Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd & Anor [2017] VSC 200 (19 April 2017)

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BODYCORP REPAIRERS PTY LTD	Plaintiff

v

GDG LEGAL PTY LTD	First Defendant

DSG LEGAL PTY LTD	Second Defendant

JUDICIAL REGISTRAR:	Matthews, JR
WHERE HELD:	Melbourne
DATE OF HEARING:	16 March 2017
DATE OF JUDGMENT:	19 April 2017
CASE MAY BE CITED AS:	Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd & Anor
MEDIUM NEUTRAL CITATION:	[2017] VSC 200

PRACTICE AND PROCEDURE – Security for costs – No apparent material assets – Jurisdiction enlivened – Stultification and burden of proof – Whether proceeding defensive in nature – Amount and form of security – Security for costs ordered – Supreme Court (General Civil Procedure) Rules 2015, r 62.02 – Corporations Act 2001 (Cth), s 1335(1).

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J G Levine	TGA Legal Pty Ltd

For the Defendants	Ms R T Campbell	K&L Gates

1 By summons filed 15 February 2017, the defendants, GDG Legal Pty Ltd and DSG Legal Pty Ltd, seek security for their costs of the proceeding in a sum determined by the Court, to be paid within 7 days of security being ordered. The defendants also seek orders staying the proceeding if the plaintiff fails to provide security for costs by the date ordered.

2 The defendants rely on two affidavits of Christien William Corns sworn 15 February 2017 and 10 March 2017 in support of their application (respectively, ‘First Corns Affidavit’ and ‘Second Corns Affidavit’).

3 The plaintiff, Bodycorp Repairers Pty Ltd, opposes the application. It relies on an affidavit sworn 6 March 2017 by Antonio Murdaca, its company secretary, sole director and sole shareholder (‘Murdaca Affidavit’).

4 Exhibit ‘CWC-3’ to the First Corns Affidavit is a report from Jennifer Anne Young, a costs lawyer (‘Young Report’), who estimates the defendants’ costs on a standard basis from the commencement of the proceeding to the conclusion of a mediation as being $181,090.43. That is the amount sought by the defendants by way of security for their costs up to and including mediation.

5 The defendants’ application for security for costs has been referred to me for hearing and determination pursuant to r 84.04 of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’), by order made on the Court’s own motion on 8 March 2017.

6 I have had regard to all submissions made on behalf of the parties and the cases to which either party’s counsel referred me to (at the hearing, in the defendants’ counsel’s written outline, or in the two cases referred to at the hearing by the plaintiff’s counsel and subsequently forwarded by email to my associate). I have also had regard to all materials filed in respect of this application.

7 For the reasons set out below, the plaintiff will be ordered to give security in the amount of $90,800 for the defendants’ costs by payment into Court in a form acceptable to the Senior Master.

8 In this proceeding, commenced on 20 October 2016, the plaintiff makes claims of negligence and breach of contract against the defendants. The plaintiff alleges that it retained the defendants in or about mid-September 2013 to provide legal services in connection with an appeal to the Court of Appeal against the decision of the trial judge of this Court in proceeding number 9071 of 2005, where the trial judge had dismissed the claims made by the plaintiff in that proceeding. The plaintiff alleges, inter alia, that the defendants terminated the retainer without just cause and/or with insufficient notice on 20 November 2014, that they were negligent in their conduct of the appeal, that they should have been aware that the plaintiff had no reasonable prospects of success in the appeal and/or the appeal was doomed to fail, and that their advice in respect of an offer made to the plaintiff by the respondents to the appeal was negligent. The defendants deny the plaintiff’s allegations.

9 On or around 22 May 2015, the defendants commenced proceedings in the Magistrates’ Court of Victoria against the plaintiff and Mr Murdaca for the payment of unpaid legal fees plus interest on the unpaid fees, in the amount of $81,688.29. The plaintiff and Mr Murdaca filed their defence on or around 7 July 2015.

10 Mr Murdaca deposes that he attempted to file a counterclaim in the Magistrates’ Court that related to the issues subsequently raised in the statement of claim in this proceeding, but he was unwilling to limit the damages claimed to the jurisdictional limit of $100,000 applicable to Magistrates’ Court proceedings. Mr Murdaca deposes that the Magistrates’ Court registry rejected the filing of the counterclaim. He does not say when he attempted to file the proposed counterclaim, however exhibit ‘AM2’ to the Murdaca Affidavit is a copy of that counterclaim and it bears the date of 14 June 2016. Mr Murdaca also deposes that on or about 16 June 2016, the defendants refused to agree to have the counterclaim ‘with no limit on damages’ heard in the Magistrates’ Court. I therefore infer that the timing of the attempted filing of the proposed counterclaim in the Magistrates’ Court was on or around 14 June 2016.

11 The proceeding which had been commenced by the defendants in the Magistrates’ Court was uplifted and transferred, on the plaintiff’s application, to this Court in January 2017 and given proceeding number S CI 2017 00291. I shall refer to that proceeding as the Transferred Proceeding.

12 Mr Murdaca states in his affidavit that he initiated this proceeding to have the issues raised in the counterclaim heard in a court with no jurisdictional limit. I note that Mr Murdaca is not a party to this proceeding: therefore, I read this portion of his affidavit as meaning that he caused the plaintiff to initiate this proceeding.

13 This proceeding is at a relatively early stage. A defence was filed by the defendants on 12 December 2016 and their application for security for costs was filed on 15 February 2017. There has been one directions hearing, on 17 February 2017, where the directions made by Macaulay J were timetabling orders for this application and a direction that this proceeding be managed together with the Transferred Proceeding. I was informed by the plaintiff’s counsel that nothing has occurred in the Transferred Proceeding since it was uplifted to this Court, and that a directions hearing has not yet been held in that proceeding. More will be said below about the possible intersection between the two proceedings.

14 The principles concerning an application for security for costs are well established and are referred to in many decisions of this Court, including US Realty Investments LLC No.1 & Ors v Need [2013] VSC 590 (‘US Realty’) at paragraphs [18]-[38]. For convenience I adopt the summary set out in US Realty. Rule 62.02 of the Rules and s 1335 of the Corporations Act 2001 (Cth) apply.

15 In summary, the Court first looks to whether the jurisdiction to grant security for costs has been enlivened. For that to be the case, one of the grounds set out in r 62.02 or in s 1335 of the Corporations Act 2001 (Cth) must apply. Here, the relevant ground is the plaintiff’s financial position: if it appears by credible testimony that there is reason to believe that the plaintiff will be unable to pay the defendants’ costs if the defendants are successful, then the Court may order that security for those costs be given.

16 Once the jurisdiction is enlivened, it is then a matter for the Court’s discretion as to whether security ought be awarded. That discretion is unfettered, although it must be exercised judicially.

17 The parties referred to some, but not all, of the discretionary factors which have been canvassed in other decisions. The discretionary factors relevant to this case can be shortly stated:

(a) the defendants bear the burden of proof in persuading the Court to order security for costs. However, if the plaintiff asserts, as it does here, that an order for security would stultify the litigation, then the plaintiff bears the onus of proof in that regard.[1] I will address this question of onus further below;

(b) whether the plaintiff’s lack of funds has been caused by or contributed to by the conduct of the defendants in relation to the transaction the subject of the claim is a factor to be taken into account;[2]

(c) whether the granting of security for costs would unduly stultify the plaintiff’s ability to pursue an arguable case legitimately instituted is another discretionary factor;[3] and

(d) where the defendants make a counterclaim which is likely to canvass substantially the same facts as that required for the plaintiff’s claim, or where the relationship between the parties and the subject matter of the dispute is one where the plaintiff’s claim can be seen as defensive in character, the Court may see it as inappropriate to order security for costs.[4]

18 The defendants submit that they promptly put the plaintiff on notice that they intended to seek security for costs and brought this application at an early stage of this proceeding, and the plaintiff has properly conceded that delay is not a factor in this application.

19 A factor which is relevant to the exercise of the Court’s discretion is whether the plaintiff’s claim is made bona fide and has reasonable prospects of success. Neither party addressed this factor. Nonetheless, where the claim is prima facie regular on its face and discloses a cause of action, absent evidence to the contrary, as a general rule the Court should proceed on the basis that the claim is bona fide with reasonable prospects of success.[5] I have therefore assessed this factor neutrally.

20 As noted in US Realty, exercising its discretion involves the Court in carrying out a balancing exercise between the injustice to the plaintiff if the grant of security prevents it from pursuing a proper claim against the injustice to the defendants if no security is ordered and they are ultimately successful but unable to recover their costs from the plaintiff.[6]

21 Relying on the First Corns Affidavit, the defendants submit that the following matters demonstrate that the plaintiff is impecunious and would be unable to satisfy a costs order in the defendants’ favour:

(b) the plaintiff is not the registered proprietor of any real estate in Australia;[8]

(c) the plaintiff has been the subject of numerous orders to pay security for costs, and was most recently ordered to pay security for costs by the Court of Appeal on 3 March 2017,[9] 1 August 2016[10] and 18 February 2016;[11]

(d) there is no evidence to establish that the plaintiff’s financial position has improved since those orders for security were made; and

(e) the plaintiff has not provided any evidence as to its financial position.

22 The plaintiff does not concede that it is impecunious. It did not lead any evidence about its financial position. The plaintiff adopted the position that it was up to the defendants to prove its impecuniosity. The plaintiff did submit, however, that the Transferred Proceeding was relevant in this regard. The argument was put in this way: since the defendants had chosen to sue the plaintiff and Mr Murdaca in the Magistrates’ Court for unpaid legal fees, the defendants could not have thought that the plaintiff and Mr Murdaca were impecunious.

23 The defendants bear the onus of establishing that the jurisdiction is enlivened.[12] However, it is important to analyse that which the defendants are required to establish. Referring to the provisions of s 1335(1) of the Corporations Act 2001 (Cth), there must be ‘credible testimony’ for ‘reason to believe’ that the plaintiff will be unable to pay the defendants’ costs if the defendants are successful. Under r 62.02(1)(b), the Court may order security if ‘there is reason to believe that the plaintiff has insufficient assets in Victoria to pay’ the defendants’ costs. Although these provisions are not identical, the applicable principles have been developed and applied on the assumption that they apply equally to both.[13]

25 The policy of the provision is ‘to protect a defendant against the risk of the plaintiff corporation’s impecuniosity’, and the provision ‘equips the court with the means to require that the defendant be secured against that risk.’[15]

26 Hence, while the defendants bear the onus, it is a relatively low threshold to meet.[16]

27 In FFE Minerals Australia Pty Ltd v Mining Australia Pty Ltd,[17] the Court of Appeal of the Supreme Court of Western Australia considered an appeal from a master where the master had refused to grant security for costs. In that case, the applicants for security had led evidence that demonstrated that the plaintiff corporation had paid up share capital of $4001 and was not the registered proprietor of any land on the Western Australian land register. The applicants for security had also led evidence of historical financial statements (the most recent of which was some 4 years prior to the application having been made).[18] Those statements which were in evidence showed that up until at least 1995 the company did not have assets which would allow it to meet a costs order. Assessing the evidence, Pidgeon and Owen JJ stated that ‘the absence of land combined with the low share capital does give rise to an appearance that there is reason to believe that there are no assets in this area to meet the costs.’ They viewed it as ‘open to the company’ to negate such belief, which the company did not do.[19]

29 FFE Minerals was referred to and applied in Education Equity Pty Ltd v Austock Funds Management Pty Ltd.[21] In that case, the plaintiff company had paid up share capital of $1 and held no real estate in Victoria, Queensland or New South Wales. Gardiner AsJ noted that ‘like the respondent in FFE Minerals, [the plaintiff company] has chosen not to confront [the defendant’s] evidence in regard to its asset position’. His Honour also noted that the evidence which the defendant had put forward was of a very similar type and quality to what had been regarded by the majority in FFE Minerals as ‘credible testimony’, and held that the defendant had met the required credible testimony test.[22]

30 In light of the evidence as to the plaintiff’s financial position, being its paid up capital and it not being the registered proprietor of any real estate in Australia, in my view and applying FFE Minerals and Education Equity, the defendants in this case have discharged their burden and the jurisdiction is enlivened. The defendants having provided the ‘credible testimony’ for ‘reason to believe’ the plaintiff is impecunious, the plaintiff (if it were in a position to do so) could have led evidence to negate that, but did not.

31 I do not give any weight to the plaintiff’s argument that the defendants’ actions in initiating what became the Transferred Proceeding demonstrate that the defendants did not think the plaintiff and Mr Murdaca were impecunious.

32 I have had regard to the fact that the plaintiff has been ordered to pay security for costs in some other proceedings, however that is not determinative of this application,[23] and each application must be determined on its merits, which is the approach I have taken here.

If the jurisdiction has been enlivened, should security for costs be granted?

Whether the plaintiff’s impecuniosity has been caused by or contributed to by the defendants

33 In Colmax, Derham AsJ has conveniently summarised the authorities and the approach to be taken to the discretionary factor of whether the plaintiff’s impecuniosity has been caused by or contributed to by the defendants, and I adopt that approach. Omitting citations, Derham AsJ summarises this as follows:[24]

(a) ‘the plaintiff carries the burden of persuasion on the question whether the conduct of the defendant was the cause of the plaintiff’s financial difficulties’;

(c) ‘the plaintiff carries the onus of satisfying the court on the basis of admissible evidence’.

34 Where the plaintiff seeks to resist an order for security on the grounds that its impecuniosity was caused by the defendants, then it bears the onus of establishing this.[25]

35 Here, the plaintiff submitted that the defendants had caused its lack of funds, as the defendants’ alleged negligence meant that the plaintiff ran its appeal and rejected a settlement offer, and then suffered judgment against it. The plaintiff’s counsel referred to two judgments of the Court of Appeal which referred to this settlement offer and the outcome of the appeal.[26] However, the plaintiff led no evidence at all as to how it was said the defendants caused this loss and how this loss made it impecunious, let alone evidence which would satisfy the tests set out in paragraphs 33 and 34 above. Further, there was no evidence from the plaintiff regarding its financial position, any alleged financial difficulties, or lack of funds. The defendants submit, and I accept, that no weight should be given to this factor.

36 As noted by Derham AsJ in Colmax, there is ‘a well-recognised factor’ which may affect the exercise of the Court’s discretion: the Court will not make an order for security if that would stultify the plaintiff’s ‘arguable case legitimately instituted’, since making an order in those circumstances may work an injustice, as the effect would be that the defendants would achieve a ‘victory’ without any contest.[27]

37 The plaintiff submits that an order that it pay security for the defendants’ costs would stultify the proceeding.

38 The plaintiff submits that an order now for approximately $180,000 in security would stultify the proceeding, as after the mediation (if it was unsuccessful) the defendants would seek more security, which it says would be hundreds of thousands of dollars more. The defendants submitted that it was unclear whether the plaintiff submits that it is the security being sought now which would stultify the proceeding or future security. The defendants also submit, and I accept, that the potential impact of further or future orders for security which may subsequently be made is not something for consideration at this point.

39 It is well-established that the plaintiff bears the burden of proof in respect of stultification. In Ariss, Phillips JA (with whom Ormiston and Charles JJA agreed) stated that:[28]

41 The only evidence relied on by the plaintiff in this application is the Murdaca Affidavit. Mr Murdaca does not give any evidence about the financial position of the plaintiff. Nor does he give any evidence about his financial position or of any other person(s) who stand to benefit from the plaintiff’s claims in this proceeding, if successful.

42 Here, the plaintiff has not established any factual basis for the proposition that ordering security for the defendants’ costs would stultify the proceeding. The Court raised the burden of proof in this context with the plaintiff’s counsel, pointing out that the plaintiff bore the onus in respect of stultification. The plaintiff submitted that it did not bear any onus in this regard.

43 Such a proposition must, given the clear principles established by the authorities referred to at paragraphs 39 and 40 above and the weight of those authorities, be rejected.

44 Mr Murdaca, as the sole director and sole shareholder of the plaintiff, has not deposed to his financial position and says nothing about whether an order for security for the defendants’ costs would stultify this proceeding. The Court notes that the only evidence from the plaintiff which may conceivably go to this issue is Mr Murdaca’s statement in paragraph 3 of his affidavit that ‘I am willing to provide a personal undertaking to pay any adverse costs order in this matter.’ This evidence does not support the plaintiff’s argument concerning stultification; rather, it goes against such an argument. It is therefore unsurprising that the plaintiff placed no reliance on this evidence in respect of stultification.

45 There being no evidence from the plaintiff to establish any factual basis for stultification, the argument cannot be weighed in the exercise of the Court’s discretion, as set out in Ariss.

46 Given the plaintiff’s lack of evidence regarding stultification, the consideration of this discretionary factor is not affected by whether the plaintiff’s submission was that it was an order for security now which would stultify the proceeding rather than a combination of an order now and the prospect of further or future security.

47 For the sake of completeness, I note that even if there were such evidence, it does not automatically lead to the Court refusing to order security for costs: it is simply a factor in the exercise of the discretion, albeit one which is usually regarded as a powerful one.[30] In this context, previous orders for security for costs have not prevented the plaintiff from pursuing its claims, as pointed out by the Court of Appeal.[31]

48 The relationship between the parties and the subject matter of the dispute being one where the plaintiff’s claim can be seen as defensive is one of the discretionary factors telling against an order for security for costs. This requires an analysis of whether the plaintiff’s claims in this proceeding are defensive in nature and, if so, whether that means security for costs should not be ordered.

49 The issue is whether the plaintiff’s proceeding is merely a defence against ‘self-help’ measures taken by the defendants.[32] This means that the ‘case must be looked at to see whether in substance the claim set up is by way of defence such that the plaintiff’s claims are properly characterised as defensive’.[33]

50 The plaintiff relies on the Transferred Proceeding, particularly its amended defence in that proceeding,[34] whereby it seeks to resist the defendants’ claimed legal costs via a set-off of its claims against the defendants, to submit that its claim in this proceeding is defensive in nature.

51 Relying on Lakic v Prior,[35] the plaintiff’s counsel submitted that a set-off of costs due to lawyers where there was negligence by those lawyers was possible, based on the principles of equitable set-off.

52 Such a submission is uncontroversial and is consistent with the authorities I was referred to. The Court also notes that r 13.14 of the Rules also permits a defendant’s claim against a plaintiff for the recovery of a debt or damages to be relied upon as a defence and to be set off against the plaintiff’s claim, ‘whether or not the defendant also counterclaims for that debt or damages’. However, the plaintiff went on to submit that the availability of set-off means its claims in this proceeding are defensive in nature. In my view, this is not necessarily the case. Some analysis of the plaintiff’s claims made in both proceedings is required.

53 The plaintiff’s amended defence in the Transferred Proceeding is that the legal services performed by the defendants were of no value, there was a total failure of consideration, and the defendants had an obligation to continue to act in the appeal and were not entitled to cease to act at the hearing on 20 November 2014, such that the defendants are not entitled to charge any fees for the work they performed and/or the plaintiff is entitled to set off any loss or damage suffered from any amounts allegedly due to the defendants. The plaintiff’s amended defence in the Transferred Proceeding does not make any allegations of negligence against the defendants. The plaintiff’s claims in this proceeding are summarised in paragraph 8 above: the only allegation which also appears in the amended defence in the Transferred Proceeding concerns the defendants ceasing to act in the appeal on 20 November 2014. The loss and damage claimed by the plaintiff in this proceeding include its costs of the appeal, the costs of the respondents to the appeal (both for the appeal and for the proceeding below) and the amount already paid by the plaintiff to the defendants for legal fees and costs. While not fully quantified in the particulars to the plaintiff’s claim, it is readily apparent that the damages sought are [36]bstantial.36

54 In Quickset Concrete Productions Pty Ltd v Jayburn Pty Ltd,[37] Ormiston J considered a security for costs application in circumstances where the defendant raised a set off as part of its defence to the plaintiff’s claim and the plaintiff submitted that this meant its claim was defensive in character. His Honour held that the defendant was simply resisting the plaintiff’s claim, and the only purpose to the set offs claimed was to resist the plaintiff’s claim, and did not accede to the plaintiff’s submission in this regard. As a result of the claims made in this proceeding, the plaintiff is not merely resisting the defendants’ claim in the Transferred Proceeding. Its defence of set off in that proceeding does not transform its claims in this proceeding to be defensive in nature.

55 The plaintiff relies on Sydmar, where Smart J of the Supreme Court of New South Wales stated that one of the discretionary factors is ‘Whether substantially the same facts are likely to be canvassed in determining the action and the cross-action. The court would be slow to allow a situation where the action is stayed because of the inability to provide security but the cross-action covering substantially the same factual areas proceeds.’[38] In that case, the defendant’s defence and cross-claim were substantial, such that it was by then the dominant part of the proceedings, with the plaintiff’s claim being of minor importance in the overall picture of the hearing time and the amount claimed.[39] In Sydmar, Smart J declined to order security for the defendant’s costs.

56 The defendants submit that in light of the allegations made and relief sought, the plaintiff’s claims in substance are not set up by way of defence. In my view, while there may be some aspects of the plaintiff’s claims that are defensive in character (such as the resistance of the defendants’ claims in respect of unpaid legal costs and the plaintiff’s claim for loss in the form of legal costs already paid to the defendants), the plaintiff’s claims in this proceeding go well beyond these and I do not consider the defendants’ claims in the Transferred Proceeding to be ‘self-help’ measures. The plaintiff’s claims in this proceeding are not merely defensive in character.

57 The situation in Sydmar is quite different to the one facing the parties in this case, even leaving aside the question of there being two proceedings (managed together) in this case. From the pleadings in both proceedings and the nature of the claims made, it appears that it is the plaintiff’s case in this proceeding that will be the dominant part. As was the case in KP Cable, in my view a substantial part (at least) of the plaintiff’s claim is offensive in character.[40] Siopis J of the Federal Court[41] noted that the authorities he was taken to demonstrated that ‘insofar as a party was seeking to recover damages or an account in respect of the other party’s conduct, the proceeding, or part of the proceeding, was regarded as offensive’. Here, the plaintiff is seeking to do just that.

58 While I have found that the plaintiff’s claim is substantially offensive, even if it was (in whole or part) defensive in nature, that is merely one factor in the exercise of the Court’s discretion. Given that the other factors all weigh in the balance of granting security, in my view it is a proper exercise of the Court’s discretion to order security in this case. In a number of cases, the Court has decided to grant security but reduce the amount so as to reflect the defensive aspect of the claims.[42] That will be followed here, as it is the appropriate course in achieving the balancing exercise referred to in paragraph 20 above. While there may be some degree of overlap in the factual areas to be canvassed in both proceedings, in the circumstances of this case that is not sufficient to deny granting security.

59 The plaintiff raised another issue which it said meant that the defendants ought not be granted security. In this proceeding, the defendants are represented by external solicitors and by counsel. In the Transferred Proceeding, the defendants (being a firm of solicitors) have to date been representing themselves. There was no evidence or submissions as to whether they will continue to do so. The plaintiff argues that if the defendants want ‘two sets of lawyers at the bar table’, then they should pay for them.

60 It was not entirely clear from the plaintiff’s submissions which of the discretionary factors the plaintiff was referring to in regard to its submissions about the level of representation. I have therefore considered the argument in two contexts: whether security should be granted (assuming it can be brought within the applicable principles); and if security is to be granted, the amount of that security. It is not necessary for me to form a view as to whether it is a factor which the Court should generally take into account when considering security for costs applications, and I express no conclusion in that regard.

61 The plaintiff submits that it is likely that there will be an order consolidating this proceeding and the Transferred Proceeding or that they will be heard together. The plaintiff says that if security is to be ordered, it should be only up until that question is determined. The defendants submit that it is not appropriate for me to form a view on whether the proceedings will be consolidated or heard together. I have read the transcript of the directions hearing conducted on 17 February 2017 by Macaulay J,[43] and all that can be concluded from that transcript is that the two proceedings will be managed together and that no orders have yet been made as to consolidation or hearing the two proceedings together.

62 The plaintiff’s counsel referred me to a number of cases, which he submitted supported the plaintiff’s contention as to two sets of lawyers. These are discussed below.

63 In Yara Australia Pty Ltd v Oswal [2012] VSCA 356, the Court of Appeal considered (amongst other things) the provisions of s 24 of the Civil Procedure Act 2010 (Vic), which provides as follows:

64 In that case, the Court of Appeal stated that s 24 ‘plainly includes an obligation to ensure that parties are not over-represented’ and that parties and their legal practitioners ‘had an obligation to ensure that the costs of the ... legal representation were reasonable and proportionate’. The Court of Appeal went on to say that a party’s legal practitioners:

In the circumstances of that case, the Court of Appeal held that the level of legal representation did not involve a breach of the overarching obligation set out in s 24 of the Civil Procedure Act 2010 (Vic).

65 The plaintiff’s counsel also referred me to Bodycorp Repairers Pty Ltd v Maisano [2017] VSCA 39, where the Court of Appeal determined an application for security for costs by the respondents to the plaintiff’s application for leave to appeal. In that case, there were two sets of respondents to the appeal and the Court of Appeal declined to order security for costs in two amounts of $32,000 (the amount sought by each set of respondents), saying that ‘to do so would involve an unacceptable duplication of costs between parties whose arguments in large part overlap and who could even be represented jointly for much (if not all) of the argument in this Court.’ Instead, the Court of Appeal ordered security in the amount of $12,500 for each set of respondents.[45]

66 The defendants’ counsel submitted that this application differs from the one facing the Court of Appeal in Bodycorp Repairers Pty Ltd v Maisano [2017] VSCA 39. The defendants argue that they are not seeking two lots of security for costs today, so this case is not relevant, and that the situation is different when there are two proceedings raising different issues.

67 The defendants also contend that it may be appropriate for the defendants to represent themselves in relation to their claim for unpaid fees, but that it is also appropriate for the defendants to have independent solicitors separately represent them for the negligence claim, given its complexity and that there are insurers involved in that claim.

68 The plaintiff’s counsel submitted that insurers being involved was irrelevant, and also referred me to two cases which considered this question. In Elphick v Westfield Shopping Centre Management Company Pty Ltd, the Court of Appeal of New South Wales stated that ‘the general rule is that the insured and insurer cannot have separate representation even if there are “insured” and “uninsured” elements to the claim’, and that unless the Court gives leave under its inherent power there should not be separate representation. The Court of Appeal suggested that the inherent power would be confined to ‘unusual situations’.[46] A similar approach was referred to in the other case to which I was taken.[47]

69 I do not need, on this application, to make any findings as to whether the defendants can or will continue to have separate representation as between the two proceedings, or whether such a course would be contrary to s 24 of the Civil Procedure Act 2010 (Vic) and the approach taken to it in Yara v Oswal. In the circumstances of this case, where there are two sets of proceedings being managed together and no decision has been made as to whether they will be consolidated or heard together, and where the second proceeding in this Court has come about by the Magistrates’ Court proceeding being transferred to this Court after the commencement of this proceeding, appropriate consideration can be given to the issues raised in the cases to which I was referred by carefully considering the amount of security which should be provided. The Court of Appeal did not reject the applications for security in Bodycorp Repairers Pty Ltd v Maisano [2017] VSC 39 due to there being two sets of lawyers, it merely decreased the amount of security ultimately ordered.

70 Given that the application before me is for security up to and including mediation, the costs for which the defendants’ seek security at this stage are not likely to be affected by whether the defendants have ‘two sets of lawyers at the bar table’, since that would mostly arise at the stage of trial preparation and the trial itself. In my view, the appropriate course is to discount the amount of security sought for the likely duplication between the two proceedings for certain of the costs claimed. These are identified below.

71 The usual approach in this Court is that where security is ordered, in appropriate circumstances it is ordered for the period up to and including mediation, with it then being open to the defendants to seek further security for the balance of the proceeding if it has not been resolved at mediation.[48]

72 That is the approach the defendants have sought here. They seek security for their costs of the proceeding up to and including mediation. This includes, in general terms, the costs of the proceeding to 7 February 2017 (perusing the statement of claim, preparing the defence, corresponding with the plaintiff’s solicitors) in the amount of $25,400.93; and an estimate of future costs in the amount of $155,689.50 for the security for costs application, further and better particulars, discovery, two directions hearings, one interlocutory application regarding discovery, and mediation.

73 The principles applicable to the amount of security and the approach to be taken by the Court are well established.[49] These can be summarised as:

(b) the amount is that which the Court thinks just, having regard to all of the circumstances;[51]

(c) in ordering security, the Court does not set out to give the defendants a complete and certain indemnity for costs;[52] and

(d) the Court’s task is not akin to a taxation of the defendants’ probable costs.[53]

74 The defendants rely on the Young Report when seeking security in the amount of $181,090.43 up to and including mediation. They submit that the Court should accept the amounts set out in the Young Report, as Ms Young is an experienced costs lawyer whose expertise in this area was not challenged by the plaintiff.

75 The plaintiff did not challenge Ms Young’s expertise and it did not lead any evidence, either from its solicitor or a costs lawyer engaged by it for that purpose, as to how the costs should be assessed and in what amount.

76 The plaintiff did, however, make submissions as to the appropriateness of the items and amounts claimed. In summary, the plaintiff submitted that the amounts claimed were ‘outrageous’ and that the Court should disregard the Young Report in its entirety. The plaintiff was particularly critical of the amounts claimed in respect of the security for costs application, further and better particulars, discovery and mediation.

77 I do not consider it appropriate to disregard the Young Report in its entirety, as exhorted by the plaintiff, or at all. Ms Young has taken an orthodox approach to identifying the likely steps and the amounts she considers as appropriate based on the instructions provided to her, which she has calculated on a standard basis. Rather, for these reasons and in light of the matters set out in paragraph 75 above, it is appropriate for the Court to take the Young Report and then consider for itself the appropriateness of the claimed items. This is consistent with the approach summarised in paragraph 73 above.

78 There is some likelihood of duplication between this proceeding and the Transferred Proceeding. The defendants submitted that consideration of this was premature, as the level of representation engaged by the defendants for the proceeding and any overlap with the Transferred Proceeding may result in a deduction upon the taxation of costs, and that this was a matter for the trial judge and for the Costs Court to determine, rather than a basis for resisting or decreasing security. I do not accept this submission: taking account of the level of representation and the likelihood of duplication is part of determining the amount of security which is appropriate in the circumstances of this case. Instances of likely duplication are considered below.

79 Before setting out each of the categories estimated by Ms Young along with an indication of the submissions made about those items by the defendant and my views, I make some general comments which apply across a number of the categories:

(a) Ms Young has applied a loading of 12% on solicitors’ fees for care and skill, as she states that it would likely be allowed on a standard basis on taxation taking into account the factual and legal issues to be determined. For a security application, I do not consider that this loading is justified on all items, particularly those which are more standard or routine or which have significant involvement from counsel.

(b) Ms Young has calculated counsel’s fees based on the GST exclusive rate of $440 per hour/$4,400 per day which junior counsel retained by the defendants charges, as the Supreme Court scale sets a maximum GST exclusive daily rate for junior counsel as $561 per hour/$5,614 per day. Ms Young’s approach in this regard is appropriate, particularly in circumstances where no amounts for senior counsel are claimed.

(c) Ms Young states in her report that she was instructed to estimate the past costs and that she has not inspected the defendants’ solicitors’ file in preparing that estimate. She states that she has estimated the past costs based on the information given to her and her experience in relation to the likely scale costs on a standard basis for the work as described. In my view, it would have been more appropriate to consider these items by taking the amount actually charged and then assessing that by reference to the scale costs on a standard basis.

80 Turning to each of the categories of costs claimed by the defendants, they claim security for past costs in the amount of $25,400.93, comprising:

(a) Statement of claim - $1,741.88. This includes a loading of 12% for care and skill in the amount of $186.63. Apart from this loading, the other estimates associated with this item appear reasonable. Therefore, the amount for this item is $1,555.25.

(b) Defence - $20,811.22. This includes an amount of $13,824 for perusal of the defendants’ critical discoverable documents. This seems excessive and it may overlap with other costs claimed, so I will allow half that amount, being $6,912. The claimed amount also includes a loading of 12% for care and skill in the amount of $2,229.77. In my view, the loading should be allowed for this item, however it should be reduced to $1,400.33, which is 12% of $11,669.45 (being the revised total figure for this item without the loading). Therefore, the amount for this item is $13,069.78.

(c) Correspondence with plaintiff’s solicitors - $2,847.83. This includes a loading of 12% for care and skill in the amount of $297.55. Apart from this loading, the other estimates associated with this item appear reasonable. Therefore, the amount for this item is $2,550.28.

81 As a result of the above revision of the defendants’ estimated past costs, the amount for past costs is more likely to be $17,175.31.

82 The defendants claim security for future costs, ie the period after 7 February 2017, in the amount of $155,689.50, comprising:

(a) Security for costs application - $29,783.43. The plaintiff submitted that this amount was excessive, particularly when compared with the amount of security sought by two different respondents (in the amount of $32,000 each) against the plaintiff in an application to the Court of Appeal.[54] I do not find it helpful to compare the costs of an application for security for costs of a proceeding in the trial division with the costs of an application for leave to appeal to the Court of Appeal, as they are quite different applications. Therefore, I do not accept the plaintiff’s submission in this regard. However, I do consider the claimed costs for this item to be excessive, and there are also some items which can be disregarded as they have not eventuated in the actual course of this security for costs application. Since the plaintiff did not lead any evidence from a costs lawyer, the claimed costs associated with such evidence have been disregarded, ie the costs of perusing such a report, instructing Ms Young for a report in reply and the disbursements associated with that. The plaintiff did not provide a written outline, so costs associated with that have been disregarded. I do not propose to include the loading of 12% for care and skill. The claimed disbursements include Counsel’s fees for reading the plaintiff’s affidavits and drawing the outline of argument (estimated at 8 hours), preparation for hearing (estimated at 7 hours) and fees to appear (estimated at 1 day). In my view, it is excessive to include both of the first two items so I will allow 8 hours in total for those, and the hearing of this application was a half-day, not a full day. Similarly, the solicitor’s costs of attending Court for this application are reduced from the claimed 6 hours to 3 hours. With these revisions, the amount for the security for costs application is $18,773.65.

(b) Further and better particulars - $8,252.74. This includes a loading of 12% for care and skill in the amount of $742.79. The plaintiff submitted that the amount claimed was excessive, but did not explain its basis for this view. Apart from the loading, in my view the other estimates associated with this item appear reasonable. Therefore, the amount for this item is $7,509.95.

(c) Discovery - $52,074.62. The plaintiff was critical of the claimed amount here, disputing that the defendants would be required to review and prepare the amount of documents for discovery that is the basis of this claim. In my view, it is highly likely that there will be duplication between this proceeding and the Transferred Proceeding when it comes to discovery. Without the loading of 12% for care and skill, the costs component for discovery is $45,870.20 and the disbursements are $700. It is not possible to predict the level of duplication with any precision. In the circumstances of this case, in my view it is appropriate to allow half the claimed costs for discovery, being $23,285.10.

(d) First directions hearing - $3,120.88. The claimed costs for this item appear reasonable and I see no reason to change them. I will include the loading here, as the solicitors attended Court without counsel.

(e) Additional directions hearing - $8,006.51. I will disregard the loading of $386.41 here, and also reduce the total amount by 50%, as it appears from the transcript of the previous directions hearing (exhibit ‘CWC5’) that directions hearings in this proceeding and the Transferred Proceeding will be conducted together, and also the costs for this item appear a little excessive. The amount for this item is $3,810.05.

(f) Interlocutory application (discovery) - $26,857.39. The plaintiff submitted that this item should not be allowed, as it is not known whether there will be a discovery application. This is not a basis for disallowing the item: the purpose of security being to protect the defendants against the risk of a costs order not being met, it is appropriate to include in the amount for security items which can typically be expected to form part of the proceeding. It is not uncommon for there to be at least one substantive interlocutory application, and given the nature of the former relationship between these parties and the claims involved in the proceeding, it is not inconceivable that the application could concern discovery and particular aspects of legal professional privilege. Disregarding the claimed loading of $1,893.94 and allowing the filing fee for the summons in full, I would allow 80% of the claimed costs and counsel’s fees. This discount is appropriate given that not all elements of these claimed costs may eventuate. I have not discounted for duplication here, as that would be purely speculative at this time. Therefore, the amount for this item is $20,046.88.

(g) Mediation - $27,593.93. Without detailing its reasons, the plaintiff submitted that this amount was excessive. It is quite possible that this proceeding and the Transferred Proceeding will be mediated at the same time. In saying this, I express no opinion as to the desirability or otherwise of this course, as that is a matter for the judge who makes mediation directions. Disregarding the loading, the costs and disbursements claimed for this item appear reasonable and I will allow 50% of the claimed amount, which I consider to be an appropriate discount for the risk of duplication. The amount for this item is $13,112.65.

83 As a result of the above revision of the defendants’ costs, the amount for the costs up to and including mediation is $89,659.16. Combining the past and future costs (up to and including mediation), this comes to $106,834.47.

84 Bearing in mind that this is not meant to be an indemnity for the defendants’ costs, in my view there are further discounting factors to consider here. In Farmitalia Carlo Erba v Delta West, Heerey J identified a non-exhaustive list of factors relating to whether to discount the amount. These were:[55]

(c) the order for security should not be the means of effectively denying the plaintiff the right to pursue the claim;

(d) the lack of information put before the court to enable it to estimate the likely figure of costs;

(e) the extent to which some of the costs of the first defendant will relate to a case that is not essentially defensive; and

(f) the likelihood that the estimate of costs will be reduced by the taxing officer.

85 I have already made adjustments to the amounts sought to allow for duplication, however it is also appropriate to discount for the fact that the defendants are not in a purely defensive position in this proceeding.[56] It is also appropriate to discount for the likelihood that some of the figures will be taxed off at a taxation. I do not consider it appropriate to discount for the other factors mentioned in paragraph 84 above. In Felsink, Smith J applied a further discount of 30% on the basis of the presence of four of th[57]e factors.57 Given that I think only two of these are relevant here, a discount of 15% is appropriate. This results in a figure of $90,809.30. Rounding this off, I will order security in the amount of $90,800.

86 The defendants seek security in the form of payment into Court, either by payment of the sum ordered or by a bank guarantee from an Australian bank.

87 The plaintiff submits that if it is to be ordered to give security, then the form of security should be the undertaking already proffered by Mr Murdaca that he be personally liable for meeting any adverse costs order which the defendants obtain.

88 The defendants submit that this is insufficient, as the plaintiff has not provided any evidence to establish that such an undertaking is one of substance, there being no evidence of Mr Murdaca’s financial position. The evidence is that the defendants raised this concern in correspondence with the plaintiff’s solicitor prior to the hearing of the application and that no response was given and no further information was provided by the plaintiff.[58]

89 As referred to in paragraph 25 above, the purpose of ordering security for costs is to give the defendants some protection against the risk of the plaintiff being unable to meet an adverse costs order. The principles associated with the form of security were surveyed by Hargrave J in DIF III Global Co-Investment Fund, L.P. & Anor v BBLP LL [59]& Ors.59 His Honour summarised these principles[60]s follows:60

(a) ‘the plaintiff is entitled to propose security in a form least disadvantageous to it’;

(b) ‘the plaintiff bears a “practical onus” of establishing that the proposed security is adequate and does not impose an “unacceptable disadvantage” on the defendant’;

(c) ‘in order to be adequate, the proposed security must satisfy the protective object of a security for costs order, namely, to provide a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff’; and

(d) ‘based on these and any other relevant considerations, the Court will determine how justice is best served in the particular circumstances of the case.’

90 The Court of Appeal considered an offer from a person who stood behind an impecunious plaintiff to assume responsibility for the defendant’s costs in Epping Plaza Fresh Fruit & Vegetables Pty Ltd v Bevendale Pty Ltd, and viewed it as a relevant factor in favour of the plaintiff but not one which was determinative, since that would impermissibly circumscribe the Court’s discretion.[61] The defendants relied upon the statement in that case, by Winneke P and Phillips JA, that the Court should not readily accept an undertaking to pay costs from impecunious individuals who have no chance of making it good, as that would not be an effective security.[62]

91 Here, the evidence does not establish that Mr Murdaca himself is impecunious, so it does not go as far as the situation considered in Epping Plaza. As noted above, there was no evidence as to Mr Murdaca’s financial position. The plaintiff has not discharged the ‘practical onus’ referred to by Hargrave J in DIF III Global, since it has not provided any evidence that Mr Murdaca’s proffered undertaking would be adequate to satisfy the protective object of the order.

92 The defendants also referred in their submissions to McLeish JA in the Court of Appeal in another case involving this plaintiff, Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd (No 3).[63] Considering a similar undertaking from Mr Murdaca, his Honour stated:

93 Applying the principles set out in DIF III Global, and there being no evidence as to Mr Murdaca’s financial position, I do not consider the proffered undertaking to be adequate security for the defendants’ costs. Accordingly, I will order that the form of security be a payment into Court, in a manner acceptable to the Senior Master.

94 There will be orders that the plaintiff pay security for the defendants’ costs in the amount of $90,800, to be paid into Court in a manner acceptable to the Senior Master.

95 I will hear the parties on the appropriate form of orders and on the question of the costs of this application.

^[1] Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 (“Livingspring”), Maxwell P and Buchanan JA at [21], [22].

^[5] US Realty at [26]; KP Cable Investments Pty Ltd v Meltglow Pty Ltd [1995] FCA 76; (1995) 56 FCR 189, 197 (“KP Cable”).

^[10] Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd (No 3) [2016] VSCA 185.

^[11] Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd [2016] VSCA 19.

^[18] The financial statements which were in evidence were for the financial years 1990-1995 inclusive but not thereafter, as after that time such statements were no longer publicly available: FFE Minerals [2000] WASCA 69; (2000) 33 ACSR 739.

^[23] Bodycorp Repairers Pty Ltd v Maisano [2017] VSCA 39 at [15]. There, the Court of Appeal noted that ‘while the existence of these previous orders is not determinative of the current applications, the previous orders provide relevant context and show that such orders for security that have been made have not prevented [the plaintiff] from prosecuting its claims.’

^[26] Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd & Martin [2015] VSCA 85; Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd & Anor [2015] VSCA 59.

^[31] Bodycorp Repairers Pty Ltd v Maisano [2017] VSCA 39 at [15]; see footnote 23 above.

^[32] Heller Factors Pty Ltd v John Arnold’s Surf Shop Pty Ltd (in liq) (1979) 4 ACLR 492; Sydmar Pty Ltd v Statewise Developments Pty Ltd (1987) 73 ALR 289 at 302 (“Sydmar”); Interwest Ltd v Tricontinental Corp Ltd (1991) 5 ACSR 621.

^[36] In paragraph 16(c) of the statement of claim, it is alleged that the adverse costs order faced by the plaintiff in respect of the trial in proceeding number 9071 of 2005 alone ‘were in the vicinity of $2 million plus’.

^[41] In Oswal, in the matter of Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Carson, McEvoy and Theobald (Receivers and Managers) [2012] FCA 341 at [31].

^[42] For example, see ADS Advertising v Central West Business Park [2005] VSC 265 per Whelan J; Interwest Ltd v Tricontinental Corporation Ltd and Anor (1991) 5 ACSR 621 per Ormiston J.

^[44] Yara Australia Pty Ltd v Oswal [2012] VSCA 356 [33], [36] (“Yara v Oswal”).

^[46] Elphick v Westfield Shopping Centre Management Company Pty Ltd [2011] NSWCA 358.

^[49] Oswal v Australia and New Zealand Banking Group Limited & Ors (Security for costs – Stage 2) [2016] VSC 119 at [7] to [13].

^[52] Premier Building and Consulting Pty Ltd v Spotless Group Ltd (No 7) [2005] VSC 275.

^[53] Premier Building and Consulting Pty Ltd v Spotless Group Ltd (No 7) [2005] VSC 275.

^[64] Bodycorp Repairers Pty Ltd v Oakley Thompson & Co Pty Ltd (No 3) [2016] VSCA 185 at [23].

Supreme Court of Victoria

Bodycorp Repairers Pty Ltd v GDG Legal Pty Ltd & Anor [2017] VSC 200 (19 April 2017)