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[2003] WASC 37
Supreme Court of WA
2003-03-13
Original judgment source is linked above.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : SPARGOS MINING NL -v- FULLER & ORS [2003] WASC 37
Practice and procedure - Application for security for costs - Application to countermand entry for trial - Delay in bringing application for security - Significance of litigation funding arrangement - Turns on own facts
Aspendale Pastoral Co Pty Ltd v W J Drever Pty Ltd (1983) 7 ACLR 937
Black v Eastern Goldfields Mining Co Pty Ltd, unreported; FCt SCt of WA; Library No 930039; 16 December 1992
BPM Pty Ltd v HPM Pty Ltd, unreported; FCt SCt of WA; Library No 960206; 17 April 1996
Brundza v Robbie & Co (No 2) [1952] HCA 49; (1952) 88 CLR 171
Buckley v Bennells Design & Construction Pty Ltd (1974) 1 ACLR 301
Ibcah Pty Ltd v Putnin, unreported; SCt of WA; Library No 930642; 25 November 1993
Idoport Pty Ltd v National Australia Bank [2001] NSWSC 744
Interwest Ltd v Tricontinental Corp Ltd (1991) 5 ACSR 621
KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189
Milingimbi Educational and Cultural Association Inc v Davis, unreported; SCt of NT; SC259/1987; 12 October 1990
R P Securities Pty Ltd v Martin, unreported; SCt of WA; Library No 6387; 7 August 1986
Shaftesbury Nominees Pty Ltd (Receivers & Managers Appointed) v Brixmond Pty Ltd [1992] 2 QdR 543
Smail v Burton; Re Insurance Associates Pty Ltd (In Liq) [1975] VicRp 76; [1975] VR 776
Tune Masters Pty Ltd (In Liq) v Sectum Pty Ltd & Ors, unreported; SCt of WA; Library No 970267; 23 May 1997
1 MASTER SANDERSON: This is the return of two chamber summons issued by Peter Geoffrey Jermyn in each action. I will refer to Mr Jermyn as the third defendant. Pursuant to the chamber summons the third defendant seeks security for costs of the actions and to countermand the entries of the actions for trial. The summonses were heard together. It is convenient to deal first with the applications for security for costs.
2 The third defendant's application is brought under the provisions of s 1335 of the Corporations Act. The plaintiff concedes that if called upon to do so it would be unable to meet any costs order which might be made against it if its action was unsuccessful. The question then is whether, in the exercise of my discretion, I ought make an order for security for costs and, if such an order is made, what amount of security ought be ordered. In the context of this case it is convenient to deal with that second question first.
3 By order of Master Bredmeyer on 27 November 1998, these four actions brought by the plaintiff against the third defendant are to be heard together. The plaintiff, in its certificate of readiness, estimates the length of the trial at 20 days. During the course of his submissions, counsel for the plaintiff submitted that, having given the matter further consideration, his estimate in the certificate was too pessimistic. He now thought all four matters could be heard in 15 days. He submitted that if security for costs was to be ordered, it should be on the basis of a 15-day trial.
4 The solicitors for the third defendant took a different view. They estimated the time likely to be occupied with each of the four actions and concluded that the trial would take a total of 68 days. They estimated their client's costs at just under $1,250,000. Acknowledging the difficulty of estimating a length of trial, they sought to have the plaintiff provide security in an amount of $280,525, such security to be provided within 28 days of the date of any order, and thereafter have the plaintiff deposit the sum of $8606 at the commencement of each day of trial. The lump sum was intended to cover the cost of getting the case up for trial and the daily payments were intended to cover the costs of that day of trial. This approach followed the course taken by Justice Shepherdson of the Supreme Court of Queensland in Interchase Co Ltd (In Liq) v Colliers Jardine & Ors, unreported; SCQ; 26 June 1995; BC 9505976.
5 It is unusual for two parties to be so far apart in their estimate of the length of trial. Counsel for the plaintiff, who is intimately familiar with the action, had clearly given careful consideration to his estimate of time required. Between the filing of the certificate of readiness and the hearing of this application, he pruned his estimate by five days. Having looked at the estimate provided by the defendant's solicitors, he was unmoved. On the other hand, the defendant's solicitors who have had conduct of these proceedings for many years, swore affidavits confirming that they too had given careful consideration to the likely length of the trial. Their firm estimate was 68 days. I am not in a position to resolve this conflict. There is no doubt that the matter is one of some complexity. The plaintiff's claim is for almost $70 million. It relates to matters which took place in the mid to late 1980s. Not having seen the evidence that the parties will rely upon, I am in no position to assess how long each party may take to fully articulate their client's position. So for the present, at least, it must simply be accepted that there is a divergence of views between the solicitors for the parties as to the length of trial.
6 In these circumstances it seems to me proper to approach the matter on the basis that the trial will last for 15 days. That is certainly the basis upon which it is likely to be listed. If in the event 15 days proves inadequate, the plaintiff will be left with a case part-heard and the difficulty of obtaining further time before the same Judge. That may not be easy. Furthermore, at the conclusion of the 15 days set aside, if the trial Judge takes the view that an order for security for costs on the resumed hearing is appropriate, he or she can make the order at that time. While I appreciate that there may, in certain circumstances, be merit in ordering an amount of security topped up by a daily deposit, I can foresee practical difficulties in such a course. What happens if the plaintiff fails to make a deposit on the fourth day of trial, perhaps through some administrative oversight? Is the trial haltered for that day while the oversight is put to rights, or does the trial continue with the expectation that the default will be corrected? It is not difficult to imagine time being wasted while the niceties of the daily security deposit are observed. In my view, in this case there are better ways to deal with the question of security.
7 There was a significant difference between the parties in their calculation of the likely cost incurred by the third defendant at trial. The plaintiff quibbled with the number of personnel who would need to attend the trial and the allowances made for counsel. Given the approach that I have adopted in this matter, it is not necessary for me to go into detail in relation to this dispute. Moreover, it is difficult for me to assess whether the third defendant's solicitors' assessment of personal required to adequately represent their client is reasonable. All of that suggests any attempt at precise mathematical calculation is of limited value.
8 Turning then to the question of whether or not security ought be ordered, the case put on behalf of the third defendant can be summarised in this way. The plaintiff's action is being maintained by a company which is a litigation funder. The way in which this has come about is slightly unusual. As a consequence of certain litigation which took place in another jurisdiction a number of years ago, Beach Petroleum NL acquired all the shares in the plaintiff. The plaintiff's only asset of any significance was its chose in action against the third defendant. (There were other defendants in the proceedings but these actions have fallen away. What remains is the plaintiff's action against the third defendant). The plaintiff is now owned by a company styled Marignano Pty Ltd, which is in turn a subsidiary of Australian Litigation Fund Pty Ltd. There is an arrangement between Beach Petroleum NL and Marignano Pty Ltd, which deals with the way in which any amount recovered by the plaintiff in the action will be disbursed. The details are not of great concern. It is enough to say that if any money is recovered, Marignano Pty Ltd, and ultimately Australian Litigation Fund Pty Ltd, stand to benefit. On behalf of the third defendant it is said that in these circumstances, security ought be provided. It was submitted that a litigation funder should see the provision of such security as nothing more than an incidence of its business activities.
9 In support of his argument, counsel for the third defendant referred to the decision of Young CJ in Equity in Chartspike Pty Ltd (In Liq) v Chahoud [2001] NSWSC 585. This is a short extempore judgment which, while providing some support for the third defendant's position (particularly at par 5) does not examine in any detail the effect of the presence of a litigation funder on the exercise of a discretion whether or not to make an order for security for costs. Most of the cases quoted by counsel for the third defendant dealt with a situation where there were persons standing behind an impecunious plaintiff who stood to benefit from a successful action, but who were not in the position of a litigation funder. Generally, such individuals are directors or shareholders of the plaintiff company. Yandil Holdings Pty Ltd v Insurance Co of North America (1985) 3 ACLC 542 was such a case.
10 In my view, it cannot be said that the mere fact the action is being maintained by a litigation funder is in and of itself sufficient reason to order that security for costs be provided. Once it is established that a plaintiff company is not in a position to meet any costs order, a discretion to order security for costs be provided is enlivened. There are any number of factors to be considered in the exercise of that discretion. The presence of a litigation funder is just one of those considerations. Furthermore, it is a consideration which should not be approached on the basis that there is something sinister about a funding arrangement which supports an impecunious plaintiff. As counsel for the third defendant noted, the arrangements between the litigation funder and the plaintiff are perfectly proper. The fact of the existence of the funding arrangement is one matter to be weighed in the balance.
11 Against the third defendant's application, the plaintiff relied on four matters. First, it was said that the third defendant had delayed in bringing this application and it was now too late in the day to order security for costs. Secondly, it was said that the strength of the plaintiff's case was such that an order for security for costs was appropriate. Thirdly, it was said that the present impecuniosity of the plaintiff was brought about by the actions of the third defendant, making a security order inappropriate. Fourthly, it was said that the application was oppressive and was being used to try and stifle or stultify the plaintiff's actions. It is convenient to deal with these four matters in reverse order.
12 In this case there was no evidence adduced by the plaintiff that an order for security for costs, even an order for the full amount sought by the third defendant, would result in the plaintiff not pursuing its actions. There was also no evidence that an order for security for costs would occasion those standing behind the plaintiff hardship. In the circumstances, there is no basis upon which I could conclude that an order for security for costs would stultify the proceedings or is in any way oppressive.
13 Counsel for the plaintiff spent some time dealing with the merits of his client's case. However, it is not appropriate in an application for security for costs to embark on a detailed consideration of the merits of the action: see Caruso Australia Pty Ltd v Portec (Aust) Pty Ltd [1984] FCA 65; (1984) 2 ACLC 286 per Toohey J at 287. All that can be said, I think, is that the plaintiff has a genuine and arguable claim. Much the same can be said in relation to the submission that the impecuniosity of the plaintiff is due to the actions of the third defendant. If the plaintiff succeeds in its action, then no doubt it can be said that the actions of the third defendant were responsible, at least in part, for the impecuniosity of the plaintiff. Equally, if the third defendant is successful in defending the action, it can be said that the impecuniosity of the plaintiff was either not due to the actions of the third defendant or, if the third defendant was responsible, he is not, for one reason or another, liable to the plaintiff to make good its losses. In other words, a determination of whether or not the impecuniosity of the plaintiff is due to the actions of the third defendant is dependent upon the outcome of the proceedings. That then leads back to a consideration of the merits which, as I have said, is inappropriate. In my view each of these two factors is, in the context of this case, neutral.
14 That then leaves the question of delay. Counsel for the third defendant conceded that this application was made late in the day. Each of these actions has been on foot for over 10 years. Now, after the matter has been entered for trial, the third defendant seeks security for costs. He could have sought security years ago but chose not to do so. On behalf of the plaintiff it was said that the fact that the plaintiff's delay in applying for security was in and of itself a sufficient ground to refuse an order.
15 Counsel for the plaintiff pointed out that the application for security had first been foreshadowed a number of years ago. In his submission the history of delay was a relevant consideration in the exercise of discretion. To fully appreciate counsel's point, it is worth providing a summary of what actions have been taken and what actions have been foreshadowed by the third defendant.
16 On 27 October 1998 the third defendant's solicitors wrote to the plaintiff's solicitors requesting the plaintiff provide security for costs in an amount of $1,021,621: see par 43 of the third defendant's affidavit sworn 20 November 2002, annexure "PGJ5". This request for security was made at a time when the plaintiff had filed its amended substituted statement of claim and had applied to have the four actions heard consecutively: see par 12 to 21 of the affidavit of Reginald George Nelson sworn 9 August 2000. The third defendant took no steps to apply for security for costs.
17 By letter dated 7 July 2000 solicitors for the third defendant again sought security for costs from the plaintiff: see par 44 of the third defendant's affidavit sworn 20 November 2002, annexure "PGJ6". As at the date this letter was sent, there was extant an application by the plaintiff to require the third defendant to file and serve his defence to the substituted statement of claim. There was also an application by the third defendant to strike out all four of the actions for want of prosecution. It was around this time (in May 2000) that Beach Petroleum NL sold its shares in the plaintiff to Marignano. Once again the third defendant did not proceed with the foreshadowed application for security for costs.
18 The request for security was renewed by letter dated 21 September 2001, annexure "PGJ7": see par 46 and 47 of the third defendant's affidavit of 20 November 2002. This request was made just after Master Bredmeyer dismissed the third defendant's application to have the actions dismissed for want of prosecution. There then followed correspondence passing between the plaintiff's solicitors and the defendant's solicitors. By facsimile of 20 December 2001 the plaintiff conceded the "jurisdiction question" - that is, they indicated that if called upon to do so, the plaintiff would not be able to meet a costs order, annexure "PGJ9". No agreement was reached between the solicitors as to the provision of security. No application for security was made by the third defendant.
19 Thereafter, the action proceeded. Correspondence passed between the parties' solicitors dealing with what might be seen as relatively minor matters which needed to be resolved prior to trial. At no time during the course of this correspondence did the third defendant's solicitors raise the issue of security for costs. Indeed, the application was not brought until 18 November 2002, some time after the matter had been entered for trial.
20 There is no particularly convincing reason offered by the third defendant as to why he did not pursue the question of security years before this present application. Such explanation as is provided is found in par 48 of the third defendant's affidavit sworn 20 November 2002. That paragraph is in the following terms:
"Earlier this year I instructed my solicitors to continue to withhold the filing of the application for security for costs because I remained of the belief that the plaintiff was not going to proceed with this action or the other actions. That belief was based on the lack of progress in the actions since they were commenced in 1991 and 1992. As stated above in paragraph 43 of this my affidavit, I was reluctant to incur the further legal costs associated with making the application when Spargos was doing nothing to progress this or the other actions."
21 What then are the consequences of the third defendant's delay in seeking security for costs and how does the delay affect the exercise of the discretion? Counsel for the third defendant submitted that in the context of this case the delay, while unfortunate, was of no real consequence. He submitted that there was no evidence to the effect that the delay resulted in any hardship to the plaintiff and the mere fact of delay was not sufficient to refuse an order for security. In support of this proposition, counsel relied upon what was said by Hunter J in Hughes Bros Pty Ltd v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney, unreported; SCt of NSW; 55003 of 1989; 7 November 1995. His Honour said (at 3):
"I think the correct approach to this case is acceptance of the proposition that, while an application for security for costs should be made in a timely way, it may be made at any time. Mere delay in making such an application, in itself, is no bar to an order for security for costs. Nevertheless, such delay resulting in prejudice to the party against whom such an order is sought, may be fatal to the application. While the onus to show prejudice must rest on the respondent to such an application, that onus may be readily discharged, for example, when it is apparent that substantial costs have been incurred by the respondent that would otherwise not have been incurred but for the dilatory nature of the application for security for costs."
22 His Honour's approach ties in the question of delay with the issue of hardship which may flow to a plaintiff as a consequence of that delay. To that extent, his Honour says delay, standing alone as it were, is not an independent discretionary consideration. That approach would seem to be at odds with some other authorities: see Southern Cross Exploration NL v Fire & All Risk Insurance Co Ltd (1985) 1 NSWLR 114 at 123. Further, the approach may need to be tempered by reference to case flow management principles as set out in O 1 r 4A and O 1 r 4B of the Supreme Court Rules.
23 In all the circumstances, and taking into account the fact of delay in this matter, I am satisfied that there should be an order for security for costs. While I am mindful of the delay in bringing the application and while that factor weighs against any order being made, I am satisfied that on balance, I should exercise my discretion and order security be provided. In particular, the fact that there is a party standing behind the plaintiff who stands to benefit from the litigation is a powerful consideration. There is no evidence that an order for security will cause those standing behind the plaintiff hardship or that it will stultify proceedings. In all the circumstances then, there should be an order for security. The remaining question is what amount of security ought be provided.
24 As I have indicated above, I will assume for the purposes of this order that the trial of the action will be listed for 15 days. Further, I will not attempt a detailed or precise mathematical calculation of what costs the plaintiff might actually incur. Rather, I have determined that security should be provided in an amount of $150,000. In reaching that figure, I am taking into account the costs of getting up the action for trial from the date the application for security was made and for the 15 days of trial. Were it to be the case that the action was part-heard, it would be open to the trial Judge to make an order for additional security. No doubt this is a matter which counsel for the third defendant will draw to the attention of the trial Judge were the action to be left part-heard.
25 I will hear the parties as to the precise form of orders and as to costs on this aspect of the application.
26 That then leaves the third defendant's application to countermand the entry for trial. During the course of his submissions, counsel for the third defendant tendered a minute of orders sought in respect of the applications to countermand entry for trial which, in effect, sought pre-trial orders rather than countermanding the entry. Without reciting the minute in detail it is sufficient if I say that the third defendant sought orders in relation to the documents to be tendered at trial, in particular the identification of such documents and the basis upon which they were to be tendered. The third defendant also sought provision of witness statements, both of expert and non-expert witnesses, and minutes of the amended statements of claims referring only to the actions against the third defendant. For its part the plaintiff submitted that there was no need for these orders to be made at present. Counsel pointed out that generally, after the matter has been allocated a hearing date, a directions hearing is held before the trial Judge and pre-trial directions are made. It was submitted that the directions presently sought by the third defendant were more appropriately sought from the trial Judge after a date was allocated.
27 It is the plaintiff's case that these actions turn substantially on documentary evidence. Counsel advised that the documents to which the plaintiff intends to rely are presently being culled down to 10 lever arch files. That being the case, I think it is appropriate at this stage that the plaintiff provide the third defendant with an indication of what documents are to be relied upon. I would be prepared to make an order in terms of par 3(a) of the minute of orders sought by the third defendant. Really, what such an order requires is that the plaintiff provide the solicitors for the third defendant with the bundle of trial documents. So far as the third defendant is concerned, that should assist in confining the issues. Thereafter, further trial directions can be left until the matter is given a hearing date. I see no particular reason why any of the other orders sought by the third defendant should be made at this stage.
28 Subject then to an order being made in terms of par 3(a) of the third defendant's minute, I would dismiss the third defendant's application to countermand the entry for trial. I will hear the parties as to costs.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : SPARGOS MINING NL -v- FULLER & ORS [2003] WASC 37 (S)
Practice and procedure - Clarification of decision on application for security for costs - Turns on own facts
1 MASTER SANDERSON: On 13 March 2003 I published reasons and ordered the plaintiff provide security for the third defendant's costs. The solicitors for the third defendant drew to my attention an apparent inconsistency in the reasons. It is to be noted that there are four actions in this matter which are to be heard together. The third defendant applied for security for costs in each of the actions. In relation to action CIV 1417 of 1992, the security sought was in an amount of $280,525 together with a daily amount of $8606. I referred to these two amounts in par 4 of my reasons. Reading that paragraph it may appear as though the amounts mentioned were the total security sought by the third defendant. In fact, that was not the case. In respect of all four actions the amount of security sought was $634,685 plus a daily amount. It was entirely correct and proper for counsel for the third defendant to draw this to my attention and I acknowledge par 4 of the reasons contained an error.
2 While par 4 did contain that error, I had not overlooked the fact that there were four actions in reaching the conclusion that an amount of $150,000 was appropriate by way of security for costs. As I indicated in my reasons, there is a substantial discrepancy between the parties as to how long this trial will run. On the plaintiff's estimate, it will run for 15 days and when the matter is listed it will be listed for 15 days. In my view, in those circumstances security in an amount of $150,000 is sufficient. I left open the possibility that if the matter was not concluded in the time allotted, further security might be ordered by the trial Judge. That remains the position. It was always my intention to order a global amount for security covering all four actions which are to be heard together. That global amount I set at $150,000.
# Spargos Mining Nl
Fuller & Ors \[2003\] WASC 37
(1952) 88 CLR 171
(1995) 56 FCR 189
(1985) 1 NSWLR 114