Southern Cross Exploration NL v Fire & All Risk Insurance Co. [2000] NSWSC 994 | Case summary

JUDGMENT (COSTS) 1 HIS HONOUR: The second defendant Mr Petersen applied by Notice of Motion dated 25 October 2000 for an order requiring the plaintiffs to provide additional security for costs. The third defendant Mr Duncan made a similar application by Notice of Motion filed on 24 October 2000. 2 Earlier orders for security for costs in favour of both these defendants were made by Registrar Berecry on 8 April 1999. In Mr Petersen's case the Registrar ordered the deposit of $70,000 as security for costs incurred up to trial, and a further $90,000 within 7 days of allocation of a hearing date. In Mr Duncan's case the Registrar ordered deposit of corresponding sums of $65,000 and $77,000. In each case the Registrar's notes, which are rather rough, show that he gave liberty to restore on three days' notice "re Top-up". The history of the litigation shows that in April 1999 it could reasonably have been expected that the hearing would take several weeks, but not that it would take 11 weeks as to date it has. Reservation of liberty to apply and the reference to "Top-up" show that the Registrar did not attempt to deal finally with security for costs of the trial and provided for the amount of security to be reconsidered. As presented by the defendants these applications ask the court to resume its earlier consideration of security for costs in the light of what is now known about the actual length of the trial and the costs which have been incurred. 3 Affidavit evidence of Mr Duncan's solicitor, which has not been challenged, shows an estimate, which I regard as reasonable, of the total amount of the legal costs and disbursements at $307,928.45. After allowing for $142,000 of security which has already been provided the application is for further security of $165,000. Mr Petersen's application is also supported by affidavit evidence of his solicitor which shows, on what I regard as a reasonable basis, an estimate of the costs of the trial at $240,089.60. The provision made for costs of trial has proved to be inadequate by $147.089.60. The security of $70,000 earlier provided for pre-trial costs has proved excessive by $21,092.50, as pre-trial costs were $51,907.50 of which the plaintiffs have paid $3,000 under an earlier interlocutory order; the balance of pre-trial costs is $48,907.50. In this application an allowance should be made for the earlier excess, which should be set off against the trial costs of $147,089.60. The appropriate amount for consideration now is $125,997.10. 4 In substance the present applications are renewals of the earlier applications, and the prospect that there might be an order for additional security or a top-up if the trial was more lengthy than could be expected in April 1999 should have clear and obvious to the plaintiffs at all times since the Registrar's orders. 5 Power to order security is conferred by s.1335 of the Corporations Law and also by Pt.53 r.2 of the Supreme Court Rules 1970. I have had regard to the evidence in the proceedings generally, which makes it clear that the plaintiffs are impecunious and that it is unlikely that attempts to enforce any costs order made at the conclusion of the proceedings will be successful. The first plaintiff is a subsidiary, through several stages, of the second plaintiff; it was formed in New Zealand with nominal capital, later acquired a substantial asset being the Liverpool Truck Stop site, had no other asset and no revenue, incurred significant obligations in respect to the Liverpool Truck Stop site and is suing on causes of action alleged to arise out of its loss when the first defendant sold the site under mortgagee powers. The second plaintiff was formerly a public company listed on the New Zealand Stock Exchange and has been in liquidation for more than 10 years. These circumstances make it practically impossible that any money judgment against either company could be enforced. 6 Obviously there must be some financing arrangements which underlie the plaintiffs' conduct of the litigation; the plaintiffs give no evidence of any such arrangements. It is obvious that the litigation must have been financed by some person such as members, creditors or persons otherwise interested in the affairs of the plaintiffs, and that those persons stand to gain financially should the litigation succeed but are not exposed to liability to any costs order. What in detail those arrangements may be is unknown, but it is obvious that there must be some such arrangement and that there are some persons who stand to gain by success of the litigation but do not stand to lose. 7 The plaintiffs' counsel submitted that there has been significant delay in making the application, and that the making of the applications in October after the hearing had proceeded for 11 weeks is a significant adverse factor. In my view the application is not adversely affected by any delay; these defendants seek reconsideration pursuant to liberty to apply. Counsel referred to some observations I made on 25 May 2000 to the effect that any issues relating to security should be raised within the following fortnight that is by late May. These observations have no effect to preclude further consideration, although it would indeed have been very convenient if the question had been brought forward at that time. 8 Counsel made a number of submissions which turn on potential prejudice to the plaintiffs arising from their having continued with the proceedings in the light of the previous order. It is important to keep in view that there is no evidence that the plaintiffs have suffered any prejudice, no evidence establishing what their financing arrangements are or whether any decision to continue with the hearing was or could be in any relevant way affected by orders or potential orders for security for costs. There is no material before me by reference to which I could appraise whether there would have been any potential deterrence, or anything to motivate reconsideration of the plaintiffs' course, if this application had been brought before the court any earlier. As affidavit material shows, the question was not left quiescent, but was kept before the plaintiffs and their solicitors by a stream of correspondence which sought, reasonably enough, to resolve the question without further application to the court. 9 Counsel referred to the judgment of Waddell J in Southern Cross Exploration NL v. Fire & All Risk Insurance Co. [1985] 1 NSWLR 114. His Honour's full and valuable review of the discretionary considerations which presented themselves in that case has often been referred to. However the question raised by each application is a discretionary one. His Honour's consideration of the effects of delay, at 123-4, was given in the context of a late application, not of an application which was renewed under liberty to apply. Justice Waddell addressed, at 124, 125 and 126, considerations which in my view do not present themselves here, relating to what could reasonably have been foreseen about the length of the trial; that consideration was addressed in this case by the order for security for the trial reserving an opportunity to consider a top-up. In view of the earlier proceedings and of the correspondence there can be no question of waiver of the opportunity to seek security for costs. 10 The concern to which Waddell J referred, at 126, that the plaintiffs' lack of means is to be attributed to the defendant's conduct, is not in my view a significant factor. Lack of means is not a liberating circumstance. The relation of a plaintiff's lack of means to a defendant's conduct can be of great significance or very little significance depending on the circumstances; the defendant's conduct may or may not be culpable or otherwise a ground for remedies in the proceedings, and where, as in this case, a decision on whether there actually is any liability cannot yet be available, it is difficult to know what force to attribute to the relation between conduct of these defendants and the plaintiffs' impecuniosity. Counsel's observations that the defendants are two of the authors of transaction in issue in the main proceedings is of little value in the absence of some decision on whether they incurred any liability or are in some way culpable in the circumstances. Consideration should start with the establishment of a relevant impecuniosity, that is to say an impecuniosity which relates to the availability of funds for the conduct of the proceedings; there is no evidence dealing with the subject, and the actual conduct of the proceedings suggests that the plaintiffs are in some unknown way appropriately equipped with funds. 11 Counsel referred me to several other authorities in which the relationship between impecuniosity and the defendants' conduct has been referred to. It is I think clear that any such relationship is a relevant discretionary consideration, but in the present circumstances it does not have any real force in my view. To my mind the most important consideration in relation to the supposed impecuniosity is that the plaintiffs appear in court, evidently with resources which are not accessible;, it must be the case that the litigation is being conducted with the object of assisting the economic position of some persons who are not within the range of any order for costs which the court can make, and it is not just that those persons should pursue their own interests in this way without making some provision for the risk imposed on defendants. 12 If the plaintiffs' decisions on whether the proceedings should be continued and on how they should be conducted really were shown not to have been influenced by the burden and risk of costs imposed on defendants, that fact would be a further discretionary consideration in favour of ordering security. The court should not endorse a sense of immunity from risk as to costs. 13 In the circumstances my view is that I should make the orders asked. I will do no more than order the provision of security. I will not embark on consideration of a stay, as my present contemplation is that parties will comply with the court's orders. 14

Southern Cross Exploration NL v Fire & All Risk Insurance Co.

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Judgment (15 paragraphs)

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