Southern Equity Pty Ltd v Timevale Pty Ltd

Federal Court of Australia|2015-12-02|Before: Hedigan J, Murphy J

INTRODUCTION 1 In this application the respondent, Timevale Pty Ltd ("Timevale"), sought an order for security for costs pursuant to Rule 19.01 of the Federal Court Rules 2011 ("Rules") and s 1335 of the Corporations Act 2001 (Cth) ("Corporations Act"). The applicant, Southern Equity Pty Ltd ("Southern Equity") opposed the application. 2 The Court's task is to decide whether to exercise the discretion to order provision of security for costs by Southern Equity, and if so, the quantum and 'staging' of any security. For the reasons that follow I am satisfied that an order for security for costs is appropriate.

THE EVIDENCE 3 Timevale relied on the affidavits of its solicitor, Steven Jenkins, sworn 7 May 2015 and 16 November 2015. Southern Equity relied on the affidavits of its solicitor, Mario Merlo, sworn 18 June 2015 and 17 November 2015, and its director, Leigh O'Brien, sworn 17 November 2015. I will deal with the substance of their evidence later.

THE FACTS 4 This account of the facts should not be taken to constitute factual findings for the purposes of the substantive proceeding. It is an account derived from untested affidavit evidence and used only for the purposes of this application. 5 The proceeding relates to the use of intellectual property constituted by "the Ettamogah Pub Mob" cartoon series which was created in the late 1950s by Kenneth ("Ken") Maynard and published in the "Australasian Post" and other publications. The Ettamogah Pub is the idiosyncratic building which is the centrepiece of that cartoon series. As the author, Mr Maynard initially owned the copyright in the artistic works comprising the cartoon series including the characters and buildings. 6 Timevale is the owner of the tourist facility known as "Aussie World" on the Bruce Highway, Palmview, Queensland, constructed in 1988 so as to look like the Ettamogah Pub ("the Palmview Pub").

The Licence Agreement 7 Pursuant to an exclusive licence dated 18 November 1993 between Mr Maynard and Kenneth Maynard Studios Pty Ltd as licensor and Timevale as licensee ("Licence Agreement"), Timevale was licenced to use the intellectual property relating to the Ettamogah Pub within that venue and in the shape or appearance of the Palmview Pub. The agreement provides for a 25 year term, which ends on 18 November 2018. 8 Clause 1.1 of the Licence Agreement defines the intellectual property to mean: …all right title and interest of the Licensor in such trade mark or marks as may be registered pursuant to the Trade Marks Act 1955 (as amended), the common law trade marks, service marks, copyright and design rights relating to the EP which the Licensor has acquired by use over many years through publication of the same in "Australasian Post" magazine and other publications. 9 EP is defined in cl. 1.1 as follows: "EP" means each of: (a) the cartoon depiction commonly known as the "Ettamogah Pub" an example of which is annexed to this Agreement are marked with the letter "A"; and (b) the words "Ettamogah Pub"; and the term shall include any and all characters, buildings and parts of that cartoon depiction. I shall call this "the Ettamogah Pub IP". 10 Southern Equity and Timevale are now the parties to the Licence Agreement because, in an Assignment and Master Royalty Agreement dated 2 June 1994, Mr Maynard and Kenneth Maynard Studios Pty Ltd assigned the intellectual property rights in the Ettamogah Pub IP to Southern Equity in its capacity as trustee of the Southern Equity Investment Trust. Until 30 September 2014, Timevale was paying royalties to Southern Equity for use of the Ettamogah Pub IP averaging approximately $8,000 per month. 11 The dispute between the parties revolves around cl. 15 of the Licence Agreement which relevantly provides: Licensor and Maynard to Maintain EP Throughout the term of this Agreement, the Licensor and Maynard will to their best endeavour:- … (b) continue to have cartoons based on EP published in "Australasian Post" or any other similar type of publication in Australia; and (c) produce it least 6 new representations of EP each year for use in connection with souvenirs manufactured, sold or otherwise dealt with by the Licensee. 12 In 1998 Mr Maynard died. In 2002 the Australasian Post ceased publication. I have heard no evidence as to the extent of any attempts by Southern Equity to publish cartoons based on the Ettamogah Pub since the closure of the Australasian Post. However, it appears from the pleadings and the parties' submissions that there has been scant, if any, publication of such cartoons since at least 2006.

The proceeding 13 On 27 August 2014 Timevale sent a notice to Southern Equity calling on it to remedy an alleged breach of cll. 15(b) and (c) of the Licence Agreement ("Notice to Remedy Breach"). It appears from the pleadings that Southern Equity took no steps to address the alleged breach. On 29 September 2014 Timevale purported to terminate the Licence Agreement by notice in writing to Southern Equity. 14 On 10 February 2015 Southern Equity initiated this proceeding by way of Fast Track Application. It alleges that: (a) the termination of the Licence Agreement was wrongful and amounted to repudiation, and that Southern Equity had accepted the repudiation and terminated the Licence Agreement by letter dated 10 February 2015; (b) following termination of the Licence Agreement, Timevale continued to use the Ettamogah Pub IP within the Palmview Pub and did not undertake works to modify or alter the building so that it no longer looked like the Ettamogah Pub; and (c) by operating a tourist venue from a building that resembles the Ettamogah Pub, by using the name "Ettamogah" and by using names and cartoon characters based on the Ettamogah Pub IP inside the Palmview Pub, Timevale represented that its business was conducted with, licensed by, sponsored by, affiliated with or approved by Southern Equity, thereby making false and misleading representations and/or engaging in conduct that is misleading or deceptive or likely to mislead or deceive in breach of the Australian Consumer Law in Schedule 2 to the Competition and Consumer Act 2010 (Cth). Southern Equity seeks damages for loss of royalties resulting from the alleged wrongful termination of the agreement and damages for use of its intellectual property, including trade mark infringement, damages for injury to the reputation of the Ettamogah brand, and additional damages pursuant to s 126(2) of the Trade Marks Act 1995 (Cth). 15 For its part, Timevale relies on the Notice to Remedy Breach in relation to termination of the Licence Agreement. In its Amended Fast Track Response, Timevale does not admit that Southern Equity has suffered any loss and damage, nor that it is liable for any such loss and damage. It alleges that: (a) Southern Equity failed to comply with cl. 15(b) and (c) of the Licence Agreement and that its breaches were "capable of being remedied" within the meaning of cl. 12.2 of the Licence Agreement; (b) it issued the Notice to Remedy Breach, and Southern Equity failed to remedy the breach within 30 days of receipt of the notice; (c) its termination of the Licence Agreement on 29 September 2014 was a valid exercise of its rights under the Licence Agreement; and (d) it has removed all signs, labels and posters incorporating the Ettamogah Pub IP, engaged architects and engineers to prepare plans for modifications to the Palmview Pub so that it does not resemble the Ettamogah Pub, sought council approval of those plans, and will continue to take all reasonable steps to have the necessary modifications put into effect as soon as possible. 16 In its Fast Track Reply: (a) that it complied with the Licence Agreement in that: (i) from Mr Maynard's death until the closure of the Australasian Post in 2002, Southern Equity published reruns of the cartoons that Mr Maynard had previously published in that publication; (ii) on the closure of the Australasian Post in 2002, Southern Equity used its best endeavours to continue to have cartoons based on the Ettamogah Pub published in other similar types of publication in Australia, but was not able to do so because there was no similar types of publication; and (iii) to the extent that a newspaper was a similar type of publication, which it denies, Southern Equity used its best endeavours to continue to have such published in various Australian newspapers. In 2002 the Age, the Sun, the Border Mail and the Weekly Times newspapers declined to publish the cartoons; (b) in the alternative, that Timevale has waived its rights to make a claim of breach of the Licence Agreement because from the closure of the Australasian Post in 2002 until May 2014 Timevale did not require Southern Equity to comply with cl. 15(b), and both parties operated on the assumption that following the closure of that publication Southern Equity was not required to continue to have cartoons based on the Ettamogah Pub published in other Australian publications ("the assumption"); and (c) further in the alternative, that if Southern Equity were found to be in breach of clauses 15(b) and (c) of the Licence Agreement, Timevale is estopped, including because of the assumption, from contending that Southern Equity is in breach of the Licence Agreement. 17 In the Fast Track Cross-Claim Timevale alleges, in summary, that: (a) from 26 April 2006 Southern Equity failed to use its best endeavours, as required: (i) to have cartoons based on the Ettamogah Pub published in the Australasian Post or any other similar type of publication Australia; and (ii) to produce at least 6 new representations of the Ettamogah Pub each year to use in connection with souvenirs sold or dealt with by Timevale; and (b) by entering into the Licence Agreement and by conducting its business under that agreement, Southern Equity represented that it would use its best endeavours to continue to obtain publication of relevant cartoons and to produce at least six new representations of the Ettamogah Pub each year. It alleges that the representations were false and misleading and claims damages against Southern Equity for breach of the Australian Consumer Law and its predecessor. 18 During the hearing of the security for costs application counsel for Southern Equity handed up a proposed Amended Fast Track Reply. It makes the new claim that the parties varied the Licence Agreement on 1 March 1999 such that Timevale agreed to produce six new representations of the Ettamogah Pub IP each year for use in connection with souvenirs. Mr O'Brien annexed to his affidavit copies of letters dated 1 March 1999 which he argues show that the parties agreed to this variation. Given that Timevale had not had an opportunity to respond to that claim I have given it little weight in the application.

THE LEGISLATIVE FRAMEWORK 19 Section 1335(1) of the Corporations Act provides: 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. 20 Section 56 of the Federal Court of Australia Act 1976 (Cth) provides that the Court may order an applicant to give security for payment of costs. The security may be of such amount and given at such time and in such manner and form as the Court directs. If security is not provided in accordance with an order then the Court may order that the proceeding be dismissed. Section 56 does not affect the operation of any other provision relating to security for costs under any other Act or the Rules. 21 Rule 19.01 of the Rules provides that a respondent may apply to the Court for an order for security for costs, that the applicant's proceeding be stayed until security is given and that if the applicant fails to comply with the order the proceeding may be stayed or dismissed.

RELEVANT LEGAL PRINCIPLES 22 I set out the relevant legal principles regarding the discretion and the onus of proof in Mecrus Pty Ltd v Industrial Energy Pty Ltd [2015] FCA 103 ("Mecrus") at [18]-[24]. As I said in that case at [22]-[24]: [22] Because the purpose of an order for security for costs against a corporate plaintiff is to protect the defendant against the risk of being deprived of the benefit of a costs order made in the defendant's favour, the plaintiff's unsatisfactory financial position triggers the Court's discretion and is also a substantial factor in the exercise of the discretion: Fiduciary Ltd and Others v Morningstar Research Pty Ltd (2004) 208 ALR 564 ("Morningstar Research") at [35] to [36] per Austin J; Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 ("Idoport") at [56] per Einstein J. [23] Once it appears by credible testimony that there is reason to believe that a corporate plaintiff will be unable to pay the costs of the defendant if successful in its defence, the evidentiary burden shifts to the plaintiff to establish a reason why security should not be granted: Wollongong City Council v Legal Business Centre Pty Ltd [2012] NSWCA 245 at [30] per Beazley JA; Idoport at [60]-[62]; Morningstar Research at [36]. [24] Even so, the burden rests on the defendant, from first to last, to persuade the court that the order for security should be made: Livingspring Pty Ltd v Kliger Partners (2008) 20 VR 377 at [21] per Maxwell P and Buchanan JA. The plaintiff does not bear the ultimate burden of proof in the application for security but it must raise for consideration the matters that favour it if it wishes them to be taken into account in the determination of the case. The evidential burden to raise such matters is distinct from the legal onus of proving entitlement to an order for security for costs, which rests with the defendant: Cornelius and Others v Global Medical Solutions Australia Pty Ltd and Others (2014) 98 ACSR 301 at [18]-[20] per Macfarlan JA. 23 Once the discretion to order security is triggered, the authorities set out a number of factors to be taken into account. As I said in Mecrus at [18]-[20]: [18] The discretion conferred by s 56 is broad. Many attempts to set limitations upon the discretion have been rejected by the Courts, and the only limitation is that it must be exercised judicially: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1 at 3 per Sheppard, Morling and Neaves JJ. It is a discretion to be exercised according to the particular merits and circumstances of each case and without any particular predisposition: Bryan E Fencott & Associates Pty Ltd v Eretta Pty Ltd and Others (1987) 16 FCR 497 ("Fencott") at 511 per French J; Gentry Bros Pty Ltd v Wilson Brown and Associates Pty Ltd and Others (1992) 8 ACSR 405 at 411, per Cooper J. The weight to be attached to a particular circumstance depends upon its own intrinsic persuasiveness and its impact on other circumstances which have to be weighed: P S Chellaram and Co Ltd v China Ocean Shipping Co and Another (1991) 102 ALR 321 at 323 per McHugh J. [19] Notwithstanding the broad discretion there are a number of well established guidelines which the Court typically takes into account. In Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 at 50,635 per Hill J, his Honour identified the following [seven] factors: (a) the chances of success of the applicant; (b) whether the applicant's claim is bona fide or a sham; (c) the quantum of risk that the applicant cannot satisfy a cost order; (d) whether use of the power would shut out a small company from making a genuine claim against a large company (i.e. whether the power is being used oppressively); (e) whether the impecuniosity arises out of the acts in respect to which relief is sought; (f) whether there are aspects of public interest which weigh in the balance against the making of an order; and (g) whether there are any particular discretionary matters peculiar to the circumstances of the case. [20] In KP Cable Investments Pty Ltd v Meltglow Pty Ltd and Others (1995) 56 FCR 189 ("KP Cable") at 196-198 Beazley J referred to the following additional matters: (a) security for costs applications should be brought promptly; (b) having regard to the strength and bona fides of the plaintiff's case, as a general rule, where a claim is regular on its face and discloses a cause of action, in the absence of evidence to the contrary the Court should proceed on the basis that the claim is bona fide with a reasonable prospect of success; (c) whether the respondent's application for security is oppressive, in the sense that it is being used merely to deny an impecunious applicant a right to litigate; (d) whether there are any persons standing behind the company who are likely to benefit from the litigation. An issue related to this is whether persons standing behind the company have offered any personal undertaking to be liable for the costs and if so, the form of any such undertaking; and (e) security will only ordinarily be ordered against a party who is in substance a plaintiff, and an order ought not to be made against parties who are defending themselves and thus forced to litigate. 24 The authorities point to another factor which is relevant in the present case. As I said in Mecrus at [21], that factor is: …whether there is such a significant overlap between the matters raised by the plaintiff's claim and the defendant's counterclaim that it would be unfair to oblige the plaintiff to put up security: see B L O'Shea Pty Ltd v Australian Mutual Provident Society Ltd (Unreported, Supreme Court of Victoria, Hedigan J, 15 February 1994, BC9400983) ("B L O'Shea"). 25 There is no dispute between the parties as to these principles, only their application.

Southern Equity's ability to meet an adverse costs order 26 The first question is whether there is credible testimony that there is reason to believe that Southern Equity will be unable to meet an adverse costs order if it is unsuccessful in the proceeding. 27 Mr Jenkins deposed that Timevale would incur costs and disbursements up to and including the first day of trial of approximately $146,050. However, counsel for Timevale accepted that figure should be reduced to $113,050 (plus the costs of two mediations and the preparation of Court Books) because the initial trial relates to liability only. Taking into account the cost of two mediations and the preparation of Court Books I estimate that Timevale's costs will total approximately $133,000. 28 Mr Jenkins deposed that: (a) Southern Equity is a company with paid up capital of only $12; (b) Southern Equity's assets are subject to a charge of an unknown size; (c) Southern Equity does not own any real property in New South Wales, Queensland or Victoria; (d) Southern Equity had refused to produce its Profit and Loss Statement, Balance Sheet or Taxation Return for the financial year ended 30 June 2014, or financial management accounts for the period leading up to the application; (e) the Australian Securities and Investments Commission has three times commenced strike-off action against Southern Equity; and (f) in a New South Wales Supreme Court proceeding between Southern Equity and Timevale ("the Supreme Court proceeding") Southern Equity was ordered to pay Timevale's costs, which were recently assessed by the Court in the sum of $220,145.34. 29 Mr O'Brien deposed that Southern Equity's sole source of income is the royalty stream it receives from licensing its intellectual property. He said that it currently receives approximately $108,000 per annum in royalties, being approximately $60,000 per annum from the Ettamogah Pub in Albury, New South Wales, and approximately $48,000 per annum from the Ettamogah Pub in Cunerdin, Western Australia. 30 Southern Equity owns the Ettamogah Pub IP as trustee for Southern Equity Investment Trust ("Trust") but it refused to produce a copy of the Trust Deed to show that Southern Equity enjoys a right of indemnification from any Trust funds. Mr O'Brien put on no evidence as to whether Southern Equity had any funds at bank, whether the Trust had any funds at bank, the extent of the charge against Southern Equity's assets, Southern Equity's outgoings or its profitability, or Southern Equity's debts. 31 In my view there is reason to believe that Southern Equity will be unable to meet an adverse costs order. I say this, first, because it would have been straightforward for Southern Equity to put on evidence that either it or the Trust had sufficient funds to meet an adverse costs order, that the charge against its assets was not material and/or that it did not have material debts if that was in fact the case, and that it was trading profitably. It did not do so. Where one party must prove a negative and the facts are peculiarly within the knowledge of the other party slight evidence may be sufficient, unless explained away by the party with the knowledge. The weight of the evidence must be assessed according to the proof which it was in the power of one side to have produced and the power of the other to have contradicted: Hampton Park Ltd v Crooks (1957) 97 CLR 367 at 371-372; [1957] HCA 28 (Dixon CJ); Vinciguerra v MG Corrosion Consultants Pty Ltd (2010) 79 ACSR 293; [2010] FCA 763 (Gilmour J) at [125] and the cases there cited; Lee v Napier (2013) 216 FCR 562; [2013] FCA 236 (Katzmann J) at [74]. 32 Second, I accept Mr O'Brien's evidence that Southern Equity has a royalty stream of about $108,000 per annum at present, but there is no evidence as to its outgoings. There is, however, evidence that Southern Equity has a significant debt, being the costs of the Supreme Court proceeding assessed in the sum of $220,145. In relation to those costs Mr Merlo deposed (on the basis of his discussions with a costs assessor engaged by Southern Equity) that the costs payable by Timevale will be greater than those payable by Southern Equity. He deposed that the costs payable will balance out in Southern Equity's favour. I accept that Mr Merlo honestly expressed his view but I do not share his confidence as to the outcome of the costs review he has initiated. Other than Mr Merlo's assertion, there is no evidence as to the amount by which the costs payable by Southern Equity might be reduced on review, or of the quantum of the balancing amount that might become payable by Timevale. 33 Third, Southern Equity must have been required to pay its own lawyers in the Supreme Court proceeding but it put on no evidence as to the amount paid or outstanding. I infer from the substantial costs Timevale incurred in the proceeding that Southern Equity was, or will be, required to pay a substantial amount to its lawyers. 34 Fourth, Mr O'Brien deposed that Southern Equity had entered into four agreements for the licensing of further venues to use the Ettamogah Pub IP, from which he said Southern Equity would derive significant additional royalties. He said that the agreements involved: (a) an Ettamogah Bar and Grill to be opened in King Street, Melbourne in or about February 2016 which will generate licence fees of approximately $120,000 per annum; (b) an Ettamogah Pub to be opened in Carrum, Victoria in or about May 2016 which will generate licence fees of approximately $120,000 per annum; (c) an Ettamogah Pub to be opened in Western Australia in or about May 2016 which will generate licence fees of approximately $100,000 per annum; and (d) an Ettamogah Pub to be opened at Bli Bli, Queensland in or about September 2016 which will generate income of approximately $100,000 per annum. 35 Mr O'Brien went on oath as to these agreements but I treat this evidence of expected royalty receipts from venues that are yet to be opened with a degree of scepticism. Mr O'Brien was not certain in his evidence as to exactly when the agreements would commence and referred only to commencement dates "in or about" the specified months, even when said one of the venues was to open in February next year. One of the venues was not expected to open until September next year and in that timeframe many things might cause that to be delayed or abandoned. Further, Mr O'Brien only gave approximate estimates of the licence fees and he did not indicate the basis upon which they were to be calculated. If, as I would expect, the royalties are based (even loosely) on patronage the estimated licence fees are likely to be speculative. Finally, I consider it would have been straightforward for Southern Equity to provide copies of the licence agreements, subject to an appropriate confidentiality regime, (as requested by Timevale) but it refused to do so. 36 In any event, even if there is an increase in Southern Equity's income from royalties next year, because Southern Equity adduced no evidence as to the extent of the charge over its assets, its debts or liabilities, any monies it held at bank, its outgoings, its profitability or its capacity to pay the $220,145 costs assessment, there is reason to believe that it will be unable to meet an adverse costs order made against it. 37 As von Doussa J said in Beach Petroleum NL v Johnson and Others (1992) 7 ACSR 203 at 205; [1992] FCA 136 at [10], there is credible testimony of an inability to meet an adverse costs order if: …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. This will be so even if in other events which can also be fairly described as reasonably possible the plaintiff corporation would be able to pay the costs. In my view the material permits a rational belief that, if ordered to do so, Southern Equity would be unable to pay Timevale's costs: Warren Mitchell Pty Ltd v Australian Maritime Officers' Union and Others (1993) 12 ACSR 1 at 5 (Lee J). The evidentiary burden therefore shifts to Southern Equity to establish a reason why security should not be granted.

Application of the relevant factors 38 I now turn to a consideration of the factors identified in the authorities that are relevant to the exercise of the discretion to order security for costs. 39 It is first worth noting that there are a number of factors which not relevant in this case. There is no suggestion that Southern Equity's claim is not bona fide or a sham. There was no delay in Timevale's application for security. I can discern no matters of public interest which weigh in the balance against making of an order for security. There is no evidence that the application for security is oppressive in the sense that Timevale is using it merely to deny Southern Equity a right to litigate. I now deal with the salient factors.

Southern Equity's inability to meet an adverse costs order 40 As I have said, in my view there is reason to believe that Southern Equity will be unable to meet an adverse costs order if it is unsuccessful in the proceeding. This is a substantial factor in the exercise of the discretion: Fiduciary Ltd and Others v Morningstar Research Pty Ltd (2004) 208 ALR 564 at [35] to [36]; Idoport Pty Ltd v National Australia Bank Ltd [2001] NSWSC 744 at [56].

Will an order for security stultify the proceeding? 41 In its written submissions Southern Equity stated that an order for security for costs might operate to stifle the proceeding and that it might have insufficient funds to pay security, but it put on no evidence that it would be unable to pay or that that the proceeding would be stultified. In broad terms the thrust of its case was that it would have sufficient funds to meet an adverse costs order. In light of the evidence from Southern Equity as to its financial position, and in light of the equivocal submission from Southern Equity about the consequences of an order, the better inference is that an order for security for costs in the quantum sought will not stultify the proceeding. This weighs in favour of a grant of security: Equity Access Ltd v Westpac Banking Corporation (1989) ATPR 40-972 ("Equity Access") at 50,635.

Whether there are any persons standing behind the company who are likely to benefit from the litigation 42 The evidence is that David Jackson is the sole shareholder of Southern Equity and I infer that he will be the person standing to benefit from any success it has in the litigation. He could have offered to be personally liable for any costs awarded against Southern Equity but he chose not to do so. This points towards an order for security: KP Cable Investments Pty Ltd v Meltglow Pty Ltd and Others (1995) 56 FCR 189 at 197-198.

The quantum of risk that the applicant cannot satisfy a cost order 43 Absent better evidence from Southern Equity regarding its financial position it is difficult to determine the quantum of risk. On the evidence before me I consider the level of the risk that Southern Equity cannot satisfy a substantial costs order to be moderate rather than high. In my view this points towards an order for security: Equity Access at 50,635.

Whether the impecuniosity arises out of the acts in respect to which relief is sought 44 Prior to its termination of the Licence Agreement Timevale paid Southern Equity royalties of approximately $8,000 per month. I accept that the cessation of this royalty stream has contributed to an extent to Southern Equity's present financial position. However, given the size of the costs assessment payable by Southern Equity in the Supreme Court proceeding, its likely legal costs in that case, and its failure to put on any evidence as to its debts, outgoings or profitability I do not infer that its impecuniosity arises from Timevale's termination of the agreement.

Whether there is such a significant overlap between the matters raised by the plaintiff's claim and the defendant's counterclaim that it would be unfair to oblige the plaintiff to put up security 45 I accept Southern Equity's contention that there is a substantial overlap between its claims in the Amended Fast Track Statement and the Cross-Claim. In such circumstances there might be said to be "an inextricable unity of issues" which would make it unfair to require Southern Equity to put up security, even if other factors were met: B L O'Shea Pty Ltd v Australian Mutual Provident Society Ltd (Unreported, Supreme Court of Victoria, Hedigan J, 15 February 1994, BC9400983) at 9. However, I see the Cross-Claim as essentially defensive. It is significant that Timevale accepts that should the primary proceeding be stayed because of failure to pay security for costs, the Cross-Claim should be stayed also. Given this, no relevant unfairness to Southern Equity can arise from obliging it to put up security.

Southern Equity's prospects of success in the proceeding 46 I have previously summarised the salient points of the claims, defences and cross-claims and I need not do so again. 47 Southern Equity argued that its chances of success in the claim are "very high" and relied on this as a factor pointing away from an order for security. I accept that some of the smaller aspects of its case appear to be conceded by Timevale but overall I am disinclined to describe Southern Equity's prospects of success in those terms. It is, however, unnecessary to descend into the merits of the case when the other factors point towards a grant of security, when I have heard no evidence, and when I am docketed to hear the matter. Southern Equity's claim is prima facie regular on its face and discloses viable causes of action. I proceed on the basis that the claim is bona fide and that it enjoys a reasonable prospect of success. This is a neutral factor in exercising the discretion: Australian Equity Investors, an Arizona Limited Partnership v Colliers International (NSW) Pty Limited [2012] FCAFC 57 [15] (Jacobson, Besanko and Perram JJ).

The quantum of security for costs 48 Weighing the various factors, I consider an order for security for costs is appropriate. The remaining question is the quantum of the security to be ordered, and the timing of its provision. 49 Counsel for Timevale accepted that its costs to the first day of trial would be $113,000 plus the costs of two mediations (one that has occurred and one that is forthcoming) and the preparation of Court Books. Mr Merlo put on evidence that Mr Jenkins' estimate of Timevale's costs was excessive but in my view that estimate (adjusted for the fact that the initial trial relates to liability only) was broadly reasonable. Based on Mr Jenkins' estimates, plus the costs of two mediations and the preparation of Court Books, I consider Timevale is likely to incur costs to the first day of trial of approximately $133,000. 50 However, Mr Jenkins' costs estimate (and mine) is made on a solicitor-client basis when, absent particular circumstances, any adverse costs order will be made on a party-party basis. Unfortunately neither of the parties put on evidence as to the estimated party-party costs. However, a security for costs application does not require exact assessment and I approach the task on the basis that party-party costs are usually approximately 60% of solicitor client costs. 51 I reached the view that security for costs of $80,000 should be ordered, being about 60% of the estimated $133,000 solicitor-client costs. Having regard to Southern Equity's request that security be paid in instalments, I ordered that the Security be provided in three tranches with the last tranche not falling due until after the next mediation. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.

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