involved in insolvent trading and would be in a position to meet any costs order at the end of this proceeding."

This opinion appears to have been based on the assumption that the defendant could "easily obtain a capital injection of funds", because Mr Kirkwood-Scott also said that:

"No company of this size and type in Victoria in the manufacturing industry which holds a large volume of stock and is labour and capital intensive will be in a position to immediately meet a costs order of the magnitude of $734,000 without the assistance of external funding."

Mr Kirkwood-Scott disputed Mr Ferrier's analysis of the financial position of Maax Spa. He rejected Mr Ferrier's view that the specified assets in the balance sheet had no recoverable value and that goodwill should not have been included. More importantly, he revealed that the sundry debt of $540,000 was in respect of the defendant's claim against the plaintiff in this proceeding. Mr Ferrier, in his second affidavit, noted that the sundry debt had increased to $715,147 in the defendant's September 2003 balance sheet. Further, he stated that he had been advised by Ms Michael that the costs order would probably only be made in circumstances where the counterclaim had been dismissed and that in that event the sundry debt would have no value. In his second affidavit, Mr Kirkwood-Scott responded by stating that he had been informed by Maax Spa's solicitor that the most likely circumstances in which the costs order would be made against Saint-Gobain would result in the sundry debtor claim being recovered and therefore that the sundry debt had been correctly taken into account. Whilst the statement was correct, it was totally irrelevant, in my opinion, because what one has to focus on in a security for costs application is whether, in the event that the party making the claim is unsuccessful, it will be able to meet the costs order which would probably be made against it. On that hypothesis, Mr Ferrier was quite correct to say that the sundry debt would have no value and should not be taken into account.

Professor Wood is an Associate Professor in the School of Physics and Material Engineering at Monash University. His speciality is Polymer Science and Engineering and in particular Crosslinked Polymers such as Polymer Resins. His reports suggested that the formation of blisters on the acrylic surface of the spas was not due to the sheeting but that it could be due to the lower styrene content in the SG 150-TE resin.

During the hearing before me on 28 November 2003, it became apparent that the hearing should be adjourned because Maax Spa had accepted that it needed to amend its defence and counterclaim to allow for a reformulation of its claim that DCPD resin was supplied by Saint-Gobain to Maax Spa. Given the submissions being advanced on both sides it was important to understand exactly how Maax Spa put its case.

An amended defence and counter claim was accordingly filed by Maax Spa on 17 December 2003, in which it now alleged that in or about May 2001 Saint-Gobain represented and warranted to Maax Spa that:

"(a) the Plaintiff had a new product which was a 'one-hit' resin containing DCPD ('the resin') and that this resin would be a benefit to the Defendant in that it would improve the Defendant's manufacturing methods and product efficiency and it could do the work in one application and not two as the previous vinyl ester resin did;"

and that acting on the faith of these representations, Maax Spa purchased, between December 2001 and January 2003, the resin, which Saint-Gobain represented to Maax Spa to be "a one-hit DCPD resin and which the Defendant accordingly believed to be a one-hit DCPD resin and used it in the manufacturing process for its spa pools." Maax Spa pleaded that the alleged one-hit DCPD resin supplied to Maax Spa was unsuitable for use as a one-hit resin the manufacture of spa pools -

"due to its lack of adhesive quality for application to acrylic in that this resin when mixed with the fibreglass component and applied to the acrylic shell of the spa pool resulted in a weak adhesive bond causing the sheeting to blister and/or delaminate thereby rendering it unsuitable for the purpose of being used for the manufacture of spa pools."

Maax Spa claimed that as a result it had presently suffered loss and damage in the sum of $1,111,074.18, and that the loss and damage was still continuing.

The hearing for security for costs recommenced before me on 5 February 2004. There was yet another affidavit filed, this time a third affidavit by Mr Devenish sworn 16 January 2004 in which he deposed that during the period from December 2001 to January 2003, other than for a short period of time in April and May 2002 when Saint-Gobain was unable to supply resin to Maax Spa, all of the resin used by Maax Spa in the manufacture of the spa pools had been purchased from Saint-Gobain, and that therefore all of the affected spa pools, which had to be replaced or in respect of which money was refunded by Maax Spa, were manufactured with resin supplied solely by Saint-Gobain and no other supplier of resin.

Order 62.02 of the Supreme Court (General Civil Procedure) Rules 1996 ("the Supreme Court Rules") relevantly provides that security for costs may be ordered in the following circumstances:

"62.02(1) Where: (a) ... ; (b) the plaintiff is a corporation ... 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 the defendant be stayed until the security is given."

Section 1335(1) of the Corporations Act 2001 (Cth) ("the Corporations Act") provides as follows:

"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 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."

It was not disputed that the discretion to order security for costs is unfettered and is to be exercised judicially having regard to all of the circumstances of the case. In Interwest Ltd v Tricontinental Corporation Ltd[1], Ormiston J (as his Honour then was) stated that in relation to a security for costs application, the "... discretion ... should not be exercised with any 'predisposition' one way or the other." In Ariss v Express Interiors Pty Ltd[2], Phillips JA expressed the view that:

"Although of course, like any discretion conferred upon a court, it must be exercised judicially, the discretion conferred by s.1335 should be accepted now as altogether unfettered, but upon the footing that the very fact of which there must be credible evidence in order to enliven the jurisdiction in the first place may itself be a factor, even a most significant factor, in the exercise of the discretion."

In Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd[3] Winneke P and Phillips JA stated that:

"The authorities tend to suggest that the discretion given to the court by s.1335 to make an order for security against an impecunious company is 'open ended' and not to be fettered by rigid guidelines or principles ..."

Before turning to the question of whether or not an order for security for costs should be made, it is necessary to say something about the amount of costs sought by Saint-Gobain. As previously stated, Ms Hedstrom, the cost consultant engaged by Saint-Gobain, had said in her affidavit that the total of the plaintiff's party and party costs of defending the counter-claim was estimated to be $734,013.57, of which $109,045.57 was estimated to be the plaintiff's costs and disbursements to conduct the matter up to and including discovery. Counsel for Maax Spa submitted that the estimate provided by Ms Hedstrom was excessive. In fact it was said to be not only ridiculous but "preposterous". However, no evidence was tendered by Maax Spa concerning what it considered to be a reasonable amount of costs, if security were ordered to be provided.

Nevertheless, I am quite satisfied that I should not accept as appropriate the figure of $734,013.57, or the lesser amount of $109,045.57 to the completion of discovery. Whilst Ms Hedstrom may be quite correct in her estimate of the appropriate amount on a party and party basis to allow for the hourly and daily rates for counsel's fees and the solicitor's fees, there was no evidence before me in any way justifying the reasonableness of the time estimates on which her calculations are based. All I had was Ms Michael's list of steps and Ms Hedstrom's opinion that it was "a reasonable estimate of the steps likely to be conducted in a proceeding of this type." There was no verification by Ms Michael of her belief as to how long various steps would require nor any statement of advice she may have received from counsel about these matters.[4] Thus, I did not know, for example, whether the claim that junior counsel and the solicitor would need to confer with four lay witnesses for 60 hours and with two expert witnesses for 45 hours in order to prepare their witness statements had any justification or whether it was grossly excessive. The same could be said about the claim that a further 75 hours would be needed for consulting with counsel for the settling of the witness statements. These items alone accounted for $234,460 of Ms Hedstrom's estimate. A similar issue arose with respect to the claim that it was reasonable for senior counsel to charge 10 days' pre-trial preparation and junior counsel 15 days' pre-trial preparation at a total cost of $107,648. Finally, there was the question of whether 20 days was a reasonable estimate for the length of the trial. At an estimated cost of more than $10,000 per day, the likely length of the trial was a critical part of any estimate of costs. This is sufficient to illustrate the point, although many more examples could be given. So far I have concentrated on the second and larger part of the claim for security, but similar points could be made, in my opinion, about the claim for security up until the completion of discovery. The result is that, in my opinion, it has not been shown that the amount of the security for costs sought by the plaintiff was reasonable. Rather, at this early stage, it appears to me that it was probably significantly overstated.

When discussing the quantum of security for costs sought by the plaintiff, Mr Lucarelli QC, who appeared with Mr Fary on behalf of the plaintiff, stated that at this stage an order was sought only in respect of costs incurred up to the end of discovery. The amount claimed was $109,045.57. When I pointed out that this was the first time I had understood that the plaintiff was not seeking an order for security for all of its costs of over $734,000 (even though the lesser order was the alternative form of relief sought in the summons for security) and that all of the material from the plaintiff's financial expert, Mr Ferrier, was based on the $734,000 figure, Mr Lucarelli agreed that this was the case. He argued that this approach had been necessary in order to demonstrate that the amount of costs that might be incurred in the whole matter could not be met by the defendant.

In my opinion, this left the plaintiff's case potentially in a somewhat unsatisfactory situation when it came to analysing whether or not the defendant would be able to pay a costs order made against it at the end of the proceeding, to which topic I now turn.

Counsel for Saint-Gobain submitted that there was reason to believe, on credible testimony, that Maax Spa would be unable to meet a costs order made in favour of Saint-Gobain or that it had insufficient assets in Victoria to pay the costs of Saint-Gobain if ordered to do so. Mr Lucarelli referred to the judgment of Van Doussa J in Beach Petroleum NL v Johnson[5] where his Honour held that, in relation to a security for costs application:

"The court is required to form an opinion about what the financial position of the plaintiff will be at the time of judgment and immediately thereafter. The financial position of the plaintiff at the time when the application is made will be an important guide, but is not the sole consideration."[6]

His Honour went on to state that the power to order security for costs arises where there is:

"credible evidence that there is reason to believe there is a real chance that in events which can fairly be described as reasonably possible the plaintiff corporation will be unable to pay the costs of the defendant on service of the allocatur, if judgment goes against it."[7]

Mr Lucarelli further submitted the evidence showed that Maax Spa did not have sufficient assets, and that Maax Spa had not adduced any evidence of its ability to borrow funds or of the willingness or ability of any person to contribute further capital to the company, to meet a costs order in a significant amount.

Mr Ferrier's evidence persuaded me that, if the counterclaim failed, it was probable that Maax Spa would not be able to meet a costs order of $734,000. Indeed, Mr Devenish conceded as much. I am not satisfied, however, as I have said, that the costs order would be that large. The question which therefore arises is whether Saint-Gobain had shown that Maax Spa would be unable to pay a costs order of, say, $350,000. Mr Lucarelli accepted that the position might be different if a lesser sum of security were ordered, but he argued that there was no evidence that Maax Spa could pay even that sum. Mr Ferrier's analysis would suggest that even this amount of costs could not be met. It seems to me that it is relevant, when considering what the financial position of the company will be at the time of judgment, also to take into account that its financial situation will almost certainly have been eroded by the cost of fighting the litigation. I am, therefore, prepared to conclude that there is a real chance that Maax Spa would not be able to meet a reasonable costs order if judgment went against it.

I am strengthened in this conclusion by two further matters which, in my view, helped the plaintiff overcome some of the difficulties facing it in making out its case for an order for security for costs. The first was that in his submissions, Mr Wikrama SC, who appeared on behalf of the defendant, appeared to me to accept that the defendant was in financial difficulty. Indeed, the second of his two main submissions was that security should not be ordered because it was the plaintiff's misrepresentations which had caused the defendant to be in its current precarious financial situation. Thus, at the end of the hearing on 5 February 2004, it seemed to me that the defendant's position was that it was correct to say that it could not meet an order that it pay the reasonable costs of the proceeding, if that were the result of the litigation.

The second matter which clarified this aspect of the application was that at a further hearing, on 24 February 2004, I was informed that on 19 February 2004 the defendant company had entered into administration. This step certainly supported the pessimistic view about the chances of the defendant meeting a costs order.

The first point to consider is whether it is open to the Court to order a defendant to give security for the costs of the counterclaim. Order 62.01 of the Supreme Court Rules provides that:

"In this Order, unless the context or subject-matter otherwise requires - 'plaintiff' includes any person who makes a claim in a proceeding; 'defendant' includes any person against whom a claim is made in a proceeding."

The same broad and flexible meaning should also be given to the word "plaintiff" in the Corporations Act. It should not be given a restricted or technical meaning.[8]

In the first of his two main submissions in opposition to the application for security, Mr Wikrama submitted that the general rule was that an order for security would not be made against a party who is in substance a defendant. Reference was again made to the judgment of Ormiston J in Interwest Ltd v Tricontinental Corporation Ltd where his Honour said:

"In my experience counterclaimants are rarely required to provide security and the existence of a counterclaim frequently dissuades defendants from pursuing an application for security, but there is no doubt that the jurisdiction exists to grant security and is 'unfettered' in the sense described. Perhaps it may be said that the authorities support the proposition that security will only ordinarily be ordered against a party who is in substance the plaintiff, and that an order ought not to be made against parties who are defending themselves and thus forced to litigate: cf Accidental & Marine Insurance Co v Mercati (1866) 3 Eq 200. That would appear to be an overstatement, but the fact that a plaintiff, or counterclaimant, has instituted essentially defensive proceedings, must be a significant factor in the exercise of the court's discretion. A number of the other cases are discussed in Delany pp 17-25. Only three authorities were referred to me in argument: New Fenix Compagnie Anonyme d'Assurances de Madrid v General Accident Fire & Life Assurance Corporation Ltd [1911] 2 KB 619; T Sloyan & Sons (Builders) Ltd v Brothers of Christian Instruction [1974] 3 All ER 715 and Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 11 ACLR 616. In the New Fenix case the plaintiffs, who were resident outside the jurisdiction, brought a separate cross-action against the applicants for security. The conclusion reached by the Court of Appeal is perhaps best expressed by Vaughan Williams LJ at 625-6: 'One must look at each case to see whether in substance the claim set up by a defendant is set up by him by way of defence to the claim against him ... I do not think that there is any hard and fast rule on the subject. We have to consider whether, in substance, upon the facts of the particular case, the defendants in the original action are to such an extent plaintiffs in the cross-action, that they ought according to the general practice in the matter to be ordered to give security for costs, because they have taken up the position of plaintiffs, irrespective of defence to the original action'."[9]

Reliance was also placed on the decision of Ormrod J in Visco v Minter where the principle was stated to be as follows:

"where a defendant counter-attacks on the same front on which he is being attacked by the plaintiff, it will be regarded as a defensive manoeuvre. But if he opens a counter-attack on a different front, even to relieve pressure on the front attacked by the plaintiff, he is in danger of an order for security for costs depending on the court's assessment of the position in each case."[10]

Mr Wikrama further submitted that it was Saint-Gobain which had instigated the litigation and that Maax Spa had simply counter-attacked on the same front. Both claims related to the same subject matter - the resin sold by Saint-Gobain to Maax Spa. Mr Wikrama contended that in the present case if Maax Spa had counterclaimed in respect of matters not connected with Saint-Gobain's claim then it would be appropriate to require it to provide security, but he submitted that this was not the present situation. He submitted that it was quite unfair to require Maax Spa to provide security and vigorously rejected the suggestion that in substance Maax Spa was a plaintiff and not a defendant.

According to Mr Lucarelli the substantive issues in the proceeding were those contained in the counterclaim. Mr Lucarelli submitted that when the proceeding commenced it was a simple debt claim. He argued that there was no real dispute that the products the subject of the plaintiff's claim were delivered, or that the price for them was otherwise owing. Furthermore, a significant part of the claim related to products other than resin, about which there was no issue at all. No time at all would be required to prove the plaintiff's claim. On the other hand, Mr Lucarelli submitted, the counterclaim raised difficult technical issues about the quality of the resin which meant that the hearing would now be considerably longer. Damages in excess of $1 million were sought in the counterclaim and in correspondence from the defendant's soliciors it had even been suggested that the damages could exceed $9 million. Mr Lucarelli further submitted that Maax Spa's inclusion of a s.52 Trade Practices Act claim in its amended defence and counterclaim was broader than just defending the contractual claim and went beyond merely putting up a shield. The width of the amended pleading showed that Maax Spa was not simply defending itself. Finally, he submitted that the fact that Saint-Gobain had issued its claim for debt against Maax Spa before Maax Spa had issued its claim (in the form of the counterclaim) should not be determinative of the question of whether Maax Spa was in fact the defendant in the case. He submitted that in reality, and certainly in monetary terms, Maax Spa's claim was the substantive claim and Maax Spa was the true plaintiff in the proceeding.

In my opinion, this is one of those possibly rare cases where a counterclaimant should be required to give security for costs, if the other conditions are satisfied. I do not consider that Maax Spa's claim is simply defensive. It is a claim for significant damages which will occupy virtually all of the time spent at the trial because of the nature of the evidence necessary to prove its entitlement. Saint-Gobain's claim has been overshadowed by the counterclaim and will take up very little time at the hearing. This means that Maax Spa has chosen to assume the risk of this more costly litigation. It is no longer simply a compulsory party. In those circumstances, I think that it is correct to describe Maax Spa as having "taken up the position" of a plaintiff.

The Application For Leave to Adduce Further Evidence

It is appropriate at this stage to refer to the following matter. At the time when I was finalising my reasons for deciding whether or not to allow the application for security for costs, Saint-Gobain applied for leave to adduce further evidence in support of the principal application. The new evidence was that, following Maax Spa entering into administration on 19 February 2004, the creditors of Maax Spa had resolved on 14 May 2004 that it enter into a Deed of Company Arrangement ("the Deed") pursuant to s.439C of the Corporations Act and that on 4 June 2004 Maax Spa, the administrators, Peter Robert Vince and Bruno Anthony Seccatore, and Mr Devenish had executed the Deed. It was common ground that the Deed was still on foot.

The criteria governing the exercise of the discretionary power to re-open a case to admit further evidence where the hearing has concluded but judgment has not been delivered have been said to be as follows:

(a) the further evidence is so material that the interests of justice require its admission;

(b) the further evidence, if accepted, would most probably affect the result of the case;

(c) the further evidence could not by reasonable diligence have been discovered earlier; and

(d) no prejudice would ensue to the other party by reason of the late admission of the further evidence.[11]

In Smith v New South Wales Bar Association[12], the High Court of Australia stated that in such a situation it was difficult to see why "the primary consideration should not be that of embarrassment or prejudice to the other side."[13]

Counsel for Saint-Gobain submitted that for a number of reasons it ought to be allowed to adduce the new evidence. First, it was submitted that the new evidence was not available at the time of the hearing. Mr Wikrama disputed this point. He submitted that the new evidence was available at the last hearing on 24 February 2004 when the Court was informed that Maax Spa had been placed in administration. I do not accept this submission. The new evidence is that Maax Spa has entered into a Deed of Company Arrangement, and although this was, on 24 February 2004, a possible outcome of the entry into administration, it was by no means the only possible outcome. That it has now occurred is, in my opinion, new evidence that was not available at the time of the last hearing. Mr Wikrama submitted that there was no difference between the position of Saint-Gobain when the administrator was appointed and once Maax Spa had entered into the Deed. In each case, it was prohibited from continuing with the proceeding against Maax Spa without the leave of the Court (s.440D(1) and s.444E(3) of the Corporations Act respectively). But as will be seen, it was Saint-Gobain's submission that the effect of the Deed went much further than simply this prohibition.

Secondly, it was submitted that the new evidence should be allowed because Saint-Gobain's rights as against Maax Spa (including its rights in this proceeding) had been substantially affected by the Deed in that it removed any basis for Maax Spa's contention that Saint-Gobain was not the true defendant. Whether or not this is a correct statement of the effect of the Deed will be examined in detail below. Nevertheless, as has been discussed, the question of which party is in substance the defendant was a critical issue in this application for security for costs and the further evidence could therefore have had an effect on the result of the application.

Thirdly, it was submitted that the new evidence should be allowed because doing so would obviate the need for a fresh application for security for costs, based on the fact that Maax Spa had entered into the Deed, if this first application were unsuccessful. This reason emphasises the important point that the application for security for costs is only interlocutory. As the relevant facts can change over time, it is only sensible, in my opinion, to inform the Court of any relevant developments which may have an impact on the Court's consideration of the application. No useful purpose would be served by disallowing the admission of the new evidence. To do so would probably increase costs unnecessarily.

Fourthly, it was submitted that the new evidence should be allowed because the new evidence does not embarrass or prejudice Maax Spa. The only prejudice advanced on behalf of Maax Spa was that it was forced to incur costs in resisting another "frivolous application". I do not consider this application to be "frivolous" and therefore it seems to me that there is no embarrassment or prejudice suffered by Maax Spa by reason of the admission of the further evidence relating to the Deed.

Finally, it was submitted that the new evidence should be allowed because the interests of justice were better served by allowing the new evidence to be adduced. For all of the reasons discussed above, it seems to me that this submission is correct. I propose therefore to allow Saint-Gobain's application to adduce the further evidence concerning the entry into the Deed by Maax Spa.

I turn then to consider whether Saint-Gobain was correct in asserting that the entry into the Deed had removed any basis for Maax Spa's contention that Saint-Gobain was not the true defendant. This involves, first of all, an examination of the provisions of the Deed. As Saint-Gobain had a pecuniary claim against Maax Spa at the Appointment Date, it is clearly bound by the Deed.

Clause 4.1 of the Deed provided that the management and control of Maax Spa's day to day business affairs would remain with the administrators until each of the following conditions were satisfied. They were that Mr Devenish, the sole director, pay the sum of $150,000 to the administrators; that the ANZ Banking Group Limited confirmed that it held a satisfactory security position, or alternatively that the secured debt owed to it was re-financed; and that the administrators were satisfied that Maax Spa had the financial capacity to pay employee entitlements and superannuation contributions as and when they fell due. Upon satisfaction of all of those conditions, the management and control of Maax Spa's day to day business affairs would revert to Mr Devenish (clause 4.4).

Clause 6.1 provided that for the duration of the Deed, Maax Spa covenanted to continue to prosecute its defence and counterclaim in this proceeding diligently and in good faith and to pay all of the expenses and costs of and associated with the litigation as and when they fell due. Any net proceeds of the litigation were to be paid by Maax Spa to the administrators until participating creditors had been paid one hundred cents in the dollar (clause 6.2). The only property available for distribution to participating creditors would be the $150,000 paid by Mr Devenish and the net proceeds of the litigation (clause 9).

Clause 11.1 of the Deed provided that Subdivisions A and B of Division 6 of Part 5.6 of the Corporations Act and Regulations 5.6.37 to 5.6.57 applied to the Deed with such modifications as were necessary and with appropriate changes in terminology, such as a reference to "Liquidator" being a reference to "Administrators". Further, clause 12.1 of the Deed provided that Subdivisions A, B, C and D of Division 6 of Part 5.6 of the Corporations Act applied to claims under the Deed. Pursuant to s.444A(5) of the Corporations Act, the Deed is taken to include the prescribed provisions, except so far as it provides otherwise. By virtue of reg.5.3A.06, the prescribed provisions for s.444A(5) are those set out in Schedule 8A. Clause 8 of that Schedule is to the same effect as clause 12.1 of the Deed.

Clause 15 of the Deed provided that payment by the administrators to participating creditors of their full entitlements under the Deed constituted a full satisfaction and complete discharge of participating creditors' debts or claims which they had against Maax Spa as at the Appointment Date, being 19 February 2004. Clause 16.1 provided that the Deed could be pleaded by Maax Spa against any creditor in bar of any debt or claim that was admissible under the Deed. Creditors were also prohibited from doing a number of things including taking any further step in any proceeding pending against or in relation to Maax Spa as at the Appointment Date or exercising any right of set-off or cross-claim to which they would not have been entitled had Maax Spa been wound up at the Appointment Date. Clause 7 of Schedule 8A is to similar effect as clause 16.1 of the Deed.

Section 553C, which is within Subdivision A of Division 6 of Part 5.6 of the Corporations Act, provides as follows:

"Insolvent companies - mutual credit and set-off (1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company: (a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and (b) the sum due from the one party is to be set off against any sum due from the other party; and (c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be. (2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent."

Mr Lucarelli submitted that there had been "mutual credits, mutual debts or other mutual dealings" between Maax Spa and Saint-Gobain within the meaning of s.553C(1).[14] He accordingly submitted that Saint-Gobain cannot now proceed with its claim in the proceeding except with leave of the Court and in accordance with such terms as the Court imposes and that whether or not leave of the Court is granted, Saint-Gobain's rights are limited to a right of set-off or cross-action to which it would have been entitled had Maax Spa been wound up at the Appointment Date. He further submitted that if Maax Spa had been wound up at the Appointment Date, subject to s.553C(2) of the Corporations Act:

(a) an account would be taken of what was due from Saint-Gobain to Maax Spa and from Maax Spa to Saint-Gobain;

(b) the sum due from the one party would be set-off against any sum due from the other party; and

(c) only the balance of the account would be admissible to proof against the company, or would be payable to the company, as the case may be.

Thus, Mr Lucarelli submitted that, now, Saint-Gobain can only rely on the claim that it makes in this proceeding by way of set-off or defence. He relied on the judgment of the Court of Appeal of this Court in GM & AM Pearce and Co Pty Ltd v RGM Australia Pty Ltd[15] that, unless clause 8 of Schedule 8A was excluded by the Deed of Company Arrangement, s.553C of the Corporations Act applied automatically to effect set-offs in respect of mutual dealings between a company in administration under Part 5.3A of the Corporations Act and its creditors without the necessity for creditors to make claims in the administration.[16] Further, he submitted that even if it were wholly successful in the proceeding, Saint-Gobain could not obtain a money judgment against Maax Spa or at least one that it could enforce against the company or its assets.

In those circumstances, Mr Lucarelli submitted, whether or not Saint-Gobain lodged a proof of debt the administrators would have to wait and see whether or not the counterclaim brought by Maax Spa was successful. If it were, the set-off required by s.553C(1) would be given effect to and any amount otherwise payable by Maax Spa to Saint-Gobain for the non-resin products would be set-off against the damages awarded to Maax Spa. But if the counterclaim were not successful then the administrators should admit Saint-Gobain's claim in full and pay it the appropriate dividend (which it appears from the administrators' report will be as low as 5 cents in the dollar). Either way, it was unnecessary to pursue Saint-Gobain's proceeding, which was now stayed. Mr Lucarelli said that Saint-Gobain would not be seeking leave to proceed, despite Mr Wikrama's indication that the administrators would consent to that step. Mr Lucarelli argued that the creditors and the company in entering into the Deed had elected to include s.553C. That section could have been excluded but it was not. Both Saint-Gobain and Maax Spa were bound by the Deed. Maax Spa could not pick and choose which parts of the Deed it wanted applied. Therefore, the question of leave to proceed was irrelevant because of the operation of s.553C.

I accept that Mr Lucarelli's analysis of the effect of Maax Spa entering into the Deed is correct. This is therefore an additional reason for regarding Maax Spa as the true plaintiff when considering Saint-Gobain's application for security for costs.

Mr Lucarelli submitted that the prospects of success of a party's claim were a relevant factor in the exercise of the discretion to order security for costs. In J & M O'Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd[17] Bowen CJ said:

"One matter which is generally considered in relation to applications for security for costs is in relation to proceedings at first instance is what prospects of success the plaintiff has in the proceedings. If the plaintiff has a strong and apparently meritorious case the court is reluctant to make an order which may have the effect of shutting the plaintiff out."

Mr Lucarelli accepted that it was normally difficult for the Court to make an assessment of the prospects of success of a party's claim at an early interlocutory stage of a proceeding. However, he submitted that as presently pleaded and even after the amendment, Maax Spa's claim had no prospects of success. He pointed out that Saint-Gobain had made repeated requests for further and better particulars of how the figure for loss and damage had been calculated but had received no reply. Saint-Gobain had also sought further and better particulars of the sheeting used on the spa pools affected, but Maax Spa has failed to provide those particulars. Mr Lucarelli submitted that this failure to respond indicated weakness in the defendant's claim[18] and that it was not made bona fide.[19] He also submitted that there was no admissible evidence to establish that any of the affected spa pools was manufactured using the resin supplied by Saint-Gobain. Mr Lucarelli submitted that Mr Devenish's belated attempt to fill this gap by the filing of his third affidavit was not sufficient. He submitted that Mr Devenish's evidence established that Maax Spa did not start to purchase SG 150-TE from Saint-Gobain until March 2002, that it purchased that resin from other suppliers in April and May 2002, that it recommenced purchasing that resin from Saint-Gobain in June 2002 and that by July 2002 Maax Spa began to experience problems with its spa pools. This raised very real questions about which, if any, resin caused the problems. Mr Lucarelli further submitted that in his affidavit Associate Professor Cook had failed to demonstrate that the resin used for testing was the resin supplied by Saint-Gobain during the relevant supply period.

The trouble with accepting this submission on behalf of the plaintiff, is that at the same time Mr Wikrama was submitting to me on behalf of the defendant that his client had overwhelming prospects of success. He submitted that it was obvious that it was the plaintiff's defective resin which caused all of the problems with the defendant's spa pools. Mr Wikrama coupled this submission with the further submission that there should be no order for security for costs because the defendant's present difficult financial situation had clearly been brought about by the plaintiff's wrongful action in supplying defective resin.[20]

In the circumstances, I decline to embark on the further lengthy task of attempting to decide which of these competing submissions is correct. I respectfully adopt what was said by Winneke P and Phillips JA in their joint judgment in Epping Plaza Fresh Fruit & Vegetables Pty Ltd vBevendale Pty Ltd:[21]

"Obviously enough, on the making of an interlocutory application for security it will not ordinarily be possible - or practicable - to reach any very clear view about the merits of the plaintiff's claim and on that account it is sometimes said that a detailed examination of the merits is scarcely warranted ... So much may be accepted but that is not to say that the merits are always irrelevant (unless totally lacking) or, as here, that the bona fides of the claim may be disregarded."

I do reject the plaintiff's submission that the defendant's claim is not bona fide. Clearly the defendant feels extremely aggrieved by the considerable financial hardship which it considers the plaintiff has caused it. However, what is relevant for me to bear in mind is whether, in the event that the defendant's complaints turn out to be misplaced, the defendant will be able to recompense the plaintiff for the costs which it has been unnecessarily forced to incur.

Mr Wikrama submitted that a court would not make an order for security for costs where the making of the order would unduly stultify the ability of the party making the claim to pursue an arguable case.

On the other hand, Mr Lucarelli submitted that the Court could order security for costs even if the ability of Maax Spa to comply with the order for security for costs depended on the willingness of its shareholders to provide the necessary funds. In Attorney-General v Transport Control Systems (NZ) Ltd Cooke J found that in a situation where shareholders in a plaintiff company in a proceeding where security for costs were required, had not adduced any evidence as to financial hardship, the fair inference to be drawn was that they "would be able to provide some reasonable security for the costs that their company might have to meet."[22] Mr Lucarelli pointed out that in his affidavits, Mr Devenish had made no disclosure as to his financial means or the financial means of the other Devenish family shareholders. Mr Lucarelli therefore submitted that no evidence had been adduced by Maax Spa that an order for the provision of security would stultify or frustrate the litigation, in circumstances where this was a matter for Maax Spa to raise if it wished to rely on the point.[23]

In my opinion, it is appropriate to infer that, in the absence of evidence from the shareholders as to financial hardship if there were an order for security for costs, the order would be met. What little evidence there was suggested that the shareholders were able to assist Maax Spa to meet an order for security for costs. An extra $1.2 million of capital had been injected within a short period and $150,000 had been contributed to the administrators for distribution to the unsecured creditors. Further, there is a very real incentive for the shareholders to fund Maax Spa's claim for the significant damages it says it has suffered due to Saint-Gobain's misrepresentations. What would not be just is to allow the shareholders to decide whether or not they will fully fund Maax Spa depending on the outcome of the counterclaim. In other words, giving them the ability to choose after judgment whether or not Saint-Gobain would be able to recover its costs.

Furthermore, whilst the basic rule may be that a natural person who sues will not be ordered to give security for costs, however poor he is, "the general practice with regard to companies is just the opposite. It is the poverty of the company that attracts the power."[24] The justification for the statutory rule has been explained by Winneke P and Phillips JA in their joint judgment in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd[25] as being:

"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 if the company embarks upon litigation ..."

For all of the above reasons I have therefore concluded that I should order the defendant to provide security for the costs of its counterclaim.

I turn then to an assessment of what amount of security should be ordered at this stage. In calculating an amount to be ordered for security for costs the Court does not set out to give the applicant a complete and certain indemnity for costs.[26] The amount ordered to be provided is, after all, only an estimate of the probable costs which the applicant will incur as far as they can be ascertained.[27] Uncertainties, such as the possibility that the proceeding may settle, have also to be taken into account by way of a discount.[28]

As I have said, the order sought by the plaintiff was for an amount of $109,045.57. This was made up of six different items:

(a) Application for Security for Costs $ 15,086.10

(b) Five further Directions Hearings $ 7,472.00

(c) Further and Better Particulars of Counterclaim $ 4,638.50

(d) Amendment of Counterclaim $ 7,014.50

(e) Discovery - Plaintiff $24,777.47

- Defendant $10,057.00

(f) Instructions for Brief $40,000.00

In my opinion, the first item, which is the costs of the application for security for costs, could be included in the amount of security ordered, if the costs were reserved, or they could be dealt with separately. Counsel for Saint-Gobain indicated that if successful in their application they would be seeking an order that Maax Spa pay all or part of the costs of the application. Until I have heard submissions on that point and ruled on it, I cannot include an amount for this application in the amount of security ordered. If I decide to reserve all or part of the costs of the application then I will have to add an appropriate sum to the amount of security otherwise ordered to be provided.

The second item is for five further directions hearings. Ms Michael's list of likely steps includes an estimate of four to five further directions hearings. If four is an estimate, then only four should be claimed. But in any event I do not consider it appropriate to allow for more than two. No reason was given why this would not be sufficient. If extra directions hearings are required through the fault of one or other of the parties, then orders would probably be made dealing with the costs of any extra appearances. The cost of each of the five directions hearings was estimated by Ms Hedstrom to be approximately $1,500. I will therefore allow $3,000 for this item.

The third item was described in Ms Hedstrom's schedule as "Further and Better Particulars of Statement of Claim". When I queried why this was included, it was said that the description was an error. It was pointed out that in Ms Michael's list it actually appeared as "Provision of Further and Better Particulars of Defence", which I took to mean "Further and Better Particulars of Defence and Counterclaim." The greater part of the estimated cost of this item appears to be for the solicitor drawing, and senior and junior counsel settling, "further & better particulars." On reflection, it puzzles me why the plaintiff's lawyers would be drawing and settling further and better particulars of the defence and counterclaim. It appears to me, therefore, that Ms Hedstrom's estimate has been prepared on the basis stated - that of further and better particulars of statement of claim. As that cost is not part of the costs of the counterclaim, I disallow the whole of the item.

The fourth item was based on the assumption that the defendant would at some time seek leave to amend the counterclaim. This step has actually occurred pursuant to paragraph 1 of my order made on 28 November 2003. As there was no order "otherwise", the costs of the plaintiff "of and occasioned by the amendment" were dealt with by r.63.17(2) of the Supreme Court Rules. They are to be paid by the defendant. Similarly, any further application to amend the counterclaim will be dealt either in accordance with this rule or by specific order of the Court. Therefore, it is not appropriate, in my opinion, to include in an amount to be provided by way of security for costs, the costs which would be incurred if an application to amend a pleading were made.

The next item is the cost of discovery. As I have already discussed, there is no material before me justifying the estimates of time and other such matters on which Ms Hedstrom's calculations are based. There is, for instance, no evidence that it is reasonable to assume that inspecting the plaintiff's own discovered documents will require 20 hours or that there will be 4,400 pages to be copied or that inspecting the defendant's discovered documents will require 18 hours or that there will be 4,000 pages to be copied. Nor is there evidence verifying that this would be a suitable case for the use of the special electronic procedures with the consequential additional cost included by Ms Hedstrom. Such a step was not included in Ms Michael's list. Therefore, at this stage, I am not prepared to allow the full amounts claimed for discovery. I propose to allow $22,000 for this item.

The final item did not appear in Ms Michael's list. I assume that it was added by Ms Hedstrom and that the following description of what it includes was her wording:

"Instructions for brief including, conferences with Plaintiff's representatives and expert witnesses, perusal of Plaintiff's and Defendants' [sic] documents."

There appears to me to be considerable overlap between this item and other items making up the total estimate by Ms Hedstrom. There was no explanation by the plaintiff about this overlap or why the item was justified. In all the circumstances, I propose to allow $10,000 for this item.

I am of the opinion that, subject to the question of the costs of this application, the amount of $35,000 is a fair and reasonable amount of security to be provided by the defendant for the costs of the plaintiff up to the completion of discovery. Having regard to all the circumstances of the case, I consider that amount to be just.[29]

Once the parties have had the opportunity to consider these reasons, I will hear submissions on the question of costs and the form of order.

[4] Pacific Acceptance Corporation Ltd v Forsyth (trading as Flack & Flack) (No. 2) [1967] 2 NSWR 402 at 407-408 per Moffitt J

[8] See Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301 at 306 per Street CJ, and Copson v DCM Coffee and Donuts Pty Ltd (1996) ATPR 41-505 at 42,319 per Spender J

[11] Re Australasian Meat Industry Employees' Union (WA Branch); Ex parte Ferguson (1986) 67 ALR 491 at 493-494 per Toohey J, citing Watson v Metropolitan (Perth) Passenger Transport Trust [1965] WAR 88 and Murray v Figge (1974) 4 ALR 612.

[13] [1992] HCA 36; (1992) 176 CLR 256 at 267 per Brennan, Dawson, Toohey and Gaudron JJ

[14] Hiley v Peoples Prudential Assurance Co Ltd [1938] HCA 40; (1938) 60 CLR 468 at 497 per Dixon J

[16] [1998] 4 VR 888 at 896-901 per Batt JA, with whom Ormiston and Callaway JJA agreed. See also Gye v McIntyre [1991] HCA 60; (1991) 171 CLR 609

[18] See Trau v University of Sydney (1989) 34 IR 466 at 475 per Gleeson CJ

[19] See Tradestock Pty Ltd v TNT (Management) Pty Ltd [1977] FCA 1; (1977) 14 ALR 52

[20] See Sir Lindsay Parkinson & Co Pty Ltd v Triplan Ltd [1973] QB 609

[23] Bell Wholesale Co. Ltd v Gates Export Corporation (No 2) [1984] FCA 34; (1984) 2 FCR 1 at 4 per Sheppard, Morling and Neaves JJ

[24] Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 at 449 per Holland J

[26] Brundza v Robbie & Co (No. 2) [1952] HCA 49; (1952) 88 CLR 171 at 175 per Fullagar J

[27] Pacific Acceptance Corporation Ltd v Forsyth trading as Flack & Flack (No. 2) [1967] 2 NSWR 402 at 408 per Moffitt J

[28] Procon (GB) Ltd v Provincial Building Co Ltd [1984] 2 All ER 368

[29] Allstate Life Insurance Co v ANZ Banking Group Ltd (No. 19) [1995] FCA 1778; (1995) 134 ALR 187 at 197 per Lindgren J

At a glance

Court

Decision date

Before

Source

Judgment (148 paragraphs)

Parties

Cases Cited (11)